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What's The End Goal for Wealthfront and Betterment? (2016)

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Re: What's The End Goal for Wealthfront and Betterment? (2016)

#101

Post by mrkurt »

simo7 wrote: post #90
prdonahue wrote: post #87

Earlier quoted context omitted.

You'll get more fine grained tax management, e.g., tax-loss harvesting if using something like Wealthfront. You can't pass along these individual losses (and net against other gains/carry over to future years) with a target date fund. I actually use Vanguard target date for my tax-advantaged accounts, but I use Wealthfront for taxable account.

Tax loss harvesting only makes sense if you keep on buying and selling multiple funds/products. Hold only one index fund, hold it long-term and the problem vanishes: all the gains are not taxed until you sell the fund and they are always net of losses. Not to mention the massive benefit of deferring taxes in a compounding context.

Wealthfront buys the individual shares that track an index. When shares lose value, they'll sell those and buy other shares that are equivalent.

It worked pretty well for me in 2016. I was up ~11% total and about to deduct about 6% in losses.

Re: What's The End Goal for Wealthfront and Betterment? (2016)

#102

Post by mrkurt »

mikedouglas wrote: post #66
sulam wrote: post #62

Earlier quoted context omitted.

How much money do you have in Vanguard? I guarantee you will save from TLH if you have assets north of $1M. My annual tax burden has been reduced by 6 figures each year due to taking losses intelligently.

How? There's a $3000 cap on THL against regular income and capital gains is only taxed at 15%. $1M in realized capital gains is a pretty extraordinary circumstance.

The cap is on deductions from regular income if you have a capital loss for a year.

So if you have $50,000 in capital gains and $53,000 in capital losses, your gains are "free". And you can deduct the extra $3k from ordinary income.

You can also carry capital losses forward each year.

Re: What's The End Goal for Wealthfront and Betterment? (2016)

#103

Post by toomuchtodo »

zerkten wrote: post #60
avenoir wrote: post #29

Earlier quoted context omitted.

I know next to nothing about investing and this is exactly why I'm using Betterment. Even with the recent hikes in fees they're still cheaper than hiring a financial adviser. I really feel like I have very little choice but to stay put. However, how does one get started managing their investment account? I have more than 100K tied up in Betterment and trial-and-error type of learning could be pretty disastrous.

Hiring an independent financial adviser was one of the best decisions I've ever made. It's an occasional check-in to support decisions I make around investments with Vanguard and my 401k. Finding an adviser is the hard part, so it's worth talking to a bunch of people so you can find someone that's comfortable with what you want to do. I got the Wealthfront pitch when I started with my employer, but I feel much better…

You must ensure that your financial planner or adviser is a fiduciary. Otherwise, they have no obligation to advise or act in your best interests.

http://www.cnbc.com/2015/06/16/is-your-advisor-a-fiduciary-c...

Re: What's The End Goal for Wealthfront and Betterment? (2016)

#104

Post by [deleted] »

mattzito wrote: post #80
frgtpsswrdlame wrote: post #75

I think that he's definitely right about consolidation and then acquisition. I work in HNW wealth management and I think that there needs to be better education on what for example a young person's IRA should look like. An ideal robo-advisor would make buy recommendations, ask you to never sell, and use education along the way to help prevent you from making the same mistakes most people fall trap to. I also think th…

Sorry for the naive question - but if you're contributing to a 401k, aren't you ineligible for tax-deductible contributions to an IRA? If so, it would seem like an even better business would be getting into administering 401k plans cheaply with employers and then keeping people on the platform post-employment.

[deleted]

Re: What's The End Goal for Wealthfront and Betterment? (2016)

#105

Post by dragontamer »

mrkurt wrote: post #102
mikedouglas wrote: post #66

Earlier quoted context omitted.

How? There's a $3000 cap on THL against regular income and capital gains is only taxed at 15%. $1M in realized capital gains is a pretty extraordinary circumstance.

The cap is on deductions from regular income if you have a capital loss for a year. So if you have $50,000 in capital gains and $53,000 in capital losses, your gains are "free". And you can deduct the extra $3k from ordinary income. You can also carry capital losses forward each year.

Yeah. If you have $50,000 in gains but $53000 in losses, then that's called a bad year.

You still aren't getting around the fact that you made a crappy investment somewhere to generate that loss.

Re: What's The End Goal for Wealthfront and Betterment? (2016)

#106

Post by frgtpsswrdlame »

sigstoat wrote: post #96
mattzito wrote: post #80

Earlier quoted context omitted.

Sorry for the naive question - but if you're contributing to a 401k, aren't you ineligible for tax-deductible contributions to an IRA? If so, it would seem like an even better business would be getting into administering 401k plans cheaply with employers and then keeping people on the platform post-employment.

if you have an employer sponsored retirement plan available to you, then making over a certain amount means that your traditional ira contributions aren't tax deductible. at that point you should make roth ira contributions instead. (until you make so much you can't contribute to a roth at all, at which point you can go back to making non-deductible contributions to a traditional ira.) https://www.irs.gov/retirement-…

This, roth's are great. Also if you still have more money after the 401k and roth and you're thinking you may have children/grandchildren 529's are another good tax-advantaged vehicle.

Re: What's The End Goal for Wealthfront and Betterment? (2016)

#107

Post by frgtpsswrdlame »

bwood wrote: post #68
lewisl9029 wrote: post #27

While we're on the topic of robo-advisors, I'd love to see a robo-advisor that lets clients customize a portfolio allocation and just advises them on when and what to trade to keep their portfolio balanced on a regular schedule, for a fixed fee. That is, instead of these so-called robo-advisors that are actually robo- managers , in the sense that they manage your portfolio and trade on your behalf, and are compensate…

Shameless plug, but I'm actually working on a product that does exactly that. It started as a personal tool that integrated with my brokerage account to take the hassle out of rebalancing and knowing which trades to make with my monthly contributions. It currently only works with Questrade, but I'm looking at adding support for more brokerages. https://rebalancr.com/

Do you have a screenshot of what it actually looks like when using it?

Re: What's The End Goal for Wealthfront and Betterment? (2016)

#108

Post by wwalser »

_wgnp wrote: post #53

Since this is a community of programmers, you might be interested in doings things like this yourself instead. There are a couple of options: - Quantopian ( http://quantopian.com/ ): Python based, kinda a little bit open source (backtesting only), live trades on Interactive Brokers or Robinhood. Has a big community for stocks. - QuantConnect ( http://quantconnect.com/ ): .NET based, more open source (includes live tr…

As others have pointed out, what this comment proposes is wildly different to what Wealthfront and Betterment do. Active trading, algorithmic or otherwise, is unlike buy and hold investing which Betterment and Wealthfront advise. Buy and hold is also simpler. The value-add of a robo-advisor for buy and hold is automating:

A) Keeping a portfolio balanced and

B) Taking advantage of a fairly specific set of tax loopholes in order to make those investments slightly more tax friendly. (where "slight" can become substantial over a 15+ year period of compound interest)

I know that some programmers have written code to automate their Vanguard accounts into something similar to a robo-advisor. This, to me, is much closer to programmers taking an interest in self-built robo than what the parents proposes.

Auto-rebalancing is fairly easy, you setup your account to put deposits and dividends into a money-market account then write a script which moves money from the money-market account into ETFs at the correct ratios. Tax-loss harvesting is slightly more complex but is doable.

Re: What's The End Goal for Wealthfront and Betterment? (2016)

#109

Post by 18nleung »

wwalser wrote: post #108
_wgnp wrote: post #53

Since this is a community of programmers, you might be interested in doings things like this yourself instead. There are a couple of options: - Quantopian ( http://quantopian.com/ ): Python based, kinda a little bit open source (backtesting only), live trades on Interactive Brokers or Robinhood. Has a big community for stocks. - QuantConnect ( http://quantconnect.com/ ): .NET based, more open source (includes live tr…

As others have pointed out, what this comment proposes is wildly different to what Wealthfront and Betterment do. Active trading, algorithmic or otherwise, is unlike buy and hold investing which Betterment and Wealthfront advise. Buy and hold is also simpler. The value-add of a robo-advisor for buy and hold is automating: A) Keeping a portfolio balanced and B) Taking advantage of a fairly specific set of tax loophole…

Could you elaborate more on the Vanguard scripting? How could one get started with that?

Re: What's The End Goal for Wealthfront and Betterment? (2016)

#110

Post by garry »

pbk1 wrote: post #56
lquist wrote: post #7

Gurley's post [1] (from 2014) gives one possible end goal: "Learning about Yu’e Bao gave us an epiphany that Jack Ma likely had years ago. If you want to truly disrupt the financial services industry, perhaps you need to stop attacking the transactional experience and launch a competitive product on the asset gathering side. Once you have the assets, all the disruptive things that Silicon Valley types want to do will…

why don't Silicon Valley firms partner with existing smaller banks looking to do more with their balance sheets? seems like if their ideas are truly disruptive it would be a win-win for both parties.

Individual investors are impatient and so only large institutions with a track record of being long term investors are the ones who get access to top quality VC funds. Because of the power law those are the only ones that make money. So you would need a big enough pool of capital first and then build a track record of being an LP.
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