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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)

#111

Post by suresk »

eeeeeeeeeeeee wrote: post #69

This article didn't mention it specifically, but Betterment already put in a rate hike. You used to be able to get 10 basis points if you had over 100k and they just increased that to 25 in a really underhanded way. I had been using Betterment for about 2 years when they did this. I had been happy with Betterment but it's clear that they want to get as many people in under the low rates and slowly increase it on you,…

Yeah, that was really disappointing. I'd bought into the Betterment kool-aid, and shortly after funding my account, I saw their 'price increase buried in an unrelated product announcement' email.

I think these companies (Betterment, WealthFront, etc) are struggling with really high customer acquisition costs that take quite a while to break even on. I'm sure that not many people noticed/cared enough to transfer out (I'm doing it now, it isn't a small task), so they came out way ahead on it.

Unfortunately, I think it will be easy for them in a year or two, when they need more quick revenue, to look back and say "Hey, not many people said anything when we raised fees by 67%, what's another 10 bps or so?"

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

#112

Post by pscsbs »

scurvy wrote: post #45

If you want a good robo advisor with no fees, check out Wise Banyan. I'm a client, but a happy one and that's my only relationship with them.

WiseBanyan seems to be employing strategy (3): "Have a relatively low amount of AUM, charge low fees, and employee very few people." According to LinkedIn, WiseBanyan only seems to have 20-30 employees compared with Betterment's 200-250 and Wealthfront's 150-200.

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

#113

Post by KyleJune »

lewisl9029 wrote: post #24
mfrykman wrote: post #6

In the article, it states that Chase is offering 0% funds, yet Betterment claims that their "All-in Actual Cost" for a 100k fund is better than Chase's due to cash drag and a lower expense ratio. (Found here: https://www.betterment.com/comparison/schwab-intelligent-por... ) This is confusing and hard to fact check. Who do I believe?

For a different perspective, here's Schwab's response to critics on its decision to keep a mandatory cash component in its robo-advisor offering: https://www.aboutschwab.com/ceo-statement#anchor-copy-ceo-st... I think their reasoning is sound in theory, but it strikes me as suspect that they would not allow even the option to stay fully invested for clients who would prefer to manage the cash component of their portf…

I use Schwab for checking and like their free ATMs feature. Thought about using their Intelligent portfolios but I didn't like the higher-cost ETFs and the mandatory cash component. Decided to go with Wealthfront. Keep my cash that's not invested in a 1% yield savings account with Ally bank.

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

#114

Post by pscsbs »

mrkurt wrote: post #101
simo7 wrote: post #90

Earlier quoted context omitted.

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.

However, that 6% is capped by the IRS at $3,000 per year.

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

#115

Post by Veratyr »

frgtpsswrdlame wrote: post #76
_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…

I'd just like to quote an old comment here: >One thing I see every once in a while on HN is people with the belief that they can spend a week or two knocking out an algorithmic trader and start raking it in. In order to break this illusion I would recommend: http://financial-math.org/ http://www.quantresearch.info/

Totally agree. I was aiming more for those who just want to rebalance their portfolios every month or something like that, though I acknowledge that the services I linked to do have communities interested in active trading.

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

#116

Post by Veratyr »

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…

I never proposed anything wildly different to what Wealthfront and Betterment do, the one example algorithm I gave is essentially buy and hold with rebalancing just like Betterment/Wealthfront, just using a different portfolio optimization strategy than they do.

I never advocated for active trading.

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

#117

Post by pscsbs »

Analemma_ wrote: post #23

I don't use them, but I can tell their strategy is working. My broker (through work) is Fidelity and lately they've been throwing up pop-ups on login, and sending me emails, urging me to try their low-cost funds that they insist are cheaper and better than Vanguard. They're definitely feeling the heat; I don't think companies like this push their low-fee funds on you unless they're up against the wall.

Doesn't this mean that Vanguard's strategy is working, not Wealthfront/Betterment?

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

#118

Post by sulam »

narrator wrote: post #100
sulam wrote: post #64

Earlier quoted context omitted.

I don't use a robo-advisor, but TLH saves me 6 figures in taxes every year. Sadly I'm not comfortable disclosing the size of my portfolio. It's big enough to have an account with most bankers, but not big enough to require dedicated staff. :)

So you have big capital gains somewhere else in your portfolio that lets you take big deductions from TLH?

Yes, absolutely. I also have an AMT overhang, but I doubt that will be used up in my lifetime.

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

#119

Post by sulam »

dragontamer wrote: post #105
mrkurt wrote: post #102

Earlier quoted context omitted.

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.

Every portfolio has a mix of gains and losses if it's well diversified. I have gains that offset the losses elsewhere, but a reasonable chunk of those gains is offset by losses realized in parts of the portfolio that didn't do so well.

If you have a diversified portfolio that is all gains, I think you're probably not actually diversified.

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

#120

Post by Veratyr »

justincormack wrote: post #81
_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…

Gambling is not a replacement for investment, this is off topic to an article about consolidation of low cost funds.

I'm not sure where everyone got the idea that I was advocating for high-risk active trading. I proposed using these services for "things like [Betterment]" and posted a link to a Markowitz minimum-variance portfolio rebalancing algorithm based on low cost sector ETFs. There's nothing crazy going on here.
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