I've been a Betterment customer since April 2015. I've been a huge fan of how easy they make to deposit money on a weekly basis and have it automatically invested in the proper allocation. It was a great tool to initially get me investing my money (vs. having it sit in my checking/savings account). It helped me realize how I can put my money to work and led me to doing countless hours of reading and research on investing.
Over the past few months, I've been following my returns and comparing them to the overall market. I know I shouldn't use the S&P 500 as a benchmark since Betterment provides a much more diversified approach, but it's tough to sit here and look at how the S&P has been on a tear while Betterment has given me tepid returns (relative to S&P).
My primary concern is that I don't know if Betterment's diversified approach would actually be more beneficial in the longterm. Tracking my 90% equity allocation account vs. $SPY, it almost mirrors $SPY in movement but has an ever increasing gap between cumulative returns (with Betterment falling further and further behind). Then when the market took a ~6.5% drawdown this past week, I checked in on my Betterment account and it took the exact same hit. If my Betterment account provides worse returns in good times, and takes a nearly identical sized hit as the S&P during draw-downs, am I actually better off with this "diversified" approach?
Some info about me: - 29 y.o. and married, living in the US. My wife and I are both gainfully employed - No debt and have 6 month of salary in savings as an emergency fund - Account on Betterment is 90% stocks / 10% bonds - Betterment account is all longterm and I don't plan to touch the money for 20+ years - Here is a look at my account performance vs. $SPY - cumulative returns (Betterment: 17.7% return vs. $SPY 43.3% return) - Here is that same chart annualized (Betterment: 4.7% return vs. 10.7% return)
My question is, should I stick with Betterment purely on faith that they will provide better returns over the longterm since they are diversified globally? Or should I just park the money in a Vanguard account that indexes the S&P 500 and take the peace of mind that I'm just mirroring the US market and will reap the gains in good times and take my lumps during the bad times?
I'm currently leaning towards the latter but want a gut check to see if I'm being irrationally blinded by S&P 500 FOMO.
Edited for formatting.
Submitted October 14, 2018 at 02:11PM by gatorguy23 https://ift.tt/2PwWmfv