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The Bogleheads approach is the best approach for the normal investor. Stash it and forget it. Warren Buffett, considered the greatest investor of all time, hi

• ropiku 10y ago
  No, Wealthfront and Betterment are not active fund managers. They invest your money in a variety of index funds and rebalance it often. Due to their hugely managed sums they can do a lot of tricks to try to improve your yield while still being broadly diversified.
  • loeg 10y ago
    The only trick they have is tax loss harvesting, which has limited effect (mostly due to $3,000/year limit on deducting). And you can do that by hand pretty easily.
    • DontGiveTwoFlux 10y ago
      They also reinvest dividends automatically, and rebalance automatically when you add new funds so you aren't over allocated in a particular class of assets. Tax loss harvesting is limited to 3000 per year, but you can carry over until you've exhausted the losses. Of course TLH is only good if you're in a taxable account with them. I also don't buy it being easy- particularly with trying to avoid the pitfalls of wash sales and the paperwork to actually claim it.
      • loeg 10y ago
        > They also reinvest dividends automatically Typical brokerages can do that too :-). > rebalance automatically The value of which is maybe dubious, as pointed out elsewhere in the thread. It doesn't need to be done frequently, if at all, and is pretty trivial with a simple 3-fund portfolio. > Tax loss harvesting is limited to 3000 per year, but you can carry over until you've exhausted the losses. Right. But you only get so many working years. > Of course TLH is only good if you're in a taxable account with them. > I also don't buy it being easy- particularly with trying to avoid the pitfalls of wash sales and the paperwork to actually claim it. You need to be aware of how wash sales work even if you use a robo-advisor to do the TLH. You need to be sure you don't have substantially equivalent securities in your IRAs and 401(k), etc. The actual mechanic is pretty easy — sell one index fund (with shares held over 30 days), buy another extremely similar index (but not the exact same index). As far as the paperwork — it's imported automatically with Turbotax etc and is exactly the same paperwork as is needed for capital gains. TLH is also only good while you're working. If you have enough TLH saved up to cover the rest of your working years at $3k/year, you can stop paying the robo-advisor premium.
• wtvanhest 10y ago
  I think there is a place in the world for a company which simply minimizes risk for individual investors by alerting them of their factor exposures. I'm sure there are people that are heavily invested in long duration bonds that do not understand how much interest rate risk they are taking. Its a little different from a Robo advisor, but I'd probably pay 0.05%+ (5 basis points) annually to know my factor exposures. I am likely exposed to factors that I am not even aware of.
  • reubano 10y ago
    I completely agree. It seems like the only way to currently get this information is through the robo advisors.
• jonbarker 10y ago
  The problem many investors run into is that they do not like being referred to as "normal" or "average". This makes them susceptible to investing theses that lose money (ie. most of them other than Bogle style investing).
• tedmiston 10y ago
  > And as has been proven time and again, they underperform index funds. Hmm. Citation needed. They've barely been letting people invest long enough for that to be "proven" once, let alone "time and again".
  • bluedevil2k 10y ago
    There's references in the 2 Warren Buffett links
    • tedmiston 10y ago
      I'm not seeing references to robo advisors, or evidence to support that they underperform direct index funds in either of those two links. I don't believe said evidence exists, here's why. First, the robo advisors distribute your money directly against and amongst several index funds. Second, the money-saving benefits robo advisors provide that direct indexing doesn't, like very frequent automatic rebalancing and automated (aggressive) tax-loss harvesting. Third, the ability to diversify any amount of money. You can put $1k into Wealthfront and diversify across five Vanguard index funds. But directly on Vanguard, this is impossible because the minimum investment in most Vanguard funds is $3k [0]. With that, take their Total Stock Market Index Fund as an example. If you can only invest $3k in it, your expense ratio is 0.16% [1]. If you can invest $10k in it, your expense ratio is 0.05% [2]. Through Wealthfront, I can hold the VTI ETF at 0.05% expense ratio, which I don't have to pay directly, only indirectly out of the standard Wealthfront fees. The best possible claim I can imagine then is that for very large accounts, excluding tax-loss harvesting benefits and any benefits of rebalancing, it is cheaper to index invest — for example, if you have a $100k account and can spend less than $225 worth of your time [4] in the entire year keeping up on it, rebalancing if you wish, etc., then in some cases you could beat the robos. The tradeoff of going direct is arguably not free though. I also don't believe this level of investment applies to most people, at least most Americans. In fact, for accounts under $10k, the Wealthfront fee is zero. I can't think of a good reason why everyone shouldn't take advantage of that. [0]: https://investor.vanguard.com/mutual-funds/fees https://investor.vanguard.com/mutual-funds/fees [1]: https://personal.vanguard.com/us/funds/snapshot?FundId=0085&FundIntExt=INT https://personal.vanguard.com/us/funds/snapshot?FundId=0085&... [2]: https://personal.vanguard.com/us/funds/snapshot?FundId=0585&FundIntExt=INT https://personal.vanguard.com/us/funds/snapshot?FundId=0585&... [3]: https://personal.vanguard.com/us/FundsSnapshot?FundId=0970&FundIntExt=INT https://personal.vanguard.com/us/FundsSnapshot?FundId=0970&F... [4]: https://www.wealthfront.com/our-low-fees https://www.wealthfront.com/our-low-fees