Pragmatic Capitalism

Capital for Living a More Practical Life

Robo advisors worth it

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I’ve been using betterment as a robo advisor for about 3 years. There’s a few reasons I continue to use it and recommend it to family.

1. Better UI. Personal behavior drives investing returns and I think that have a simple and seamless UI makes investing seem much more manageable for people who are overwhelmed with choice or don’t know where to start. The choice for some of my family is to give up because it’s too confusing or use a simplified savings option with few choices.

2. No account min size and fractional shares. My brother saves $20 a month into betterment while in college into his ira. He’s been doing it for a few years and has $400-$500. There are few target date etfs and at least some mutual fund target date funds have min account sizes and share prices of around $100. This gets him in the habit of saving while still understanding the underlying diversification.

3. Individual savings goals. This one UI feature is why I use it for about $50k of non retirement savings. I have 10 sub accounts with names like car fund, vacation, etc. we have automated savings that go to specific goals and can track progress towards those goals. Yes we could have a single account and track it in a spreadsheet, but the UI makes this process easy and I think encourages savings.

4. Better automated savings options. Betterment pulls money from my bank account easily and I can control it easily from my phone. I don’t know where those autosesposits are in my TD Ameritrade account.

5. Tax loss harvesting. Betterment says it’s saved me $500 over the years of selling loss yielding lots first when I need liquidity. That’s not nothing. I could probably do it from my other accounts. But for all these things, there is just very little friction when doing it through betterment.

It’s not the end all be all. I recommended my inlaws take their $100k trust settlement and go straight to vanguard in part because I wanted them to literally just forget about the money.

Overall I think that banks and investment houses don’t pay enough attention to how UI can encourage positive saving and investing behaviors–which is why I like betterment when interacting with my wife and my brothers.

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Posted by Karl Kerksiek (Questions: 1, Responses: 0)
Posted on 08/24/2017 12:08 AM
Private answer

I agree that they’re very good for small accounts where the fees don’t matter that much. They’re also very good for people who don’t consistently save and need the discipline. But once you get to larger accounts all of these benefits become meaningless and so a standard indexing or target date fund makes more sense.

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Cullen Roche Posted by Cullen Roche (Questions: 10, Responses: 1749)
Answered on 08/24/2017 12:17 AM
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