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malo comments on A Guide to Rational Investing - Less Wrong Discussion

26 Post author: ColbyDavis 15 September 2014 02:36AM

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Comment author: malo 15 September 2014 05:58:11AM *  6 points [-]

Am I right that services like Betterment and WealthFront are basically automating most of this? They offer automated investment in a mix of ETFs (of stocks and bonds) weighted to ones risk tolerance, which is rebalanced automatically, and bought/sold in the most tax efficient manner (all for a small fee).

I recently spent some time figuring out how I wanted do investing in the US, and settled on using Betterment. Using a service like theirs seems strictly better than doing it myself, and I haven't found any compelling arguments that finding a financial advisor would be worth the effort.

Comment author: ColbyDavis 15 September 2014 01:14:45PM 5 points [-]

The online services Betterment and WealthFront explicitly state they hold the efficient markets hypothesis is true and invest exclusively in broad-market index funds. I consider their approach to be an alternative to using Vanguard, which is to say, they offer an excellent service and many people would be well to use them, but I believe more optimal investing is possible. In my opinion it is not really possible to scale a market-inefficiency-exploiting strategy to the level that Betterment and WealthFront are after.

Comment author: malo 15 September 2014 06:50:24PM 2 points [-]

In my opinion it is not really possible to scale a market-inefficiency-exploiting strategy to the level that Betterment and WealthFront are after.

Yeah, I can imagine it's hard to take advantage of some of the inefficiencies you pointed out at that scale. Though they do invest in funds like Small-Cap ETFs because of the market inefficiency you pointed out.

I consider their approach to be an alternative to using Vanguard . . .

This confuses me a little since the vast majority of the funds they invest in are Vanguard ETFs. Maybe you mean something more specific that I'm missing?

Comment author: ColbyDavis 15 September 2014 08:12:13PM *  4 points [-]

This confuses me a little since the vast majority of the funds they invest in are Vanguard ETFs. Maybe you mean >something more specific that I'm missing?

Haha, ok. So you can just go buy a Vanguard target-date retirement fund and let the fund's internal structure take care of the asset allocation for you, or you can go talk to somebody at Vanguard who will either give you some straightforward advice about how to build your own portfolio for a one-time fee or build your portfolio for you for an ongoing fee, or go to Betterment where they will build you a portfolio out of Vanguard funds, or you can build it yourself using some of the insights you gleaned from this article. All of these are reasonable solutions.

Comment author: blashimov 27 January 2015 08:02:39PM 1 point [-]

So what I'm getting is that if I already am investing in Vanguard, and being reasonable, the added value of betterment if any isn't worth my time? This is what I was trying to figure out today.

Comment author: G0W51 19 December 2015 07:30:18AM 0 points [-]

What exactly do you suggest using to invest, then?