Do you know if this is actually very different from one of Vanguard's target retirement funds? Taking a brief look at Betterment's portfolio make it seem like the distribution is almost identical. Did I look at the wrong offering at Betterment?
The only advantages that I see in Robo advisors are that:
1) They reduce the human impact on the portfolio: If the stock market is crashing you want to regularly rebalance your bonds into stocks to keep your original target allocation. If you need to do this yourself manually there are probably lots of people who won't do this when the market is crashing.
2) You don't need to take care of TLH yourself. But then again TLH is pretty simple to do yourself.
However some disadvantages are:
1) Those Robo advisors are quite expensive. Wealthfront charges an annual rate of 0.25% on top of what the ETF charge themselves. So if you have a $500k portfolio you're paying $1250 per year to Wealthfront.
2) There's a lock-in: Wealthfront's feature to trade individual stocks instead of ETFs sounds nice, but it won't be easy to move these stocks somewhere else and to manage them yourself. And selling all of those stocks won't be an option either, if this incurs capital gains taxes.
The TLH part is a good point - I manually did that twice last year, and making sure you're doing it properly is a pain.
Unfortunately there aren't any roboadvisors (at least that I have found) that take your company 401k into account as well. I really want a roboadvisor that sits on top of all of my accounts (similar to mint), and either makes the trades for me, or emails me a list of trades to make (if the automation part is too hard to start).
So the investment strategy by the robo advisor is in essence just a automated lazy portfolio? I expected/was hoping for some fancier AI than just a dumb balancing script that I currently have in an Excel spreadsheet...
This should be easy to (mostly-)automate for much less than 0.25% per year. Something like a website where I enter the funds that I have and whenever it's time for TLH or re-allocation I get an email.
The main issues that I can think of are wash sales and the task of finding other funds that match your original fund.
Not the OP, but I like the 4 fund and it is the basis of my tax advantaged account. I have been debating on cutting a lot of Intl exposure though. There is an argument to be made that an S&P fund is already heavily exposed Intl because the companies sell world wide.
The robo advisors charge an extra 0.3-0.4% on top of Vanguard's expense ratios. So at the very least, from a cost perspective, they're more expensive than just using Vanguard.
(Side note: The target date funds have slightly higher expense ratios than just rolling your own with the same underlying funds and "Admiral" share classes.)
The question is, what is the value you're getting out of Betterment/Wealthfront? I don't recall where, but I've seen one or the other say that its estimated value-add was 0.7-1%. So less their fees, that's net positive (if you trust that).
Automated tax-loss harvesting is a big deal for workers. It saves you a little income tax at your marginal rate.
Automated rebalancing removes some of the annual work associated with maintaining your own portfolio (but so does a target-date fund).
At the end of the day, I'm not sure they're worth the fees... I still manage my own (simple index-fund portfolio). But they're pretty close to worth it.
There is little difference. Betterment is just trying to exploit the mentality of millennials, who believe that because something has a slick web interface then it must be good or better than the alternatives.
