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Sorry for the possible off-topic, but can anyone explain to me how the robo-advising is different/better/worse than constant passive investing into popular ETFs

Sorry for the possible off-topic, but can anyone explain to me how the robo-advising is different/better/worse than constant passive investing into popular ETFs, e.g. $SPY, $BND, $VOO, etc.?

mgh2 5y ago
One friend told me it was his way of "outsourcing investment research", whether or not that justifies these platform's "low fee" and their returns vs. DIY is another issue.
acomms 5y ago
2 things come to mind: 1. These target the large majority of people with no will or interest in researching/picking/managing their own ETF investments. 2. Robo advisers re-balance your ETF portfolio (in much the way an individual ETF would).
tanduv 5y ago
Not a comprehensive comparison, but I've been doing monthly investments into robo-advisors (Wealthfront and SoFi) as well as ETFs (SPY and VOO) for 2 years now. The returns are quite similar to ETFs, sometimes higher or lower depending on the markets.
zefhous 5y ago
I mean that’s literally where the money ends up anyway. I have a small amount in Wealthfront to check it out. With my “10/10” risk allocation, my money is all in vanguard funds. 45% VTI 20% VEA 19% VWO 14% VIG 2% VETB They do also offer some services such as “tax loss harvesting” that you can’t really do on your own, but I don’t really know if it’s worth their fee. Really, I think one of the best investing strategies is to buy and hold a variety of Vanguard funds and stop thinking about it.
- lotsofpulp 5y ago
  You do not even have to hold a variety of Vanguard funds, just figure out the year you aim to retire in and buy the target date retirement fund. https://investor.vanguard.com/investment-products/mutual-funds/target-retirement-funds https://investor.vanguard.com/investment-products/mutual-fun...
  - brokensegue 5y ago
    this is a fine approach. but you can beat it because of tax/fee reasons
  - Graphguy 5y ago
    Target Retirement Funds sometimes hold non-ideal amount of cash. Also, make sure you are holding these in a tax-advantaged account https://401kspecialistmag.com/target-date-fund-providers-investigated-over-surprise-tax-bills/ https://401kspecialistmag.com/target-date-fund-providers-inv....
    - throwawaysea 5y ago
      I don’t quite understand the issue. Is there an ELI5 explanation?
- pinkfairy 5y ago
  you can easily do tax loss harvesting on your own
rohitnair 5y ago
Some features that Betterment offers for example * automatic rebalancing * tax loss harvesting * tax co-ordinated investing - looks at both your taxable and tax exempt/deffered accounts and directs funds appropriately (for example, puts more tax inefficient assets in your tax exempt accounts) You can of course do this on your own as well, so it's up to you to decide whether the additional fee is worth it or not. Also, not all robo advisors offer the same features - but most offer automatic rebalancing at a minimum.
- astrange 5y ago
  Automatic rebalancing is not that useful as long as you're contributing, because that rebalances on its own. Betterment's tax loss harvesting is good… unless you're expecting your tax rate to go up next year, in which case you want to harvest gains… also, it'd be better to not lose money in the first place. Since they have alternate portfolios like "smart beta" now which try to do that, their features conflict with each other. The main problem is that every robo uses the same Modern Portfolio Theory based investing which despite being "modern" is from 1960.

Sorry for the possible off-topic, but can anyone explain to me how the robo-advising is different/better/worse than constant passive investing into popular ETFs, e.g. $SPY, $BND, $VOO, etc.?

mgh2 5y ago

One friend told me it was his way of "outsourcing investment research", whether or not that justifies these platform's "low fee" and their returns vs. DIY is another issue.

acomms 5y ago

2 things come to mind: 1. These target the large majority of people with no will or interest in researching/picking/managing their own ETF investments. 2. Robo advisers re-balance your ETF portfolio (in much the way an individual ETF would).

tanduv 5y ago

Not a comprehensive comparison, but I've been doing monthly investments into robo-advisors (Wealthfront and SoFi) as well as ETFs (SPY and VOO) for 2 years now. The returns are quite similar to ETFs, sometimes higher or lower depending on the markets.

zefhous 5y ago

I mean that’s literally where the money ends up anyway. I have a small amount in Wealthfront to check it out. With my “10/10” risk allocation, my money is all in vanguard funds. 45% VTI 20% VEA 19% VWO 14% VIG 2% VETB They do also offer some services such as “tax loss harvesting” that you can’t really do on your own, but I don’t really know if it’s worth their fee. Really, I think one of the best investing strategies is to buy and hold a variety of Vanguard funds and stop thinking about it.

lotsofpulp 5y ago
You do not even have to hold a variety of Vanguard funds, just figure out the year you aim to retire in and buy the target date retirement fund. https://investor.vanguard.com/investment-products/mutual-funds/target-retirement-funds https://investor.vanguard.com/investment-products/mutual-fun...
- brokensegue 5y ago
  this is a fine approach. but you can beat it because of tax/fee reasons
- Graphguy 5y ago
  Target Retirement Funds sometimes hold non-ideal amount of cash. Also, make sure you are holding these in a tax-advantaged account https://401kspecialistmag.com/target-date-fund-providers-investigated-over-surprise-tax-bills/ https://401kspecialistmag.com/target-date-fund-providers-inv....
  - throwawaysea 5y ago
    I don’t quite understand the issue. Is there an ELI5 explanation?
pinkfairy 5y ago
you can easily do tax loss harvesting on your own

rohitnair 5y ago

Some features that Betterment offers for example * automatic rebalancing * tax loss harvesting * tax co-ordinated investing - looks at both your taxable and tax exempt/deffered accounts and directs funds appropriately (for example, puts more tax inefficient assets in your tax exempt accounts) You can of course do this on your own as well, so it's up to you to decide whether the additional fee is worth it or not. Also, not all robo advisors offer the same features - but most offer automatic rebalancing at a minimum.

astrange 5y ago
Automatic rebalancing is not that useful as long as you're contributing, because that rebalances on its own. Betterment's tax loss harvesting is good… unless you're expecting your tax rate to go up next year, in which case you want to harvest gains… also, it'd be better to not lose money in the first place. Since they have alternate portfolios like "smart beta" now which try to do that, their features conflict with each other. The main problem is that every robo uses the same Modern Portfolio Theory based investing which despite being "modern" is from 1960.