Tax loss harvesting and whether robo-investor fees are worth it

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bert09
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Tax loss harvesting and whether robo-investor fees are worth it

Post by bert09 » Tue Feb 13, 2018 2:18 pm

Hello all - first time posting here and was wondering if I could get some help with figuring out whether or not the robo-investor I am using is worth it with its current fees.

When I got started with investing, one of my friends referred me to Wealthfront - it was an easy way to get started, I like the functionality it provides, and the UI is much better than Vanguard, however the fees are "a monthly advisory fee based on an annual fee rate of 0.25%", which is quite a bit higher than just maintaining the same sort of ETF mix myself with Vanguard. The biggest criticism I have seen of services like Wealthfront is the relatively high fees and the fact that tax-loss harvesting doesn't actually provide enough benefit to outweigh them. A lot of this seems to come from the idea that typical buy-and-hold investors are not going to have much in the way of short term capital gains to offset, and in that scenario would hit the $3k offset limit but still be paying more and more fees as their portfolio grows.

However, this isn't really applicable to me as I get a large percentage of my compensation in restricted stock units. Due to the fact that my employer is doing fairly well and I am limited to certain trading windows, I periodically sell some portion of my company stock, almost always ending up with some amount of capital gains.

What I am looking for help with is how to figure out the math of whether offsetting my RSU capital gains with the Wealthfront TLH is worth more than the 0.25% fees I am paying. I know it doesn't really make it easy, but I want to know how to do this generically without providing specific numbers, i.e. if I have X amount of gains compared to Y in my investment account. If it is helpful, the WF account is at around a 80/20 AA.

Thanks!

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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by Rom1b » Wed Feb 14, 2018 3:22 am

bert09 wrote:
Tue Feb 13, 2018 2:18 pm
robo-investor
Hello.

Robo advisors are a nice idea, but in my opinion still in the infancy and with too high fees.. mostly a marketting idea of the big firms.

So my opinion: no, definitely not worth it; it will take you a few hours / days to know the basics of passive investing and you can decide what you do yourself, and keep the 0,25% which over years can amount to huge compounded sums of money.

Many good links here on the forum to assist you if needed like:

viewtopic.php?f=10&t=88005

viewtopic.php?f=10&t=7353

Or Bill bernsteins short introductory article:

https://www.etf.com/docs/IfYouCan.pdf
Dr Bernstein - If You Can / free PDF, google it | 3Fund Portfolio www.bogleheads.org/forum/viewtopic.php?f=10&t=88005 | CollectiveThought www.bogleheads.org/forum/viewtopic.php?f=10&t=7353

livesoft
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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by livesoft » Wed Feb 14, 2018 3:56 am

We have just had a fleeting 10% drop in the stock market from January's run-up of 8% or so. Basically mostly folks who contributed in mid-late January to taxable accounts could do any tax-loss harvesting. For all of 2017, perhaps the only asset class that can be in taxable accounts that also had losses was tax-exempt muni bonds. So for 2017, there should not have been many TLH opportunities for most folks.

TLH was important to me in 2000 and in 2008-2009 in big ways. TLH was important in lesser ways in subsequent years except as noted for 2017 and 2018 (so far).

I think robo advisors who say they can TLH for clients are just taking advantage of people who are too lazy and too fearful to do it themselves. It is about as easy as making oatmeal for breakfast, but many people would rather eat cold cereal or nothing for breakfast.

The math for the 0.25% of Wealthfront is easy: It is not worth it because it is trivial to do it yourself and easier. To ask whether TLH saves one at least 0.25% is the wrong question when you already know that dropping Wealthfront will save you 0.25% and you can do TLHing yourself.
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bert09
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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by bert09 » Wed Feb 14, 2018 12:41 pm

I think robo advisors who say they can TLH for clients are just taking advantage of people who are too lazy and too fearful to do it themselves. It is about as easy as making oatmeal for breakfast, but many people would rather eat cold cereal or nothing for breakfast.
To be completely honest, you definitely described me. I think this is something I would consider doing myself moving forward, especially as my portfolio grows.

The follow up question I would have then, is transferring my WF account to say Vanguard going to screw all of this up? Would it be necessary to sell the funds I currently have in there and then re-buy in VG for whatever asset allocation I want? It seems like I would be realizing all the gains that WF has been trying to defer for me.

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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by MotoTrojan » Wed Feb 14, 2018 12:45 pm

These types of firms have changed fees before and that’s what scares me. If using taxable assets I would want to confirm they allow transfer in-kind, assuming I wanted to leave for any reason. Some also tilt to value or other factors so make sure you understand that (I tilt myself but it can lag broad market sometimes).

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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by livesoft » Wed Feb 14, 2018 12:59 pm

bert09 wrote:
Wed Feb 14, 2018 12:41 pm
The follow up question I would have then, is transferring my WF account to say Vanguard going to screw all of this up? Would it be necessary to sell the funds I currently have in there and then re-buy in VG for whatever asset allocation I want? It seems like I would be realizing all the gains that WF has been trying to defer for me.
I don't know. That's a question to ask of some folks who have already done that. Maybe a new thread: "Who has transferred from WealthFront to Vanguard in-kind?" (Don't use WF as that sometimes means WellsFargo.)
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thangngo
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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by thangngo » Wed Feb 14, 2018 1:35 pm

bert09 wrote:
Tue Feb 13, 2018 2:18 pm
Hello all - first time posting here and was wondering if I could get some help with figuring out whether or not the robo-investor I am using is worth it with its current fees.

When I got started with investing, one of my friends referred me to Wealthfront - it was an easy way to get started, I like the functionality it provides, and the UI is much better than Vanguard, however the fees are "a monthly advisory fee based on an annual fee rate of 0.25%", which is quite a bit higher than just maintaining the same sort of ETF mix myself with Vanguard. The biggest criticism I have seen of services like Wealthfront is the relatively high fees and the fact that tax-loss harvesting doesn't actually provide enough benefit to outweigh them. A lot of this seems to come from the idea that typical buy-and-hold investors are not going to have much in the way of short term capital gains to offset, and in that scenario would hit the $3k offset limit but still be paying more and more fees as their portfolio grows.

However, this isn't really applicable to me as I get a large percentage of my compensation in restricted stock units. Due to the fact that my employer is doing fairly well and I am limited to certain trading windows, I periodically sell some portion of my company stock, almost always ending up with some amount of capital gains.

What I am looking for help with is how to figure out the math of whether offsetting my RSU capital gains with the Wealthfront TLH is worth more than the 0.25% fees I am paying. I know it doesn't really make it easy, but I want to know how to do this generically without providing specific numbers, i.e. if I have X amount of gains compared to Y in my investment account. If it is helpful, the WF account is at around a 80/20 AA.

Thanks!
It's worth if for folks starting out to learn the rope of things or for those who don't want to handle buy/sell transactions except making regular contributions. I have Betterment with a small amounts of investment since 2015 with regular contributions. The TLH works fine and provides more value than I anticipated. It's an auto-pilot investment vehicle and get the job done. The kick is you'll have to pay 25 basic points. When I started out, the cost is less than what I would have paid for a dining out. So it's not much. When it grows, the dividends you receive is 15-20 times over the cost so at least it's covered. Whether it's worth it, it's up to you. If the amount is small enough (<100k), the convenience (and maybe a free lesson of TLH) outweighs the cost.

Maybe automatic TLH is nice during a small market dips (end of 2015, beginning of 2018, etc.) where some people at Vanguard missed that window of opportunity. But the amount is small in the grand scheme of things. As livesoft mentioned above, TLH during 2000s and 2008s can be used for a very long time. Don't be penny wise and pound foolish.

I still prefer holding ETFs at Vanguard brokerage account after experiment at Betterment, because I enjoy buy/sell/TLH/TGH myself.

bert09
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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by bert09 » Wed Feb 14, 2018 6:53 pm

livesoft wrote:
Wed Feb 14, 2018 12:59 pm
bert09 wrote:
Wed Feb 14, 2018 12:41 pm
The follow up question I would have then, is transferring my WF account to say Vanguard going to screw all of this up? Would it be necessary to sell the funds I currently have in there and then re-buy in VG for whatever asset allocation I want? It seems like I would be realizing all the gains that WF has been trying to defer for me.
I don't know. That's a question to ask of some folks who have already done that. Maybe a new thread: "Who has transferred from WealthFront to Vanguard in-kind?" (Don't use WF as that sometimes means WellsFargo.)
Should have just searched it first! Thanks - someone has already asked that exact question.

viewtopic.php?t=177828

wootwoot
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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by wootwoot » Wed Feb 14, 2018 8:29 pm

thangngo wrote:
Wed Feb 14, 2018 1:35 pm
bert09 wrote:
Tue Feb 13, 2018 2:18 pm
Hello all - first time posting here and was wondering if I could get some help with figuring out whether or not the robo-investor I am using is worth it with its current fees.

When I got started with investing, one of my friends referred me to Wealthfront - it was an easy way to get started, I like the functionality it provides, and the UI is much better than Vanguard, however the fees are "a monthly advisory fee based on an annual fee rate of 0.25%", which is quite a bit higher than just maintaining the same sort of ETF mix myself with Vanguard. The biggest criticism I have seen of services like Wealthfront is the relatively high fees and the fact that tax-loss harvesting doesn't actually provide enough benefit to outweigh them. A lot of this seems to come from the idea that typical buy-and-hold investors are not going to have much in the way of short term capital gains to offset, and in that scenario would hit the $3k offset limit but still be paying more and more fees as their portfolio grows.

However, this isn't really applicable to me as I get a large percentage of my compensation in restricted stock units. Due to the fact that my employer is doing fairly well and I am limited to certain trading windows, I periodically sell some portion of my company stock, almost always ending up with some amount of capital gains.

What I am looking for help with is how to figure out the math of whether offsetting my RSU capital gains with the Wealthfront TLH is worth more than the 0.25% fees I am paying. I know it doesn't really make it easy, but I want to know how to do this generically without providing specific numbers, i.e. if I have X amount of gains compared to Y in my investment account. If it is helpful, the WF account is at around a 80/20 AA.

Thanks!
It's worth if for folks starting out to learn the rope of things or for those who don't want to handle buy/sell transactions except making regular contributions. I have Betterment with a small amounts of investment since 2015 with regular contributions. The TLH works fine and provides more value than I anticipated. It's an auto-pilot investment vehicle and get the job done. The kick is you'll have to pay 25 basic points. When I started out, the cost is less than what I would have paid for a dining out. So it's not much. When it grows, the dividends you receive is 15-20 times over the cost so at least it's covered. Whether it's worth it, it's up to you. If the amount is small enough (<100k), the convenience (and maybe a free lesson of TLH) outweighs the cost.

Maybe automatic TLH is nice during a small market dips (end of 2015, beginning of 2018, etc.) where some people at Vanguard missed that window of opportunity. But the amount is small in the grand scheme of things. As livesoft mentioned above, TLH during 2000s and 2008s can be used for a very long time. Don't be penny wise and pound foolish.

I still prefer holding ETFs at Vanguard brokerage account after experiment at Betterment, because I enjoy buy/sell/TLH/TGH myself.
This has to be one of the best and most honest responses I've seen regarding robo advisors. I currently have a Wealthfront account that holds a small percentage of my investments so I'm not charged a fee. Roboadvisors are a great way for bogleheads to learn more about TLH and see how to effectively TLH. The fees really aren't bad if you want to learn more about TLH, for comparison most employer 401k plans have higher wrap and advisory fees. So many bogleheads are anti-robo but if you keep a small balance you'll see how everything works without being charged fees.

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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by drk » Wed Feb 14, 2018 8:32 pm

bert09 wrote:
Wed Feb 14, 2018 12:41 pm
The follow up question I would have then, is transferring my WF account to say Vanguard going to screw all of this up? Would it be necessary to sell the funds I currently have in there and then re-buy in VG for whatever asset allocation I want? It seems like I would be realizing all the gains that WF has been trying to defer for me.
I did this. It was pretty painless to do an ACATS transfer in-kind. The hardest part was (a) figuring out the right combination of brokerage and account number for Vanguard to transfer and (b) getting Vanguard to enter the cost basis information after it was sent from Wealthfront. All of Wealthfront's ETFs are ones that I'm comfortable holding, although I've since sold the XLE and will sell the dividend funds as soon as practical.

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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by Taylor Larimore » Wed Feb 14, 2018 9:14 pm

bert09:

One of the biggest but little-known problems with Wealthfront and similar robo-advisors is the large number of funds they use in their portfolios. As a result, in taxable accounts, the investor is often stuck with capital-gains when they later sell or exchange securities.

Knowledgeable investors use only tax-efficient funds in taxable accounts that can be held "forever." This normally means total market index funds.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Taylor Larimore
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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by Taylor Larimore » Wed Feb 14, 2018 9:14 pm

bert09:

One of the biggest but little-known problems with Wealthfront and similar robo-advisors is the large number of funds they use in their portfolios. As a result, in taxable accounts, the investor is often stuck with capital-gains when they later sell or exchange securities.

Knowledgeable investors use only tax-efficient funds in taxable accounts that can be held "forever." This normally means total market index funds.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

bert09
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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by bert09 » Thu Feb 15, 2018 3:38 pm

Taylor Larimore wrote:
Wed Feb 14, 2018 9:14 pm
bert09:

One of the biggest but little-known problems with Wealthfront and similar robo-advisors is the large number of funds they use in their portfolios. As a result, in taxable accounts, the investor is often stuck with capital-gains when they later sell or exchange securities.

Knowledgeable investors use only tax-efficient funds in taxable accounts that can be held "forever." This normally means total market index funds.

Best wishes.
Taylor
I think the funds that Wealthfront generally uses are what you described - VTI is the ETF equivalent of the Vanguard total stock market index fund right?

https://support.wealthfront.com/hc/en-u ... arvesting-

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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by patrick474 » Fri Feb 16, 2018 1:27 pm

bert09 wrote:
Tue Feb 13, 2018 2:18 pm
Hello all - first time posting here and was wondering if I could get some help with figuring out whether or not the robo-investor I am using is worth it with its current fees.

When I got started with investing, one of my friends referred me to Wealthfront - it was an easy way to get started, I like the functionality it provides, and the UI is much better than Vanguard, however the fees are "a monthly advisory fee based on an annual fee rate of 0.25%", which is quite a bit higher than just maintaining the same sort of ETF mix myself with Vanguard. The biggest criticism I have seen of services like Wealthfront is the relatively high fees and the fact that tax-loss harvesting doesn't actually provide enough benefit to outweigh them. A lot of this seems to come from the idea that typical buy-and-hold investors are not going to have much in the way of short term capital gains to offset, and in that scenario would hit the $3k offset limit but still be paying more and more fees as their portfolio grows.

However, this isn't really applicable to me as I get a large percentage of my compensation in restricted stock units. Due to the fact that my employer is doing fairly well and I am limited to certain trading windows, I periodically sell some portion of my company stock, almost always ending up with some amount of capital gains.

What I am looking for help with is how to figure out the math of whether offsetting my RSU capital gains with the Wealthfront TLH is worth more than the 0.25% fees I am paying. I know it doesn't really make it easy, but I want to know how to do this generically without providing specific numbers, i.e. if I have X amount of gains compared to Y in my investment account. If it is helpful, the WF account is at around a 80/20 AA.

Thanks!
I'm in a very similar position -- I have investments that generate a constant stream of capital gains, and I can always use tax losses generated by TLH. I use Betterment. The TLH is unquestionably a value-add, assuming that I'm not going (and don't want to try) to catch every TLH opportunity on my own.

Does TLH's monetary value effectively negate the 0.25% advisory fee? Maybe, maybe not, but I look at it more holistically. Certainly, I'm able to rebalance and TLH in a portfolio that offers a bit more than a 3-fund, and I don't have to keep track of wash sales and ongoing allocation in the various asset classes. At Betterment and other robos, there's no per-trade cost to accomplish this. Also, if I need to withdraw funds by selling securities, the algorithm tracks all of the lots and conducts sales in a tax-efficient manner. All of this is good. But most importantly (for me), using a robo platform keeps my hands off the process, so I'm not making asset allocation changes willy-nilly because I read something interesting on this forum or elsewhere.

As Rick Ferri has described it, the three principles of successful passive investing are: (1) Philosophy; (2) Strategy; and 3) Discipline. The robos do a very good job of adhering to (1) and (2) by providing a passive, buy-and-hold system. There may be better AAs than what Betterment provides, and there are surely worse ones, but I think Betterment's is reasonable and consistent with the BH philosophy. To my mind, however, (3) is the most important. I'm willing to pay 0.25% to achieve long-term discipline. I'm a hobbyist as far as reading about investing, but I don't think it's wise to be a tinkerer in my own portfolio. Others differ, based on their available free time and temperament, and that's fine too.
Last edited by patrick474 on Fri Feb 16, 2018 1:59 pm, edited 1 time in total.

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whodidntante
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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by whodidntante » Fri Feb 16, 2018 1:50 pm

Wealthfront is like training wheels for your bicycle. It might give you the confidence to ride, but it affects the handling and it costs something. And it shouldn't be used for long.

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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by Finridge » Fri Feb 16, 2018 4:46 pm

livesoft wrote:
Wed Feb 14, 2018 3:56 am

I think robo advisors who say they can TLH for clients are just taking advantage of people who are too lazy and too fearful to do it themselves. It is about as easy as making oatmeal for breakfast, but many people would rather eat cold cereal or nothing for breakfast.
You can make oatmeal for breakfast whenever you want to. You can only tax harvest when conditions are ripe for it and often only during very narrow windows of time. And you will many of these windows unless you follow the market very closely.

Most people are better off not watching the market because it creates unnecessary stress and acts as an inducement for market timing. Before I got into TLH'ing, I wouldn't really pay much attention to the the day to day ups and downs of the market.

Since I got into TLH'ing, I've been following the market more closely--and I don't like feeling the need to do this--it feels like a chore. It's not without benefits. I made a real killing during Brexit and also did OK selling some recent lots following the downturn a couple of weeks ago.

But each time, I've been able to TLH, I ended up spending a fair amount of time and energy on it. I stayed home from work, and sat at my computer, watching the market, and scanning through my brokerage accounts, looking at the various lots, and finding good candidates for TLH trades. I have a buy and hold, don't time the market mentality. But it seemed to me that TLH'ing came down very much to acting like a day trader in many ways.

It would be great if the process were systematized and automated--this would save time and effort, and also completely remove emotion from the equation. If I could have bot handle this for me according to pre-set rules, I would. I hope Vanguard and the other firms start offering this. The costs for Wealthfront and Betterment make them unattractive to me.

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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by livesoft » Fri Feb 16, 2018 5:17 pm

I've posted many times before that one doesn't need to follow the market if they set alerts with their broker to e-mail or text them when there is a TLH opportunity. Even Vanguard.com will do that for you.
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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by greybus » Fri Feb 16, 2018 5:21 pm

Wisebanyan does TLH for 0.24% fee, but caps fees at $20 per month ($240/yr). I've posted about them in the past (and use them myself), but not much love here for Wisebanyan, or robos in general. The company is small and people question their long-term business strategy, although M1 Finance is smaller with even less ability to generate income.

Schwab Intelligent Portfolios is also free* and does TLH with a high enough balance (if you look at some of my old posts, you'll see the approximate increased cost of using them is about 0.1-0.3% due to cash allocation and higher cost funds)

I would only recommend it if you have maxed your tax-deferred accounts, anticipate having a sizable taxable account, are still accumulating and value convenience.

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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by Freefun » Fri Feb 16, 2018 5:46 pm

I had a Betterment account. When they raised their fees I realized they are venture funded so still working on a sustainable business model - I had to move. I did in-kind transfer to VG. Was simple and happy I left.
Remember when you wanted what you currently have?

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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by patrick474 » Fri Feb 16, 2018 6:07 pm

livesoft wrote:
Fri Feb 16, 2018 5:17 pm
I've posted many times before that one doesn't need to follow the market if they set alerts with their broker to e-mail or text them when there is a TLH opportunity. Even Vanguard.com will do that for you.
Yes, you could do that. But I think that "set it and forget it" has real behavioral benefits for many people, in that they have less reason to go into their accounts and "optimize."

There is a lot of confirmation bias evident in arguments for DIYing or using a robo or using a non-robo advisor. All I can say is that I value having my idiosyncrasies removed from the process, as well as the idiosyncrasies of a well-intentioned individual advisor. I also find that the psychic benefits of having a pre-set portfolio leaves a lot more time to think about improving my "human capital." And it makes me much more accepting of market risks generally -- I don't worry that I should have invested in this or that in order to avoid Scenario A or Scenario B. Broadly, the investment approaches of Betterment, Wealthfront, Schwab Intelligent Portfolios, and VPAS are consistent with a passive investing philosophy, and they work fine for most people.

Again, different approaches for different people. I would just emphasize that 0.25% is not going to keep most folks from fully funding their retirement and living a comfortable lifestyle. Hand-wringing about investment choices and making reactive decisions might have some very negative life implications, though.

bert09
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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by bert09 » Mon Feb 19, 2018 3:34 pm

Since I am going through my tax stuff this week anyways, I looked at the net loss from Wealthfront's TLH from 2017 and it was about 2-2.5x what I paid in fees. So it seems like at least for 2017, to answer my own question, had I not done any TLH on my own, it was probably worth it.

Comparing that to what the fees on a VG 3-fund portfolio with no TLH would have been, it seems like it is a bit of a wash, slightly favoring Wealthfront. A VG 3-fund portfolio with TLH would have saved me the most, however, I am not sure if I would have trusted myself to execute it properly when there were not a lot of obvious opportunities like there was recently this year.

Not sure if 2017 represents a typical year though, and am still kind of curious what this would look like in the long-term.

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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by randomizer » Mon Feb 19, 2018 3:38 pm

TLH is easy (you can learn it from reading this forum). No way are robos worth 0.25%, unless they somehow magically shield you from making behavioral mistakes, in which case they are worth their weight in gold.
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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by patrick474 » Mon Feb 19, 2018 9:42 pm

bert09 wrote:
Mon Feb 19, 2018 3:34 pm
Since I am going through my tax stuff this week anyways, I looked at the net loss from Wealthfront's TLH from 2017 and it was about 2-2.5x what I paid in fees. So it seems like at least for 2017, to answer my own question, had I not done any TLH on my own, it was probably worth it.

Comparing that to what the fees on a VG 3-fund portfolio with no TLH would have been, it seems like it is a bit of a wash, slightly favoring Wealthfront. A VG 3-fund portfolio with TLH would have saved me the most, however, I am not sure if I would have trusted myself to execute it properly when there were not a lot of obvious opportunities like there was recently this year.

Not sure if 2017 represents a typical year though, and am still kind of curious what this would look like in the long-term.
I don’t think you can get an answer unless you can predict what kind of volatility and bear markets we’ll experience in the future. It’s obviously helpful if you’re making contributions on an continual basis. The robos’ white papers on TLH base their assumptions on continual contributions, so it’s not surprising that they assume a lot of value from TLH.

As others have mentioned, this is kind of moot if you’re willing to TLH on your own. Individuals probably cannot TLH as well as the robos, but an individual can probably do well enough to get within the 0.25% differential. So it’s really up to you. I use a robo for my accounts, and I use Vanguard for my kids’ custodial accounts. If my kids’ accounts were more complicated than a 3-fund setup, then it would be a big enough hassle to contemplate stopping or paring back TLH for them. Again, I think the behavioral issue is paramount - sort of surprises me that so many BHers assume, as in Lake Wobegon, that we are all above-average in this respect. I think of the robo as a (1) convenience and a (2) behavioral enhancement, and I think of automated TLH as one component in obtaining (1) and (2).

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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by nisiprius » Tue Feb 20, 2018 9:36 pm

Be sure to read How do I unwind this Wealthfront mess? before using Wealthfront. I thought that Wealthfront put investors in a fairly reasonable seven-or-eight ETF portfolio, with heavy use of Vanguard ETFs. Apparently... that's not what they do in taxable accounts.

Wealthfront put this poster into 124 holdings, mostly individual stocks. This is apparently part of their "Advanced Indexing," and they say
Advanced Indexing is included as part of PassivePlus®, our investment strategy, applied to your account at no additional charge. We recommend it for most clients.
Regardless of how well it does or does not work while you remain at Wealthfront, it becomes a nightmare if you wish to move to another brokerage... or even stay at Wealthfront but transition out of "Advanced Indexing."
If you previously had Direct Indexing and Advanced Indexing enabled and then disable it, we’ll sell your individual stocks and reinvest in index funds. This may incur taxable gains and decrease your expected return for the account. We recommend you consult a tax advisor before disabling Direct Indexing and Advanced Indexing.
It seems like a fairly brutal lock-in.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

jacoavlu
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Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by jacoavlu » Tue Feb 20, 2018 9:49 pm

The “direct indexing” at Wealthfront is a feature that you definitely have to opt-in for, and it requires a sizeable portfolio. One should do their research before signing up for such a product.

patrick474
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Joined: Wed Feb 01, 2017 9:41 am

Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by patrick474 » Wed Feb 21, 2018 10:06 am

jacoavlu wrote:
Tue Feb 20, 2018 9:49 pm
The “direct indexing” at Wealthfront is a feature that you definitely have to opt-in for, and it requires a sizeable portfolio. One should do their research before signing up for such a product.
Agreed -- for certain people (those with a frequent, large taxable gains to offset) it could be a great benefit. Parametric has been offering this for years but only makes it available to larger accounts. It has to be explained - my concern is that Wealthfront is not really disclosing that you really need them (Wealthfront) to manage the portfolio, so it makes your portfolio un-portable. I think most Wealthfront customers are better off sticking with the plain-vanilla offering, which can be transferred out in the future and integrated into a different portfolio.

TheEternalVortex
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Location: San Jose, CA

Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by TheEternalVortex » Wed Feb 21, 2018 10:30 am

Most people don’t have regular gains so the value of TLH is capped at 3k*marginal tax rate. And obviously you have to pay those taxes later on when you sell, so it’s even less than that. But at some point a 0.25% fee will exceed that. Since you can’t get TLH without ongoing contributions it’s inevitable. So in the long run it’s never going to be saving you money.

jacoavlu
Posts: 465
Joined: Sun Jan 06, 2013 12:06 pm

Re: Tax loss harvesting and whether robo-investor fees are worth it

Post by jacoavlu » Wed Feb 21, 2018 10:41 am

The folks that do the automatic TLH have data that suggests the gains from tax savings outweigh the AUM fee, but there's a significant caveat in that the data assumes that the tax savings is reinvested in the account, similar to dividend reinvestment.

In other words, if Betterment TLH $100 for you yesterday, you should deposit the tax savings from that transaction today.

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