5 ms·

How much better has wealth front done vs SPY, fee adjusted? Imho all robo advisers are a waste of money. If they were actually effective they’d use their own s

How much better has wealth front done vs SPY, fee adjusted? Imho all robo advisers are a waste of money. If they were actually effective they’d use their own services themselves as opposed to sell them to retail. The latest crop of businesses really are marketing value adds. See: https://longbets.org/362/ https://longbets.org/362/ Other people have done similar bets and they all lose on a risk adjusted, fee adjusted basis.

astura 5y ago
>robo advisers are a waste of money For the informed investor, yes, however they are a giant step above the "financial advisors" (mostly insurance salesman) that uninformed investors otherwise would end up with. If you otherwise wouldn't invest or would go to a non-fiduciary advisor, then the fee is worth it.
- endisneigh 5y ago
  I don’t disagree but my point is that an uninformed investor would be better off financially with a straight index.
  - dartdartdart 5y ago
    Wealthfront's value is that the unpassionate investor can set and forget it, instead of manually transferring every month
  - astura 5y ago
    Um... What? If you know what an index fund is, how to purchase index funds, and know which index funds to invest in, by definition, you are not an "uniformed investor." You might argue "... rabble rabble you should know these things..." but that doesn't change that a large portion of the population doesn't and is extremely overwhelmed by it. I've never used Wealthfront personally but I assume its basically like a bank account - just transfer money in and everything else is taken care of for you. That's a really, really valuable service and it's well worth the small fee for some percentage of population. Otherwise they'd 1) not invest and lose out on gains and dividends or 2) lose massive amounts of money buying financial products sold to them by "financial advisors" with a 6% load and 1% fee. (Not an exaggeration) Is it a service for me? No. But not every service is something I'd be interested in, that's ok. My little cousin wanted to save more for retirement and heard about IRAs. He asked me how to set up and IRA and recommendations on what company to use. I recommended Fidelity with just an s&P 500 index to start. He got really overwhelmed even though I offered to help him click-by-click. He decided not to set up the IRA until he found Wealthfront. He loves the simplicity and that everything is taken care of for him. He's really happy he can save for retirement without worrying about doing something "wrong." Now, my cousin is a smart guy, so I think he'll move past Wealthfront eventually once he learns more, but it's really useful for him now.
    - endisneigh 5y ago
      What you’re saying is literally the same with fidelity, Schwab, vanguard, etc using an index.
Scoundreller 5y ago
One US strategy that can beat ETFs is the part where the first $3k in capital losses per year can be applied against income. So if you owned every stock in the index directly, one could cycle the losers around a bit (there will be at least some each year) to maximize this write off against income.
- endisneigh 5y ago
  This doesn’t do what you think it does. It’s tantamount to timing the market which generally is a losing strategy. Not sure if you’re being sarcastic Tax loss harvesting really only works in the long run if you know which stocks won’t recover.
  - Scoundreller 5y ago
    Hence the emphasis on cycling things around. You’re not trying to cut and run, but retain exposure while crystallizing the loss. I’m not in US, but what are the rules about buying back a stock that you just sold? In Canada, it’s a 30d wait for the loss to count, but you can buy back another similar company/index the next minute and your loss still counts. If the price of oil craters and you sell your -10% Exxon and buy -10% Chevron, you’re not timing the market but you are crystallizing a loss. Or change between Solactive and MSCI-based index funds because they’re “only” 95% identical.
  - blobbers 5y ago
    You can do it using basket ETFs. The IRS doesn't consider them "exact" replicas. So if VOO drops, you can harvest using SPY and maintain the same exposure, then switch back to VOO a month + few days later.
    - Scoundreller 5y ago
      It gets harder to pull that off once you’re a long-term holder
  - hedora 5y ago
    Their computer sells stuff and then buys stocks that are heavily correlated to the sold stock. Later, it unwinds the imbalance to avoid realized gains and wash sales. Doing that without impacting long-term returns is one of their biggest value adds.
lotsofpulp 5y ago
These investing middlemen have all been obviated by automation. No one is beating the 0.03% to 0.15% expense ratios for index ETFs/Target Date Retirement Funds from Vanguard/Schwab/Fidelity.
- endisneigh 5y ago
  Agreed completely. I don’t know how anyone can justify 10 times the fees using wealthfront for non trivial amounts of money. I personally have many friends who are very happy with betterment and wealthfront which is good. When I ask them about their returns in the past couple years they say that the stocks have done amazingly. When I tell them SPY would’ve given them higher returns and lower fees they’re skeptical, and lo and behold when I actually show them they’re shocked. I feel these companies survive on sheer inertia
  - tinyhouse 5y ago
    I don't know what are Wealthfront's fee, but not everyone wants to put all their eggs in SPY. Wealthfront (and other similar services) let you pick a risk score, and based on that invest in lots of different things. Most people have very diversified Wealthfront portfolios. They also claim to help with tax harvesting. Since SPY had an amazing run it performed better than your friends' accounts, but it doesn't mean it will keep outperforming in the future. It's a riskier investment. Now, obviously you can also create a very diversified portfolio by yourself. That's totally fine if you know what you're doing and OK spending the time doing it.
    - lotsofpulp 5y ago
      A target date fund suffices for most people. And I would need evidence to believe that Wealthfront's fees are offset by the tax savings and increased complexity for 95% of people.
      - Beaver117 5y ago
        Not 95% of people but if you have capital gains from RSUs wealthfront losses can deduct from that. Not limited to $3k/year. However generally they harvest only a few % of your portfolio
cheonic8492 5y ago
> Imho all robo advisers are a waste of money. Robo and human financial advisors provide emotional hand-holding and comfort. Same reason why you trust a doctor, despite doctors underperforming (intelligent) self-directed health and nutrition research.
- endisneigh 5y ago
  > Same reason why you trust a doctor, despite doctors underperforming (intelligent) self-directed health and nutrition research. I’m skeptical of this claim. What’s “intelligent” research mean? Index funds are literally sit it and forget it. Even easier than robo advisers. With year retirement funds you even get auto balancing with the same ease.
  - deleted 5y ago
    [deleted]
- RandomLensman 5y ago
  Self-directed surgery? Joking aside, providing structure to investments and investment decisions is probably helpful for some.
- 310260 5y ago
  > self-directed health and nutrition research That's a bold statement considering the anti-vaccine climate today. The value in doctors isn't necessarily what they've learned but instead what trends they've seen personally and local to your area. I do agree human financial advisors are mainly a tool for comfort. I've got one and most of our conversations instigated by him are relationship-building and not necessarily aggessive-fund-strategy type talk.
cj 5y ago
> How much better has wealth front done vs SPY, fee adjusted? That comparison isn't really a good way to evaluate based on since it doesn't account for risk, only reward.
- endisneigh 5y ago
  Ok, but even if you pick an equivalently risky proposition with a robo adviser you’d inherently make less money due to the fee differential. Furthermore if robo advisers really could make more money on a risk adjusted basis it would literally make them more money to use their own service than to sell it.
  - cj 5y ago
    Other than robo advisors, what service exists where I can schedule a weekly transfer and automatically invest across 6-8 asset classes? (Many 401k providers do this, but I’m not aware of any post-tax investment accounts other than robo advisors) If there’s a single ETF that will do what Wealthfront and others are doing, I’d switch away in a heartbeat if the fees were lower.
    - hrez 5y ago
      M1
    - kgwgk 5y ago
      I don't know how much the "I can schedule a weekly transfer and automatically invest across 6-8 asset classes" is worth to you. But if you go from $50k to $500k with them you will be paying ten times as much (depending on the fee structure, of course). At some point, it may not be worth it.
  - astrange 5y ago
    Why does Vanguard sell you ETFs instead of keeping them for themselves?
    - endisneigh 5y ago
tedsanders 5y ago
My understanding: The biggest benefit of Wealthfront is automated tax loss harvesting, not stock picking. The biggest cost of Wealthfront is that when you leave you either (a) keep a humongous pool of individual stocks to eventually unwind or (b) liquidate and incur unnecessary capital gains.
devoutsalsa 5y ago
I use Wealthfront. Performance vs SPY is comparable, but it can depend on your risk preferences. I like it because it abstracts away the underlying securities & I don’t have to worry about it. I also like their feature that lets you borrow against your portfolio at a fairly low rate (less than 4% for me), which is a painless way to tap into credit if you need to for pick a reason. I think it’s a great option for anyone looking to keep investing as simple as possible.
- endisneigh 5y ago
  The comparison isn’t really performance. It’s more fee adjusted returns. Obviously Wealthfront likely has an index itself that it uses, but the fees are 10X (0.03 for Fidelity be around 0.3 for Wealthfront).
  - dartdartdart 5y ago
    Are you comparing this to fidelity's target date retirement fund?
Beaver117 5y ago
The tax savings I get from them is much more than the annual fee. I converted the portfolio to 100% US stocks btw. Sure I can harvest losses myself but that introduces emotion and watching the market carefully.
- endisneigh 5y ago
  Don’t understand this. The tax savings only come from realized loses. In the long run SPY will likely best that including your “savings”.
  - extesy 5y ago
    This article from their help center explains the methodology: https://support.wealthfront.com/hc/en-us/articles/209348486-Tax-Loss-Harvesting https://support.wealthfront.com/hc/en-us/articles/209348486-...
- dartdartdart 5y ago
  How do you do this? Isn't max risk like 45% US stock?
  - Beaver117 5y ago
    You can lower or remove the other areas. Also can add direct indexing.
alasdair_ 5y ago
>Imho all robo advisers are a waste of money. If they were actually effective they’d use their own services themselves as opposed to sell them to retail. One of the benefits is tax-loss harvesting. (https://www.investopedia.com/terms/t/taxgainlossharvesting.asp#:~:text=Tax%2Dloss%20harvesting%20is%20the,than%20long%2Dterm%20capital%20gains https://www.investopedia.com/terms/t/taxgainlossharvesting.a....) This is essentially free alpha. You can do it yourself but it's a pain to do correctly.

astura 5y ago

>robo advisers are a waste of money For the informed investor, yes, however they are a giant step above the "financial advisors" (mostly insurance salesman) that uninformed investors otherwise would end up with. If you otherwise wouldn't invest or would go to a non-fiduciary advisor, then the fee is worth it.

endisneigh 5y ago
I don’t disagree but my point is that an uninformed investor would be better off financially with a straight index.
- dartdartdart 5y ago
  Wealthfront's value is that the unpassionate investor can set and forget it, instead of manually transferring every month
- astura 5y ago
  Um... What? If you know what an index fund is, how to purchase index funds, and know which index funds to invest in, by definition, you are not an "uniformed investor." You might argue "... rabble rabble you should know these things..." but that doesn't change that a large portion of the population doesn't and is extremely overwhelmed by it. I've never used Wealthfront personally but I assume its basically like a bank account - just transfer money in and everything else is taken care of for you. That's a really, really valuable service and it's well worth the small fee for some percentage of population. Otherwise they'd 1) not invest and lose out on gains and dividends or 2) lose massive amounts of money buying financial products sold to them by "financial advisors" with a 6% load and 1% fee. (Not an exaggeration) Is it a service for me? No. But not every service is something I'd be interested in, that's ok. My little cousin wanted to save more for retirement and heard about IRAs. He asked me how to set up and IRA and recommendations on what company to use. I recommended Fidelity with just an s&P 500 index to start. He got really overwhelmed even though I offered to help him click-by-click. He decided not to set up the IRA until he found Wealthfront. He loves the simplicity and that everything is taken care of for him. He's really happy he can save for retirement without worrying about doing something "wrong." Now, my cousin is a smart guy, so I think he'll move past Wealthfront eventually once he learns more, but it's really useful for him now.
  - endisneigh 5y ago
    What you’re saying is literally the same with fidelity, Schwab, vanguard, etc using an index.

Scoundreller 5y ago

One US strategy that can beat ETFs is the part where the first $3k in capital losses per year can be applied against income. So if you owned every stock in the index directly, one could cycle the losers around a bit (there will be at least some each year) to maximize this write off against income.

endisneigh 5y ago
This doesn’t do what you think it does. It’s tantamount to timing the market which generally is a losing strategy. Not sure if you’re being sarcastic Tax loss harvesting really only works in the long run if you know which stocks won’t recover.
- Scoundreller 5y ago
  Hence the emphasis on cycling things around. You’re not trying to cut and run, but retain exposure while crystallizing the loss. I’m not in US, but what are the rules about buying back a stock that you just sold? In Canada, it’s a 30d wait for the loss to count, but you can buy back another similar company/index the next minute and your loss still counts. If the price of oil craters and you sell your -10% Exxon and buy -10% Chevron, you’re not timing the market but you are crystallizing a loss. Or change between Solactive and MSCI-based index funds because they’re “only” 95% identical.
- blobbers 5y ago
  You can do it using basket ETFs. The IRS doesn't consider them "exact" replicas. So if VOO drops, you can harvest using SPY and maintain the same exposure, then switch back to VOO a month + few days later.
  - Scoundreller 5y ago
    It gets harder to pull that off once you’re a long-term holder
- hedora 5y ago
  Their computer sells stuff and then buys stocks that are heavily correlated to the sold stock. Later, it unwinds the imbalance to avoid realized gains and wash sales. Doing that without impacting long-term returns is one of their biggest value adds.

lotsofpulp 5y ago

These investing middlemen have all been obviated by automation. No one is beating the 0.03% to 0.15% expense ratios for index ETFs/Target Date Retirement Funds from Vanguard/Schwab/Fidelity.

endisneigh 5y ago
Agreed completely. I don’t know how anyone can justify 10 times the fees using wealthfront for non trivial amounts of money. I personally have many friends who are very happy with betterment and wealthfront which is good. When I ask them about their returns in the past couple years they say that the stocks have done amazingly. When I tell them SPY would’ve given them higher returns and lower fees they’re skeptical, and lo and behold when I actually show them they’re shocked. I feel these companies survive on sheer inertia
- tinyhouse 5y ago
  I don't know what are Wealthfront's fee, but not everyone wants to put all their eggs in SPY. Wealthfront (and other similar services) let you pick a risk score, and based on that invest in lots of different things. Most people have very diversified Wealthfront portfolios. They also claim to help with tax harvesting. Since SPY had an amazing run it performed better than your friends' accounts, but it doesn't mean it will keep outperforming in the future. It's a riskier investment. Now, obviously you can also create a very diversified portfolio by yourself. That's totally fine if you know what you're doing and OK spending the time doing it.
  - lotsofpulp 5y ago
    A target date fund suffices for most people. And I would need evidence to believe that Wealthfront's fees are offset by the tax savings and increased complexity for 95% of people.
    - Beaver117 5y ago
      Not 95% of people but if you have capital gains from RSUs wealthfront losses can deduct from that. Not limited to $3k/year. However generally they harvest only a few % of your portfolio

cheonic8492 5y ago

> Imho all robo advisers are a waste of money. Robo and human financial advisors provide emotional hand-holding and comfort. Same reason why you trust a doctor, despite doctors underperforming (intelligent) self-directed health and nutrition research.

endisneigh 5y ago
> Same reason why you trust a doctor, despite doctors underperforming (intelligent) self-directed health and nutrition research. I’m skeptical of this claim. What’s “intelligent” research mean? Index funds are literally sit it and forget it. Even easier than robo advisers. With year retirement funds you even get auto balancing with the same ease.
- deleted 5y ago
  [deleted]
RandomLensman 5y ago
Self-directed surgery? Joking aside, providing structure to investments and investment decisions is probably helpful for some.
310260 5y ago
> self-directed health and nutrition research That's a bold statement considering the anti-vaccine climate today. The value in doctors isn't necessarily what they've learned but instead what trends they've seen personally and local to your area. I do agree human financial advisors are mainly a tool for comfort. I've got one and most of our conversations instigated by him are relationship-building and not necessarily aggessive-fund-strategy type talk.

cj 5y ago

> How much better has wealth front done vs SPY, fee adjusted? That comparison isn't really a good way to evaluate based on since it doesn't account for risk, only reward.

endisneigh 5y ago
Ok, but even if you pick an equivalently risky proposition with a robo adviser you’d inherently make less money due to the fee differential. Furthermore if robo advisers really could make more money on a risk adjusted basis it would literally make them more money to use their own service than to sell it.
- cj 5y ago
  Other than robo advisors, what service exists where I can schedule a weekly transfer and automatically invest across 6-8 asset classes? (Many 401k providers do this, but I’m not aware of any post-tax investment accounts other than robo advisors) If there’s a single ETF that will do what Wealthfront and others are doing, I’d switch away in a heartbeat if the fees were lower.
  - hrez 5y ago
    M1
  - kgwgk 5y ago
    I don't know how much the "I can schedule a weekly transfer and automatically invest across 6-8 asset classes" is worth to you. But if you go from $50k to $500k with them you will be paying ten times as much (depending on the fee structure, of course). At some point, it may not be worth it.
- astrange 5y ago
  Why does Vanguard sell you ETFs instead of keeping them for themselves?
  - endisneigh 5y ago

tedsanders 5y ago

My understanding: The biggest benefit of Wealthfront is automated tax loss harvesting, not stock picking. The biggest cost of Wealthfront is that when you leave you either (a) keep a humongous pool of individual stocks to eventually unwind or (b) liquidate and incur unnecessary capital gains.

devoutsalsa 5y ago

I use Wealthfront. Performance vs SPY is comparable, but it can depend on your risk preferences. I like it because it abstracts away the underlying securities & I don’t have to worry about it. I also like their feature that lets you borrow against your portfolio at a fairly low rate (less than 4% for me), which is a painless way to tap into credit if you need to for pick a reason. I think it’s a great option for anyone looking to keep investing as simple as possible.

endisneigh 5y ago
The comparison isn’t really performance. It’s more fee adjusted returns. Obviously Wealthfront likely has an index itself that it uses, but the fees are 10X (0.03 for Fidelity be around 0.3 for Wealthfront).
- dartdartdart 5y ago
  Are you comparing this to fidelity's target date retirement fund?

Beaver117 5y ago

The tax savings I get from them is much more than the annual fee. I converted the portfolio to 100% US stocks btw. Sure I can harvest losses myself but that introduces emotion and watching the market carefully.

endisneigh 5y ago
Don’t understand this. The tax savings only come from realized loses. In the long run SPY will likely best that including your “savings”.
- extesy 5y ago
  This article from their help center explains the methodology: https://support.wealthfront.com/hc/en-us/articles/209348486-Tax-Loss-Harvesting https://support.wealthfront.com/hc/en-us/articles/209348486-...
dartdartdart 5y ago
How do you do this? Isn't max risk like 45% US stock?
- Beaver117 5y ago
  You can lower or remove the other areas. Also can add direct indexing.

alasdair_ 5y ago

>Imho all robo advisers are a waste of money. If they were actually effective they’d use their own services themselves as opposed to sell them to retail. One of the benefits is tax-loss harvesting. (https://www.investopedia.com/terms/t/taxgainlossharvesting.asp#:~:text=Tax%2Dloss%20harvesting%20is%20the,than%20long%2Dterm%20capital%20gains https://www.investopedia.com/terms/t/taxgainlossharvesting.a....) This is essentially free alpha. You can do it yourself but it's a pain to do correctly.