Personal Investments • Are Bogleheads too harsh on robo-advisors?

Hi everyone,

There are dozens and dozens of threads on here of people asking if they should use a robo-advisor or how to move from their current robo-advisor to something like the three-fund portfolio. The overwhelming consensus on here seems to be not to use a robo-advisor and DIY.

My question to you is: should robo-advisors like Betterment be considered the 'next best thing' for the average Joe with little education or interest in investing?[/b]

I'll stick with Betterment since I know it best having used it before moving to Fidelity and implementing the 3-Fund portfolio. The fee is 25 bps, plus the underlying ETFs for an 'all-in' fee of let's call it 30 bps. Vanguard TDFs have an expense ratio of 8 bps, so the 'premium' Betterment is charging is roughly 22 bps.

For this fee you're getting (along with most robos to my knowledge):

• A Boglehead-like portfolio of low-cost index funds covering global stock and bond markets

• Automated rebalancing

• Automated reinvestment of dividends & interest

• Automated asset location across accounts

• Automated tax-loss harvesting

• Automated glidepaths

• Automated capital gains management

• Cash management options with competitive rates

• A goals-based approach to investing and cash goals for mental accounting purposes

• Built in planning tools

• Behavioral 'nudges' as Betterment historically has pushed 'stay-the-course' notifications to clients apps during volatile markets

Now as Bogleheads we know none of this is worth 22 bps from any kind of quantitive perspective. I don't believe asset allocation, asset location, rebalancing, or TLHing can overcome the 25 bps fee, especially compared to something like a 3-fund portfolio.

But how realistic is it that the 'average' American will have the motivation or interest to take the time to educate themselves enough to learn about the 3-fund portfolio and then follow through implementing it? How many people push investing off entirely because it overwhelms them? And by extension, how many people then pay an advisor 100 bps for something Betterment can do better and for less in fees because they feel overwhelmed?

What are your thoughts? Should robos be removed entirely from the investment discussion? Or might they have a place? Could a tool like Betterment be considered 'Boglehead-lite'?

My question to you is: should robo-advisors like Betterment be considered the 'next best thing' for the average Joe with little education or interest in investing?[

the average Joe with little education or interest in investing?

Statistics: Posted by Sandtrap — Mon Aug 12, 2024 3:49 pm — Replies 18 — Views 953