Comment by bkohlmann | Hacker News Reader

Comment by bkohlmann | Hacker News Reader

Private Wealth Management and Real Estate are two industries I once believed would easily be automated. And there have been a number of moves in each space to do so [Wealthfront and Betterment, Zillow etc].

But I've come to understand these industries are NOT built on rational, dispassionate decision making. The reason they only have a foothold in automation is because at their core, they are deeply relational industries. Even for incredibly sophisticated, "rational" individuals.

People simply want a person to talk to and walk them through things - even when they have all the facts generated from sophisticated algorithms giving them an unequivocal "correct" answer.

It seems like lobbying is the same. There is an important role for automation. But I believe it will simply augment the existing offering rather than completely supplant it.

Politics is the most relational of professions. Rational policymaking is an idealists dream - and I say this as a metric-driven, lover of numbers who once believed in that dream.

A better replacement for Wealthfront is merely buying the https://en.wikipedia.org/wiki/S%26P_500_Index . I bet we could create an automated version of the S&P but at this time its just not beneficial due to financial laws and also just talking to a person.

We need to think of automation as more of a cybernetics concept than just a program on a computer. In the front line you will have humans doing the Sales and that probably won't go away. In the back you will have computers which make decisions and in the middle you will have engineer(s) working on the interface. Once we can replace the sales experience thats when we will get there.

I think the idea is that you don’t want to be holding 100% US large cap equities when you’re in retirement.

Vanguard, Fidelity, and other funds all offer "Target Retirement date" funds which basically shift your asset allocation from stocks to bonds as you get closer to retirement. The individual mix is generally held in typical total-market index funds, mixed foreign/domestic based on the relative size of their economies. As long as you're okay with exactly-average investment performance (which is what index funds always give you), that's a good alternative, and the expense ratio is super low - 0.05% for Vanguard's offering.

Actually, I just looked, and Wealthfront and Vanguard invest in the exact same funds (Vanguard's VTI and foreign equivalents), but Wealthfront's expense ratio was around 0.12% vs. 0.05% for Vanguard.

I've never understood why these get recommended so heavily. A "target retirement date" fund seems conceptually much like a reverse mortgage - a way to liquidate everything you might have accidentally built up so you can make sure to piss it away just before you die and let your family inherit nothing.

What are you investing for? The targetless fund has higher expected earnings; the whole point of the targeted fund is to get less money in expectation than the normal fund will.

Because most people care about de-risking their portfolio? Out of curiosity, are you long on Dogecoin?

For exactly the reason johnnyb9 points out up-thread: you don't want to be holding 100% U.S. equities when you're in retirement and the U.S. market crashes.

Target retirement date funds are very different from reverse mortgages. In a reverse mortgage, you're borrowing money, which you pay interest on, which is secured by a large asset you own (your house). The reason they're so dangerous is because you're paying interest on the borrowed money, so it compounds, and can eat up your home equity very quickly.

With a target retirement fund, it's a normal investment which you receive investment returns on, but the asset mix moves from stocks to bonds as you get closer to retirement. The reason for this is that you generally don't want to put any money at risk in the stock market that you can't afford to lose within the next 5 years. Market crashes are unpredictable and often take several years to recover from; if you're in retirement and forced to live off that money month-to-month, you may be forced to liquidate stocks at very low prices, often lower than you paid for them, wiping out your investment gains. You're supposed to move assets from stocks to bonds or other more predictable income streams as you get closer to retirement, so that you know that the money you need to live on will be available when you need it, and can just let the money you don't need to live on sit in the stock market until you do need it.

Target retirement funds automate this rebalancing, dollar-cost averaging out of the stock market as you get closer to retirement so you aren't tempted to panic and pull everything if there's a crash.

> Target retirement date funds are very different from reverse mortgages. In a reverse mortgage, you're borrowing money, which you pay interest on, which is secured by a large asset you own (your house). The reason they're so dangerous is because you're paying interest on the borrowed money, so it compounds, and can eat up your home equity very quickly.

You're confused; that's a regular mortgage. In a reverse mortgage, you sell your house to the bank for a defined monthly payment over X duration. It's a way of letting you spend the value of your house while figuring "hey, I'll die shortly before I lose the house".

Similarly, a target retirement fund is a way for you to pull your money out of the fund and hope that (1) you die just as you spend the last of it and (2) you didn't want to leave your family anything.

You can't live off of invested money by spending the principal. If that's what you're doing, you're not living off your investments, you're living off, and losing, your savings.

You're certainly confused about target retirement funds - withdrawals from them are exactly like regular IRAs or 401ks. It's a target retirement date, not a target death date - when I have a Target Retirement 2050 fund, it doesn't mean the fund is empty in 2050, it means that I expect to cease putting contributions in in 2050 and start making withdrawals, and so the asset mix should change such that some fraction of the fund (depending upon your expected monthly withdrawals) is in fixed-income investments that will provide a guaranteed revenue stream, rather than stocks where you can lose principal at the whims of the market.

You're probably confused about reversed mortgages: my understanding of them is that you do not actually sell your house to the bank, you take a line of credit for a certain monthly payment with your house as collateral, and then rather than making payments on the loan, the interest compounds against the equity in your house. My stepfather was a former banker who did financial counseling for seniors (often including whether or not to take a reverse mortgage), so I do have some knowledge in this area...

Structuring the reverse mortgage as a loan with the terms "you never make any payments, and no matter how much the face value of the loan reaches, you will never owe anything other than your house, whatever its value may be at the time of settlement" is a way to let the estate of someone who dies quickly keep ownership, but still pretty obviously a sale rather than a loan, in the same way that Islam-compliant financing is fundamentally still a loan rather than whatever they label it to avoid the Koranic prohibition on things being called "loans".

I'll accept the correction on target retirement funds, but I still think "lose your principal preemptively now to avoid it possibly losing value later" is a misguided approach. The only justification offered for these funds is that you want to pull out of the stock market, with its volatility, before you die, so that you can enjoy spending your money (in my model) or lower returns (in yours). Assuming you have any family members, the point of doing so disappears -- you can't realize the future growth in your crashed stock portfolio after you die, but they can. All the same reasons you want stocks when you're 20 and don't have children suddenly apply again when you're 80 and do.

I will note that kelnos's sibling response to yours takes the same view I've been taking - that the point of a target retirement fund is that you withdraw the money so you can spend it:

> You don't want to be 85 and have to do a major withdrawal due to illness right when the stock market is experiencing a periodic down-swing

> The targetless fund has higher expected earnings; the whole point of the targeted fund is to get less money in expectation than the normal fund will.

The targeted fund also gives you a (theoretically) predictable outcome, dependent on when you want to retire. You don't want to be 85 and have to do a major withdrawal due to illness right when the stock market is experiencing a periodic down-swing, causing you to burn through your retirement savings too quickly. The point of investing for retirement for most people isn't to attempt to end up with as much money as possible (which could easily backfire and turn into much less than you need), but to do a reasonably predictable job of having enough money to last you until death, based on your lifestyle and expected expenses.

If you want to shoot for the moon, that's up to you, but most people are more risk-averse, and a target-retirement fund fits that risk profile much better.

I think it's mostly a trust issue.

Even when you "have all the facts generated from sophisticated algorithms giving you an unequivocal 'correct' answer", how do you know it's not pulling a fast one on you? Do you trust whoever gave you the algorithm? Especially that it's usually not some diverse group of open-source developers, but a particular financial institution with a product to sell you.

I feel that the desire for human interaction in matters involving money has a lot to do with having someone you can look in the eyes and see yourself if they're trying to defraud you.

So long as humans exist, there will always be a demand for other humans to explain things to them.

I think there's a generational thing going on here.

I'd love nothing more than to be able to buy stocks, real-estate etc through an online interface with 0 human interaction. Everyone I know above 40 seems to be the exact opposite.

Sometimes progress is made one funeral at a time.

Similar. Our generation is more used to getting things done on our phones or computers, including human interaction.

I for one hate to run errand where i need to talk to someone. It is very inefficient, and socially awkward.

I'm not sure it's here to stay though. The older I get, the more comfortable I and those around me seems to become at interacting with other human beings.

Nevertheless, an interface for "politics with 0 human interaction" is an open research problem.

define progress.

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