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.

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).

Are you comparing this to fidelity's target date retirement fund?

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.

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.

Don’t understand this. The tax savings only come from realized loses. In the long run SPY will likely best that including your “savings”.

This article from their help center explains the methodology: https://support.wealthfront.com/hc/en-us/articles/209348486-...

How do you do this? Isn't max risk like 45% US stock?

You can lower or remove the other areas. Also can add direct indexing.

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.

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

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.

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.

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

You assume that most people who want to invest even understand what SPY is, what a proper allocation looks like between stocks and bonds, what tax-loss harvesting or rebalancing is, etc. For those folks, robo-advisors provide a huge value-add in making it really simple to invest responsibly. If they were to do it on their own, they probably wouldn't know where to begin.

The kind of person who is using a robo adviser will probably know what SPY is, and even if they don’t that’s the purpose of my post.

I’ve yet to see evidence that any actively managed fund, including robo advisers, outperform SPY on a risk adjusted and fee adjusted basis.

One reason they've underperformed a bit is because they have a lower risk profile than SPY.

When the market crashes, I expect their autorebalancer to make a killing.

It's been hard to compete with "stick all your money into the biggest US companies" for the last few years, but those years weren't typical.

We could also tell you that VOO gives you the returns of SPY with 1/3 the fees, or that VT gives you much better diversification.

Schwab at least has terrible UI and doesn't always have accurate numbers. (For example, their GL/share for one of my mutual funds reports the wrong price/share, using the same value for every purchase, while viewing the history tab I can see the actual prices from reinvested dividends...)

Not saying they aren't saving you the fees, but not a lovely experience.

>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.

I don’t disagree but my point is that an uninformed investor would be better off financially with a straight index.

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.

What you’re saying is literally the same with fidelity, Schwab, vanguard, etc using an index.

Wealthfront's value is that the unpassionate investor can set and forget it, instead of manually transferring every month

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.

Setting aside whether TLH is saving money or simply borrowing it from future tax liabilities, how much is 3k in capital losses worth to you? At what point does the 0.25 expense ratio cost more than the benefit to you?

By my calculations, the breakeven AUM is around $240k, assuming you always have 3k cap gains to offset.

It’s more of an argument for how lots of individual holdings could beat an ETF, in USA anyway. If your commissions are free anyway. Lots of paperwork tho.

For all I know, these robo-advisers just buy you ETFs.

I believe the discussion is about what Wealthfront is doing to earn their 0.25% fee. "Tax loss harvesting" seems unpersuasive.

At $100k AUM they start “direct indexing,” buying shares as well as ETFs. I only started in 2020 but so far they’ve harvested 3.6x their own fees. I would not have spent time doing that, so it’s gravy.

Except you are still going to pay those taxes when you do sell, you are just delaying the taxable event so I wouldn't consider that money actually saved.

What is the situation where that is actually useful? Take me for example, I invested for 5 years in VTI and then sold it for a downpayment. What would their TLH do for me in that situation because I didn't need to offset cap gains in those middle years and the end year both get hit with cap gains.

Doesn't seem to do anything except charge a higher fee and create more irs paperwork in that situation.

True, if you cash out that soon you only get use of the tax money for a little while. I like TLH for the same reason I like a traditional 401(k). Right now I’m getting a Bay Area tech salary and RSUs, and I want to defer some taxes until I’m in a lower bracket.

If we’re talking about the first $3k of losses applied to income account instead of capital account, it is saving you taxes by turning capital losses into income losses where the tax benefits are greater.

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.

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.

My point is that even if it was literally the same stock, unless you know that you bought at the relative bottom all you’re doing is needlessly incurring loses.

For example you’re better off just buying the dip, then selling, and paying taxes (even with harvesting) and repurchasing assuming the stock recovers and you don’t mind fronting the capital

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.

It gets harder to pull that off once you’re a long-term holder

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.

> 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.

> 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.

Self-directed surgery? Joking aside, providing structure to investments and investment decisions is probably helpful for some.

> 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.

>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.a....) This is essentially free alpha. You can do it yourself but it's a pain to do correctly.

> 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.

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.

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.

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.

M1

Why does Vanguard sell you ETFs instead of keeping them for themselves?

Vanguard is not famous for actively managed funds.

Neither are robos. Rebalancing according to some rules isn't active management.

Vanguard has more active management products, actually. Besides their Windsor fund, S&P 500 is an actively managed index.

Robos are actively managed, just not by human, and their fees reflect this. If they’re not actively managed then they make even less sense since they’re more expensive than indices that have better historical returns…

You can't invest in an index so the returns are fictional.

An index ETF sure, but it might be worth paying for tax optimization over that.

What I’m saying is that there’s no Sara to suggest even with tax harvesting it’s better than SPY. The expense ratio is literally 10X.

If I’m wrong feel free to walk me through a 10 year period where any robo advised fund of your choosing has better return, risk and fee adjusted.