TANSTAAFL
After spreads, tracking error, and overhead, it'll be really hard to beat a Vanguard index fund.
Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
361–370 of 434 posts
Re: Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
#362Earlier quoted context omitted.
Yes, PFOF is woefully misunderstood but its very much not win win win. The reason its bad is because its anti-competive and gives them information that no-one else has access to. By trading against you, Citadel prevents any other potential market maker from trading with you. With less competition, the spread widens and even after price improvement, you're paying more. PFOF also tells them who they are trading against…
Dude, I want the market to see I'm a moron! I'm not buying BH because I've observed private jets between Omaha and Washington but because I'm saving after having been paid.
Then find a way to tell everyone this in the open, not just Citadel. Then anyone else is free to trade against you. There can even be a micro-auction to get you the best price among all counterparties that want to trade with you. There's already auction mechanisms at some exchanges so I'm thinking attaching a voluntary "this order came from Robinhood" tag to your order shouldn't be too hard?
Re: Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
#363Congrats, this is something I’ve wished existed. Looking forward to becoming a customer!
Re: Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
#364much hate here; but mostly it is transparent jealousy arising from frustration about the great global money game being unfair and many educated and deserving ppl having no hope of ever making it off the bottom rung. But jjmaxwell4 don't let any of that distract you 1. This problem (solid, simple, inexpensive) direct indexing is totally real 2. Congrats on identifying this and getting going on it 3. All your best cust…
What's the value of the borrow fees they can take?
Re: Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
#365Earlier quoted context omitted.
The calculation is at https://double.finance/pricing They are assuming an additional $2000 contributed per month and a 7% return.
Handy calculator. Comparing to VTSAX (.04% expense ratio), they show a 1% difference. Not nothing, but hard to justify switching when you consider the downside risk of this company going out of business or selling in the next 30 years. I think this is going to be a hard product to sell when your target market is exactly the sort of people who are well-informed enough to just buy vanguard mutual funds for a nearly ide…
If you're a pure boglehead, sure - but if you want "index but" + tax harvesting, this seems good, no?
Re: Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
#366Earlier quoted context omitted.
You don’t have to trade with market makers.
So you're hoping get price improvement by crossing with other trader orders in the book? Unless you have a good high frequency predictor and low latency order management (you don't), you're going to experience adverse selection. Either because you're taking resting orders that HFTs are smart enough to avoid or because your resting orders get run over by informed traders.
So you are saying HFT will avoid your market order in this case, while HFT will provide better price when they are the sole counter party in separate liquidity pool? HFT will always maximize profit. To have multiple venues you are just paying HFT as middle man to transfer liquidity from one to another, where you can trade directly with each other if everyone is on one venue, e.g. one centralized limit order book. Transfering liquidity is not HFT's fault, but saying paying for order flow is better for retail is just disinformation. Without evenly discussing the function of HFT, you will get disinformation that demonize HFT as well, and common people won't listen to you later.
Re: Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
#367Ummm, 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 solu…
Yes we've thought about them a fair bit.
We believe that in most ETFs right now the transaction costs are largely factored into either the expense ratio or the ETF bid-ask spread, exactly due to the redemption mechanism you discussed. See section titled Spread of the Underlying Securities in an ETF Basket in the following PDF and the following quote:
"If a market maker has to obtain a portion of the ETF constituents on the secondary market to then deliver into the fund as part of the basket process, the cost of acquiring those names should be reflected in the ETFs bid/ask spread — as costs are traditionally passed through to the end customer."
https://www.ssga.com/library-content/pdfs/etf/au/spdr-au-etf...
Also we take estimated spread costs into account when running our portfolio optimization. A higher bid-ask spread as measured by past 1 month NBBO p50 spread generally gets penalized in our portfolio optimization all else being equal, although this depends slightly on what optimization setting you've chosen on Double.
Re: Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
#368Earlier quoted context omitted.
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.
If you participate in charitable donations and are able to itemize deductions, after a period of capital gains you can also donate the low basis shares and then rebuy the shares with cash immediately. This is effectively donating cash while stepping up the basis of the asset. I’ve been doing this cycle for a bit now and while it doesn’t produce life changing savings, it does motivate me to donate more. Donor advised…
Yes, that's true, and I do donate low basis shares. But it's a small portion of my overall portfolio. Big +1 to DAFs -- I use Vanguard Charitable.
Re: Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
#369Earlier quoted context omitted.
Please see my other comment that provides links to a study that shows: yes you get the best price from a broker using pfof Your argument seems reasonable but isn't borne out empirically https://news.ycombinator.com/item?id=42378516
I'm not talking about you getting a worse price today . Suppose in some other industry, some monopolist consistently sells goods at a loss to drive out all the competition. In the last moments when they are doing this, yes its cheaper for you to buy from the monopolist at that moment. But after everyone is driven out of the market, you'll be paying more. Even though the monopolist is still the cheapest amongst all op…
This example is apples to oranges
Imagine you are a market maker: you offer 2 APIs. The first, you allow anyone to trade on. The second, you only allow traders who are doing less than 100k in volume per day (and don't allow users to have multiple accounts)
Which API are you able to offer tighter bid/ask spreads on? Why?
That's the point. Pfof is saying: the second API is so valuable to me that I'm willing to pay to obtain customers. In the worst case, there will always be the open-to-all API.
Your second example continues to show the lack of understanding. You're saying: without the market segmentation, somehow I have a wider bid ask. That's not right at all. The entity that gets bad spreads is going to be the entity that would take advantage of good spreads. That's the whole point. Maybe there's a point that vanguard ends up getting worse execution because it gets lumped in with the rest of the market, but the counterargument to that is essentially just volume: is the retail market big enough that if you didn't segment them onto a better spread that the overall market would end up with better pricing. The answer: maybe! In some things! Is that really what the people who hate pfof want though?
My understanding is that people who hate pfof are actually the ones benefiting the most from it. (ie because unsophisticated investors get better execution)
Re: Launch HN: Double (YC W24) – Index Investing with 0% Expense Ratios
#370Ummm, 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 solu…
Yes we've thought about them a fair bit. We believe that in most ETFs right now the transaction costs are largely factored into either the expense ratio or the ETF bid-ask spread, exactly due to the redemption mechanism you discussed. See section titled Spread of the Underlying Securities in an ETF Basket in the following PDF and the following quote: "If a market maker has to obtain a portion of the ETF constituents…
Except, in practice (not "traditionally"), the cost of a sophisticated market maker to acquire these constituents is usually much less than if you or I were to trade on the market in our brokerage account. SPY's spread is only 2 pennies wide (3 bps), for example.