New to investing on my own. Robo investors?

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skittles15
Posts: 1
Joined: Fri Jan 11, 2019 2:13 pm

New to investing on my own. Robo investors?

Post by skittles15 » Fri Jan 11, 2019 3:55 pm

Hello all bogleheads!

I just finished reading Bogleheads' guide to investing and I found it quite informative. I am now at a point where I would like to try setting up my own accounts for various goals. Here is my profile:
  • My age 35, my wife 33
  • Combined income with bonuses is approx 400k per year gross
  • We are both maxing out our 401k's and this adds 26k per year to our savings
  • Current budgeted expenses are approx 8850 per month all in
  • Of that expense 2200 is mortgage because we are adding 33% to each payment to payoff sooner
  • Currently we have 110k in funds with Matson Money which have been performing poorly. We are currently adding 3k per month to this account (though have halted investments recently due to market conditions)
  • We have 100k in cash that we may be using for a downpayment on a new house and renting out our current house for 25% more than our current payment including the extra 33%
  • In our budget we are also setting aside 500/month for baby expenses (due in May)
  • The only debt we have is our mortgage, though we are looking at new homes (budget 475k max) as well as a new car (budget 40k max)
  • One baby on the way and possibility of more to come
So with that we have some options. I was thinking of opening a robo trading account and allow it to be managed passively (rebalancing, Tax harbor etc...) to avoid the high fees we are seeing with Matson. I looked at Sofi and it seemed good but I have very little experience with these groups. I tried the investment calculator on Vanguard's site and it suggested an 80/20 split for investments though I may want to draw that back to 75/25 or 70/30 to mitigate some of the risk. Our future goals are as follows:
  • Retire at 65 with enough to live out our days and leave some to our child(ren)
  • Create a nestegg for our daughter to use for school (possible 529? Though I'm not quite sure how it works)
  • Purchase a new house under 475k with the intention of living in it for 10-15 years (before may 2019)
  • Purchase a new (used) vehicle under 40k with the intention of using it for 5-7 years (before may 2019)
With the above, we are looking to get into some simple funds that we can set and forget basically. We will most likely move our 3k per month investment closer to 5k per month and we were hoping to get into a robo investment fund. We were also interested to see if we are able to use a roth ira (not sure due to our income levels). Finally, we were hoping to hear what funds would most likely fit our goals. I know there are a lot of funds out there and they all perform differently. I was originally interested in Vanguard's total market fund but would be willing to look at others as well. I guess what I'm really looking for from you all is an idea for handling this on my own. We are currently losing quite a bit with our actively managed funds and we would be most interested in finding our own way to best increase our take home.

Thanks.

RobLyons
Posts: 398
Joined: Tue Oct 31, 2017 12:55 pm

Re: New to investing on my own. Robo investors?

Post by RobLyons » Fri Jan 11, 2019 4:10 pm

I just finished a 2 year trial of robo advisor vs self directed roth with similar risk tolerance levels, and the results were:

1. self directed performed much better
2. self directed much cheaper
3. robo advisor invested in many funds that I was unsure of the methodology
4. robo advisor failed the "wow" factor, my expectations were maybe set too high


My advice:
Read everything you can on Boglehead investing, or just buy low cost, broadly diversified funds, you only need 1 or two (VTSAX, VTIAX at 80/20) set automatic investments to continue buying those funds, and forget it. Add bonds when your risk tolerance changes. I wish I was taught this at age 18.
"Great parenting sets the foundation for a better world"

bryanm
Posts: 178
Joined: Mon Aug 13, 2018 3:48 pm

Re: New to investing on my own. Robo investors?

Post by bryanm » Fri Jan 11, 2019 4:32 pm

An anecdote: a personal friend founded a robo-advisor (not the biggest, but a successful one). I mentioned to him recently that I had been browsing bogleheads. His advice was to avoid robo-advisors and follow what the site had to say. Robo-advisors may work for some, but if you're here, the likelihood is that you can do better on your own.

In addition to RobLyon's post:
  • Find out what your and your wife's options are for tax-advantaged retirement accounts (401(k), 403(b), 457, etc.)). Focus on maxing those out first. (Robo-advisors generally can't do this anyway, you're going to have to set it up yourself at least initially.)
  • You're almost certainly ineligible for direct Roth IRA contributions. Research the "backdoor Roth." Be wary if you have any other IRA holdings.
  • After you've maxed out tax-advantaged retirement accounts, only then consider the 529. You can borrow for school, not for retirement. There are a variety of reasons 529 are not as tax-advantaged as retirement accounts.
That's as far as what accounts to put money in. As far as where to put the money, start by research the 3 fund portfolio. Consider starting with that for all accounts.

Good luck!

GmanJeff
Posts: 440
Joined: Sun Jun 11, 2017 7:12 am

Re: New to investing on my own. Robo investors?

Post by GmanJeff » Fri Jan 11, 2019 7:15 pm

Since you say you want to "set it and forget it", a robo may indeed be a good option for you. Those advocating that you self-manage are either encouraging you to take a more involved role in monitoring and adjusting your investments, or would have you believe that it's prudent to pay little further attention to whatever you invest in initially. A robo will provide you with an initial asset allocation aligned, more or less, with your stated risk tolerance and objectives/time horizon, and then will keep you on track in a manner consistent with their investment approach.

A hybrid robo such as Vanguard's PAS might also be something to consider, if you'd benefit from a financial plan, from Vanguard's investment methodology and research, could use assistance with devising an initial asset allocation which attempts to best reconcile your growth and income objectives with your risk tolerance, would like the ability to pose questions to an advisor from time time, and/or could use assistance in implementing a tax-sensitive withdrawal strategy.

stumpy
Posts: 25
Joined: Wed May 24, 2017 7:48 pm

Re: New to investing on my own. Robo investors?

Post by stumpy » Fri Jan 11, 2019 8:00 pm

I would not use the robo investor. I talked with someone at Schwab about it. He ran a portfolio scenario for me. It had some high cost funds and some junk bonds. I am a 60 year old retiree and not interested in paying high management fees or owning junk bonds. But this is just my experience.

bryanm
Posts: 178
Joined: Mon Aug 13, 2018 3:48 pm

Re: New to investing on my own. Robo investors?

Post by bryanm » Fri Jan 11, 2019 11:39 pm

GmanJeff wrote:
Fri Jan 11, 2019 7:15 pm
Those advocating that you self-manage are either encouraging you to take a more involved role in monitoring and adjusting your investments, or would have you believe that it's prudent to pay little further attention to whatever you invest in initially.
I suspect at least minimal involvement is going to be necessary. Tax-advantaged retirement accounts are the number one thing to understand, and robo advisors in general cannot manage them. I would advocate for putting all funds in a (low cost indexed) target retirement fund behind a 401k, and forgetting about it, before I advised putting the same money in a taxable account to use a robo advisor.

billfromct
Posts: 957
Joined: Tue Dec 03, 2013 9:05 am

Re: New to investing on my own. Robo investors?

Post by billfromct » Sat Jan 12, 2019 12:41 am

You should fund a 529 college savings plan at birth since that money will grow tax free & can be taken out state & Federal tax free for college expenses (tuition, room & board, books, required fees, etc.).

In some states, you can deduct a certain amount of 529 contributions from your state income to reduce state income tax. Vanguard has a very good low cost 529 plan which is affiliated with the state of Nevada if your state plan is high cost Check out the Vanguard 529 plan on their website.

You also might consider opening a Vanguard variable annuity for your new born. A variable annuity is the best way to turn long term capital gains into ordinary income, but it is a good way to put retirement money aside to compound for 60-70 years. This would give your child a good jump on retirement savings, be it at ordinary income tax rates when they start taking the money out after age 59.5. Even though the money in a variable annuity can be taken out before age 59.5 paying income taxes plus a 10% penalty, it would be a lot more trouble then if the retirement money was in a taxable account.

My mother funded a variable annuity for my kids when they were 10 or 12 years old & now about 20 years later, that $12,000 investment is now worth about $110,000 with another 35-40 years to compound.

I will probably open a variable annuity for my grandchildren if my kids ever have children.

bill

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