How do you intend to handle uninvested cash? The big non-Vanguard players (Schwab, Fidelity) make up for their low nominal fund fees via Net Interest Margin on uninvested cash. Do you intend to offer market-rate interest on cash (e.g. $VMFXX), or take a significant cut there?
Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
331–340 of 434 posts
Re: Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
#332> We handle all the management, including rebalancing and tax-loss harvesting—proactively selling losing stocks to potentially save on taxes - For a non-retirement portfolio, isn't rebalancing is a taxable event? Rebalancing by selling stocks and buying others is not the best approach. Isn't it better to rebalance by shifting the focus of new investments based on a strategy? - I think it is misleading to present tax-…
TLH is sort of a synthetic loss. You just sell and buy essentially equivalent funds to realize an unrealized but existing loss, lowering your cost basis. The amount of stock you own doesn't change at the TLH event. You get a (small) deduction against your taxable income at the cost of more capital gains in the (maybe distant, lower tax bracket) future.
Re: Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
#333Earlier quoted context omitted.
Pfof is woefully misunderstood In general, citadel wants to pay to trade with retail investors because it knows it isn't going to face adverse selection. So it will give them tighter bid/ask ratios (this is better for the customer) than they would get if they were trading in the open market, citadel isn't going to get hosed by one of them (because there's no adverse selection) It's win win win
It is not a win. In a recent study, Robinhood with Citadel has the worst price improvement (execution quality) of any brokerage on the market. I’ve personally observed this - Robinhood might “improve” by 1/10 of a cent from NBBO while Fidelity is frequently closer to the mid.
How is that not a win? Robinhood customers still got better execution than NBBO. If you don't like Robinhood getting a tiny kickback here, you're free to go to another brokerage.
Re: Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
#334FZROX gives me 0% fees, can be bought in my retirement accounts, and is attached to a company with something like $1 trillion AUM. The latter gives me faith that it will still be around next year. I appreciate that the 0% fee options are limited, but personally I’d rather deal with 0.03% fees than entrust my money to a small shop. Especially when the reason to do so is not some trading edge, but saving a small amount…
How does FZROX make money? Loss leader for Fidelity? Improved economies of scale?
Loss leader. Fidelity and Schwab make a lot of money from Net Interest Margin on uninvested cash (or e.g. Fidelity's relatively high fee 0.42% money market funds).
Re: Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
#335Earlier quoted context omitted.
Retail brokerages earn most of their money from uninvested cash from their customers. An easy strategy is to force customers to keep a few percent of AUM as cash.
And savvy investors avoid those platforms or manually move their cash holdings into money market funds. Requiring people hold some minimum cash amount is just charging a fee with more steps involved. And even the larger offenders of that approach are in the crosshairs: https://news.bloomberglaw.com/securities-law/wall-street-gia...
It helps, but e.g. Fidelity's money market funds charge 0.31% higher fees (0.42%) than Vanguard's (0.11%).
Re: Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
#336Re: Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
#337Hi, and congrats on the launch! I'm curious about how this service compares to, say, the offerings of zero expense mutual funds from Fidelity of Schwab? I guess there's a lot more variety since I don't think those brokers have 50+ indexes. Have you found or might expect to find liquidity issues or spread costs with fractional shares? I imagine that if you have an account with, say, $3000 that is trying to implement S…
Another large advantage of Fidelity, which is unclear if Double has, is that uninvested money can sit in SPAXX/equivalent and earn competitive growth.
Re: Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
#338Earlier quoted context omitted.
> Ideally any direct indexing would be done in tax advantaged account A lot of the benefit of direct indexing comes from the ability to tax loss harvest, which requires it not to be in a tax advantaged account.
Just keep in mind that tax loss harvesting is a tax deferral method. It reduces your current taxes by increasing your future taxes (which will be at an unknowable rate). It is also only effective when an account is relatively young, or if new contributions are a substantial portion of the portfolio. As your portfolio matures, fewer and fewer positions will be at a loss, so there will be only very limited opportunitie…
TLH works best during downturns. Pre-downturn contributions are harvestable. Once you have enough to cover your maximum tax claim ($3000/year) further losses just aren't useful. I generated a lifetime supply of capital losses from like 5 minutes of manual TLH in 2020.
Re: Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
#339Ummm, have y'all thought about spread costs?
If you look at the spread of any of these ETF's mentioned (spread = ask px - bid px), you will notice that the spread is much smaller than if you were to sum up the spreads of each component stock.
That's possible because of a mature ecosystem of ETF market makers and arbitrageurs (like Jane Street).
If you buy all of the stocks individually, as it sounds like y'all's solution does, you will pay the spread cost for every. single. stock. The magnitude of these costs are not huge, but if we're comparing them against VOO's 17 bps/yr expense ratio, it's worth quantifying them.
I imagine eventually you can hope that market makers will be able to quote a tight spread on whatever the basket of stocks a client wants, but in the meantime, users would be bleeding money to these costs.
(Source: I work in market making and think about spreads more than I would like to admit.)
Re: Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
#340Earlier quoted context omitted.
>> If Double goes out of business, your assets are safe and held in your name at Apex Clearing. They have processes in place for these scenarios to help you access and transfer those assets. >> SIPC protection covers against a brokerage firm failing, which in our case is Apex Clearing. We are not currently a brokerage so SIPC would not apply if Double goes bankrupt. Dear @jjmaxwell4 -- I'm not really worried about yo…
Appreciate diving into the details! You can sign up directly with Apex (completely separate login) and view your holdings in your name in their web portal, along with all documents that Double sends you on your account activity. The process requires a bit of verification so I've written up a help article here on how to get set up: https://help.double.finance/en/articles/10262406-how-can-i-v...
Just wanted to comment and say that I'm happy you / Apex offer this. My concern (similar to others in this thread) is that Double might say they are depositing the money into Apex, but it's possible they actually are not, and being able to verify this myself is crucial.