What we know about robo advisors

[jbolden1517]

[Post moved to [Help with TD Ameritrade robo-adviser portfolio] -- admin LadyGeek]

Newbie here, have accts with Td Am. Their essentials robo has a .3 fee and at this time doesn't include TLHarvesting. Provided they ge this , would be interested in an evaluation of the robo philosophy they are using with their essentials portfolio. Thx.

Sure hadn't planned to do this one.

TD Essentials:

Short answer is it is a pretty substandard robo. I wouldn't recommend it for any substantial funds or as a serious part of the portfolio. I don't think they even treat it all that seriously, its more of an add on, "hey you don't have to leave us to use a robo for some of their money we offer a robo program too". I can see it being useful for someone who is using TDAmeritrade for something else. For example if you are primarily an options investor using their quite excellent thinkorswim for options, and just want somewhere to toss "ETF money" and have them manage "that ETFy stuff" it might be a good choice. Your options get in trouble you can liquidate and move the money fast. Everything going smoothly your core portfolio is in normal stuff while you focus on making high returns day trading options. Another important use case is TD is the broker for Coverdell ESA. So if you want to hold things like direct real estate or private shares in your business as the core of your IRA and want a mainstream portfolio for the rest this robo is a good choice. Those are the kinds of scenarios it is a fit for. Consider it an add on for TD's quite excellent other products not a core TD product, they are trying to check off the "has a robo program" in the broker comparison list.

The literature fits with this and consequently is really interesting comparatively because of the huge range of customers the robo is aimed at. Most robos are aiming at people who know very little about investing. TD customers are a much wider range, many of whom have been investing directly in stocks for years but have little experience with mutual funds. So in the literature they have to explain who Vanguard and Blackrock are. On the other hand they comfortably and casually break stock ETFs down by sectors assuming you do know how to read and would care about a sector breakdown in evaluating your risk. The literature is aimed at a very different target customer then the other robos we are reviewing.

If you evaluate it just as a robo. .3 ER (in line with full service robos). All portfolios consist of balance between 6 funds:
iShares total US stock market
Vanguard FTSE
iShares Core USA bonds
Vanguard FTSE EM
Vanguard Total Intl bond
Cash

This is a very bare bones robo. They don't deny this. The name "essentials" is meant to convey this covers the essentials of investing not really a full fledged recommended portfolio to hold for decades. They do not offer tax loss harvesting in their robo or any advanced features for spending, again just the essentials of robo investing. In terms of portfolio it is a group of low cost cap weighted indexes so you end up with too much large growth exposure which will cause you to underperform more sophisticated portfolios. Lower returns at greater risk.

In terms of advantages TD Ameritrade is owned by TD Bank so they are one of the few robos you can walk into a physical branch all over the country: https://www.tdameritrade.com/branches.page . They do offer an upgrade to a more serious FA based solution: TD Ameritrade Selective Portfolio (used to be Amerivest Managed Portfolio). The FA service has a $25k minimum and a 1% minimum advisory fee so they are charging just under full fare. This service also gets bad reviews for lacking at that price point.

TD has a long history of rolling out services not fully cooked and then slowly growing them into areas of excellence. If you are reading this review well after 2017 please take all the criticism above with a huge grain of salt. TD's robo program in 2020 might be quite excellent. But for an investor in 2017 it is a substandard and not even really intended to be your core portfolio. A terrible mismatch between where they excel and where they lack for the typical Boglehead reader or poster.

[4nwestsaylng]

I'm also looking at metrics. Wouldn't the Sharpe and Sortino ratios be used to measure this effect?

Not quite. In fact the Sharpe ratio uses the same ideas I was talking about. The Sharpe ratio is computed by subtracting off the risk free rate of return from asset return and then dividing by volatility. So essentially it asks the question, "if you were borrowing the money to buy this asset what would your volatility adjusted return be"? The Sharpe ratio is going to be the same for 10% TSM, 90% Cash and 200% TSM, -100% Cash. It factors out leverage, so it doesn't measure it.

This thread gets pretty complex but is fascinating. Wish I had more hours to really dissect it, but a couple of clarifications requested:

I assume there is a wiki on the Sharpe ratio? What is the difference between risk free rate of return an asset return? If you hold x shares fully unleveraged and the return is 5% that year, that return is not "risk free" as you had your own funds at risk, but in terms of being nonleveraged, is that what is meant here by risk free? Whereas if you leveraged, and bought 2x worth of shares, your return for the year is 5% of 2x, ie double the return on your investment, less of course borrowing costs, so is the asset return this leveraged return?

So with the Sharpe ratio, is it saying, take the difference between your leveraged return and your fully owned return, then divide by volatility, and you get the ratio? If so, is it not in fact measuring the safety of the leverage, ie, a high ratio would mean the portion of your return generated by leverage, of an asset that has low volatility. (ie leveraging for improving returns on a low volatility asset), as compared to a low Sharpe ratio, which would reflect that you are using leverage in a riskier manner, for an asset with high volatility?


Question 2: You mentioned how Blackrock Global ( MDLOX), as a noncorrelating asset, in fact improved the total return instead of holding TSM only as the equity portion of say, a 3 fund portfolio. Then there were a lot of back and forth threads on MPT , etc.

I gather that you are not a fan of the 3 fund or Lifestrategy alone, without some such modification of adding some noncorrelation. This makes me wonder whether , in the non SIP portion of my portfolio (SIP is a small portion, I am looking at it separately, the rest is 3 fund but I might do Lifestrategy or balanced fund for easier balancing), do you think there is better potential return with less volatility if the market were to drop, by adding a noncorrelating fund such as MDLOX instead of being 100% TSM or Total World SM? :

I am intrigued by your posting that with your current noncorrelating protection, you would be down no more than 15% if TSM drops 50%, and up no more than 15% if TSM goes up 50%. Could you elaborate on how you have set this up? Just asking

[jbolden1517]

This thread gets pretty complex but is fascinating. Wish I had more hours to really dissect it, but a couple of clarifications requested: I assume there is a wiki on the Sharpe ratio?

All over, just google. Cute video that helps explain it: http://www.investopedia.com/terms/s/sharperatio.asp

What is the difference between risk free rate of return an asset return?

The risk free return for a USA investor is something like the 30 day treasury bill's return. An asset's return is whatever it turns out to be.
SP500 return in 2016
SP500 return in 2015
SP500 return in 2014
etc...

If you hold x shares fully unleveraged and the return is 5% that year, that return is not "risk free" as you had your own funds at risk, but in terms of being nonleveraged, is that what is meant here by risk free?

No. Assume that were a bond portfolio that gave you the 5% return. You didn't invest in treasury bills (assume they have a 1.5% return). So you put your money at risk and earned an 3.5% for that risk. Do the same computation year after year after year, adjusting the risk free return as the Fed adjust short term rates and you will get a series that looks like: 3.5%, -2%, 7%, 4%... That sequence is what you got paid for taking on risk over 30 day bills. That series of returns has a mean and a standard deviation. Divide the mean by the standard deviation and you get the Sharpe ratio.

If you were holding the same asset at 2::1 leverage the returns less the risk free rate would 7 (5*2-3)%, -4 (-3.5*2-3)%, 14%, 8%... The mean would be twice the mean of the previous calculation and the standard deviation would be twice the standard deviation of the previous calculation. The Sharpe ratio would remain unchanged.

So with the Sharpe ratio, is it saying, take the difference between your leveraged return and your fully owned return, then divide by volatility, and you get the ratio?

The Sharpe ratio considers your "fully owned" stuff and your leveraged stuff the same. In one case you aren't collecting the risk free rate to take on risk, in the other you are paying the risk free rate to own stuff. Same thing.

I'm going to drop the next question because the assumptions were wrong.

Question 2: You mentioned how Blackrock Global ( MDLOX), as a noncorrelating asset, in fact improved the total return instead of holding TSM only as the equity portion of say, a 3 fund portfolio. Then there were a lot of back and forth threads on MPT , etc.I gather that you are not a fan of the 3 fund or Lifestrategy alone, without some such modification of adding some noncorrelation. This makes me wonder whether , in the non SIP portion of my portfolio (SIP is a small portion, I am looking at it separately, the rest is 3 fund but I might do Lifestrategy or balanced fund for easier balancing), do you think there is better potential return with less volatility if the market were to drop, by adding a noncorrelating fund such as MDLOX instead of being 100% TSM or Total World SM?

Yes I do. Total World is so volatile and low returning (large growth) that 100% MDLOX strictly outperforms it. According to the math you can't even use TotalWorld to diversify MDLOX (or visa versa) its just a much worse asset.

50/50 USA/Global stock cap weight: Annualized Return: 6.89% Risk (Standard Deviation): 14.30% Growth of $10k: $52,945.06 Max Drawdown: -54.13% Sharpe Ratio: 0.30

MDLOX: Annualized Return: 9.26% Risk (Standard Deviation): 9.71% Growth of $10k: $91,451.58 Max Drawdown: -29.37% Sharpe Ratio: 0.68

However I caution you they aren't non correlating they correlate pretty well (which is why MDLOX can't diversify the above). MDLOX is after all a global stock fund. Its just a better one according to the data. The reason BlackRock Global worked to diversify the other portfolios is they weren't so strongly correlating (lots of bonds). In this case because there are no bonds, Blackrock is successfully avoiding drawdowns that the other two take on fully. It is always better to avoid parts of a drawdown than to not avoid parts of the drawdown even at the expense of slightly lower returns during bulls. So the math says don't hold any of the other two at all. 100% is a big gamble on active management and one I'm not willing to make myself. But that is what the math says.

I am intrigued by your posting that with your current noncorrelating protection, you would be down no more than 15% if TSM drops 50%, and up no more than 15% if TSM goes up 50%. Could you elaborate on how you have set this up? Just asking

Oh I have a lot of covered puts (short stock, short a put on the stock) on stocks with high implied volatility. Those sort of act like very high yielding (20-40% yr) but risky bonds. If the market sells off hard those all become super safe. Conversely if the market rises sharply I start losing on those positions (potentially a lot) but then my long value stocks are doing very well and help bail me out. I have some positions in the other direction (covered calls) which also generate strong returns in a slowly rising or flattish market. The shorts are better though because they don't count against my portfolio I'm just selling stuff not buying stuff. On top of that I am also heavily long volatility which in a big spike explodes in value. That's not a Boglehead portfolio at all. I'm sort of running my own private hedge fund. Parts of the portfolio have strong returns in down, flat or up markets. That's really good anti-correlation. And let me add I'm not recommending this approach to people who haven't played with these things some.

Anyway this is about robos and other than Covester none of them offer market neutral approaches using derivatives and leverage. (I keep wondering if I should review them or not).

[Ghostman]

I just setup an account at WiseBanyan this week. It is a taxable account that I want to play around with for Tax Loss Harvesting. So far it has been fairly straight forward.

[LadyGeek]

FYI - I moved Mardoc01's discussion into a new thread: [Help with TD Ameritrade robo-adviser portfolio]

If anyone needs help with their portfolio, please start a new thread in the Investing - Help with Personal Investments forum. Feel free to post a link here, but the discussion should be in your own thread. This allows us to focus on your own situation while keeping the discussion here as a general discussion of robo-advisers.

[4nwestsaylng]

I am intrigued by your posting that with your current noncorrelating protection, you would be down no more than 15% if TSM drops 50%, and up no more than 15% if TSM goes up 50%. Could you elaborate on how you have set this up? Just asking

Oh I have a lot of covered puts (short stock, short a put on the stock) on stocks with high implied volatility. Those sort of act like very high yielding (20-40% yr) but risky bonds. If the market sells off hard those all become super safe. Conversely if the market rises sharply I start losing on those positions (potentially a lot) but then my long value stocks are doing very well and help bail me out. I have some positions in the other direction (covered calls) which also generate strong returns in a slowly rising or flattish market. The shorts are better though because they don't count against my portfolio I'm just selling stuff not buying stuff. On top of that I am also heavily long volatility which in a big spike explodes in value. That's not a Boglehead portfolio at all. I'm sort of running my own private hedge fund. Parts of the portfolio have strong returns in down, flat or up markets. That's really good anti-correlation. And let me add I'm not recommending this approach to people who haven't played with these things some.

Anyway this is about robos and other than Covester none of them offer market neutral approaches using derivatives and leverage. (I keep wondering if I should review them or not).

Thanks for the clarifications. Did not mean to distract with the last question. Reasonably familiar with puts/calls as you describe their use but not my thing and as you said not a Boglehead portfolio or close variant, so will continue to follow your excellent work regarding the robo portfolios.These threads are complex to an average investor like me, but also stimulating and challenge me to keep up, with occasional requests for clarification, as in the Sharpe ratio example above, now I get it.I have a degree in Economics from a good school,have had econometrics, etc., but as you know that is of little use in developing an investment plan apart from some macro knowledge

[LadyGeek]

This thread gets pretty complex but is fascinating. Wish I had more hours to really dissect it, but a couple of clarifications requested: I assume there is a wiki on the Sharpe ratio?

All over, just google. Cute video that helps explain it: http://www.investopedia.com/terms/s/sharperatio.asp

We don't have a wiki article on the Sharpe ratio, but we do have one on William F. Sharpe.

The article includes a link to his paper: "The Sharpe Ratio"

[jbolden1517]

This thread gets pretty complex but is fascinating. Wish I had more hours to really dissect it, but a couple of clarifications requested: I assume there is a wiki on the Sharpe ratio?

All over, just google. Cute video that helps explain it: http://www.investopedia.com/terms/s/sharperatio.asp

We don't have a wiki article on the Sharpe ratio, but we do have one on William F. Sharpe.

The article includes a link to his paper: "The Sharpe Ratio"

That's something you probably should have. I've noticed a lot of confusion here about people not understanding what "risk adjusted return" means (i.e. the sharpe ratio). The Sharpe definition of return is the same as the definition in CAPM which is fundamental to the ideology behind cap weighted market indexing being an efficient portfolio. I do fully support the Sharpe ratio as the right definition of risk for CAPM unhesitatingly even though I don't believe in CAPM. That article might be better coming from someone who believes in CAPM, rather than someone who understands it but doesn't.

Bill Bernstein's treatment in Intelligent Asset Allocator is exactly right. Pity the online version no longer exists. But he has some articles from the period where he was writing it that cover this well like http://www.efficientfrontier.com/ef/996/rebal.htm

[Avo]

Schwab Intelligent Portfolios

Schwab's doesn't charge for their robo-advisor service. Fees for funds average about 17 basis points. They also unlike most robo-advisors have a pronounced value tilt. They give this sample portfolio of a 2/3rds stock 1/3rd bond

I'm trying to think through the effective cost of the cash position. If the rest of the porfolio goes up by p% in one year, and the cash goes up by c%, then the gain of the complete portfolio lags a no-cash equivalent by (fraction in cash)*(p-c)%. So if p=6%, c=1%, and fraction in cash = 0.09, the lag is 0.45%. This could be thought of as an additional effective expense ratio, one that varies from year to year depending on p-c.

On the other hand, you could think of the cash as an emergency fund. To withdraw it when needed, you terminate the robo service and take individual control of the assets; liquidate the cash (if in taxable), or invest it (if in tax-exempt) and redeem equivalent assets from taxable.

[jbolden1517]

I'm trying to think through the effective cost of the cash position. If the rest of the porfolio goes up by p% in one year, and the cash goes up by c%, then the gain of the complete portfolio lags a no-cash equivalent by (fraction in cash)*(p-c)%. So if p=6%, c=1%, and fraction in cash = 0.09, the lag is 0.45%. This could be thought of as an additional effective expense ratio, one that varies from year to year depending on p-c.

On the other hand, you could think of the cash as an emergency fund. To withdraw it when needed, you terminate the robo service and take individual control of the assets; liquidate the cash (if in taxable), or invest it (if in tax-exempt) and redeem equivalent assets from taxable.

My personal opinion is an emergency fund is part of a portfolio. Everything counts. Your mortgage is a short bond position. Your house is a non-diversified real estate investment. A pension is a fixed cost annuity you carry at what it would cost to buy...

In terms of your estimate, I agree with your sentiments. I think your numbers are high. If you are talking a 6% return on a US bond fund you are talking a fund of at least 8% bonds (high yield bonds do bleed principal) and in today's market there really is quite a bit more risk there at 8% bonds. Those are the sorts of bonds that would be below the grades that Vanguard's high yield would still reject. The spread between STB and cash is maybe 150 basis points 9% so 13 basis points. Make it TBM (which I've been recently converted to) and you are up at say 20. There is some advantage to cash over anything else that cuts that number. Look back over all the comments regarding leverage earlier in this thread. Same idea applies to negative leverage, cash. Cash is good especially when interest rates are high, in that it quite rapidly pulls the serial return of a portfolio towards the expected return of the portfolio. You get a bit of a bump from the stability in terms of rebalancing effectiveness even though the cash itself is lower returning. The problem is both short and intermediate bonds do almost the same thing while still having the higher yield but you are losing some. I think you are overestimating the effective ER for SIP on cash drag as compared to what Bogleheads typically use as bonds (that is what would be in their 70/30 portfolio).

[Avo]

I was assuming deployment of cash across the entire portfolio equally, rather than putting it all in bonds.

But thinking of the cash as replacing a short-term bond position is probably more reasonable. And now that cash interest rates are up from zero, the drag is considerably less.

[jbolden1517]

Asset Builder: https://assetbuilder.com/

Asset Builder I suspect is an robo-advisor many Bogleheads might consider, especially those that migrated from the older indexfunds board where DFA was lauded. DFA, Dimension Fund Advisors (http://us.dimensional.com/), is Ken French's and Eugene Fama's mutual fund company. They had been for a long time the head to head competitor of Vanguard in passive investing before passive became mainstream. Vanguard has traditionally seen cost as the number one enemy of return and has focused on simple funds that could run as inexpensively as possible. DFA embraced passive and held down costs but was willing to incur higher costs for strategies that were likely to outperform. They are arguably the original smart beta / factor investing house, applying the ideas from academic finance directly in mutual funds long before these ideas are broadly accepted. Their funds are notoriously excellent, though many of the strategies have had problems scaling as DFA has grown to a top 10 mutual fund provider. Unusually for an open ended mutual fund company, DFA will not sell directly to investors but rather all funds are held in institutional accounts at select brokerages (most commonly Charles Schwab) in the customer's name and managed by a select group of approved advisors. These advisors sell almost exclusively DFA whenever there is an acceptable DFA fund, and share DFA's philosophy of investing. In comparing DFA to Vanguard funds generally the DFA fund outperforms by quite a bit before expenses due to more sophisticated trading and still some after expenses. An investor who is affectionate towards Vanguard should have no concerns about DFA unless they are opposed to factor investing, in which case they should have grave concerns.

Asset Builder is the robo-advisor approved for DFA. The firm was founded by the newspaper financial columnist Scott Burns. Like most DFA advisors the accounts are held at Schwab. Asset Builder charges 45 basis point fee (dropping lower at higher balances, example 30 basis points at $1m). DFA sells mutual funds not ETFs. For mutual funds DFA is more expensive than Vanguard's mutual funds and Blackrock, SSGA ETFs. So while DFA is still cheap by mutual fund standards expect another 25-48 basis points in fund fees vs the average of 12 basis points for most of the competition. Further these funds do not pay 12b-1 fees (the funds mutual funds pay to brokers to offset their costs) so there will be another $100 / yr in Schwab transaction fees for rebalancing ($20 per trade). The fees are cheap by human advisor standards but somewhat higher than the other robo advisors we have been considering. The minimum for an account is $50k, much higher than any other robo advisor we are considering in this list.

As in the other examples here is a 70/30 portfolio. This ranks a 10 out of 14 on Asset Builder's portfolio construction matrix for aggressiveness.

Fixed Income: 30%
20% / DFIHX -DFA Dimensional 1YR Fxd Inc
10% / DFGFX -DFA 2 Yr Global Fixed Incm Port

U.S. Large: 10%
5% / DFLVX -DFA US L/C Value Portfolio
5% / DUSLX -DFA US Large Cap Growth

U.S. Small: 20%
11% / DFSVX -DFA US Small Cap Value
4% / DSCGX -DFA US Small Cap Growth
5% / DFSCX -DFA US Micro Cap

REIT 11% / DFREX -DFA Real Estate

International: 29%
7% / DISVX -DFA Intl Small Cap Value PT
6% / DISMX -DFA Intl Small Cap Growth
8% / DFEVX -DFA Emerging Markets Value
8% / DEMSX -DFA Emerging Markets Small Cap

Asset Builder does have a list of Vanguard Based portfolios that they recommend for people who don't want to hire them to implement via. a DFA portfolio. For example for something like the 70/30 portfolio above they would recommend (note this portfolio is heavy in TIPS demonstrating Scott Burn's preference).
14% / VIPSX -Vanguard Inflation Protected Securities
14% / BWX -SPDR Barclays Intrntl Treasury Bd
14% / VTSMX -Vanguard Total Stock Mkt Idx
14% / VIVAX -Vanguard Value Index
14% / VGSIX -Vanguard REIT Index
14% / VGTSX -Vanguard Total Intl Stock Index
14% / VGENX -Vanguard Energy

If we benchmark, we will benchmark both portfolios during this round of tests.

Some of these are funds I would love to hold personally: DFSCX and DEMSX are insanely good funds, all of them are at least as good as the indexes. One can see immediately the typical 4x4 approach (holding large cap value, large cap growth, small value, small growth separately) that DFA advisors are fond of which lends itself well to rebalancing and ends up being a light sector rotation strategy in practice. This is in contrast to Vanguard's philosophy of holding a less expensive more tax efficient total market index and potentially supplementing with dedicated smaller cap funds. There is a definite tilt to small value. This is noticeable both by the 11% weighting towards DFSVX (small cap value) and the small value tilt many of these funds have internally for example DFREX (the REIT fund).

The microcap fund (DFSCX) holds stocks much smaller than most mutual funds or ETFs would even consider, very illiquid stocks that need to be traded in and out of over many weeks to avoid paying huge spreads. The sort of assets the SEC would normally consider too illiquid to even be in an open ended mutual fund. This has been a flagship fund of DFA's for almost 2 decades. 20 years ago when I was looking for a similar fund Franklin-Templeton was the only other company operating at those sizes and that fund could only be bought with a load. I seriously considered paying the load. And I"m not alone, those sorts of funds won them the many billions in business they now enjoy.

Having seen many DFA advisor portfolios this looks like what one would get from the lower end of DFA advisors who aren't customizing the portfolios much to each client. I can't object at all to the portfolio design that Asset Builder is using, this is what DFA preaches. I don't love the lack of alternatives investment and lack of stronger non-correlating asset classes, but that's fairly standard for vanilla DFA portfolios. It should be noted though that many of the better DFA advisors supplement DFAs offerings with stronger non-correlating assets. I'm not sure DFA would permit their first (only) robo service to stray from the vanilla DFA approach. For example you'll notice this portfolio lacks TIPS yet that is one of the assets Scott Burns' portfolios are known for. You see it in the corresponding Vanguard portfolio where he has a freer hand.

Other than portfolio this robo-advisor seems to be lacking. There is no investor portal. There are no higher end brokerage integration with Schwab. Those are mild negatives. However devastating for a robo there is no mention of aggressive tax loss harvesting. Frankly I suspect DFA would throw a fit about the frequent trading in and out of their funds needed to accommodate meaningful tax loss harvesting like WealthBuilder uses. So AssetBuilder may never get this feature while all the other robos are rapidly evolving towards having it.

DFA considers human support mandatory and is very picky about advisor quality. AssetBuilder has been around for years since before they offered a robo. With the addition of a robo service they are going to be under more scrutiny from DFA not less. So these are going to be human advisors one can trust on the basics far more than most robo-advisors, and more than most human advisors.

At higher balances the fees for AssetBuilder are in line with what you would pay for one of the lower cost companies to build a DFA portfolio and provide support like Evanson Asset Management (https://www.evansonasset.com/) (I can recommend) or Cardiff Park (http://cardiffpark.com/). What this robo-advisor does is create a cost effective way to service DFA style portfolios in the $50k-250k range. At balances below that you don't qualify for Assetbuilder and at balances above that you may be are better off going human and getting more support. I don't know AssetBuilder well enough to compare to the lower cost options but it is worth mentioning at $250k those are the same price. So weirdly my review of this robo is that I like the portfolio, I love the funds but I just don't see any advantage to picking this robo advisor over a human advisor for DFA funds unless you are in the $50-250k range. If you are in that range AssetBuilder's robo opens a door that used to be closed. You don't really get robo advisor features but you like do get some level of human financial advisor features. Moreover you start a portfolio you can transfer as it grows to some of the best financial advisors and financial planners in the country without having to pay capital gains taxes. Might it be the case that this becomes the recommended financial advisor for people in the $50-250k while not the recommended robo advisor?

DFA invented passive factor investing /smart beta before passive factor investing was cool. Our backtest (if we do AssetBuilder since arguably you aren't really buying a robo service) will show DFA's long history of outperformance. They continue to do the research to stay ahead of the competition, not focusing on what's cool now but instead looking to what will have been proven to outperform in 2040. But DFA isn't alone anymore. WisdomTree, Blackrock Goldman Sachs, Oppenheimer, JPMorgan... (with many more to come) are all looking at ways to develop new smart beta approaches. Vanguard and SSGA are going to be trying to figure out how to capture 80% of those same advantages at 20% of the cost. DFA won the argument, but in winning the argument have they killed their crucial advantage. To beat the market and you need to be different and you need to be right. Both objectives are harder today for DFA than they were a generation ago. Today their asset bases are huge, they can't be nimble anymore while smaller ETF smart beta house can. AssetBuilder is asking for 50 basis points beyond most robo advisors cost for DFA's brand of smart beta. Can DFA stay 50 basis points ahead of the competition in the decades to come? Will smart beta without the gimmicks work well enough going forward to overcome the fee drag, and ironically enough DFA's difficulty in deploying huge capital? There is simply no way to answer that. There is more reason to be concerned because on some of this portfolio the 30% fixed income and 10% large cap its hard to imagine any possibility of an extra 50 basis points. I don't have much problem believing their smallcap EM Value fund could do 200 basis points better, but that's 8% of the portfolio. DFA doesn't sell their funds in isolation, which is why I'm not a DFA customer. Vanguard often talks about how all great active management houses have reverted to the mean before fees, while returns are computed after fees. Could the same apply to the king of passive investing outperformance?

History will tell. But ultimately what to do with AssetBuilder comes down to how one feels about DFA. DFA is a mutual fund house you can trust both to be ethical and to be competent. Their advisors similarly are ethical and competent uniformally. I know that if I ever lose the ability to manage my own finances I'm likely picking a financial manager from the DFA approved list.

[siamond]

Asset Builder: https://assetbuilder.com/
[...]
If we benchmark, we will benchmark both portfolios during this round of tests.

Hm. I confess that I am not too eager to go down this road. First, there are practical roadblocks (many of those DFA funds don't have the proper history - and then what index could we use to further backtest that would follow the secretive DFA algorithms?). Next, this would drive us straight in the DFA vs. Vanguard never-ending debate, which occurred many times on this forum in the past, and probably side-track us too far from the main theme of robo-advisers. So... apologies, but I think I'm going to skip this one.

It is interesting to be able to have access to DFA funds via a robo-adviser with significantly cheaper fees than human advisors though.

[slinky$]

I agree on Wealthfront. There are one of the big 2, they are a must. I was thinking them for next. Either that or a post on advisor only robos.

There are pretty good charts for the common robos. The robo report I would subscribe to. I'd love to post it here but it is copyright. If I did do a chart what Boglehead specific information would you want? I was thinking of ER for the robo and description in Boglehead language. The other question is who is the target? If it is naive investor those are all over the web. The other option is a Boglehead reader who is helping a friend. So for example I could use shorthand like (DFA based) and assume the reader knows DFA style allocations.

Part of my problem is that while I know this boards father, mother and grandfather I don't know this board's readership too well. I'm still learning what people here know and don't know. I'm still learning what mainstream finance ideas are accepted and which are not. To complicate this for an investing community this board is rather unique in the level of conflicting ideas that are accepted but only in some contexts. So the same concept with slightly different language is either strongly rejected or considered so benign as to not be worth mentioning. That makes creating a standard chart more complex.

ta for doing wealthfront. Your analysis is interesting to me as most of the reviews / charts of Robos, including those in the wiki, penalize SIP greatly for its asset allocation (cash position / drag) while not criticizing the cap-weighting / no value tilt AA of Wealthfront. In fact, Wealthfront ranks top tier with Betterment in nearly all reviews, both of which your analysis calls into question to a degree. The other reviews are perhaps more focused on features compared to yours which I'd say is more focused on ER.

The next quarter robo report is out next week which will be interesting.

[jbolden1517]

ta for doing wealthfront. Your analysis is interesting to me as most of the reviews / charts of Robos, including those in the wiki, penalize SIP greatly for its asset allocation (cash position / drag) while not criticizing the cap-weighting / no value tilt AA of Wealthfront. In fact, Wealthfront ranks top tier with Betterment in nearly all reviews, both of which your analysis calls into question to a degree. The other reviews are perhaps more focused on features compared to yours which I'd say is more focused on ER.

The next quarter robo report is out next week which will be interesting.

Yes ER and AA are ultimately going to be what determines return. IMHO that's what you are hiring the robo advisor for (Motif may be an exception here). The problem is that the typical person who wants or needs a robo-advisor doesn't know enough to evaluate an asset allocation strategy and certainly not enough for those advisors using things like dynamic correlations (Hedgeable) or dynamic risk adjustment (Scalable). So the reviews end up rather shallow. I'm writing this because the analysis on most websites is so bad. I'm assuming a Boglehead readership so I can aim a bit higher than the other reviewers can. Plus I'm interested in portfolio design. This is where I want feedback and conversation.

Wealthfront and Betterment were the original two. They deserve their place. They both built up billions of assets under management and are now profitable even without new investor money. They may or may not solve their growth problems in terms of new customer acquisitions but they are likely going to get some. Given their very reasonable allocations and a long enough time their assets under management are going to grow at a steady 8%+ unless they start outright seeing outflows to some other robo-advisor or other service. I certainly wouldn't be worried about a friend who picked either of these two. They may not be my recommendation for best but I'm not trashing them as a bad choice.

What's been interesting to me is that most of the questions have been about broker based robos and those with a few exceptions like Ally, Interactive and Schwab are generally quite substandard. People want a new type of investment not a new type of account. The same way most people hold their mutual funds with brokers not mutual fund companies today. More and more I'm wondering whether robos evolve into acting as both portfolios and broad mutual funds. Clearly they like Vanguard Windsor or Life-strategy robos offer the possibility of being your only mutual fund. But do they make sense as parts of a diversified portfolio? People hold target retirement funds as just a holding in their overall portfolios. I wouldn't want to hold 100% Hedgeable but I think I'd like 20% Hedgeable.

Wealthfront's customers keep looking longingly at Motif broader range. I know for myself and for friends tight integration with banking services matters a lot. What I've walked away from this exercise with is more confidence that in general broker integration is a just short of a must. SIP has it, today Wealthfront and Betterment don't.

The other thing that I think mainstream reviewers are missing, are the financial incentives and strategic direction of these robo advisors. I've tried to cover that since if you are thinking of these robos for a long time what they do will matter. It gets more important if I decide to do the European robos because there many of them are likely to broke. They started later and their investors know what happened in the USA robos so they are having trouble getting the venture capital for the next rounds of expansion.

[tioscrooge]

Hedgeable: https://www.hedgeable.com/
They use a core satellite approach and dynamic allocation based on current market conditions. This sort of approach is typical of pension funds using hedge funds as satellites (hence the name). They are trying to create a private wealth type service that works well for 5-7 figure accounts.
They provide a detailed discussion of their philosophy: https://www.hedgeable.com/research/white-papers
fees are between 30 ($1m+) and 75 ($1-$50k) basis points over the prevailing investments They are aggressive in finding low correlating assets using commodities, private equity, bitcoin...
As the account grows they gradually get more sophisticated:

• Core satellite kicks in at $100k and meaningfully kicks in at $250k
• At $500k they start using individual stocks to represent asset classes and thus create more opportunities for tax loss harvesting
• At higher numbers they start making direct private equity available

I am always amazed by the word play in financial industry - create more opportunities for tax loss harvesting - doesn't this mean losing money in individual stocks? Are they legally saying "we will lose money for you once you have $500,000 to invest with us"

[triceratop]

Hedgeable: https://www.hedgeable.com/
They use a core satellite approach and dynamic allocation based on current market conditions. This sort of approach is typical of pension funds using hedge funds as satellites (hence the name). They are trying to create a private wealth type service that works well for 5-7 figure accounts.
They provide a detailed discussion of their philosophy: https://www.hedgeable.com/research/white-papers
fees are between 30 ($1m+) and 75 ($1-$50k) basis points over the prevailing investments They are aggressive in finding low correlating assets using commodities, private equity, bitcoin...
As the account grows they gradually get more sophisticated:

• Core satellite kicks in at $100k and meaningfully kicks in at $250k
• At $500k they start using individual stocks to represent asset classes and thus create more opportunities for tax loss harvesting
• At higher numbers they start making direct private equity available

I am always amazed by the word play in financial industry - create more opportunities for tax loss harvesting - doesn't this mean losing money in individual stocks? Are they legally saying "we will lose money for you once you have $500,000 to invest with us"

No. It should be easy to see that e.g. Vanguard Total world Stock Index will have fewer tax loss opportunities than holding U.S./International separately. Because they are held separately. This holds true at the sector, style level, all the way down to individual securities.

[jbolden1517]

I am always amazed by the word play in financial industry - create more opportunities for tax loss harvesting - doesn't this mean losing money in individual stocks? Are they legally saying "we will lose money for you once you have $500,000 to invest with us"

Yes that is what it means. Say you hold 3 stocks which fairly represent an industry: A, B and C.
A goes up, B stays flat and C loses. C is sold and you get a tax loss. You replace C with D. The loss offsets the dividends and some income from bonds. Next year B goes down. That's a long term loss. You sell B and replace with E. But you can also sell some A either resetting your cost basis or buying back into C. Eventually this diminishes in effectiveness but you can keep doing this for many years and it boosts after tax returns. It is likely worth about 150 basis points for the first decade in an account done really well, and about 50 done so-so for mainstream portfolios. This is proven out by the older robo-advisors that now have a track record of success.

But for Hedgeable which market times it could be more critical especially in an older account where say 60% of the account is all capital gains. They need to sell quite often. Which means they should be creating synthetic loses with offsetting synthetic gains, harvesting the loss and trying to get out of the gain when appropriate. This is pretty standard for wealth managers I don't see Hedgeable really fully offering this yet. In theory if this is done well you could end up paying no taxes on a very large position you are moving in and out of regularly for many years. The problem is those synthetic gains get more and more fragile. So at some point you'll want to just pay the taxes. But getting to compound on the IRS's money for a few decades boosts returns.

[redstar]

The Q2 Robo Report is out. I'll go ahead and quote the overall results, but ask if you want to see any specific numbers.

Equity

• FutureAdvisor

• E*Trade (Hybrid)

• WiseBanyan

Fixed Income

• E*Trade (Hybrid)

• Schwab

• Fidelity Go and E*Trade (ETF) (Tied)

Total Portfolio

• E*Trade (Hybrid)

• Vanguard

• Betterment

And Top 3 Risk Adjusted Return (not all advisors included):

• E*Trade (Hybrid)

• Schwab

• Betterment

[Mardoc01]

I am always amazed by the word play in financial industry - create more opportunities for tax loss harvesting - doesn't this mean losing money in individual stocks? Are they legally saying "we will lose money for you once you have $500,000 to invest with us"

Yes that is what it means. Say you hold 3 stocks which fairly represent an industry: A, B and C.
A goes up, B stays flat and C loses. C is sold and you get a tax loss. You replace C with D. The loss offsets the dividends and some income from bonds. Next year B goes down. That's a long term loss. You sell B and replace with E. But you can also sell some A either resetting your cost basis or buying back into C. Eventually this diminishes in effectiveness but you can keep doing this for many years and it boosts after tax returns. It is likely worth about 150 basis points for the first decade in an account done really well, and about 50 done so-so for mainstream portfolios. This is proven out by the older robo-advisors that now have a track record of success.

But for Hedgeable which market times it could be more critical especially in an older account where say 60% of the account is all capital gains. They need to sell quite often. Which means they should be creating synthetic loses with offsetting synthetic gains, harvesting the loss and trying to get out of the gain when appropriate. This is pretty standard for wealth managers I don't see Hedgeable really fully offering this yet. In theory if this is done well you could end up paying no taxes on a very large position you are moving in and out of regularly for many years. The problem is those synthetic gains get more and more fragile. So at some point you'll want to just pay the taxes. But getting to compound on the IRS's money for a few decades boosts returns.

Jbolden- what is a synthetic loss. And a synthetic gain ?

[Mardoc01]

Also, do u have any comment on the td Ameritrade results. Only two quarters but no terrible in comparison ?

[tj]

ta for doing wealthfront. Your analysis is interesting to me as most of the reviews / charts of Robos, including those in the wiki, penalize SIP greatly for its asset allocation (cash position / drag) while not criticizing the cap-weighting / no value tilt AA of Wealthfront. In fact, Wealthfront ranks top tier with Betterment in nearly all reviews, both of which your analysis calls into question to a degree. The other reviews are perhaps more focused on features compared to yours which I'd say is more focused on ER.

The next quarter robo report is out next week which will be interesting.

Yes ER and AA are ultimately going to be what determines return. IMHO that's what you are hiring the robo advisor for (Motif may be an exception here). The problem is that the typical person who wants or needs a robo-advisor doesn't know enough to evaluate an asset allocation strategy and certainly not enough for those advisors using things like dynamic correlations (Hedgeable) or dynamic risk adjustment (Scalable). So the reviews end up rather shallow. I'm writing this because the analysis on most websites is so bad. I'm assuming a Boglehead readership so I can aim a bit higher than the other reviewers can. Plus I'm interested in portfolio design. This is where I want feedback and conversation.

Wealthfront and Betterment were the original two. They deserve their place. They both built up billions of assets under management and are now profitable even without new investor money. They may or may not solve their growth problems in terms of new customer acquisitions but they are likely going to get some. Given their very reasonable allocations and a long enough time their assets under management are going to grow at a steady 8%+ unless they start outright seeing outflows to some other robo-advisor or other service. I certainly wouldn't be worried about a friend who picked either of these two. They may not be my recommendation for best but I'm not trashing them as a bad choice.

What's been interesting to me is that most of the questions have been about broker based robos and those with a few exceptions like Ally, Interactive and Schwab are generally quite substandard. People want a new type of investment not a new type of account. The same way most people hold their mutual funds with brokers not mutual fund companies today. More and more I'm wondering whether robos evolve into acting as both portfolios and broad mutual funds. Clearly they like Vanguard Windsor or Life-strategy robos offer the possibility of being your only mutual fund. But do they make sense as parts of a diversified portfolio? People hold target retirement funds as just a holding in their overall portfolios. I wouldn't want to hold 100% Hedgeable but I think I'd like 20% Hedgeable.

Wealthfront's customers keep looking longingly at Motif broader range. I know for myself and for friends tight integration with banking services matters a lot. What I've walked away from this exercise with is more confidence that in general broker integration is a just short of a must. SIP has it, today Wealthfront and Betterment don't.

The other thing that I think mainstream reviewers are missing, are the financial incentives and strategic direction of these robo advisors. I've tried to cover that since if you are thinking of these robos for a long time what they do will matter. It gets more important if I decide to do the European robos because there many of them are likely to broke. They started later and their investors know what happened in the USA robos so they are having trouble getting the venture capital for the next rounds of expansion.

Wealthfront and Betterment have become profitable without VC?!? Good for them. I was disappointed to see Betterment raise their fees though.

[jbolden1517]

Wealthfront and Betterment have become profitable without VC?!? Good for them. I was disappointed to see Betterment raise their fees though.

Yes most of the American robos have hit profitability. What they aren't doing is delivering is rapid growth. There was an initial wave of millennials that love them and now their cost of customer acquisition exceeds the profits from new business.

Grabbing my crystal ball. Those two if they aren't acquired I think are likely grow their customer base slowly and those customers grow their asset base. They achieve better earnings growth by slowly (or maybe quickly) diversifying into more profitable side businesses. I think they end up slowly evolving into brokerages or full service advisory firms. Which is why I suspect the better thing for them is that they merge with an existing brokerage or bank. There are obvious synergies. The problem they have is their services aren't too advanced and potentially more brokerages start matching their services. At the same time in the dedicated space the 2nd generation of dedicated robos could crush them and take their customer (Wealthfront's customers looking at Motif seemed the most worrying here). I haven't covered the advisor only robos but that may also cut off their routes to expansion. As full service advisors start offering more advanced robos (since a pro is configuring them for each customer) that could put a damper on their ability to grow by offering a fuller range of services.

The space is definitely competitive. And finally I wouldn't rule out the effects of the high end (Goldman Sachs) raising the bar much further, demonstrating how complex / full featured a robo can be.

[jbolden1517]

Jbolden- what is a synthetic loss. And a synthetic gain ?

Essentially you create a pair of transactions which together are riskless but allow you to realize tax loses and gains when you want. For example buy a stock, short the call and long the put. If the stock goes up you can buy the call back, take the loss keeping the capital gain in the stock. If the stock declines you can buy the call back (gain) take a bigger loss from the stock; roll the put, exercise the put to establish a short with lots of later to be realized capital gains and repeat in reverse.

[Mardoc01]

Shorts of lots of ???laterwith ?

[jbolden1517]

Shorts of lots of ???laterwith ?

Sorry don't understand the question.

[redstar]

I have to say, even with The Robo Report and online reviews, etc, it is extremely hard to choose one of these advisors over the others. Other than their portfolio allocations and recent returns, a lot of their value added is just hard to measure. For example, is Wealthfront Direct Indexing really that much better than Betterment's TLH? How does SIP compare?

Is there any sort of methodology we could use to compare some of these more specific features? Obviously certain approaches, like Hedgeable's downside protection, will only be measureable in specific scenarios.

[Mardoc01]

Shorts of lots of ???laterwith ?

Sorry don't understand the question.

No prob. Jaujust didnt understand your last sentence. Just the last bit there. ...later. Didn't make sense

[jbolden1517]

Essentially you create a pair of transactions which together are riskless but allow you to realize tax loses and gains when you want. For example buy a stock, short the call and long the put. If the stock goes up you can buy the call back, take the loss keeping the capital gain in the stock. If the stock declines you can buy the call back (gain) take a bigger loss from the stock; roll the put, exercise the put to establish a short with lots of later to be realized capital gains and repeat in reverse.

No prob. Jaujust didnt understand your last sentence. Just the last bit there. ...later. Didn't make sense

So imagine you are holding a stock you bought at $50 share. You sold a call against it strike of $50 for $5 and bought a put strike $50 for $5. The cost for this position is $50. The stock drops to $45 a share. The call at $50 is now $1 while the put at $50 is $6 (time has passed) You sell the stock for a $5 capital loss. Your options positions still has the $5. So you exercise shorting the stock at $50, you the call for protection and take the $5 back out. Your capital gain is in the short. You don't realize the capital gain on the short until you cover. Etc...

[Mardoc01]

Essentially you create a pair of transactions which together are riskless but allow you to realize tax loses and gains when you want. For example buy a stock, short the call and long the put. If the stock goes up you can buy the call back, take the loss keeping the capital gain in the stock. If the stock declines you can buy the call back (gain) take a bigger loss from the stock; roll the put, exercise the put to establish a short with lots of later to be realized capital gains and repeat in reverse.

No prob. Jaujust didnt understand your last sentence. Just the last bit there. ...later. Didn't make sense

So imagine you are holding a stock you bought at $50 share. You sold a call against it strike of $50 for $5 and bought a put strike $50 for $5. The cost for this position is $50. The stock drops to $45 a share. The call at $50 is now $1 while the put at $50 is $6 (time has passed) You sell the stock for a $5 capital loss. Your options positions still has the $5. So you exercise shorting the stock at $50, you the call for protection and take the $5 back out. Your capital gain is in the short. You don't realize the capital gain on the short until you cover. Etc...

Got it ! Thx so much

[drk]

Wealthfront and Betterment have become profitable without VC?!? Good for them. I was disappointed to see Betterment raise their fees though.

Just to clarify: Wealthfront has raised $129.5M from VCs and Betterment $275M.

[jbolden1517]

Wealthfront and Betterment have become profitable without VC?!? Good for them. I was disappointed to see Betterment raise their fees though.

Just to clarify: Wealthfront has raised $129.5M from VCs and Betterment $275M.

Wealthfront hasn't gone to the till since 2014. Betterment though is recent. I wonder what the money was for? I Googled and all it said was new products and features. The coverage indicated they were profitable.

[drk]

Wealthfront and Betterment have become profitable without VC?!? Good for them. I was disappointed to see Betterment raise their fees though.

Just to clarify: Wealthfront has raised $129.5M from VCs and Betterment $275M.

Wealthfront hasn't gone to the till since 2014. Betterment though is recent. I wonder what the money was for? I Googled and all it said was new products and features. The coverage indicated they were profitable.

That's true about Wealthfront, but that remains a good chunk of change. Presumably Betterment's funding supports their new financial advisor services.

[jbolden1517]

Wealthfront and Betterment have become profitable without VC?!? Good for them. I was disappointed to see Betterment raise their fees though.

Just to clarify: Wealthfront has raised $129.5M from VCs and Betterment $275M.

Wealthfront hasn't gone to the till since 2014. Betterment though is recent. I wonder what the money was for? I Googled and all it said was new products and features. The coverage indicated they were profitable.

That's true about Wealthfront, but that remains a good chunk of change. Presumably Betterment's funding supports their new financial advisor services.

No way to know, but in my experience VCs hate service businesses. I'd be more likely to say their socially conscious investing or just about anything but the service side.

[drk]

No way to know, but in my experience VCs hate service businesses. I'd be more likely to say their socially conscious investing or just about anything but the service side.

It looks like the lead investor was a repeat from Betterment's previous round. Their mission statement via Crunchbase:

Kinnevik is an industry focused investment company with an entrepreneurial spirit. Our purpose is to build the digital consumer businesses that provide more and better choice. We do this by working in partnership with talented founders and management teams to create, invest in and lead fast growing businesses in developed and emerging markets. We believe in delivering both shareholder and social value by building well governed companies that contribute positively to society. Kinnevik was founded in 1936 by the Stenbeck, Klingspor and von Horn families. Kinnevik's shares are listed on Nasdaq Stockholm's list for large cap companies under the ticker codes KINV A and KINV B.

I'd wager a little of A and a little of B. The timing of Betterment's financial advising service expansion, coming shortly after announcing their funding round, would certainly appear to suggest that they raised the money to support their new service offerings. Anyway, I digress.

[slinky$]

The space is definitely competitive. And finally I wouldn't rule out the effects of the high end (Goldman Sachs) raising the bar much further, demonstrating how complex / full featured a robo can be.

This was hinted at in the latest robo report. Good read that report I forwarded it to a few friends.

[buffalo]

Wealthfront and Betterment have become profitable without VC?!? Good for them. I was disappointed to see Betterment raise their fees though.

Yes most of the American robos have hit profitability. What they aren't doing is delivering is rapid growth. There was an initial wave of millennials that love them and now their cost of customer acquisition exceeds the profits from new business.

Grabbing my crystal ball. Those two if they aren't acquired I think are likely grow their customer base slowly and those customers grow their asset base. They achieve better earnings growth by slowly (or maybe quickly) diversifying into more profitable side businesses. I think they end up slowly evolving into brokerages or full service advisory firms. Which is why I suspect the better thing for them is that they merge with an existing brokerage or bank. There are obvious synergies. The problem they have is their services aren't too advanced and potentially more brokerages start matching their services. At the same time in the dedicated space the 2nd generation of dedicated robos could crush them and take their customer (Wealthfront's customers looking at Motif seemed the most worrying here). I haven't covered the advisor only robos but that may also cut off their routes to expansion. As full service advisors start offering more advanced robos (since a pro is configuring them for each customer) that could put a damper on their ability to grow by offering a fuller range of services.

The space is definitely competitive. And finally I wouldn't rule out the effects of the high end (Goldman Sachs) raising the bar much further, demonstrating how complex / full featured a robo can be.

Betterment has recently added access to portfolios managed by Goldman Sachs (https://www.betterment.com/resources/in ... -strategy/) and BlackRock (https://www.betterment.com/resources/in ... -strategy/). Each comes with higher expense ratios, but also a different investment philosophy. I'm interested in seeing what the experts think about these options, particularly @jbolden1517 if he's willing to respond.


The Goldman Sachs portfolios offer a smart beta strategy with ETF expense ratios ranging from 0.11% to 0.24%. Funds focus on four factors: good value, high quality, strong momentum, low volatility. Tax loss harvesting is available but its bond and REIT ETFs have only two alternative options instead of the typical three alternative options with traditional Betterment portfolios.











The BlackRock portfolios offer only bonds, tailored to 4 different risk options. Each focuses on generating income rather than total return. Expense ratios total between 0.21% to 0.38% depending on the risk option chosen (though with the household income value I shared with Betterment, they put me in portfolios that range from 0.19% to 0.35%). No tax loss harvesting available.

[David Scubadiver]

Been using Wisebanyan, Wealthfront, Schwab IP and M1 Finance for a 2-3 weeks. And I am liking M1 the best because I like being in control of when a sell happens and I like customizing my portfolio.

[tj]

Been using Wisebanyan, Wealthfront, Schwab IP and M1 Finance for a 2-3 weeks. And I am liking M1 the best because I like being in control of when a sell happens and I like customizing my portfolio.

Why are you using so many of them? I had never heard of M1 Finance before. Is that one we should be paying attention to?

[David Scubadiver]

Been using Wisebanyan, Wealthfront, Schwab IP and M1 Finance for a 2-3 weeks. And I am liking M1 the best because I like being in control of when a sell happens and I like customizing my portfolio.

Why are you using so many of them? I had never heard of M1 Finance before. Is that one we should be paying attention to?

. I wanted to see what they were like to get a feel for the differences. I don’t know that anybody should be paying attention to any of this. But if you are interested in an investing platform that makes it stupid simple to invest regularly in a 100% customized portfolio that automatically keeps your portfolio to the allocation you choose, then you ought to look at M1.

[LadyGeek]

The Goldman Sachs portfolio offers a smart beta strategy with ETF expense ratios ranging from 0.11% to 0.24%. Funds focus on four factors: good value, high quality, strong momentum, low volatility. Tax loss harvesting is available but its bond and REIT ETFs have only two options instead of the typical three options with Betterment.

...The BlackRock portfolios offer only bonds, tailored to 4 different risk options. Each focuses on generating income rather than total return. Expense ratios total between 0.21% to 0.38% depending on the risk option chosen (though with the household income value I shared with Betterment, they put me in portfolios that range from 0.19% to 0.35%). No tax loss harvesting available.

I should emphasize that Tax loss harvesting has no purpose in a tax-deferred account, such as an IRA or 401(k).

This is noted in the Robo-adviser wiki page, but readers tend to see this as a strong selling point and not consider whether this feature is actually needed.

[David Scubadiver]

I see automated tax loss harvesting as minimizing the opportunity to achieve long-term gains. I suppose if you harvest a million dollars in losses you don’t have to worry about whether gains are long term or short. But I can’t help but think you are better off holding for long term gains than you are selling and exchanging to realize a loss and owning an equivalent but not identical security.

[LadyGeek]

From the wiki article Tax-efficient fund placement:

Determination of your asset allocation (% stocks / % bonds), which sets your portfolio's level of acceptable risk, is the single most influential decision you can make on your portfolio's performance. Only consider taxes after you have configured your total portfolio.

[David Scubadiver]

From the wiki article Tax-efficient fund placement:

Determination of your asset allocation (% stocks / % bonds), which sets your portfolio's level of acceptable risk, is the single most influential decision you can make on your portfolio's performance. Only consider taxes after you have configured your total portfolio.

one of the reasons I prefer M1 is because you can pick your allocation (as well as its components) and they keep at balancing the porfolio as New money is added (or as withdrawals are made). I also don’t like giving people discretion to change what I am invested in. That may be fine for some and might even prove beneficial to myself. I just don’t like it.

[tj]

From the wiki article Tax-efficient fund placement:

Determination of your asset allocation (% stocks / % bonds), which sets your portfolio's level of acceptable risk, is the single most influential decision you can make on your portfolio's performance. Only consider taxes after you have configured your total portfolio.

one of the reasons I prefer M1 is because you can pick your allocation (as well as its components) and they keep at balancing the porfolio as New money is added (or as withdrawals are made). I also don’t like giving people discretion to change what I am invested in. That may be fine for some and might even prove beneficial to myself. I just don’t like it.

How much does M1 charge? Has there been a review in this thread? I'm intrigued.

[LadyGeek]

I couldn't find M1 in the "Top 10 robo-advisor" reviews in the wiki article, but I found one online: M1 Finance Review 2017 | A Robo-Advisor and Brokerage Hybrid, from InvestorJunkie.com, October 23, 2017.

The website: M1 Finance

[David Scubadiver]

I couldn't find M1 in the "Top 10 robo-advisor" reviews in the wiki article, but I found one online: M1 Finance Review 2017 | A Robo-Advisor and Brokerage Hybrid, from InvestorJunkie.com, October 23, 2017.

The website: M1 Finance

The comment on that article is mine so don’t view that as independent of what I wrote here.
The CEO is a kid, and the son of Sara Lee’s CEO. The COO has 25 years In the business if my memory is correct. Soon they will announce margin loan availability and a checking account. I assume that is a bid to hold onto more of our cash though I am not likely to change my checking account from Schwab, I suppose it may be useful to some if they want low cost margin loans.

Here is a helpful link to see what causes a trade to occur and more importantly the link within to how the trade is allocated. https://support.m1finance.com/hc/en-us/ ... -to-trade-

[Explorer]

M1 Finance appears to be giving "too much control" to the investor in making their investment choices -- does that not fly in the face of what a robo-advisor is supposed to be?

Keeping It Simple is an important aspect of Robos -- and I am very satisfied with Betterment (with their new Balckrock Income and Goldman Sachs Equity portfolios).

Best wishes to all.

[David Scubadiver]

M1 Finance appears to be giving "too much control" to the investor in making their investment choices -- does that not fly in the face of what a robo-advisor is supposed to be?

Keeping It Simple is an important aspect of Robos -- and I am very satisfied with Betterment (with their new Balckrock Income and Goldman Sachs Equity portfolios).

Best wishes to all.

Different strokes for different folks. A Robo can be used to take control from you or give it to you. Either way the portfolio can be simple or complicated. The question is what do you want to pay for it and are you getting what you want. Here are my thoughts on the platform, for what it is worth.

viewtopic.php?f=10&t=230592&p=3595581#p3595581

[tj]

Schwab Intelligent Portfolios

Schwab's doesn't charge for their robo-advisor service. Fees for funds average about 17 basis points. They also unlike most robo-advisors have a pronounced value tilt. They give this sample portfolio of a 2/3rds stock 1/3rd bond

Fundamental are Schwab value ETFs using 3 value factors (Sales weighting, cash flow weighting and dividend weighting) (more details: https://intelligent.schwab.com/public/i ... -etfs.html). The ones without Fundamental are standard indexes (market capitalization weighting). The stock allocation has a solid value and small tilt. Most of the bond allocation (15%) is higher risk, high return brings down correlation a bit. It should be noted this is a substantial deviation from the 3-fund style portfolios where bonds are used for safety. These bonds include both duration risk and credit and are meaningfully generating return. In addition to the duration and credit risk on the bonds component this fund uses the equity as a core and introduces 2 main diversifiers. The diversifiers help withnon-correlation (non-correlation is important for increasing serial returns) while retaining a low fees (i.e. substantial non-correlation can be expensive to implement). Previous metals traditionally do well in crisis and inflation. The 6% in low risk bonds similarly is a diversifier that will do well especially against deflationary bears. They along with the cash are designed to give the investor something to rebalance out of.

Schwab offers a detailed list of the funds they use to construct the portfolio and how they are expected to perform: https://intelligent.schwab.com/public/i ... asses.html

The funds are offered in pairs because Schwab offer tax loss harvesting for portfolios over $50k using fund substitution.

They publish quarterly updates on how the components do (example 2Q2017): https://intelligent.schwab.com/public/i ... eview.html

Schwab is recognized as one of the best discount brokers for customer service. Schwab as a brokerage has strong banking features and sells a range of annuities... and these can be coordinated with the robo-advisor service (though it won't rebalance around them). The annuity feature is particularly important for income oriented retirees. The robo-advising can be used for revocable living trusts accounts which is a differentiating feature few other robos offer. The Schwab goal-tracker estimates how close the savings component is given ranges of portfolio returns to achieving an investment goal for a future timeframe (https://intelligent.schwab.com/public/i ... /goal.html)

For human guidence Schwab offers an upgrade to a human advisor for .28% with a cap at $900/ quarter (comparatively cheap). They also offer what they claim is full wealth management at .7-.9% with at $500k and .3% at $10m. This is a low min, lowest fee I've seen for wealth management, though the range of services also seems more middle class tailored (the sorts that a financial advisor would perform) than I've seen for wealth management. My gut is that this is gimmicky title aimed at people who don't actually need wealth management.

At this point Schwab Intelligent Portfolios is my recommended robo-advisor, and recommended simple portfolio.

Any thoughts on Schwab's "Income" portfolio?

It completely bypasses the broad and fundamental indexes in favor of SCHD and VYMI. For this model, the most aggresive allocation they will give you is 45% stock/ 42.5% fixed income / 12.5% cash.

Stocks 45%
US High Dividend Stocks 25%
International High Dividend Stocks 16%
Master Limited Partnerships 2%
US Exchange-Traded REITs 1%
International Exchange-Traded REITs 1%

Fixed Income 42.5%
US Corporate High Yield Bonds 9%
US Securitized Bonds 6%
US Investment Grade Corporate Bonds 5.5%
International Developed Country Bonds 5%
Bank Loans 5%
International Emerging Market Bonds 5%
Preferred Securities 4%
US Inflation Protected Bonds 2%
US Treasuries 1%

I can't believe that all these asset classes with 1% and 2% exposure are going to accomplish anything...