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As I get older and my cognitive functions decrease, I have been looking into some alternative ways to invest the portfolio. Schwab seems to have a good system here with wide diversification and rebalancing/tax harvesting built in.
I want to get some opinions from all of you on this, especially those who have this account setup already in place. Pros and cons.
I compared Schwab and Betterment and found the following:
Schwab charges no additional fees while Betterment charges 0.15% (for $100k+) but:
The average expense ratio of the ETFs in Schwab's aggressive portfolio varies between 0.22% and 0.27%, while Betterment's varies between a much lower 0.10% and 0.13% (both rotate between ETFs with different expense ratios to do tax loss harvesting, thus the variable expense ratio).
All in, this means Betterment is actually only between 0.005% and 0.03% more expensive than Schwab, but:
Schwab earns money on your cash (6% minimum allocation, even in aggressive portfolios), Schwab earns money by investing in its own ETFs (e.g, SCHX) and Schwab earns money by investing in ETFs that use their platform to trade (e.g., PRF).
In the end, to me it was worth a few extra basis points a year to make sure the robot investing my money was programmed by human without any conflicts of interest (final bullet point above) and I went with Betterment.
Disclaimers: I did the above math a few months ago, probably did it wrong, and you should do it yourself!
John, I got into the Schwab-robo in April, 2015. duranal sounds like he or she did a nice comparison to help him choose. Me, I already had my IRA at Schwab so I wasn't going to open another account when it was so easy to click some buttons in my existing account to make it happen. Couple comments off the top of my head:
- the Schwab questionnaire that is meant to look at your age and risk tolerance in order to place you at the "appropriate" equity weighting was annoying. I wanted this to be a 60% equity weighted portfolio, but after answering the questions it had me less than 50%. The local Schwab financial adviser I work with didn't like the system either, so we decided to just fudge the answers until we got the mix I wanted. I opened my account the 1st week the Intelligent portfolio was introduced, so maybe they changed that aspect.
- I don't really mind the cash element. A lot of articles I read at the start didn't like the idea, but I saw it as a buffer that could play out better than bonds over the next few years. My cash portion is 10%.
- the portfolio is weighted heavier than I would have expected international and EM. That did not fair well mid-way through 2015 and I questioned the move when returns faltered. Since then returns have been good to very good in my opinion. My portfolio is up 9.84% YTD and about 5.7% over 1 year.
- I also liked the idea of investing in a diversified portfolio where someone else is watching diversification, balancing and reinvesting the dividends. With it, there is never the erg to buy the new hot fund or move things around at just the wrong time (which I was pretty good at).
- I didn't turn my entire IRA into the robo. I did 1/2. I still like the challenge of building my own portfolio and watching the results. If anything, the robo process has taught me build it, watch it but don't tinker. I believe everything I've read now about investors shooting themselves in the foot trying to out think the system is true. Most of us lose money doing this.
I have been considering the same for the future. Likely I will go with Vanguard (half robo and half human). Prefer index funds rather than ETFs unless the daily trading volume is high to minimize the bid-ask spread.
Comments
- Schwab charges no additional fees while Betterment charges 0.15% (for $100k+) but:
- The average expense ratio of the ETFs in Schwab's aggressive portfolio varies between 0.22% and 0.27%, while Betterment's varies between a much lower 0.10% and 0.13% (both rotate between ETFs with different expense ratios to do tax loss harvesting, thus the variable expense ratio).
- All in, this means Betterment is actually only between 0.005% and 0.03% more expensive than Schwab, but:
- Schwab earns money on your cash (6% minimum allocation, even in aggressive portfolios), Schwab earns money by investing in its own ETFs (e.g, SCHX) and Schwab earns money by investing in ETFs that use their platform to trade (e.g., PRF).
In the end, to me it was worth a few extra basis points a year to make sure the robot investing my money was programmed by human without any conflicts of interest (final bullet point above) and I went with Betterment.Disclaimers: I did the above math a few months ago, probably did it wrong, and you should do it yourself!
Hope this helps.
- the Schwab questionnaire that is meant to look at your age and risk tolerance in order to place you at the "appropriate" equity weighting was annoying. I wanted this to be a 60% equity weighted portfolio, but after answering the questions it had me less than 50%. The local Schwab financial adviser I work with didn't like the system either, so we decided to just fudge the answers until we got the mix I wanted. I opened my account the 1st week the Intelligent portfolio was introduced, so maybe they changed that aspect.
- I don't really mind the cash element. A lot of articles I read at the start didn't like the idea, but I saw it as a buffer that could play out better than bonds over the next few years. My cash portion is 10%.
- the portfolio is weighted heavier than I would have expected international and EM. That did not fair well mid-way through 2015 and I questioned the move when returns faltered. Since then returns have been good to very good in my opinion. My portfolio is up 9.84% YTD and about 5.7% over 1 year.
- I also liked the idea of investing in a diversified portfolio where someone else is watching diversification, balancing and reinvesting the dividends. With it, there is never the erg to buy the new hot fund or move things around at just the wrong time (which I was pretty good at).
- I didn't turn my entire IRA into the robo. I did 1/2. I still like the challenge of building my own portfolio and watching the results. If anything, the robo process has taught me build it, watch it but don't tinker. I believe everything I've read now about investors shooting themselves in the foot trying to out think the system is true. Most of us lose money doing this.
Good luck with your decision.
Thanks
OJ