[1]: http://abovethecrowd.com/2014/06/18/disrupting-finance-from-...
> The FDIC permits insured state banks and their subsidiaries to undertake only safe and sound activities and to make investments that do not present a significant risk to the deposit insurance funds
https://www.fdic.gov/regulations/laws/bankdecisions/InvestAc...
https://techcrunch.com/2016/11/01/cross-river-bank-gets-unco...
- Quantopian (http://quantopian.com/): Python based, kinda a little bit open source (backtesting only), live trades on Interactive Brokers or Robinhood. Has a big community for stocks.
- QuantConnect (http://quantconnect.com/): .NET based, more open source (includes live trading), live trades on Interactive Brokers, has a similarly sized community but the community's attention is spread to other asset types like Forex as well.
Both have numerous example algorithms you can clone and run without much trouble. An example vaguely suited to investing: https://www.quantopian.com/posts/modern-portfolio-theory-min...
>One thing I see every once in a while on HN is people with the belief that they can spend a week or two knocking out an algorithmic trader and start raking it in. In order to break this illusion I would recommend: http://financial-math.org/ http://www.quantresearch.info/
A) Keeping a portfolio balanced and
B) Taking advantage of a fairly specific set of tax loopholes in order to make those investments slightly more tax friendly. (where "slight" can become substantial over a 15+ year period of compound interest)
I know that some programmers have written code to automate their Vanguard accounts into something similar to a robo-advisor. This, to me, is much closer to programmers taking an interest in self-built robo than what the parents proposes.
Auto-rebalancing is fairly easy, you setup your account to put deposits and dividends into a money-market account then write a script which moves money from the money-market account into ETFs at the correct ratios. Tax-loss harvesting is slightly more complex but is doable.
I never advocated for active trading.
I had been happy with Betterment but it's clear that they want to get as many people in under the low rates and slowly increase it on you, knowing that you can't easily move it around to another provider (especially if you're dependent on their tax loss harvesting etc).
I think these companies (Betterment, WealthFront, etc) are struggling with really high customer acquisition costs that take quite a while to break even on. I'm sure that not many people noticed/cared enough to transfer out (I'm doing it now, it isn't a small task), so they came out way ahead on it.
Unfortunately, I think it will be easy for them in a year or two, when they need more quick revenue, to look back and say "Hey, not many people said anything when we raised fees by 67%, what's another 10 bps or so?"
I'm in the process of moving everything to Vanguard.
This is confusing and hard to fact check. Who do I believe?
I think their reasoning is sound in theory, but it strikes me as suspect that they would not allow even the option to stay fully invested for clients who would prefer to manage the cash component of their portfolio in a bank account where it can actually be spent at moments notice. And it does also strike me as a bit too convenient that their decision to remove this option from clients just happens to directly benefit Schwab's bottom line.
Their decision to compose more than half of the equity portion of their portfolio using dramatically higher-cost fundamentals ETFs from Schwab in place of using solely market cap ETFs also triggers similar warning bells for me, however sound the technical reasons for doing so might be: https://intelligent.schwab.com/public/intelligent/insights/w...
That said, I'm curious how Betterment came up with their numbers for their cash drag analysis. If cash drag on the highest end of the spectrum of a portfolio with 30% in cash is supposed to cost investors 0.56%, I'm not sure how they derived the lowest end of a portfolio with 6% in cash to be 0.38%. It seems to me Schwab might not be the only one here guilty of misleading potential clients.
Disclaimer: I am a Schwab client, but am not actively using their Intelligent Portfolios offering. I have done a bit of research into it back when it was announced though.
They'll keep you in some fund paying 1 bps and turn around and invest it elsewhere. Yes, you want some cash (esp. to the extent it's part of your asset allocation), but no you don't want to use the awful sweep vehicles they default you to.
Vanguard is a mutual company; they exist for the benefit of their users. Hard to compete against that.
Disclaimer: moved from Betterment to Vanguard
For example I am a cautious investor right now. At Betterment this means I have to lean more towards their Bonds option, which yielded a very low return over the past year. At Vanguard, I can invest in the Income fund which is a mix of high dividend paying stocks and bonds. Still cautious but much better returns.
I actually use Vanguard target date for my tax-advantaged accounts, but I use Wealthfront for taxable account.
By having a separately managed account of ETFs or stocks, you can sell and exchange similar stocks when they lose value and harvest the tax losses to use at a later date.
Edit: looked it up, the 2050 is 0.16%, not bad. I usually see much higher fees on those target date funds.
Cash drag is the penalty you pay for the time and amount of your wealth that is spent in sub-productive, inflationary cash. The article states:
"Schwab allocates up to 30% of a portfolio to cash. In certain circumstances, keeping up to 30% in uninvested cash can result in up to a 0.56% annual return penalty"
This sounds like a worst case scenario. To roughly calculate cash drag, you can take the avg percentage of wealth that will be in cash throughout the year, then multiply by 5% rule of thumb avg returns. For example if you had to keep 10% in cash, that would be 0.1 * 0.05 = 0.5% in lost potential earnings due to cash.
I'm sure there is enough space in the market for both types of products, the robo-advisor and the robo-manager. Personally, I'd prefer the former.
Btw, suspect you'll have trouble getting people to sign-up using such a flight-by-night custodian. Maybe take a look at Interactive Brokers?
Also, would encourage Questrade to fix this: Mixed Content: The page at 'https://www.questrade.com/' was loaded over HTTPS, but requested an insecure image 'http://ads.yahoo.com/pixel?id=2459149&t=2'. This content should also be served over HTTPS. (index):1 Mixed Content: The page at 'https://www.questrade.com/' was loaded over HTTPS, but requested an insecure script 'http://www.questradeaffiliates.com/scripts/track.js'. This request has been blocked; the content must be served over HTTPS.
It actually trades on your behalf, but only to keep your portfolio balanced and to allocate any cash you deposit into the account. It works on top of Vanguard, and you can customize it to invest in any Vanguard ETFs with whatever allocation you want.
Currently, you can only sign up for the waitlist, as I don't know if people would be interested in something like this.
You answer their questions or pick a portfolio and they update a report monthly that will tell you what to buy/sell to line up with your target.
Companies evolve over time and grow in terms of scale. Take a look at Facebook and Google as an example.
Clearly these are speculative bets on Wealthfront being as large as a mutual fund. The fact that the author doesn't see this means they're overvaluing a mutual fund manager and thinking that an algorithm can't come close to matching that performance. These startups have two major cost advantages over incumbents: 1) no researchers 2) no salespeople. They have higher profitability, so they'll be better equipped to spend on sales & marketing to achieve fast growth. This leads me to think that at least one of these companies is going to grow to the size of a large mutual fund and "WIN".
I work in HNW wealth management and I think that there needs to be better education on what for example a young person's IRA should look like. An ideal robo-advisor would make buy recommendations, ask you to never sell, and use education along the way to help prevent you from making the same mistakes most people fall trap to. I also think that if any of these companies have a desire to stay around for a while they need to be targetting the IRAs of young, high-income programmers. With a good fee and good education and assistance they can probably retain these customers, encourage them to max out contributions into their IRA (you should!!) and slowly build up a long tail of decent-sized accounts from people that may have only been interested from a tech perspective initially.
If so, it would seem like an even better business would be getting into administering 401k plans cheaply with employers and then keeping people on the platform post-employment.
https://www.irs.gov/retirement-plans/2017-ira-deduction-limi...
Wealthfront spells it out as: "In the unlikely event Wealthfront were to cease doing business, your account would be held by our brokerage partner until you transferred your account to a new broker or chose to liquidate your account to receive a check."
https://support.wealthfront.com/hc/en-us/articles/211004083-...
Eventually I think these guys will and must come up with their own funds. Else it does not make sense for them.
This is a bit misleading since the only way to save 6 figures on capital gains every year from TLH is to have realized > 6 figure loss at some point in the past.
The offset on regular income is also maxed at 3k/year.
The losses/gains must also be in a taxable account.
https://www.bogleheads.org/wiki/Tax_loss_harvesting#Using_a_...
TLH can be useful in certain situations (like yours), but I think generally it is oversold by the likes of Wealthfront and Betterment.
