Sorry for the possible off-topic, but can anyone explain to me how the robo-advising is different/better/worse than constant passive investing into popular ETFs, e.g. $SPY, $BND, $VOO, etc.?
I mean that’s literally where the money ends up anyway. I have a small amount in Wealthfront to check it out. With my “10/10” risk allocation, my money is all in vanguard funds.
45% VTI
20% VEA
19% VWO
14% VIG
2% VETB
They do also offer some services such as “tax loss harvesting” that you can’t really do on your own, but I don’t really know if it’s worth their fee.
Really, I think one of the best investing strategies is to buy and hold a variety of Vanguard funds and stop thinking about it.
* tax co-ordinated investing - looks at both your taxable and tax exempt/deffered accounts and directs funds appropriately (for example, puts more tax inefficient assets in your tax exempt accounts)
You can of course do this on your own as well, so it's up to you to decide whether the additional fee is worth it or not. Also, not all robo advisors offer the same features - but most offer automatic rebalancing at a minimum.
Automatic rebalancing is not that useful as long as you're contributing, because that rebalances on its own.
Betterment's tax loss harvesting is good… unless you're expecting your tax rate to go up next year, in which case you want to harvest gains… also, it'd be better to not lose money in the first place. Since they have alternate portfolios like "smart beta" now which try to do that, their features conflict with each other.
The main problem is that every robo uses the same Modern Portfolio Theory based investing which despite being "modern" is from 1960.
Not a comprehensive comparison, but I've been doing monthly investments into robo-advisors (Wealthfront and SoFi) as well as ETFs (SPY and VOO) for 2 years now. The returns are quite similar to ETFs, sometimes higher or lower depending on the markets.
2 things come to mind:
1. These target the large majority of people with no will or interest in researching/picking/managing their own ETF investments.
2. Robo advisers re-balance your ETF portfolio (in much the way an individual ETF would).
One friend told me it was his way of "outsourcing investment research", whether or not that justifies these platform's "low fee" and their returns vs. DIY is another issue.
Really, I think one of the best investing strategies is to buy and hold a variety of Vanguard funds and stop thinking about it.