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What I'm most excited to see in the event of a market downturn is how well Betterment and Wealthfront hang onto their clients. I'm guessing that the average cl

What I'm most excited to see in the event of a market downturn is how well Betterment and Wealthfront hang onto their clients. I'm guessing that the average client of those firms hasn't really lived with a significant stock market investment during a bear market. Will these clients keep their money invested in a larger percentage than the typical ETF investor? If so then I think that's a huge bullish signal for these new types of wealth management firms. If not, then those companies are going to have to go out and raise money in a downturn. If you can hold peoples money during a downturn, then I view that as a very positive investment signal, there has to be something more than the dollar, bitcoin, hedge funds, and gold that people can turn to in a downturn.

bsiemon 9y ago
Should the electronic brain managing these funds do something smart in the event of a down turn? It would be nice if these funds made more rational choices than humans.
- mattferderer 9y ago
  I could see a lot of users of the companies adjusting their risk either up or down depending on how they want to play the market.
  - yellow_postit 9y ago
    "Playing the market" is the antithesis of what these firms claim to offer. They keep you on track for asset allocation and maybe the occasional tax loss harvesting. Nothing that couldn't be tracked via a simple spreadsheet and 15min in a brokerage account on whatever time scale people want to rebalance or tlh
- spoonie 9y ago
  The rational thing is to buy more cheap stocks during a downturn. The is called "rebalancing".
  - module0000 9y ago
    >> The rational thing is to buy more cheap stocks during a downturn Are you sure? If the price is decreasing, you see buying as profitable? When the price is decreasing, I see profitability as selling. The path of least resistance is the one your money needs to travel.
    - wongarsu 9y ago
      It would be ideal to sell the moment before prices start falling, and buy the moment before prices start rising again. But since predicting the future is difficult, and fluctuations make meaningful "rising" and "falling" only obvious in hindsight, you might as well sell when prices are unusually high and buy when prices are unusually low. Which probably means that you will be buying when prices are still falling.
    - nwatson 9y ago
      Contrarian Investing ... https://en.m.wikipedia.org/wiki/Contrarian_investing https://en.m.wikipedia.org/wiki/Contrarian_investing
    - sigstoat 9y ago
      > The path of least resistance is the one your money needs to travel. what is that even supposed to mean? if the price is dropping, the market is full of shares for sale. it is somehow easier to sell your shares when there is an excess for sale?
      - module0000 9y ago
        It's not easier to sell, it's easier for the price to move down..since as you said, the market is full of shares for sale. You don't buy into the sell off unless you have an incredibly high pain threshold with your equity(ie you are an institution or a market maker, and chances are, you aren't if you are reading this)
        mathgenius 9y ago
- mabbo 9y ago
  Generally robo-investors do the same thing all the time: The portfolio expects to have these holdings at these target percentages of the portfolio. If one holding is low and another is high (by more than some specific margin) sell a bit of the high one to buy a bit of the low on. This eases your fall in a market where different things are falling at different rates, theoretically.
mattferderer 9y ago
Maybe others think differently but I see those two companies as a way to set it & forget it invest. I can afford to invest $X every month. I'm going to put it in a robo-ETF company & not think twice about it. That means not paying attention to the market at all & playing the long term. The only thing I might do, which contradicts what you suggest, is try to increase my input each month during a bear market if I can afford it.
- paganel 9y ago
  > I'm going to put it in a robo-ETF company & not think twice about it. That means not paying attention to the market at all & playing the long term. Maybe I'm missing something about how ETFs work, but AFAIK the Japanese stock market is way bellow where it was in the late '80s - early '90s, so that anyone who would have invested in related ETFs back then (had those ETFs existed, of course) would have lost lots of money in this 20-years span. If the same thing were to happen to either the European or the US stock market (i.e. a long period of stagnation) then putting money in a "a robo-ETF company" will be a losing bet (and it is a bet, make no mistake about that).
  - adrianN 9y ago
    Buy something that is globally diversified. If the global economy is on a 20 year downturn you probably have more serious problems than your investments.
    - paganel 9y ago
      > Buy something that is globally diversified. That's the thing, can ETFs do that? I.e., can they make active investment decisions (like, how do you diversify globally)? By the current definition I think the answer is "no", but it's interesting how things will evolve, though.
      - adrianN 9y ago
        What? Why can't ETFs do that? Buy some combination of MSCI World and something for "emerging markets" and you're halfway there.
013a 9y ago
Other thing: Their entire revenue stream is based on percent fees from current assets. During market downturns, total assets drop, which means their revenue drops. Not only are more of their customers likely to withdraw funds during a downturn, but the companies themselves have never existed during a downturn.
- module0000 9y ago
  The hope is that the fund you are invested in reverses their long positions to short positions, and those assets keep on increasing. I wouldn't trust any money manager that wasn't ready to change their position to match the immediate market at the first sign it was profitable to do so. You don't want a "wait and see" money manager, you want a shark.
  - seanp2k2 9y ago
    The problem is that good ones who are actually good charge such high fees that it eats up all the difference they make, and also end up being bad after a while anyway. Bad ones do the same thing but lose more, faster. In a gold rush, sell shovels.
  - kgwgk 9y ago
    What kind of funds do you invest in? Most people invest in long-only funds.
    - module0000 9y ago
      The only fund I trust to manage any of my assets currently is FSI(futures strategies inc). It's a private fund that accepts outsiders if a member introduces them and they meet capital requirements. They are very quick at reversing their position, sometimes dozens of times per day. Fees are a flat 2% of managed capital, taken quarterly. I've been with them for the better part of a year, and so far(knock on wood?) there have been 0 losing weeks since I joined. That said, the majority of my capital is traded by me. It's all in the futures market, specifically US debt instruments.
mabbo 9y ago
I've got friends in the Canadian version, WealthSimple. They've got some pretty good writers that put out articles related to money and saving and what-have-you and wrote this one a little while back: https://www.wealthsimple.com/en-ca/magazine/data-downturn https://www.wealthsimple.com/en-ca/magazine/data-downturn They really seem to want to help educate their customers. Of course, they want to do this because the more educated they are on the matter, the less likely they'll pull their money out.
- Simon_says 9y ago
  Laughable. If the customers were better educated they wouldn't put their money in WealthSimple.
  - mabbo 9y ago
    I don't see why you say that. I'm quite happy as a customer. I pay a low fee (by Canadian standards) to have my money automatically balanced between ETFs. I could do it myself, but A: I might make mistakes, and B: I have to pay attention to it. They don't claim they're doing rocket science.
    - Simon_says 9y ago
      I'm unfamiliar with what a low fee by Canadian standards is. Maybe in Canada it's a good deal. My comments were US-centric. Sorry, I should have realize that it should be compared to other Canadian options.
criddell 9y ago
I'm about to open an account on one of those services. I'm 47 and am terrified that I'm not saving enough for retirement and am hoping that the service can give me some peace of mind or at least help me with a plan.
- fullshark 9y ago
  I'm a big fan of them. Some people hate on them for the 0.25% fee but I think for a lot of people it's well worth it (and better than paying more for an in person advisor that provides zero value). They will set you up with a solid investment plan and rebalance for you, just don't get caught up in their tax-loss harvesting hype. Their value is in giving you the peace of mind that you seek, the tax loss harvesting benefit is overstated imo.
  - sigstoat 9y ago
    > (and better than paying more for an in person advisor that provides zero value) that isn't the only other alternative to betterment, etc. https://www.bogleheads.org/wiki/ https://www.bogleheads.org/wiki/ https://investor.vanguard.com/mutual-funds/target-retirement/ https://investor.vanguard.com/mutual-funds/target-retirement...
    - fullshark 9y ago
      Yeah that's a fine option too to just put in a target fund and forget about it. It's debatable how much more value you get from a roboadvisor wrt rebalancing + diversification + tax loss harvesting.
      - dlubarov 9y ago
        I don't think Wealthfront etc. have any advantage w.r.t. diversification or rebalancing. Vanguard's target retirement funds seem to have target allocations (which change gradually as the retirement date approaches), and rebalance to stay in sync with those. E.g., VTTSX seems to maintain ~90% stocks and ~10% bonds, with ~60% of the stocks being domestic, and ~70% of the bonds being domestic. They do have an advantage in tax loss harvesting, but the maximum annual savings is basically $3000 * (current marginal bracket for ordinary income - LTCG rate in retirement), which is about $600 for the typical investor. If you have more than 250k in Wealthfront, their annualized fee will be greater than $600.
RationPhantoms 9y ago
I'm actually really surprised that Betterment used what was essentially scare-tactics to keep the money in the account. They showed what our effective short term gains capital tax amount would be as a way to sway you from withdrawing. Negating the fact that they are showing you what your tax amount would be at the highest federal and state tax margin. Nice to know max tax bill is $500 lower but it gave me quite a pause. I guess it's effective.
SilasX 9y ago
I just rolled a 401k over into Wealthfront a month ago and I realized it's pretty pointless since the cost of buying the ETFs and rebalancing is much less than their fee, so it may look like a panic to them if and when I do it. Then again, I've also (to my discredit) sold on the downs before. But (besides hindsight) how do you distinguish a secular decline from a temporary panic?

bsiemon 9y ago

Should the electronic brain managing these funds do something smart in the event of a down turn? It would be nice if these funds made more rational choices than humans.

mattferderer 9y ago
I could see a lot of users of the companies adjusting their risk either up or down depending on how they want to play the market.
- yellow_postit 9y ago
  "Playing the market" is the antithesis of what these firms claim to offer. They keep you on track for asset allocation and maybe the occasional tax loss harvesting. Nothing that couldn't be tracked via a simple spreadsheet and 15min in a brokerage account on whatever time scale people want to rebalance or tlh
spoonie 9y ago
The rational thing is to buy more cheap stocks during a downturn. The is called "rebalancing".
- module0000 9y ago
  >> The rational thing is to buy more cheap stocks during a downturn Are you sure? If the price is decreasing, you see buying as profitable? When the price is decreasing, I see profitability as selling. The path of least resistance is the one your money needs to travel.
  - wongarsu 9y ago
    It would be ideal to sell the moment before prices start falling, and buy the moment before prices start rising again. But since predicting the future is difficult, and fluctuations make meaningful "rising" and "falling" only obvious in hindsight, you might as well sell when prices are unusually high and buy when prices are unusually low. Which probably means that you will be buying when prices are still falling.
  - nwatson 9y ago
    Contrarian Investing ... https://en.m.wikipedia.org/wiki/Contrarian_investing https://en.m.wikipedia.org/wiki/Contrarian_investing
  - sigstoat 9y ago
    > The path of least resistance is the one your money needs to travel. what is that even supposed to mean? if the price is dropping, the market is full of shares for sale. it is somehow easier to sell your shares when there is an excess for sale?
    - module0000 9y ago
      It's not easier to sell, it's easier for the price to move down..since as you said, the market is full of shares for sale. You don't buy into the sell off unless you have an incredibly high pain threshold with your equity(ie you are an institution or a market maker, and chances are, you aren't if you are reading this)
      - mathgenius 9y ago
mabbo 9y ago
Generally robo-investors do the same thing all the time: The portfolio expects to have these holdings at these target percentages of the portfolio. If one holding is low and another is high (by more than some specific margin) sell a bit of the high one to buy a bit of the low on. This eases your fall in a market where different things are falling at different rates, theoretically.

mattferderer 9y ago

Maybe others think differently but I see those two companies as a way to set it & forget it invest. I can afford to invest $X every month. I'm going to put it in a robo-ETF company & not think twice about it. That means not paying attention to the market at all & playing the long term. The only thing I might do, which contradicts what you suggest, is try to increase my input each month during a bear market if I can afford it.

paganel 9y ago
> I'm going to put it in a robo-ETF company & not think twice about it. That means not paying attention to the market at all & playing the long term. Maybe I'm missing something about how ETFs work, but AFAIK the Japanese stock market is way bellow where it was in the late '80s - early '90s, so that anyone who would have invested in related ETFs back then (had those ETFs existed, of course) would have lost lots of money in this 20-years span. If the same thing were to happen to either the European or the US stock market (i.e. a long period of stagnation) then putting money in a "a robo-ETF company" will be a losing bet (and it is a bet, make no mistake about that).
- adrianN 9y ago
  Buy something that is globally diversified. If the global economy is on a 20 year downturn you probably have more serious problems than your investments.
  - paganel 9y ago
    > Buy something that is globally diversified. That's the thing, can ETFs do that? I.e., can they make active investment decisions (like, how do you diversify globally)? By the current definition I think the answer is "no", but it's interesting how things will evolve, though.
    - adrianN 9y ago
      What? Why can't ETFs do that? Buy some combination of MSCI World and something for "emerging markets" and you're halfway there.

013a 9y ago

Other thing: Their entire revenue stream is based on percent fees from current assets. During market downturns, total assets drop, which means their revenue drops. Not only are more of their customers likely to withdraw funds during a downturn, but the companies themselves have never existed during a downturn.

module0000 9y ago
The hope is that the fund you are invested in reverses their long positions to short positions, and those assets keep on increasing. I wouldn't trust any money manager that wasn't ready to change their position to match the immediate market at the first sign it was profitable to do so. You don't want a "wait and see" money manager, you want a shark.
- seanp2k2 9y ago
  The problem is that good ones who are actually good charge such high fees that it eats up all the difference they make, and also end up being bad after a while anyway. Bad ones do the same thing but lose more, faster. In a gold rush, sell shovels.
- kgwgk 9y ago
  What kind of funds do you invest in? Most people invest in long-only funds.
  - module0000 9y ago
    The only fund I trust to manage any of my assets currently is FSI(futures strategies inc). It's a private fund that accepts outsiders if a member introduces them and they meet capital requirements. They are very quick at reversing their position, sometimes dozens of times per day. Fees are a flat 2% of managed capital, taken quarterly. I've been with them for the better part of a year, and so far(knock on wood?) there have been 0 losing weeks since I joined. That said, the majority of my capital is traded by me. It's all in the futures market, specifically US debt instruments.

mabbo 9y ago

I've got friends in the Canadian version, WealthSimple. They've got some pretty good writers that put out articles related to money and saving and what-have-you and wrote this one a little while back: https://www.wealthsimple.com/en-ca/magazine/data-downturn https://www.wealthsimple.com/en-ca/magazine/data-downturn They really seem to want to help educate their customers. Of course, they want to do this because the more educated they are on the matter, the less likely they'll pull their money out.

Simon_says 9y ago
Laughable. If the customers were better educated they wouldn't put their money in WealthSimple.
- mabbo 9y ago
  I don't see why you say that. I'm quite happy as a customer. I pay a low fee (by Canadian standards) to have my money automatically balanced between ETFs. I could do it myself, but A: I might make mistakes, and B: I have to pay attention to it. They don't claim they're doing rocket science.
  - Simon_says 9y ago
    I'm unfamiliar with what a low fee by Canadian standards is. Maybe in Canada it's a good deal. My comments were US-centric. Sorry, I should have realize that it should be compared to other Canadian options.

criddell 9y ago

I'm about to open an account on one of those services. I'm 47 and am terrified that I'm not saving enough for retirement and am hoping that the service can give me some peace of mind or at least help me with a plan.

fullshark 9y ago
I'm a big fan of them. Some people hate on them for the 0.25% fee but I think for a lot of people it's well worth it (and better than paying more for an in person advisor that provides zero value). They will set you up with a solid investment plan and rebalance for you, just don't get caught up in their tax-loss harvesting hype. Their value is in giving you the peace of mind that you seek, the tax loss harvesting benefit is overstated imo.
- sigstoat 9y ago
  > (and better than paying more for an in person advisor that provides zero value) that isn't the only other alternative to betterment, etc. https://www.bogleheads.org/wiki/ https://www.bogleheads.org/wiki/ https://investor.vanguard.com/mutual-funds/target-retirement/ https://investor.vanguard.com/mutual-funds/target-retirement...
  - fullshark 9y ago
    Yeah that's a fine option too to just put in a target fund and forget about it. It's debatable how much more value you get from a roboadvisor wrt rebalancing + diversification + tax loss harvesting.
    - dlubarov 9y ago
      I don't think Wealthfront etc. have any advantage w.r.t. diversification or rebalancing. Vanguard's target retirement funds seem to have target allocations (which change gradually as the retirement date approaches), and rebalance to stay in sync with those. E.g., VTTSX seems to maintain ~90% stocks and ~10% bonds, with ~60% of the stocks being domestic, and ~70% of the bonds being domestic. They do have an advantage in tax loss harvesting, but the maximum annual savings is basically $3000 * (current marginal bracket for ordinary income - LTCG rate in retirement), which is about $600 for the typical investor. If you have more than 250k in Wealthfront, their annualized fee will be greater than $600.

RationPhantoms 9y ago

I'm actually really surprised that Betterment used what was essentially scare-tactics to keep the money in the account. They showed what our effective short term gains capital tax amount would be as a way to sway you from withdrawing. Negating the fact that they are showing you what your tax amount would be at the highest federal and state tax margin. Nice to know max tax bill is $500 lower but it gave me quite a pause. I guess it's effective.

SilasX 9y ago

I just rolled a 401k over into Wealthfront a month ago and I realized it's pretty pointless since the cost of buying the ETFs and rebalancing is much less than their fee, so it may look like a panic to them if and when I do it. Then again, I've also (to my discredit) sold on the downs before. But (besides hindsight) how do you distinguish a secular decline from a temporary panic?