Comment by brundolf | Hacker News Reader

Comment by brundolf | Hacker News Reader

There's some discussion here about how destructive/unwise trading services like Robinhood can be.

If you're looking for an alternative, I've had a great experience with "robo-advisers" (Betterment, specifically). Many of the same advantages as something like Robinhood: $0 account minimum, 100% digital (create and manage your account through the website/app, no paperwork, no representatives), easy to cash-out with just a couple days' notice. The difference is that they automatically allocate a diversified portfolio for you and let you control simple things like the stocks/bonds percentage you want to have (a proxy for risk-tolerance). They do general investment accounts (analogous to index funds), as well as IRAs and savings. Fees are modest and automatically deducted from your growing balance. Dividends and gains are automatically re-invested in a tax-efficient way.

For several years now I've put all of my excess money into Betterment aside from some basic emergency savings. If you want a minimal-effort way to make your money grow and/or don't have much to invest, I highly recommend it.

Also: I promise I'm a real person and this isn't a shill :)

Betterment is easy but if you have more than a few thousand bucks to invest I would just open a Vanguard account and put your money there. If you have no idea what you're doing just use a target date fund, otherwise just buy stock/bond ETFs in the mix that you want. Not worth ~0.4%/year in fees (doesn't sound like a lot until you realize it's $400/year on $100K) to have someone else do that for you.

In the years I've been using it the fees have totaled 5.2% of the earnings over that time (current balance - invested, not total account balance). It's not nothing, but personally I place a high value on simplicity and peace of mind in my life, so it's worth it to have a simple and excellent user-experience in the app, as well as the ability to do things like withdraw and deposit with literally the tap of a button.

You're nuts if you think 5.2% is reasonable. Let's say for simplicity that's 1% per year for 5 years, if you chose VTSAX instead with an expense ratio of 0.04% (yes that's right) you're looking at total fees over 5 years of 0.2% versus 5%

Compound that 30 years out, you would loose hundreds of thousands of dollars for a pretty UI. Forget that, take a day and go setup a Bogleheads [1] portfolio.

[1] https://www.bogleheads.org/wiki/Three-fund_portfolio

Did you get alpha

5.2% is crazy.

The target date fund I use, SWYJX (Schwab Target 2055 Index Fund) has a net ER of 0.08%. Over 25 years, the difference between 0.4% and 0.08% can be hundreds of thousands of dollars.

Like Betterment, SWYJX an automated portfolio, but one adjusted for age, not some individual profile.

Bruh 5.2 percent what are you doing giving investment advice lmao

Is there something specific about Vanguard that you use it for, I can buy ETFs on e-trade and other platforms right?

Yes, you can. Vanguard is a brokerage, just like E-Trade, Schwab, Fidelity, etc. They provide all sorts products, such as IRAs.

A good reason to use Vanguard as a company is their mutual funds. (Though you can trade Vanguard mutual funds elsewhere, they'll usually come with transaction fees.) Mutual funds are arguably superior to ETFs for many investors, in a few ways.

* Mutual funds are fractional by nature — you can trade as little as $1. Right now, only a very small handful of brokers support fractional shares of ETFs.

* Since MFs aren't traded as whole units, you can set up automatic investing. Let a certain % of your paycheck go into the MF every month. Not possible with ETFs on most platforms, a notable exception being M1.

* Since MFs only settle their NAV once a day, you're discouraged from compulsively checking your portfolio every few hours. If the market is temporarily down, you won't see it reflected in real time. Some people consider the real-time aspect of ETFs superior, but for long-term investing, this lack of an instant dopamine rush means it's easier to just not think about it. Fewer emotional decisions.

* Mutual funds can be "funds of funds". Regulations prevent ETFs from doing the same thing. A good example of a FoF is Vanguard's target date retirement funds, which are nearly exactly equivalent to a Boglehead-style three-fund portfolio.

MFs have a reputation for being expensive, but Vanguard's have some of the lowest fees on the market. MFs also can be tax-inefficient, but Vanguard has patented a loophole that makes them as efficient as ETFs when held in a taxable account.

Vanguard is also a great company; easily my favourite investment company. Its ownership structure is inverted: The company is collectively owned by its funds, which means that you, as a MF shareholder, will own a part of Vanguard.

Note: The above points about MFs are largely moot with robo advisors like Betterment.

> MFs also can be tax-inefficient, but Vanguard has patented a loophole that makes them as efficient as ETFs when held in a taxable account.

Incredible... You weren't kidding: https://www.bloomberg.com/graphics/2019-vanguard-mutual-fund...

I'm willing to pay a 0.25% management fee to prevent SIM swapping attacks. Vanguard will not allow you to remove SMS as a 2FA option, and their Yubikey authentication doesn't work with Firefox, which is pretty unique. The little millennial brokerages (Robinhood, Wealthfront, Betterment) are all more secure.

Tell us how well Betterment did for you.

I highly doubt it beats S&P 500 so you can do better by using Robinhood and invest into S&P 500 tracking stock like IVV. And the risk is more or less the same. It's not like Betterment would do well if S&P 500 tanks.

I used Wealthfront for a while and I switched to trading stocks.

The idea of roboadvisor sounded nice but their returns are sub-par because their allocation strategy is, by necessity, very risk averse. They put a lot of your money into bonds and similar sub-2% investements while in the last 50 years S&P returned 8% on average.

That 8% return is about as risk free as you can get and paying Betterment fees to do worse than that makes no sense to me.

BTW: if you invest in FAANGT (FAANG + Tesla) equal-weight portfolio, you'll do several times better than S&P 500 with very little risk. At lest for the next few years.

> you can do better by using Robinhood and invest into S&P 500 tracking stock like IVV

That's an interesting idea I hadn't considered. I believe robo-advisers tend to beat the market by a little bit, but I could be wrong on that. I started investing in force at the end of 2016 and the time-weighted, annualized returns on the stock portion of my portfolio are 6.39%. So make of that what you will

> They put a lot of your money into bonds and similar sub-2% investements while in the last 50 years S&P returned 8% on average

Betterment lets you pick your percentage of stocks vs bonds; you can set it to whatever you want and your portfolio gets re-allocated to match. I'm young, so mine's set at 90% stocks. I imagine I'll gradually decrease that over time.

> That 8% return is about as risk free as you can get

Yeah no. The S&P 500 lost about 35% of its value in 2008. If that's the year your kid starts college or you were planning to put down a big down payment on your first house, you'd be completely fucked.

I used to think the same way as you, but when you get a little older and major life milestones and/or retirement aren't distant concepts it'll change your perspective.

I think the standard advice is that whatever part of your savings you expect to spend in the next 5-10 years shouldn't go in the stock market, for exactly this reason.

I use Wealthfront, you can change your risk tolerance the higher levels have very little in bonds.

One of my accounts i think is at like a 9 or a 10 (max 10) it currently says US stocks 36.4%, foreign stocks 31.9%, emerging 16%, dividend 10.3%, and muni bonds 4.7%, .6% cash.

The S&P isn't risk-free! The only risk-free asset is US Treasury bonds, because we assume US Treasury can't default on payments.

The goal of a robo advisor, for most people, is not to beat the S&P, but to balance risk and reward according to the individual's time horizon and risk profile without any manual intervention.

Beating the S&P is a fun game for people who want to spend time on it, but this isn't for the general populace.

If you want to beat the S&P and you're okay with above-average risk, but also want a completely hands-off approach, I would suggest 100% PSLDX [1]. It's a hybrid active/passive mutual fund that uses buy derivatives (futures and swaps), collateralized by bonds, to boost S&P returns. The high (1.01%) fee only looks high until you look at the returns; most years, it does 20-30%. Its return in 2019 was 52%. In theory, it should do only slightly worse than the S&P in a bad year.

Another interesting futures-based fund is NTSX [2]. It's pretty new, but it's consistently beat the S&P since inception, and did very well in the March dip.

[1] https://www.morningstar.com/funds/xnas/psldx/quote

[2] https://www.morningstar.com/etfs/arcx/ntsx/quote

A fund like psldx magnifies in both directions.

It’s easy to get enamored when the market is doing well.

I would say that PSLDX has proven itself. Max drawdown since inception (2008) is about the same as VFINX, less than VTIAX/VGTSX. Return in 2008 was -33%, compared to -37% for the S&P 500. In March, it dipped more than the S&P, but not terribly so. The only year it didn't significantly outperform the S&P was 2013.

For what it's worth, I'd expect that leverage to come back to bite you in the ass in a rising interest rate environment. Granted, we haven't seen a sustained period of rising interest rates for 40+ years, but it's not obvious that that will continue.

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