Asset-location aware Robo advisor. Any better options?

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Topic Author
techdad123
Posts: 9
Joined: Sun Feb 04, 2024 5:38 pm

Asset-location aware Robo advisor. Any better options?

Post by techdad123 »

Hi All

I've been consuming all the great material on bogleheads + youtube. Wish I found this group long time ago!

I recently liquidated large concentrated positions and have been looking for a relatively straightforward + tax efficient way to invest + maintain a bogleheads portfolio across brokerage and retirement accounts.

- Lump sum investment. Early 50's. Probably won't need for 20-30 years.
- Looking for something that is relatively auto-pilot for my wife to mange in case I'm not around.
- Asset allocation. 80/20. Can afford to be be relatively aggressive.
- Looking for good enough. Not trying to beat the market. Just want to make sure I don't make any big mistakes.
- Would be happy with simplicity of single target date fund if it was tax-efficient in brokerage accounts. (I know it isn't)
- I'm happy with my classic wealthfront account. It gives me peace of mind that the portion invested at wealthfront was being properly invested.
- I watched Rob Berger's video on Betterment. Was intrigued that it has asset-location aware/tax coordinated capabilities+ tax loss harvesting. https://www.betterment.com/help/what-is ... t-location
- Looking to invest 7 figure amount. I only mention this because a 0.25% robo fee would add up

What would the bogleheads community recommend for my scenario? Anybody in support of Option A)?

Option A) Use asset-location aware robo-advisor (e.g. betterment) Any other asset-location aware robos to consider?

Option B) Figure out how to build 3-5 fund asset-location aware portfolio myself. Learn how to rebalance tax efficiently + tax loss harvest. I end up in in analysis paralysis. I guess I could copy the betterment portfolio or find a suitable option using Rick Ferri's 4-fund recommendations. https://rickferri.com/models/

Option C) Somethign else?

Option D) Hire a flat-fee advisor

Thanks in advance for your input
lakpr
Posts: 11264
Joined: Fri Mar 18, 2011 9:59 am

Re: Asset-location aware Robo advisor. Any better options?

Post by lakpr »

0.25% of a 7-figure portfolio is $2,500 every year at least, and possibly more. Why do you want to handover thousands to someone else, when you can do it perfectly yourself?

Since I am not sure which brokerage you are with, I would advise ETFs that you can hold at any brokerage.

It is really a simple three-step process:

1) First, determine what the asset allocation you want. I see it as 80:20 in the post above.

2) Second, determine what percentage of stocks you want for international equities. The answers could be 0% (I don't want any foreign stocks!), to 20% (advocated by Taylor Larimore and late Jack Bogle), to 30% (a Vanguard paper back in 2012 claimed that with just 30% of the stocks allocated to international equities, you gain 95% of the diversification benefit) to 40% (the same paper claimed you get 100% of the diversification benefit at this level) to 45% (market weight of all international equities).

3) Divide your asset allocation among Total US Stock Market Index Fund/ETF, Total International Stock Market Index Fund/ETF, Total Bond Market Indes Fund/ETF. You may not be able to get "Total" always, but if you can get a large part of it, it is good enough. Example being S&P 500 Index fund, even though it covers only top 500 stocks, covers 85% of the total market, and its returns have been remarkably consistent with the returns of Total Stock Market Index over the past 32 years. Similarly, the returns of the Developed Markets funds have been remarkably consistent with the returns of Total International Stock Index, so just choosing Developed Markets should be good enough.

So VOO / VXUS / BND for example at Vanguard
Or SCHB / IXUS / AGG for example at Schwab
Or FZROX / FNILX / FXNAX for example at Fidelity
etc.

Rebalance once an year.

Now some objections / concerns:

1) If you choose a target date fund -- they most frequently default to 40% of the stocks to international markets. This may or may not align with the amount of exposure to international stocks that you want in your portfolio.

2) If you choose a Total Bond fund -- be aware that bond funds are subject to interest rate risk, and if the rates rise the value of the fund drops. So the principal is not guaranteed. If you want to invest in a bond fund, be aware that you will need to wait at least 6 to 7 years just to regain your principal if rates rise and stay there consistently. If there is ANOTHER rate rise within those 7 years, you will need to wait YET ANOTHER 7 years to regain your principal. Is that acceptable to you? For someone choosing to *RETIRE*, a loss of asset value in what is supposed to be "SAFE" part of the portfolio is NOT acceptable. [ I am speaking from my own experience, I wanted to retire by 2030, but the walloping of my bond funds in 2022 have me soured completely on bond funds in general ]

3) If you choose international stocks exposure -- international stocks have lagged US stocks since 2008. They had their moment in the sun between 2000 to 2008, and drew par with US stocks up to 2010, but afterwards US stocks zoomed while international stocks lagged. Are you prepared to watch a part of the portfolio seem "dead weight" for decades? Those who committed to 40% international stocks have been waiting for better part of 15 years for international stocks to "outperform" US stocks ....
market_mate
Posts: 22
Joined: Tue Dec 06, 2022 11:47 am

Re: Asset-location aware Robo advisor. Any better options?

Post by market_mate »

I used to use Betterment and its TLH+ and tax-coordinated portfolio features. It was great in my earlier investing days when I wanted someone/something else to figure it all for me.

However, over time I discovered some drawbacks:
  • Portfolios are way too complicated. When I liquidated one of my Betterment accounts and transferred another in-kind to Fidelity, I had to deal with 20 separate ETFs. Headache for when I wanted to simplify.
  • In my case, the returns from that complicated 20+ ETF portfolio weren't any better than if I had constructed something much simpler myself with total-market index funds. The 0.25% fee felt awfully silly once I figured that out.
  • Although Betterment has tax-coordinated portfolios for within Betterment, it doesn't help you coordinate your asset allocation across accounts you have outside of Betterment, like in an employer 401k. You still have to figure out your optimal asset locations across your entire portfolio manually.
  • Overall, I felt "locked-in" with Betterment after many years and started over with much simpler 3-portfolio strategy in Fidelity that I could much more flexibly coordinate with my employer 401k and other holdings like cash and I-Bonds.
By reading wiki articles here about optimal asset locations and 3-fund portfolios, I have a feeling you can craft something yourself that is mostly just as easy as using a robo-advisor but considerably cheaper and more flexible for whatever the future throws at you.
Topic Author
techdad123
Posts: 9
Joined: Sun Feb 04, 2024 5:38 pm

Re: Asset-location aware Robo advisor. Any better options?

Post by techdad123 »

Thank you @lakpr and @market_mate. This is really useful feedback. At a high level, lakpr's post highlights this isn't too complicated. market_mate shared some directly relevant experiences with betterments. It has nudged me towards the path of trying to do this on my own. Thank you again!
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retired@50
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Location: Living in the U.S.A.

Re: Asset-location aware Robo advisor. Any better options?

Post by retired@50 »

techdad123 wrote: Sun Feb 04, 2024 5:59 pm ... Learn how to rebalance tax efficiently + tax loss harvest.
You should be aware, we have a wide ranging wiki that discusses popular topics like re-balancing and tax loss harvesting.

Tax loss harvesting: https://www.bogleheads.org/wiki/Tax_loss_harvesting

Re-balancing: https://www.bogleheads.org/wiki/Rebalancing

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
the_wiki
Posts: 2704
Joined: Thu Jul 28, 2022 11:14 am

Re: Asset-location aware Robo advisor. Any better options?

Post by the_wiki »

If you want an easy button and want 80/20 portfolio, just use the iShares Core Aggressive Allocation ETF (Ticker AOA) or VASGX Vanguard LifeStrategy Growth in all your retirement account portfolios

Then use this in taxable to match the allocation of AOA:

52% Total US market (VTI or SCHB or ITOT or SPTM)
28% Total International (VXUS or IXUS)
20% Total Bond (BND or AGG or IUSB)

And honestly, tax loss harvesting is a bit overhyped. I honestly would not sweat it unless you log in and see big losses. But if that ever happens, you can just sell the fund and buy one of the near identical ones in the same category, i.e. sell VTI and buy SCHB. It's easy to do.

Also keep in mind that Loss harvesting also resets your basis to be lower. So you will pay more tax later when you cash out. It can make you a little more money, but not a free lunch it is made out to be.
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retiredjg
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Re: Asset-location aware Robo advisor. Any better options?

Post by retiredjg »

Welcome to the forum. :happy
techdad123 wrote: Sun Feb 04, 2024 5:59 pm
What would the bogleheads community recommend for my scenario? Anybody in support of Option A)?

Option A) Use asset-location aware robo-advisor (e.g. betterment) Any other asset-location aware robos to consider?

Option B) Figure out how to build 3-5 fund asset-location aware portfolio myself. Learn how to rebalance tax efficiently + tax loss harvest. I end up in in analysis paralysis. I guess I could copy the betterment portfolio or find a suitable option using Rick Ferri's 4-fund recommendations. https://rickferri.com/models/

Option C) Somethign else?

Option D) Hire a flat-fee advisor

Thanks in advance for your input
I suggest option E even if you also use another option. Option E is to post your financial information here for suggestions on how to set up your portfolio. See how to do that in the link at the bottom of this message. You will learn a lot about your portfolio just by doing this work.

Of the options you listed, Option B is probably the best. Know that rebalancing a tax-efficient portfolio is usually not difficult. Tax loss harvesting is not a required activity at all (but nice icing on the cake if you want to do it).

Do not copy Betterment (too many funds and too much complexity). Do consider Ferri's models.
Topic Author
techdad123
Posts: 9
Joined: Sun Feb 04, 2024 5:38 pm

Re: Asset-location aware Robo advisor. Any better options?

Post by techdad123 »

Thanks for the input on my questions all. You have raised good points. I've decided not to use a robo-advisor.

@retired@50-- those were useful links. I read through them.

@the_wiki - appreciate you providing specific allocations + fund recommendations. I'm thinking of doing a variant of what you proposed. I was thinking of not buying bonds in my taxable brokerage accounts + compensate with a lifestrategy fund that has higher percentage bonds.

@retiredjg -- good idea. I ended up creating a new thread here
viewtopic.php?t=424150

Thanks again
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