Help me understand Jemstep vs FutureAdvisor Recommendations?

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samwise
Posts: 8
Joined: Wed May 21, 2014 10:06 pm

Help me understand Jemstep vs FutureAdvisor Recommendations?

Post by samwise »

I've been using Future Advisor recently, and overall I've been pretty happy with it. Their recommended portfolio is all low-cost index funds, with a value-tilt. See here for description of their investing strategy.

I also signed up for Jemstep, and their recommended allocation is pretty significantly different. Can somebody more expert than I am help me make sense of why these two recommendations are so divergent? And, if possible, which one I would be better advised to follow? Thanks a lot!

You can see some of those differences here (sorry for the large images, their sites have stupid fancy designs that don't copy-paste well):

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Basically Jemstep is suggesting much less international exposure and more exposure to domestic equities, and commodities/other. Within the Bonds category, their recommendations are very different as well. Future Advisor loves TIPS, while Jemstep thinks I should have no TIPS at all, nor any foreign bonds. It's also suggesting US Mortgage bonds, though I already have some domestic REIT holdings.

For reference, here's Future Advisor's analysis:

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As far as I can see, JemStep is a bit more conservative, shying away from international funds. But at the same time they're suggesting 5% in commodities? Isn't that pretty exotic?

Are they just following two different philosophies?
steve_14
Posts: 1507
Joined: Wed Jun 20, 2012 12:05 am

Re: Help me understand Jemstep vs FutureAdvisor Recommendati

Post by steve_14 »

Opinions on what your asset allocation should be are a lot like a certain body part - everybody's got one. In the time you spent checking out the goofy recommendations of these websites, you could have learned the fundamentals and come up with one yourself. How would you do that?

Start by figuring out your risk profile (stock/low risk bond mix). Then understand that everything beyond that is detail. Some things that just don't matter:

-A 5% commodities allocation (waste of time, mainly an industry marketing tool).
-Half TIPS or all total bond market (same expected return)
-Variations in US/foreign stock ratios (same risk/return profiles)
-Overweighting REITs at the expense of other stocks (there's simply no point)
-A value or growth tilt (the market hasn't left you a free lunch here)

What you'll find going forward is that your two portfolios move in tandem and have very similar returns due to their similar stock/bond mix, as will a simple three fund portfolio, which is what I recommend: http://www.bogleheads.org/wiki/Three-fund_portfolio . There's no free lunch in complexity.

What does matter is fees. Keep those around .1%.
Topic Author
samwise
Posts: 8
Joined: Wed May 21, 2014 10:06 pm

Re: Help me understand Jemstep vs FutureAdvisor Recommendati

Post by samwise »

Steve_14, thanks for the feedback. You may well be right that these two portfolios are not as different as they appear, given the similar stock/bond ratios.

I actually am familiar with the basics of asset allocation, and I understand the case for a simple/three fund portfolio.

However, my funds are necessarily split across 4 separate accounts (401k, Roth IRA, HSA, and taxable brokerage) so re-balancing and maintaining the correct allocations for my whole portfolio is quite a pain. I think there's an enormous amount of value in an automated service that will pull data from all my accounts, and show me what my overall positions are by asset class.

I'm mostly interested in understanding more about *why* they're recommending these particular portfolios, and where the differences come from.
steve_14
Posts: 1507
Joined: Wed Jun 20, 2012 12:05 am

Re: Help me understand Jemstep vs FutureAdvisor Recommendati

Post by steve_14 »

samwise wrote:I'm mostly interested in understanding more about *why* they're recommending these particular portfolios, and where the differences come from.
As I note, it's simply marketing. There's no right or wrong answer, and each company has to differentiate itself. So it's like asking why Ford shapes its car one way, while Chevvy shapes it another. Neither of these websites has a crystal ball, or some insight that's going to improve your performance.
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hoppy08520
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Joined: Sat Feb 18, 2012 10:36 am

Re: Help me understand Jemstep vs FutureAdvisor Recommendati

Post by hoppy08520 »

samwise wrote:I'm mostly interested in understanding more about *why* they're recommending these particular portfolios, and where the differences come from.
Samwise, a blogger who posts here cataloged a list of 150 lazy portfolios:

http://whitecoatinvestor.com/150-portfo ... han-yours/

Future Advisor's model portfolio isn't in his list, so I guess now there are 151. If you want to know why they're recommending it, they explain it on their site. They are Fama French MPT disciples and they tilt to small and value. If you search the site, you'll see plenty of other threads.
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SamGamgee
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Joined: Wed Nov 07, 2007 12:21 pm

Re: Help me understand Jemstep vs FutureAdvisor Recommendati

Post by SamGamgee »

I'm not sure this forum is big enough for the both of us.

Both of our usernames, I mean. :)
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