Since February 2017 I've had a little money with each of Betterment, WealthFront, and Schwab Intelligent Portfolios. I'm comparing how the robo-advisors do to my own DIY Index ETF portfolio of 32% SCHX, 8% SCHA, 25% SCHF, 30% SCHZ, and 5% Cash.
tl;dr - If you are nervous about doing it yourself, go with a robo. They are WAY better than doing nothing, and only slightly worse than DIY. They are all very correlated with each other and with DIY, so which robo you pick is probably less important than figuring out the right allocation to use (eg, 60% equities versus 90% equities). If you really need a random stranger on the Internet to make this decision for you, use WealthFront. If you are in your 20s set it to the highest equity allocation it allows. Otherwise, set it to about 65% equities.
Original Post, 1st Update, 2nd Update, 3rd Update, and 4th Update
I still occasionally get PMs asking for an update, and the last thread is archived (no new comments allowed) so I figured I'd start yet another one. Mods, if you find this annoying, let me know and I'll just update via PM or edit old threads or whatever. But about half the PMs are people stumbling on the post via a search, apparently, so maybe it's good to have newer stuff in the search results.
This is not financial advice, and you'd be stupid to make a decision about robo-advisors based on a post by a stranger on the Internet, even if he weren't making it all up.
If you are interested in professional comparisons of robo-advisors that include other robos, Backend Benchmarking does a pretty thorough job every quarter: https://theroboreport.com/about/. I have never figured out why some of their quarterly results look so different from mine, so I am continuing to post my results.
As I explained in an earlier post, the vast majority of my investments in 2017 were 65% equities, so that's what I was using as a benchmark, even though most investors are probably not as conservative as I am. In late 2017 I added a couple of robo accounts with high equity allocations. The percentage equities is in parentheses above each column. Earlier this month (February 2020) I started playing with a new investment that is meant to mimic 100% equities, but with fewer ulcers during a correction. I will include those results in the future, and might add S&P 500 (SCHX or SWPPX) returns going back to 2/2017 for reference.
Table of Returns (monthly details in a comment):
| Time Frame | Comment | DIY(65) | Btrmnt(66) | SIP(66) | WlthFrnt(66) | DIY2(60) | WFHEH(92) | SIP2(85) |
|---|---|---|---|---|---|---|---|---|
| 2017 (partial) | 2/15-12/31 | 11.72% | 11.52% | 11.12% | 13.30% | 10.78% | N/A | ~12.5% |
| 2018 | -5.84% | -7.02% | -7.17% | -7.09% | -3.74% | -9.84% | -9.22% | |
| 2019 | 19.81% | 20.11% | 17.96% | 20.15% | 20.41% | 24.20% | 21.40% | |
| 2020 (partial) | 1/1-1/31 | -0.26% | -1.00% | -1.68% | -1.15% | -0.04% | -2.42% | -2.53% |
| Cumulative1 | 2017/02/15-2020/01/31 | 25.72% | 23.30% | 19.63% | 25.01% | 28.36% | N/A | N/A |
| Cumulative2 | 2017/11/30-2020/01/31 | 13.79% | 11.40% | 9.41% | 12.24% | 17.43% | 11.43% | 9.38% |
I highly recommend reading the 4th post and its comments. I have not updated the correlation analysis, but the graphs all still look very correlated.
Robos make a big deal about TLH. Again, I've discussed this in the past, but I don't think TLH is as big a deal as they make it seem. Since I am not adding new money, the cost basis for these robo accounts is very low, so I don't expect to ever have significant TLH opportunities. For example, the largest single position at WealthFront is SCHB, and my cost basis is is about 30% below the current price. Yes, there are a few shares only 5% below the current price from some rebalancing that it did, but the effective on the overall returns will be very minor. Most people will be adding new money to their accounts every year, so TLH will be applicable to that new money. But, after 5 years of adding money. TLH on the new money will be about a fifth as valuable as Betterment's whitepaper suggest (ie, 0.2% instead of 1%). Since DIY is outperforming the robos by more than that, TLH on its own doesn't seem like a good reason to go with a robo.
For me, the strongest argument in favor of robos is that it's such an easy way to not have to deal with your investments, but still get the benefits of investing in the stock market. A 3- or 4-fund DIY portfolio is not hard, but it can be scary to some people. Robos are a great solution for people like that.
As you can see in the numbers, my conclusions from last time haven't changed. DIY and (surprisingly, with its lower equity allocation) DIY2 outperform any of the robos, and their lead has only increased. So, I stick with my original hypothesis: Robos are certainly better than not investing because of fear or uncertainty or whatever, but spending a little time learning to DIY is probably a good idea for most people on this sub and following this horse-race, especially if you have a 401k or HSA or some other account that can't be managed by a robo.
Submitted February 20, 2020 at 05:08PM by plexluthor https://ift.tt/37NVGe2
