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Robo-advisors

Kaspa
in Fund Discussions
Anybody here invested in Betterment, Wealthfront, Schwab Intelligent Portfolio, etc.? I have been thinking about them off-and-on, but have not pulled the trigger. Currently have virtually everything consolidated at Schwab and it would make sense to invest in Schwab's version. Commonly cited downside is large portion of money in cash (believe 8-9% even in aggressive allocation); Schwab has defended it. The other option is to simply buy an allocation ETF like ishares AOA. One other factor to be considered is longer term viability of any of these firms. Assume if one of them, say Betterment, goes under, they would have to dissolve the account. What happens in that case? Do they simply transfer the ETFs to my account or sell them? If they sell, it would have tax consequences.

Comments

  • MikeMMikeM
    Hi Kaspa. I invested about a 3rd of my Schwab IRA money in Intelligent Portfolio about 15 months ago. I like the hands off approach, but the jury is still out for me on returns. My robo-portfolio is 62% equity, 28% bonds and 10% money market cash. I put the ETFs in M* to track the portfolio. So far this year it has done really well, +6.7%. But one year returns are a meager 0.5%. FWIW...
  • MarkMark
    I would ask myself what can these programs do for me that I am unwilling or unable to do myself. Or, maybe it's worth it for you to have them manage an IRA account for example while you manage a regular, taxable account.
  • Samuel
    edited July 2016
    If a robo-advisor went bust (unlikely), client assets will probably remain intact. Wealthfront custodies its assets with Apex Clearing. Betterment is itself a custodian like Schwab and Fidelity. Neither Betterment nor Wealthfront engage in any principal trading (i.e. trying to make bets on the market for their own accounts) so they have no incentive to gamble with client assets. Most of the time a custodial firm gets into trouble (like MF Global), it's usually because the firm itself is in the business of trading its own money. A bigger concern would be some kind of wide-scale fraud, perhaps due to a cybersecurity breach. This is a problem that potentially affects all custodians.

    If you had to go with a robo-advisor, I'd go with Vanguard Personal Advisor Services.
  • Kaspa
    Mark: The advantages I see are instant diversification of any new money added (sometimes difficult to do on your own), tax loss harvesting, less time spent on investing research and general discipline. All this can be done with some effort on our own.
  • TedTed
    @MFO Members: Speaking of robo-advisors, Legg Mason is getting into the act.
    Regards,
    Ted
    http://www.investmentnews.com/article/20160707/FREE/160709965?template=printart
  • Derf
    I read an article a few days ago in WSJ & that stated a user may have trouble cashing out in volatile times. One had better read the fine print.
    Derf
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