I've been researching robo-advisors quite a bit recently. They are really interesting and innovative.
I'll preface by saying that I have been talking to a lot of financial planners (at top-tier institutions). They basically set you up with a good set of ETFs, hedge funds, etc. and rebalance occasionally. Sometimes they do tax-loss harvesting. They also provide a few other nice little services. But at the end of the day, their fees are over 1% unless you have an ultra high net-worth.
In comparison, Wealthfront can automate huge strategies for a fraction of the cost (0.25%). For example:
- Direct Indexing (invest in an index by buying the stocks directly instead of a fund)
- Automatic investing, rebalancing, and tax-loss harvesting (including TLHing individual stocks within an index when paired with direct indexing)
- Coordinating trades between retirement and taxable accounts for optimal tax savings
- Smart beta (a custom weighted indexing algorithm)
Yes, a financial planner can do all of this (although most don't). But when they do, they just use automated software to do it. It would be impossible to implement these strategies manually. So why even go with a financial planner when Wealthfront does the same thing, but better/cheaper?
I started with and was a Wealthfront customer for many years. I'm appreciative and credit them with starting my education and understanding on investing.
What caused me to leave?
- They aren't global portfolio aware. Bonds belong in tax advantaged accounts, then taxable. If you've maxed out your 401k/IRAs in Bonds that $ as an absolute percentage should be accounted for in your taxable portfolio construction.
- They don't let you opt out of asset classes. Aka I don't want additional REITs because I have RE exposure already.
- They overly hype tax loss harvesting. It's good to have, but a byproduct of portfolio management not the goal.
- They launched and pushed risky products as a way to increase their fees.
Once you understand what's going on under the hood this isn't complicated to manage yourself with a few ETFs/MFs.
(The direct indexing is awesome and would love to have that back)
I've heard that when you leave direct indexing you end up with all the individual stocks in your new portfolio, or you have to sell them and eat the capital gains tax. Was that your experience?
You end up with a bunch of individual stocks in your new brokerage account. It's a pain. I separate account at etrade specifically for my "WF500" shares, and still just treat them as a single organism.
You can opt out of asset classes now. I moved out of Wealthfront to save money and try to DIY but so far I've had a really hard time doing it in terms of finding time to place the buy order during the workday and doing tax loss harvesting without wash sales.
Why do bonds being in tax advantages accounts? My gut would suspect the opposite, since on average stocks will have higher return so you'll want them getting the tax break.
Bonds have defined maturities and bond indexes are made up of a mix of short, medium and long term bonds. So over the course of time, old bonds mature and pay out (taxes due).
Equity indexes have no maturity date and can limit any taxable income to dividend only which get preferential treatment in terms of taxes.
"Bonds belong in tax advantaged accounts, then taxable."
That's true when say taxable bonds are yielding 8% and municipal bonds 6%. But when taxable bonds are yielding 2% (about the current 10-year U.S. Treasury yield), the tax hit from owning them in a taxable account is small, and maybe the growth assets such as stocks belong in a Roth IRA.
The taxes are small, just like the returns. I can’t really see bonds as a an indiviy investment in an era of low interest rates. And they only go down in value if interest rates start going up.
Many people who start off with Robos like Wealthfront actually leave once their net worth rises and pay more for human advisors.
If you need to invest a small/decent amount of money into stocks, Robos work wonderfully. It's a mass production angle -- good quality service at lower cost to many people; the Ford Model T of investing. Early robot just had a couple of investment options, and now there are more options but the same concept of limited choice at scale (Mustangs, Minvans, Trucks in my example)
Once you have estate planning and complicated tax issues, human advisors provide a lot of guidance to people that is hyper specific to you and your location / niche, which Robos just don't cover. Wealthfront, for example, won't arbitrate a dispute between beneficiaries of a family trust.
I think lawyers are a good comparison here. If you need some standard cookie-cutter incorporation docs, there's a bunch of websites where you can get some core documents for free or a few hundred dollars. But if you're afraid of making the wrong choice, or if you're in a situation that goes beyond the common scenarios (like M&A), then you hire a lawyer to provide you personalized advice.
Yes, completely agree. That happens when all of the other estate planning costs begin to vastly outweigh the cost of investment advising. I'm no expert, but I am under the impression that although these automated strategies are a smaller part of the whole picture for high net-worth individuals, the strategies are still the same.
I'm interested to see if UBS can add value in those ways you mentioned, while still using sophisticated automated strategies for cost savings purposes.
Also note that Vanguard, JPM, Schwab, Fidelity etc. are getting in the robo-advising/direct indexing game.
I doubt they'll add much value - they don't want to cannibalize their core business even more. They'll probably just add a button that says "talk to a UBS wealth manager" when your portfolio value crosses a certain threshold.
The one exception is alternative investments like real estate and private equity. Once you are HNW or at least high enough to have enough investable assets that you qualify, PE can be an attractive investment class that Wealthfront won’t touch.
Also, human advisors can manage, or at least access, investments across brokerages; that is, you don’t have to worry as much about wash sale rules and can do tax loss harvesting because they can see your sales elsewhere. I have to have TLH turned off on Wealthfront because it has no way of knowing about what things I’ve sold elsewhere.
I left Wealthfront and now have about $6M in assets. I'm self-managing with mostly Vanguard funds. My experience with financial advisors has not been great.
> Once you have estate planning and complicated tax issues, human advisors provide a lot of guidance to people that is hyper specific to you and your location / niche, which Robos just don't cover. Wealthfront, for example, won't arbitrate a dispute between beneficiaries of a family trust.
I agree fully that estate planning/making a trust is something most people would benefit from a human advisor, but this is something you can target with an estate lawyer. I don't think this is something you would need advice on regular basis.
For taxes, I am guessing vast majority of people, even wealthy people, never need human advice nowadays. Anything that is just combination of W2+1099DIV+1099B+1099INT+1099NEC is handled well with robo tools. Tax loss harvesting is pretty simple (even without robo advising!) as long as you know wash sale rules and distinction between long/short term capital gains.
You can pay for both human advisors and robo-investing. A human advisor will charge 1% of assets to manage your money for you, and the results may not differ much from what the robot picks at much lower cost. I'm happy with the robot's asset allocation and I pay an expert for taxes, trusts, and so on.
* Edward Jones will do it for you for ~ 2%/yr, which is ridiculously high.
* Any of the big banks or brokerages will do it for less than Edward Jones.
* Almost any financial advisor will do it for about 1%/yr in fees(not ridiculously high, but not remotely cheap) or fee-based for a few hundred an hour with a 1st time setup of $4-10k, more than $10k is unreasonable.
* The robo advisors(of which their are dozens with basically identical products, generally charge 0.3%/yr, some like Vanguard include Financial Advisor services.
* At least one firm will do it for $200 first year and $100/yr after that, regardless of the balance of your accounts, and provide financial & tax planning/advice/etc included. They do require a little work on your part. I'm actively looking for more subscription based advisors like this, please PM me!
* Bogleheads.org will do it for free as long as you follow their template.
Bogleheads has my favorite forum feature (which I haven’t seen elsewhere) which is that their home page is all posts from all sub forums ordered by most recent so you rarely have to click around to find updates. That and absurdly good content, incredibly little drama, and almost no politics
you are welcome! Come by, it's a pretty nice community and many there have been retired for a while, so they can help you see the follies before you make them, if one is smart enough to listen.
> At least one firm will do it for $200 first year and $100/yr after that
Can you share that one? PM me if preferred. I'm on a similar quest and so far I've found pretty much everything else you've found. My wife is a high income earner too and she's happy with the 1%/yr people that she likes, but I think we can get similar results for noticeably less.
Even 0.5% would be reasonable. As you know, from $1m to $2m that 1% fee goes from $10k to $20k and they're not doing anything more for that extra $10k/yr so the value proposition starts to break down for me. $10k in one year isn't a big deal, but over 20 years that's $200k, which might affect my retirement activities and definitely impacts how much is left for my kids (which they're going to really appreciate as life is so much more expensive for their generation).
It can be hard convincing people that 1% is a big number. I assume that you are on average going to see 6-7% return after inflation. The 1% represents 15% of the return. So you give the tax collector 25% and the money manager another 15%. You can defer the taxes but the manager gets theirs once a quarter.
When you are in the $1m+ AUM, it is pretty easy to explain. You are going to be paying for your kids to go to college and one of theirs as well. Make sure you really like them.
> It can be hard convincing people that 1% is a big number.
It's true. My mom only has about $1 million saved for her retirement, which sounds big to anyone who hasn't done retirement planning, but it's really not enough. Growth aside, that's $50k/yr for 20 years. She's paying her advisor 2%/yr. That's $20k/yr, which is a big percentage of her annual income, and he does almost nothing. It makes me sick.
After you get over 1M+ AUM, your advisor should seriously think long and hard about lowering their fees, many will go down almost in half(.5%ER). Still high, but if you really desire hands-off do everything for me, it's reasonable.
Once you get to 30M+ invested NW, you can seriously think about a multi-family office and > 100M+ a family office just for you starts making sense.
Most people will have a hard time getting over 1M before retirement, so I left the other options off my original post.
I agree, 1% is pretty high, but not ridiculous like EJ's 2% fee.
Many Robo advisors throw an RIA in for free, and they are in the 0.3% ER range. It's hard to get cheaper than that.
The only subscription based one I'm aware of right now is: https://planvisionmn.com/ They give you Fidelity's eMoney platform and you manage that part of it. They just help you with the planning part.
There's Facet Wealth, who will take ~$200/month flat fee up until around 1M AUM (or with extra complexity) to do the same. You get good personal contact on a regular basis, but it feels bad to spend 2400/yr just for "yeah you're on the right track, this is it" every quarter once everything is in the appropriate vanguard target date funds and such.
It took me a while to find on their website, but: "Our prices range from $1,800 to $6,000, annually." So pretty good price-wise for a full-service AUM type service.
>> Yes, a financial planner can do all of this (although most don't). But when they do, they just use automated software to do it. It would be impossible to implement these strategies manually. So why even go with a financial planner when Wealthfront does the same thing, but better/cheaper?
Thats the 100$B question right? Because fear. Because unfamiliarity. Also because 1% seems small, but its really more like 14% (if the average return is 7%, you're giving up 1/7 of your return!)
What's funny is... whenever you call an FA (financial advisor) in a moment of panic... they answer always is "don't act emotionally and stick to the plan". Maybe a real "robo-advisor" should just be a chatbot that responds to any message it gets with "HODL".
>> Because unfamiliarity.
This one is going to be interesting to watch evolve and I see it becoming less of an edge for financial advisors. More and more, we are seeing retail investors gain familiarity (not saying knowledge... but at least familiarity) with financial markets through blogs, social media, etc. I think we are moving to a world of more self-directed investors than advised investors.
> What's funny is... whenever you call an FA (financial advisor) in a moment of panic... they answer always is "don't act emotionally and stick to the plan". Maybe a real "robo-advisor" should just be a chatbot that responds to any message it gets with "HODL".
My robo-advisor did, during the giant tumble the markets took during the beginning of this pandemic, put up a message on the site & send a pro-active communication saying, essentially, to HODL. (In more eloquent terms, of course.) I presume a human had a hand in it, ofc., as they likely understood the fear most people would feel looking at the graph.
(My mistake, really, was not buying more at the bottom.)
I do recall that one of the features that Wealthfront had was to design their UX in a way that discouraged behaviors like frequently checking the valuations, making it annoying to make emotional transactions, etc, etc. Rather than having a human tell you to be calm, they tried to mediate behavior through UX patterns.
That's interesting. I did notice that the Wealthfront UX was really well done.
For example, during the onboarding they direct you to set up recurring investments and they show you in real time what that small investment might become by retirement age. That simple mechanic, which nobody else seems to do in that way during onboarding, makes it really obvious that you need to set that recurring deposit to be as high as you can possibly afford.
The difference between 7% & 6% (1% fees) is in fact a LOT higher if one takes compounding into effect.
By Year 40:
* >$500K &
* ALMOST a quarter of the portfolio
When I was starting out, someone in my company's 401k forum mentioned this # (at that time the # was almost 40%, fees have gone down a lot since the early 2000's). And I am glad I paid attention.
I try and pass on this wisdom everytime I can. Now, you can too.
Thanks for the great elaboration on my note. FEES KILL!
All the discussion on this thread of "oh just go with a mutual fund" is insane to me. Even if funds have dropped in price from 1.5% to 1% to .7%, that is a huge number over the course of your life. The only realistic approach is super-low-cost ETFs, but those arent friendly to use or make a portfolio from. So the WealthFront layer is pretty critical IMHO.
You have $1m and on average it will earn 7% per year.
The fee is 1% of the $1m ($10k), but it is 14% of your expected gains per year (1%/7%). After fees your portfolio will go up by 6% per year instead of 7%, which is a substantial reduction.
I know someone who's been doing wealth management for like 20 or 30 years now. Based on what they've told me, I'd separate clients roughly into 3 categories:
1. people who don't want to think about it - they pay for everything to be taken care of properly
2. people who want to be wined and dined - they end up paying to be taken out to dinner a few times a year and hear about what the firm is doing to survive bear markets and how they're taking advantage of bull markets
3. people who think they're smarter than everyone and want to direct everything - these people are probably moving to more self serve options, but plenty still want to tell a human what trades to make
Also at a certain net worth, tax and estate planning is a huge part of the work.
The wined and dined people also often really don't want to deal with a website and they want someone to call who can "get things done" if needed.
So for wealthfront and friends, let's say a family member is closing on a property purchase. You said you'd put in $500K. Closing comes and you try to wire the money over. But wait, it doesn't work.
1) First you have to sell investments
2) Trades have to SETTLE (T+2 or more)!
3) Then and only then can you initiate an ACH transfer.
4) It can only go to your own account in some cases (T+1/T+2)
5) Then you have to go to you bank and get a wire out (retail banks often have tight cutoffs or end up delayed if going online while they "approve" this).
6) This all can be stressful on closing day (agents calling, escrow calling, bank calling, your relative calling). Now you are not days but a week late.
vs
Talking with someone. They enable margin account if you don't have one, you wire same day, done or you can give your guys name to everyone to help coordinate if needed if it will be a bit late.
This is honestly a huge deal - when I make an angel investment, I send a text and/or wire info via the Merrill Lynch app, and I know it will be taken care of (by the same people every time) same day or next day, depending on when I send it.
That plus introductions and referrals to tax accountants, estate attorneys, etc., and access to investment vehicles I otherwise wouldn’t get (easily), definitely makes the 0.7% fee worth it for me.
[quick edit] Honestly, as someone who comes from an impoverished background, they also act largely as “financial therapists.” That is, I don’t make emotional decisions about money, but that doesn’t mean I don’t have tons of anxiety when I spend money on something large; they generate a wealth plan, allow me to see how my assets will change, allow me to (based on models) see if I’m overfunded, underfunded, etc., and I don’t have to do a thing other than send a text. That is insanely helpful to me, personally.
This is very interesting to me. I've been working on a retirement calculator in my free time as a hobby project for a while [1], but it never really occurred to me that there is real value in allowing people to do the 'what-if' analysis more easily. It seems obvious now...
Could you see yourself using something like this if there was an easy way to compare different scenarios?
You'd make a lot of money with this, I think. A lot of people don't have financial advisors and also don't have any method (or knowledge) of how to model various scenarios; if you built this out I bet you'd have a nice little passive income tool. Would it make billions of dollars? Probably not.
I'd use it and pay for it though, especially if it factored in historic market data, automatically figured out housing increase rates for my area, etc.
If you have planned to contribute $500K then presumably your plan involves making the money liquid with the necessary few days anticipation.
Also, my Wealthfront account is offering me approximately 25% "Available to borrow". I haven't tried it yet but I assume I could grab that immediately and then sell stock to pay back the loan.
I'm not challenging your claim that having a human financial advisor can be useful. I'm sure you're right; I just didn't think your points against the robo service were very strong.
I’m a mostly-happy Wealthfront user, but there’s a negative feature of the loan that I found out the hard way. I was having some medium-level renovations done on my house, and pushing the easy button to get some cash without liquidating investments sounded good to me. That worked great! But: WF would not let me add any more to my investment account until I paid the loan back in full! This wasn’t prominent, and I’d have happily made payments for longer by dividing between the loan and investment. I missed out on much of the big upside of the past 20 months.
Having been through this a few times betterment at least did not have a way AT ALL to wire out any amount of money regardless of balance in the account. This caused an issue during a real estate transaction - somewhat to extremely painful.
If wealthfront is offering an available to borrow that is perfect (for this issue).
You do get to a point though where you are like - hey, can I transfer $x of stock to a donor advised fund on this day and are just glad it can happen.
I'm not saying the fee is worth it, just that some folks may be willing to pay it because it appears to improve quality of life, even at cost of performance.
And actually, for something like a favor of $500K to help a close, you may NOT be doing a lot of planning in advance. Sure, call me when you need it if it ends up being needed. Call comes in (days / weeks / months later) - now its a pain.
I found betterment was also slow at even just transferring cash out of their accounts to other banks. Would not recommend them for anything that needs speed.
Their margin loan feature isn't much faster in my experience. ~2 days to open the initial request, 2 days to transfer via ACH, couple more to clear. I don't remember if there was a wire transfer option or not. Overall I still appreciate how easy it was to use
The Wealthfront happy paths seem to be ACATS transfers of brokerage holdings, or $250k (per day) ACH to/from a bank. They don’t have wire transfers. They can mail checks drawn on a Green Dot cash account but only up to $25k, which probably means they don’t have cashier’s checks.
I was a happy Wealthfront & Turbotax user for a long time, but then my taxes got more complicated, I wanted to create a family bank using life insurance as a backer, do estate planning, I moved between states, needed to move IRAs around, and changed jobs recently. Those services were great when things were simple, but I totally got pushed into #1 really quickly. I already didn't want to click around in any tools and a bit of complexity quickly made hiring someone a great investment even if the fees are higher. I can schedule a call anytime I want, get very easy to interpret summaries of my portfolio, and he's helping me getting the right people to the table for a potential investment property purchase. Computers are great, but sometimes a human is good too.
>Curious why you would need to coordinate trades been taxable and retirement accounts?
If you treat your retirement and taxable accounts as one big pot of money, you want to place assets to take the most advantage of the retirement account. For example, they mentioned bonds. Since yield on bonds is taxable at income tax levels every year, you want to prefer holding them in the tax exempt account.
Another reason is because of tax loss harvesting. To make that work, you have to avoid wash sales. The wash sale rule applies to you and every account you own, taxable, retirement, across brokers, etc. So to make TLH work, the broker needs to have a complete view.
>The biggest question to me, you can trade ETFs for free now, why do you need wealthfront at all?
For me, I'm on the west coast, so the market is open from 6:30 AM to 1 PM. I can't really monitor it nearly as closely as I'd really prefer. Looking at my betterment history, last year they automated 275 transactions for me. I can really only be bothered to look at the account once a month or so. Do the efficiency gains from a lower drift get me 0.25% additional value? Hard to say, but probably not. However, TLH absolutely has. I wouldn't trust myself to track that properly at all.
> Another reason is because of tax loss harvesting. To make that work, you have to avoid wash sales. The wash sale rule applies to you and every account you own, taxable, retirement, across brokers, etc. So to make TLH work, the broker needs to have a complete view.
It doesn't really. They like saying that because it shows off their product, but the IRS doesn't know what's in your retirement account and probably no-one has ever gotten in trouble for this. There are robos that don't coordinate it, even.
They don't ask for your IRA transactions, TurboTax and other consumer products don't even try to work out wash sales between multiple brokers let alone IRAs, and Congress intentionally doesn't fund IRS investigators because they don't want them to actually enforce anything, so…
Similarly, HSAs are taxable in California but I doubt most people know this and it hasn't caused my HSA investment account to offer tax statements you could even use to report it if you wanted to. So…
I would not recommend everyone in the US move to a robo just in case you accidentally claim too many capital gains losses, no.
Even better, don't read this thread, since ignorance is a defense in tax law and you're not legally required to get your taxes perfectly right.
On the other hand, it is a federal crime (fine or imprisonment not longer than six months) to walk a dog in a national park with a leash longer than 6 feet.
The speculation online is that it's because they lowered the minimum for their institution class funds, many large employer retirement funds sold their holdings of the non-institution funds, leaving everyone left with large capital gains and hence large tax bills unless you held it in a 401k/IRA.
I find Wealthfront to be overkill, but this is precisely the kind of thing they'd save you from.
I still don't understand why there wasn't a way to do an exchange on this conversion that avoided this! I mean, contribute the holdings of fund A to fund B etc.
While true, note that the effects of tax loss harvesting are really only significant for a few years after acquiring the asset (since stocks tend to go up over time), but you will pay the Wealthfront fee for the rest of your life (especially since they do direct indexing, which makes switching away complicated).
And fwiw, tax loss harvesting sounds complicated, but it really isn't that hard to do. If I notice stocks have gone down a lot recently, I'll hop into Vanguard, and swap anything that is underwater with another similar, but not identical fund. I have one for international and one for US stocks. Took me a few hours to get a system down, and now it's a few minutes to do the harvest once every few years.
> the effects of tax loss harvesting are really only significant for a few years after acquiring the asset (since stocks tend to go up over time)
This is true only if you invest once in your life and then hold those assets forever. But if you invest every quarter then you can do TLH on those new lots individually. And since those new lots will keep coming, your TLH will always have something to work with.
> This is true only if you invest once in your life and then hold those assets forever. But if you invest every quarter then you can do TLH on those new lots individually. And since those new lots will keep coming, your TLH will always have something to work with.
That is true, but you pay a percentage fee on all of your assets (which is growing) to be able to TLH assets you've recently added (fairly static amount over time).
This is very true when you only have a handful of assets (e.g 6 ETFs), but the benefits stick around for longer when you do direct investing in stocks (e.g. rather than buying S&P 500 directly, you buy each of the 500 stocks that make up the index). Then in a given year there will almost certainly be some stocks will losses even if the index as a whole goes up.
> If I notice stocks have gone down a lot recently, I'll hop into Vanguard, and swap anything that is underwater with another similar, but not identical fund.
How much effort do you have to put in to avoiding wash sales?
It’s pretty forgiving. For example, an S&P500 ETF and a “Total Stock Market ETF” are considered different even though they are 99% correlated. There are lots of indexes from different companies that track the same thing and I wouldn’t be surprised if 2 ETFs that track 2 different “Total Stock Market” indexes also work (99.9% correlation?)
Thing is, all of these are simple enough that anyone with a tiny bit of financial knowledge or Googling can do it for themselves. Sure a lot of people don't bother, but when your investment size starts going up the 0.25%-1% commission is a LOT of money.
Study after study has shown that investing in a broad market fund plus occasional (once a quarter) rebalancing is going to beat managed investing on average. So where do these products fit in really?
The folks using WealthFront don't have enough money invested that 1% is a lot of money, and they generally very much suffer from lack of time or knowledge on how to invest properly (or willingness/ability to sit down, learn, and DIY properly either).
Well, actually a lot of these strategies are really hard to implement on your own. For example, in direct indexing you are buying hundreds of stocks in an attempt to replicate an indexing. You are also constantly rebalancing and tax-loss harvesting.
You could definitely just buy an index fund, but it's not exactly comparable.
My experience was that robo-investors are great until you need something special. Then they can become rather painful.
Exmaple: I got divorced last year. Betterment took weeks of time and many phones calls until they were able to figure out a way to divide our assets evenly, without a large difference in cost basis. Their automatic algorithm for dividing accounts just didn't know how to handle it.
If UBS figures out how to offer a higher level of service on top of robo-advising, that could be a real win.
Does Wealthfront actually buy individual stocks? Most robo-advisors buy ETFs. So you're paying double management fees. I'm not aware of any robo-advisors that actually buy individual stocks.
Yes. Once you cross a certain threshold (I think it's $100k portfolio), they'll switch you to "Direct Indexing", which automates individual stock purchases.
Once you cross a threshold of investable assets at which it makes sense (usually a few hundred thousand), most robots have an active indexing strategy in addition to or instead of ETFs.
I agree that robo-advisors are great, but they do leave a lot to be desired. I’m actively working on a service that would drastically change the way people engage with robo-advisory accounts.
I for one prefer to make stock selections on my own, however Wealthfront, Betterment, and Personal Capital do not allow me to manage my own investments with any of the robo-advisory features. There is a huge opportunity in the space.
It would be great to talk to you about it - I’d love to hear your thoughts - any way we can connect?
personally my favorite feature is the "autopilot" thing, which for example dcan automatically withdraw from my checking account and invest when my checking account hits a certain threshold. so for example i can just say "if my checking account goes above $30k, deposit the rest into some wealthfront investment account." i don't think a human financial planner can do this easily? just to add to your list.
That honestly doesn't sound like very much to take 0.25%. Maybe if you're starting out and have $10k to invest, but once you're in the mid six figures or more, the 0.25% adds up.
If you buy and hold, it doesn't take much work and expenses for Vanguard ETFs are ~0.10%. Also, once you move to Wealthfront, it's hard to ever leave because of how they break things up (which, I'm sure, isn't unintentional).
A big advantage of the robos is that they time the rebalancing a little better. Manually rebalancing your own Vanguard ETFs at the same time once a quarter is pretty arbitrary - it's based on what's convenient to you, but it's not necessarily what's mathematically best for your portfolio.
If your allocation percentages remain very stable, you might not need to rebalance at all at the end of a quarter. If your allocations fall way out of whack, you might want to rebalance a portion of your portfolio earlier, and robos handle that timing for you.
I'd be surprised if the better timing doesn't provide 0.25% of value, not to mention it's just one less thing to have to think about.
Rebalancing is really not that hard. If you have $500k in savings, it's definitely not worth paying $1250 for it and end up being locked into a platform that's hard to leave.
In addition, Wealthfront doesn't know about all of my other holdings (house, angel investments, crypto, ...), so isn't going to do as good as I can.
Does Fidelity have robo-advising? Because all the big companies I've worked at use them for retirement funds, and I've found most of the management is heavily manual at Fidelity.
They do, it's called Fidelity Go. They have a similar product for advisors called AMP. I actually worked on these products a while ago, they're all very similar when it comes down to it.
You cite a great example of central planning gone wrong. They had a creative strategy to run the company and it clearly didn't work.
What if someone could "fork" Sears and have the exact same business, except take things in a different direction (in parallel). Of course, that is impossible since Sears is not a digital product operated by a DAO. However, that is precisely why I claim "DAOs change everything". I lay out what I believe are the necessary conditions for this to work toward the end of the essay.
Even you "fork" Sears, you can't fork the customers. Now you have two versions of software competing with each other for customers, and each fork is slightly worse off. Fork enough times and you will only have a handful of users.
This will be much worse, of course, with the reliance on social components, which heavily benefit from the network effects. Even with shared database, there will be no interoperability.
Example: Fork A has 1000 users, it has recently implemented "snapchat-like stories". Fork B has 100 users -- now those 100 users cannot see content from popular authors because Fork B has not implemented stories support. And it cannot just borrow A's code, because Fork A recently switched from Angular to vue.js, while Fork B have not done so yet. People leave fork B and switch to fork A, fork B is abandoned, efforts of dozens of programmers are discarded and thrown away. Or alternatively, fork B's maintainers implementing the stories as well, duplicating exiting work and wasting their time. Meanwhile, new users look at dozen incompatible versions of the app, go "WTF is this I cannot figure this out" and go to Facebook instead.
Absolutely correct. I propose a solution at the end of the essay.
Under my proposed system, apps are installed into a group. So you bring all of your social graph and data.
Alice could invite Bob and Carole to a group. From the group, instead of a chat UI, there would be an app launcher. They could launch into a chat app, a game, or any sort of social/multiplayer experience.
Essentially, there is never a bootstrapping problem for any app because the platform itself provides the social graph. There is also no interoperability problem because versions are consistent across the group (although you could run two forks in parallel, but they would never talk to each other).
Not all apps can be built on this platform, but a large number of useful apps can.
From my reading of the Sears saga a while ago, Lampert’s strategy worked out extremely well for Lampert, transferring everything valuable to Lampert. Sure, he destroyed Sears in the process, but it seems likely that that was his intention.
I'll preface by saying that I have been talking to a lot of financial planners (at top-tier institutions). They basically set you up with a good set of ETFs, hedge funds, etc. and rebalance occasionally. Sometimes they do tax-loss harvesting. They also provide a few other nice little services. But at the end of the day, their fees are over 1% unless you have an ultra high net-worth.
In comparison, Wealthfront can automate huge strategies for a fraction of the cost (0.25%). For example:
- Direct Indexing (invest in an index by buying the stocks directly instead of a fund)
- Automatic investing, rebalancing, and tax-loss harvesting (including TLHing individual stocks within an index when paired with direct indexing)
- Coordinating trades between retirement and taxable accounts for optimal tax savings
- Smart beta (a custom weighted indexing algorithm)
Yes, a financial planner can do all of this (although most don't). But when they do, they just use automated software to do it. It would be impossible to implement these strategies manually. So why even go with a financial planner when Wealthfront does the same thing, but better/cheaper?