8 ms·

the short of it: Wealthfront markets itself as cheaper than vanguard etfs, but they actually charge 0.25% + ETF fees on top of that. one of my favorite quotes:

by frinxor 11y ago

the short of it: Wealthfront markets itself as cheaper than vanguard etfs, but they actually charge 0.25% + ETF fees on top of that. one of my favorite quotes: "Here it is: If you open a retirement account, and you invest some of your paycheck each month into a Vanguard Target Retirement Fund, and you just…leave it…you just leave it right there until retirement… …you don’t do anything when the folks on CNBC announce that the sky is falling; you don’t do anything when Cousin Eddy calls from a secure underground bunker in the badlands and says that the fed is printing money and it’s time to liquidate and ammo up; you don’t think it’s a sign that your parrot said “fuhgeddaboutit” but you thought she said “get a nugget” and surely that must mean a gold nugget? and you looked online and noticed that the price of shiny yellow metal was crashing and wait your parrot is also yellow and I’ll be damned if that isn’t a sign to buy… … no, if you just leave it there to compound over decades…"

cmdkeen 11y ago
The key thing with fees is that high fees are often a sign of a poor manager or poor client service. Vanguard can charge low fees because they have huge amounts of money invested with them, as do other successful asset managers. The problem, as the article points out, is that people don't understand compounding - and have been brought up to associate paying a bit more with better products. I work at a successful asset management fund, one that looks after Vanguard money. The vast majority of our staff's pension investments take exactly this strategy.
solve 11y ago
This puzzled me that, for the past few years, YC has wanted so badly to invest in more or less traditional style wealth management companies. It's so extremely hard to outperform existing methods in terms of returns. For user experience, these are the kind of things that are best if totally automatic, with no interface at all. So I guess they just compete purely for growth and that's it - like the commercials for popular drugs on TV, it's an industry 99% about advertising? SV tech + extremely risk averse, mature, competitive space = doesn't seem to be a good fit.
- jackgavigan 11y ago
  > This puzzled me that, for the past few years, YC has wanted so badly to invest in more or less traditional style wealth management companies. There seems to be a strong belief in Silicon Valley that software is going to eat the fat margins in financial services and that there's all this potential for disruption. The problem is that software's been eating financial services for the past 30 years and the fat margins aren't always as fat as they seem once you factor in things like compliance costs (or the demand curve is far steeper than you expect it to be).
  - nickpsecurity 11y ago
    Or once you factor in the profit motive and that the VC owners like margins & acquisition numbers to stay high. Quite a hard sell to convince investors to take higher risk on less money across the board. I'd never even attempt it.
  - bradleyjg 11y ago
    Re: fat margins A lot of that margin goes to the front line troops (whatever you want to call them-- brokers, advisers, planners, etc.) These are and have traditionally been charismatic people who were relatively high touch. If you think of them as providing a service to customers than they look like a massive cost center and the businesses that employ them ripe for disruption. But if you look at them as a sales force the picture becomes much clearer. Morgan Stanley wealth management has Bob who plays pickup basketball on the weekend with a bunch of doctors. What does Wealthfront have -- an ad on Yahoo finance? My guess is that at some point these companies will pivot to trying to be the backend to a bunch of independents or small shops out there hitting the pavement. The customers will still end up with the 1-2% wrap, the robo-advisers will still end up with their .25% cut, but at least the customers won't be being put in high fee actively managed funds. So they'll be some improvement over the status quo.
    - rgbrgb 11y ago
      So let's say Broker Bob's 200k of salary + expenses is buying you 10 doctors per year -- 20k per conversion. I'm pretty sure the cost per conversion for your ad on Yahoo Finance is going to be a lot cheaper than Bob's 20k.
lewisl9029 11y ago
Buy and hold forever is generally great advice, until it isn't. I'd much rather not have 30%+ of my life savings wiped out in a single recession with the rest of the market. In my humble opinion, thoroughly backtested trading algorithms based on hard statistics is the only rational way to participate in the market. The market is fundamentally an irrational entity, and investors should be looking for ways to systematically protect themselves from the market's irrational mood swings. Check out Quantopian: https://www.quantopian.com/home https://www.quantopian.com/home Even a trivial moving average crossover algorithm like the one I currently have deployed can give you surprisingly robust protection against severe downswings, and outperform the overall market significantly over the long term despite the small losses caused by false positives. http://i.imgur.com/ZhN0QIp.png http://i.imgur.com/ZhN0QIp.png
- frinxor 11y ago
  you should start a hedge fund, and charge 2.5%! joking aside, i've played with quantopian way back, and think its a fun/cool concept
- solve 11y ago
  Can you show the forward performance, starting from the date when you chose those 4 parameters - 165.12, 172.44, 164.23, 156.02? As you know, backtested results with carefully tuned magic numbers can potentially mean nothing.
- 7Figures2Commas 11y ago
  Your overall point is not a bad one, but investors don't need "thoroughly backtested trading algorithms" to protect themselves. Frankly, many of the people who use "thoroughly backtested trading algorithms" don't do as well as they supposedly should. It is, on the other hand, entirely possible for an average investor to learn basic technical analysis concepts and apply them visually to charts. At a minimum, for instance, if you can draw a trend line on a price chart and identify when price breaks important trend lines, you can easily avoid losses from major declines without having to write a single line of code or spend more than 5-10 minutes a day checking on your portfolio. A decent book in this vein is The Visual Investor[1]. [1] http://www.amazon.com/The-Visual-Investor-Market-Trends/dp/0470382058/ http://www.amazon.com/The-Visual-Investor-Market-Trends/dp/0...
matwood 11y ago
> Wealthfront markets itself as cheaper than vanguard etfs Do they? I always saw them as an alternative to a traditional advisor which can be 1%+ of assets. Even Vanguard can be overwhelming for some people who have to make choices on allocation[1]. For someone who wants auto-rebalancing and a set it and forget it manager, .25% isn't all that much. Obviously if you want to manage the money yourself you can always open a TD account where most of the ETFs used by Wealthfront/Betterment can be purchased commission free. But then the user is left doing buys, rebalancing, etc... [1] For a complete no-brainer solution open a Vanguard account and dump everything into one of their target funds. Some people want something between the target fund and managing their own though.
- TheCoelacanth 11y ago
  > Even Vanguard can be overwhelming for some people who have to make choices on allocation[1]. What's wrong with their Target Retirement 20?? funds if you don't want to choose your own allocation?
  - matwood 11y ago
    Nothing is wrong with that fund (in fact the target funds are always my recommendations to friends when they are starting out), but there is a space filled by the robo-advisors between target fund buckets and more of a sliding scale of risk. Although, at that point if someone is picking more precise allocations through a risk proxy then they might as well skip the robo-advisors and do the work themselves.
    - hchenji 11y ago
      Idea: as you get closer and closer to the target retirement year, start investing in the newest target retirement fund that year. For example, if you are investing in TR2060 now, start contributing to TR2070 in 2025 instead of sticking with TR2060. That way you can "choose" between multiple TR funds with varying levels of risk each year.
- BrianEatWorld 11y ago
cbhl 11y ago
I started using Betterment because I thought their UI was pretty. Yes, I realize they take fees (although I get a special deal for reasons despite having a smaller account). Yes, all things being equal, leaving my money in a Vanguard Target Fund would probably result in higher gains (heck, my 401k is still in a Vanguard Target Fund since it's set-and-forget). But the Betterment UI makes putting in more money as simple as typing in a number and clicking two buttons -- so I feel compelled to save more ($50 here, $100 there). And that, to me, is worth the 0.15% fee that they charge.
- gk1 11y ago
  Why not just schedule recurring buys? Then there are no buttons to click.
  - cbhl 11y ago
    It's money that primarily comes irregularly; things like bonuses and the sale of RSUs and third paychecks in a month.

by frinxor 11y ago

cmdkeen 11y ago

The key thing with fees is that high fees are often a sign of a poor manager or poor client service. Vanguard can charge low fees because they have huge amounts of money invested with them, as do other successful asset managers. The problem, as the article points out, is that people don't understand compounding - and have been brought up to associate paying a bit more with better products. I work at a successful asset management fund, one that looks after Vanguard money. The vast majority of our staff's pension investments take exactly this strategy.

solve 11y ago

This puzzled me that, for the past few years, YC has wanted so badly to invest in more or less traditional style wealth management companies. It's so extremely hard to outperform existing methods in terms of returns. For user experience, these are the kind of things that are best if totally automatic, with no interface at all. So I guess they just compete purely for growth and that's it - like the commercials for popular drugs on TV, it's an industry 99% about advertising? SV tech + extremely risk averse, mature, competitive space = doesn't seem to be a good fit.

jackgavigan 11y ago
> This puzzled me that, for the past few years, YC has wanted so badly to invest in more or less traditional style wealth management companies. There seems to be a strong belief in Silicon Valley that software is going to eat the fat margins in financial services and that there's all this potential for disruption. The problem is that software's been eating financial services for the past 30 years and the fat margins aren't always as fat as they seem once you factor in things like compliance costs (or the demand curve is far steeper than you expect it to be).
- nickpsecurity 11y ago
  Or once you factor in the profit motive and that the VC owners like margins & acquisition numbers to stay high. Quite a hard sell to convince investors to take higher risk on less money across the board. I'd never even attempt it.
- bradleyjg 11y ago
  Re: fat margins A lot of that margin goes to the front line troops (whatever you want to call them-- brokers, advisers, planners, etc.) These are and have traditionally been charismatic people who were relatively high touch. If you think of them as providing a service to customers than they look like a massive cost center and the businesses that employ them ripe for disruption. But if you look at them as a sales force the picture becomes much clearer. Morgan Stanley wealth management has Bob who plays pickup basketball on the weekend with a bunch of doctors. What does Wealthfront have -- an ad on Yahoo finance? My guess is that at some point these companies will pivot to trying to be the backend to a bunch of independents or small shops out there hitting the pavement. The customers will still end up with the 1-2% wrap, the robo-advisers will still end up with their .25% cut, but at least the customers won't be being put in high fee actively managed funds. So they'll be some improvement over the status quo.
  - rgbrgb 11y ago
    So let's say Broker Bob's 200k of salary + expenses is buying you 10 doctors per year -- 20k per conversion. I'm pretty sure the cost per conversion for your ad on Yahoo Finance is going to be a lot cheaper than Bob's 20k.

lewisl9029 11y ago

Buy and hold forever is generally great advice, until it isn't. I'd much rather not have 30%+ of my life savings wiped out in a single recession with the rest of the market. In my humble opinion, thoroughly backtested trading algorithms based on hard statistics is the only rational way to participate in the market. The market is fundamentally an irrational entity, and investors should be looking for ways to systematically protect themselves from the market's irrational mood swings. Check out Quantopian: https://www.quantopian.com/home https://www.quantopian.com/home Even a trivial moving average crossover algorithm like the one I currently have deployed can give you surprisingly robust protection against severe downswings, and outperform the overall market significantly over the long term despite the small losses caused by false positives. http://i.imgur.com/ZhN0QIp.png http://i.imgur.com/ZhN0QIp.png

frinxor 11y ago
you should start a hedge fund, and charge 2.5%! joking aside, i've played with quantopian way back, and think its a fun/cool concept
solve 11y ago
Can you show the forward performance, starting from the date when you chose those 4 parameters - 165.12, 172.44, 164.23, 156.02? As you know, backtested results with carefully tuned magic numbers can potentially mean nothing.
7Figures2Commas 11y ago
Your overall point is not a bad one, but investors don't need "thoroughly backtested trading algorithms" to protect themselves. Frankly, many of the people who use "thoroughly backtested trading algorithms" don't do as well as they supposedly should. It is, on the other hand, entirely possible for an average investor to learn basic technical analysis concepts and apply them visually to charts. At a minimum, for instance, if you can draw a trend line on a price chart and identify when price breaks important trend lines, you can easily avoid losses from major declines without having to write a single line of code or spend more than 5-10 minutes a day checking on your portfolio. A decent book in this vein is The Visual Investor[1]. [1] http://www.amazon.com/The-Visual-Investor-Market-Trends/dp/0470382058/ http://www.amazon.com/The-Visual-Investor-Market-Trends/dp/0...

matwood 11y ago

> Wealthfront markets itself as cheaper than vanguard etfs Do they? I always saw them as an alternative to a traditional advisor which can be 1%+ of assets. Even Vanguard can be overwhelming for some people who have to make choices on allocation[1]. For someone who wants auto-rebalancing and a set it and forget it manager, .25% isn't all that much. Obviously if you want to manage the money yourself you can always open a TD account where most of the ETFs used by Wealthfront/Betterment can be purchased commission free. But then the user is left doing buys, rebalancing, etc... [1] For a complete no-brainer solution open a Vanguard account and dump everything into one of their target funds. Some people want something between the target fund and managing their own though.

TheCoelacanth 11y ago
> Even Vanguard can be overwhelming for some people who have to make choices on allocation[1]. What's wrong with their Target Retirement 20?? funds if you don't want to choose your own allocation?
- matwood 11y ago
  Nothing is wrong with that fund (in fact the target funds are always my recommendations to friends when they are starting out), but there is a space filled by the robo-advisors between target fund buckets and more of a sliding scale of risk. Although, at that point if someone is picking more precise allocations through a risk proxy then they might as well skip the robo-advisors and do the work themselves.
  - hchenji 11y ago
    Idea: as you get closer and closer to the target retirement year, start investing in the newest target retirement fund that year. For example, if you are investing in TR2060 now, start contributing to TR2070 in 2025 instead of sticking with TR2060. That way you can "choose" between multiple TR funds with varying levels of risk each year.
BrianEatWorld 11y ago

cbhl 11y ago

I started using Betterment because I thought their UI was pretty. Yes, I realize they take fees (although I get a special deal for reasons despite having a smaller account). Yes, all things being equal, leaving my money in a Vanguard Target Fund would probably result in higher gains (heck, my 401k is still in a Vanguard Target Fund since it's set-and-forget). But the Betterment UI makes putting in more money as simple as typing in a number and clicking two buttons -- so I feel compelled to save more ($50 here, $100 there). And that, to me, is worth the 0.15% fee that they charge.

gk1 11y ago
Why not just schedule recurring buys? Then there are no buttons to click.
- cbhl 11y ago
  It's money that primarily comes irregularly; things like bonuses and the sale of RSUs and third paychecks in a month.