4 ms·

A better replacement for Wealthfront is merely buying the https://en.wikipedia.org/wiki/S%26P_500_Index https://en.wikipedia.org/wiki/S%26P_500_Index . I bet we

A better replacement for Wealthfront is merely buying the https://en.wikipedia.org/wiki/S%26P_500_Index https://en.wikipedia.org/wiki/S%26P_500_Index . I bet we could create an automated version of the S&P but at this time its just not beneficial due to financial laws and also just talking to a person. We need to think of automation as more of a cybernetics concept than just a program on a computer. In the front line you will have humans doing the Sales and that probably won't go away. In the back you will have computers which make decisions and in the middle you will have engineer(s) working on the interface. Once we can replace the sales experience thats when we will get there.

johnnyb9 9y ago
I think the idea is that you don’t want to be holding 100% US large cap equities when you’re in retirement.
- nostrademons 9y ago
  Vanguard, Fidelity, and other funds all offer "Target Retirement date" funds which basically shift your asset allocation from stocks to bonds as you get closer to retirement. The individual mix is generally held in typical total-market index funds, mixed foreign/domestic based on the relative size of their economies. As long as you're okay with exactly-average investment performance (which is what index funds always give you), that's a good alternative, and the expense ratio is super low - 0.05% for Vanguard's offering. Actually, I just looked, and Wealthfront and Vanguard invest in the exact same funds (Vanguard's VTI and foreign equivalents), but Wealthfront's expense ratio was around 0.12% vs. 0.05% for Vanguard.
  - thaumasiotes 9y ago
    I've never understood why these get recommended so heavily. A "target retirement date" fund seems conceptually much like a reverse mortgage - a way to liquidate everything you might have accidentally built up so you can make sure to piss it away just before you die and let your family inherit nothing. What are you investing for? The targetless fund has higher expected earnings; the whole point of the targeted fund is to get less money in expectation than the normal fund will.
    - aaronbrethorst 9y ago
      Because most people care about de-risking their portfolio? Out of curiosity, are you long on Dogecoin?
    - nostrademons 9y ago
      For exactly the reason johnnyb9 points out up-thread: you don't want to be holding 100% U.S. equities when you're in retirement and the U.S. market crashes. Target retirement date funds are very different from reverse mortgages. In a reverse mortgage, you're borrowing money, which you pay interest on, which is secured by a large asset you own (your house). The reason they're so dangerous is because you're paying interest on the borrowed money, so it compounds, and can eat up your home equity very quickly. With a target retirement fund, it's a normal investment which you receive investment returns on, but the asset mix moves from stocks to bonds as you get closer to retirement. The reason for this is that you generally don't want to put any money at risk in the stock market that you can't afford to lose within the next 5 years. Market crashes are unpredictable and often take several years to recover from; if you're in retirement and forced to live off that money month-to-month, you may be forced to liquidate stocks at very low prices, often lower than you paid for them, wiping out your investment gains. You're supposed to move assets from stocks to bonds or other more predictable income streams as you get closer to retirement, so that you know that the money you need to live on will be available when you need it, and can just let the money you don't need to live on sit in the stock market until you do need it. Target retirement funds automate this rebalancing, dollar-cost averaging out of the stock market as you get closer to retirement so you aren't tempted to panic and pull everything if there's a crash.
      - thaumasiotes 9y ago
        > Target retirement date funds are very different from reverse mortgages. In a reverse mortgage, you're borrowing money, which you pay interest on, which is secured by a large asset you own (your house). The reason they're so dangerous is because you're paying interest on the borrowed money, so it compounds, and can eat up your home equity very quickly. You're confused; that's a regular mortgage. In a reverse mortgage, you sell your house to the bank for a defined monthly payment over X duration. It's a way of letting you spend the value of your house while figuring "hey, I'll die shortly before I lose the house". Similarly, a target retirement fund is a way for you to pull your money out of the fund and hope that (1) you die just as you spend the last of it and (2) you didn't want to leave your family anything. You can't live off of invested money by spending the principal. If that's what you're doing, you're not living off your investments, you're living off, and losing, your savings.

johnnyb9 9y ago

I think the idea is that you don’t want to be holding 100% US large cap equities when you’re in retirement.

nostrademons 9y ago
Vanguard, Fidelity, and other funds all offer "Target Retirement date" funds which basically shift your asset allocation from stocks to bonds as you get closer to retirement. The individual mix is generally held in typical total-market index funds, mixed foreign/domestic based on the relative size of their economies. As long as you're okay with exactly-average investment performance (which is what index funds always give you), that's a good alternative, and the expense ratio is super low - 0.05% for Vanguard's offering. Actually, I just looked, and Wealthfront and Vanguard invest in the exact same funds (Vanguard's VTI and foreign equivalents), but Wealthfront's expense ratio was around 0.12% vs. 0.05% for Vanguard.
- thaumasiotes 9y ago
  I've never understood why these get recommended so heavily. A "target retirement date" fund seems conceptually much like a reverse mortgage - a way to liquidate everything you might have accidentally built up so you can make sure to piss it away just before you die and let your family inherit nothing. What are you investing for? The targetless fund has higher expected earnings; the whole point of the targeted fund is to get less money in expectation than the normal fund will.
  - aaronbrethorst 9y ago
    Because most people care about de-risking their portfolio? Out of curiosity, are you long on Dogecoin?
  - nostrademons 9y ago
    For exactly the reason johnnyb9 points out up-thread: you don't want to be holding 100% U.S. equities when you're in retirement and the U.S. market crashes. Target retirement date funds are very different from reverse mortgages. In a reverse mortgage, you're borrowing money, which you pay interest on, which is secured by a large asset you own (your house). The reason they're so dangerous is because you're paying interest on the borrowed money, so it compounds, and can eat up your home equity very quickly. With a target retirement fund, it's a normal investment which you receive investment returns on, but the asset mix moves from stocks to bonds as you get closer to retirement. The reason for this is that you generally don't want to put any money at risk in the stock market that you can't afford to lose within the next 5 years. Market crashes are unpredictable and often take several years to recover from; if you're in retirement and forced to live off that money month-to-month, you may be forced to liquidate stocks at very low prices, often lower than you paid for them, wiping out your investment gains. You're supposed to move assets from stocks to bonds or other more predictable income streams as you get closer to retirement, so that you know that the money you need to live on will be available when you need it, and can just let the money you don't need to live on sit in the stock market until you do need it. Target retirement funds automate this rebalancing, dollar-cost averaging out of the stock market as you get closer to retirement so you aren't tempted to panic and pull everything if there's a crash.
    - thaumasiotes 9y ago
      > Target retirement date funds are very different from reverse mortgages. In a reverse mortgage, you're borrowing money, which you pay interest on, which is secured by a large asset you own (your house). The reason they're so dangerous is because you're paying interest on the borrowed money, so it compounds, and can eat up your home equity very quickly. You're confused; that's a regular mortgage. In a reverse mortgage, you sell your house to the bank for a defined monthly payment over X duration. It's a way of letting you spend the value of your house while figuring "hey, I'll die shortly before I lose the house". Similarly, a target retirement fund is a way for you to pull your money out of the fund and hope that (1) you die just as you spend the last of it and (2) you didn't want to leave your family anything. You can't live off of invested money by spending the principal. If that's what you're doing, you're not living off your investments, you're living off, and losing, your savings.