Thoughts on Betterment.com

[laladuck]

Does anyone have any experience with or thoughts on Betterment.com as an investing tool for a fairly lazy investor who does not want to have to spend significant time determining funds or individual stocks to invest in but has a steady amount of money each month to invest? This would be for taxable investments if that makes any difference. Thanks!

[The Virginian]

My question is WHY ?

 If you want to invest in an index fund - simply open an account at Schwab (or other broker) sign up for direct deposit to go into an index fund and avoid all the gimmicks ! They are charging .15% per month in fees ! If you go with a Schwab ETF like SCHD or SCHD there are no fees !

[resolution]

Their automatic tax loss harvesting looks interesting, but I have never tried it out. I figure my vanguard index funds are pretty tax efficient and if all goes well I will be able to control my taxable income once I start withdrawing.

[laladuck]

Thanks for the responses! I think one of the things that is tempting me is that it appears to have a very user friendly and completely web-based interface with lots of simple ways to run projections and "play with your plan". I used to have a Scottrade account and it honestly drove me insane with things like having to fax in forms in order to arrange reoccurring purchases of mutual funds. Additionally, I hated that there were no really easy ways to (i.e. graphs or simple summary pages) to see what your gains/losses were across a time period (as silly as I know that sounds).

I really wish you could play with or see what a system is going to be like before signing up. For people who just use Vanguard, can you do everything you want online or do you need to fax forms, etc...? Also, is there any kind of graphing features or projection features available?

Thanks!

[Ombud]

So if all you're looking for is a way to get spreadsheets, graphs, and auto invest within your brokerage, don't  all of them do that? And why would you pay someone an additional $13 a month in addition to ETF fees to do what you could do for free?

[Deleted]

Apr 12, 2016 20:57:20 GMT -5 laladuck said:

Thanks for the responses! I think one of the things that is tempting me is that it appears to have a very user friendly and completely web-based interface with lots of simple ways to run projections and "play with your plan". I used to have a Scottrade account and it honestly drove me insane with things like having to fax in forms in order to arrange reoccurring purchases of mutual funds. Additionally, I hated that there were no really easy ways to (i.e. graphs or simple summary pages) to see what your gains/losses were across a time period (as silly as I know that sounds).

I really wish you could play with or see what a system is going to be like before signing up. For people who just use Vanguard, can you do everything you want online or do you need to fax forms, etc...? Also, is there any kind of graphing features or projection features available?

Thanks!

I have Vanguard and while there are historical graphs I'm not aware of a projection feature. I built a very simple one in excel, I have a line for each year until retirement where I add current value plus expected contributions times expected return for a future projection. If you're not well versed in excel I'd suggest a beginner class at a community college, it would save you a ton over the expenses at betterment and would teach you the simple calculations/graphing needed.

[resolution]

I use Vanguard and I make all of our purchases online.  I just buy bonds and mutual funds, so I can't say how they are if you want to do something fancy like options trading on individual stocks.

The only form I can remember is when we wanted to transfer DH's 401k from Morgan Stanley we needed to sign something to give them permission to contact Morgan Stanley and arrange the transfer.

They have a chart for historical performance but I haven't seen anything for projections. I use their Portfolio Watch which does a free analysis of your portfolio and identifies areas where it is diversified differently than the overall market.

[bean29]

I was just reading a thread last night that recommended several index funds - I thought it was this one.

The list included a large cap fud, mid-cap fund? and small cap fund?

Dividend paying stocks

Preferred Bond Fund?

S&P 500 fund

DJI Fund

NASDAC? sp Fund.

I was going to use it to tweak my vanguard holdings (particularly my bonds I have almost everything else on the list) - I was unable to figure out how to book mark it from my phone and now I can't seem to find it.

If anyone can help - I would appreciate it.

[Deleted]

bean29

An ETF/Mutual Fund that tracks: Preferred Stocks (these are stocks that act kind of like bonds; example: PCG.A which is the preferred for PCG {PG&E energy, a Utility Company}).

Preferred Stocks can be a pain to research directly; but do typically have decent dividends.

Some Preferred Stock ETF's are:

PSK, PFXF, SPFF, IPFF . A list of top 9 preferred Stock ETF's can be found here: etfdb.com/type/preferred-stock/all/ 

A good source for Preferred Stock research/Information can be found here: quantumonline.com/Please_register.cfm you are asked to register with Quantum Online; however it is a decently hearty all around resource to have at hand.

For the rest of what you listed, you got it right.

[bean29]

Thanks DI, I will check on it tomorrow.

[Ombud]

@di, I also remember seeing a list somewhere of 9 needed and I wondered why so many? IMHO if doing ETF indexes, I really need 2 or 4 3 depending on how I slice it.

Retirement accounts are 3:
SCHA - sm cap index
SCHD - dividend aristocrat index
SPY - SP500
bond -- but I don't do that, just stock ETF

Legacy (inheritance set aside for grandkids in taxable acct):
66% SCHB
33% tax free bond ETF (CXA bc I'm in California)

That's way different than what I trade which tends to be all over the map LOL

[bean29]

DI I was going to do this in my Vanguard account.

I was wrong about what I was holding, this is what I have:

VTSAX Vanguard Total Stock Market Index  (Admiral Shares) 40%

VBTLXX Vanguard Total Bond Market Index (Admiral Shares) If I sell part of this to buy the preferred stock fund I will drop out of the "Admiral" class, but it doesn't look like it would make a huge difference  13%

VTTHX Vanguard Target Retirement Fund 2035 7%

VEIPX Vanguard Equity Income Fund  13%

VFIAX Vanguard 500 Index Fund Admiral Shares 27%

I was originally going to get rid of part of the VBTLX, but I didn't remember I had the VTTHX in there.  What do you think I should sell to get a Preferred stock fund.  I thought I liked the diversity of the investments in PFXF Market Vectors Preferred Securities EX. Financials ETF.

This is not my only investment account.  I also have additional $$ at Fidelity through a former employer and in a 401K with a large regional bank (current employer).

[Deleted]

bean29

This is my opinion based on the above.

VTSAX & VEIPX appear to have more than passing overlap in the holdings; which in the above case would not in my opinion be really beneficial.

On a RISK rating (from Vanguard) they are both a 4 {Higher Risk}, so no clarity there really.

Though on a view of reactivity, it looks as though VEIPX could actually suffer more in reaction to market moves. This opinion is based on the fact that this fund only has 193 Total Holdings & that it's 10 largest holdings account for 29.3% of the total fund.

That means that based on the funds numbers {from the Vanguard Tear Sheet} the Top Ten Holdings account for $5.479 Billion of the Funds Total Value of $18.7 Billion.

Toss in the fact that the Funds Dividends bounce like a Yo-Yo & the LT/ST Cap Gains; and VTSAX really looks like the more attractive Fund.

But this is only my opinion.

--------

Now on to; VTTHX Vanguard Target Retirement Fund 2035. There were several big write ups back when these types of funds came to market (Target Retirement); all of which sought to explore many factors in regards to such funds.

2 of the main things brought up with consistency and repetition; were {A} Would such funds actually perform as was theoretically conceived & {B} What/How would market action, Manager action, fees and distributions actually affect the total target term returns?

The answers to those questions is still to be fully answered; as many of the longer term funds (like this one) still have years before the set termination date, so the results are still an unknown.

So what that means is that Funds like this could: Produce killer returns, or; Lag the performance of a similar stack of individual equities that were purchased individually, or; seriously Underperform against the markets & the intended result.

No One Knows Yet.

Not saying these are bad; just saying that No One Really Knows how these will ultimately stack up over the long term.

This is just my opinion and restatement of other opinions which have been published previously.

---------

The Bond Fund should over time adjust so that more profitable bonds get added and less profitable bonds get removed.

Though it should be noted that: {A} How long that process takes is contingent on how long it takes for Bond Yields to climb up from the extreme lows were they are now; {B} As this happens fund performance will drop some; {C} The true effect of the turnovers, is really an unknown at this point given the extreme deviation to the downside which bond yields have seen over the last 7 years.

Keep in mind that Bond Prices & Yields are inverse of each other.  Low Yields mean higher bond prices; which means that Bonds trade at a premium to face value; which can men that the coupon payments over the life may never actually pay you enough to repay the premium paid over face value. 

And that could have seriously deleterious effects on both overall returns & portfolio value.

This is a mix of FACT & my personal opinion.

-------

My overall opinion to be fully honest is that; it really sound like you have a rather messy mix overall of investments fragmented in several places.

And that in fact your returns may be seriously suffering as a result.

I would suggest that it would be highly beneficial to you to at least consult with a CFP (Certified Financial Planner) to at least find out how much overlap you actually have and thus how much drag you actually have as a result.

It would be from what you describe absolutely worth any cost for the service of the consultation.

But again; just my opinion. Given openly & honestly, as I personally don't like to see folks potentially losing money for no good reason and because I really want folks to see the best bang for their buck.

[bean29]

Thanks DI

[Deleted]

bean29

[Deleted]

Ombud

As a comprehensive series; to cover as best as possible differing directions on any given day and over the longer course.

Index Funds (DJIA, S&P500, NASDAQ) seek to track indices, thus they tend to move in the direction of the underlying index on any given day, with no regard to anything that is subset in the index.

Market Cap Based Funds (Large, Mid, Small) seek to track the movement of subsets within the Indices. Large caps may say be fairing better on a given day, even if the Index they belong to may be taking a beating.

Just because an Index may be getting hammered, doesn't mean everything in it is getting hammered.

Preferred Securities Fund to gain access to the better returns of Preferred Securities, which have better payments (dividends) on average; but without having to try and find the best of these on your own.

A Dividend Fund for ; well Dividends.

The idea is to cast a broad net to gain access to the variations in movements between different types of Investment Vehicles and further gain wider benefit from Residual Income (Dividends) directly from 2 types of focused funds (Preferred Securities & Dividend) additional to the Residuals which may be provided by the other funds.

An Index may fall during a day (and thus expectation would follow that a fund tracking it would also fall); but yet a subset might have a large move in the opposite direction.

However; that move might not even make a difference to the Index Funds movement on the day.

Think of this like a Bathwater & the Baby analogy. The Index Funds would be the bathwater; the subsets (Large, Mid, Small Caps) would be the baby.

An old saying in the markets goes "They tossed the baby out with the bathwater".

When folks get really fearful, aggravated and stressed they tend to throw out everything on the appearance of "the end of the world".

Index Funds & Market Cap Based Funds are very different Investment Vehicles; the objectives, goals and reasons for how & what they invest in have marked differences in the finer print.

As such they can act very differently from one another at the exact same time.

True you are bound to get overlap in what various funds hold, thus more exposure to various things; however you do also gain greater exposure to the residuals those things provide through the dividends that the funds pay.

Over the longer term the greater exposure due to overlap in theory is balanced out by the greater exposure to the residuals.

And if such were done with NTF (No Transaction Fees) Funds then the greater exposure due to overlap would be further reduced; as more of your principal would have gone into the fund to start with since you didn't pay commissions during the purchase..

AND THEN, if such were set as Dividend Reinvestment Plan (D.R.I.P.S.), the benefits further extend and the drawbacks further reduce.

The real trick is to find funds that are: Well Known, With Good Track Records, That Are Well Managed and have proven that they have good consistency with the stated objectives, reasonability and dividend payouts.

[laladuck]

Thanks everyone for the lists of specific funds you recommend, I really appreciate that!