Robo-Advisors: Betterment vs. SoFi
Before reading Jesse's Invest like a Pro, I knew nothing about investing. Now - after noodling on his advice - I feel ready and excited to invest some savings in a Roth IRA.
However, I'm stuck between two rob-advisors: Betterment (Jesse's preference) & SoFi. There seems to be 3 big differences between these two Robo-Advisors, and I can't really wrap my head around why one is better than the other. I'm hoping someone can break it down a bit more for me.
Betterment rebalances your portfolio when there is a 3% drift. SoFi rebalances quarterly.
- I read online that you should rebalance when your portfolio is around 5% off, so it seems like Betterment would be the better option.
- However, how often does your portfolio start to drift by 3% or more? If it usually only drifts by 3% or more quarterly, than this difference doesn't seem to be that big of a deal. Or, am I looking at this the wrong way?
Betterment has a long-term track records, while SoFi is "the new kid on the block".
- How big of a deal is this? Aren't all the robs-advisors investing in the same general ETFs?
Betterment has a management fee that's .25%. Betterment also has an expense ratio from .06 - .17%, though they do not collect anything from this. SoFi has no management fee and an expense ratio that's .03% - .08%.
- This fee difference seems pretty significant. However, I'm not sure how to weight it against the other pros/cons.
- For instance, are the higher Betterment fees worth it if my portfolio is rebalanced every time it drifts by 3%?
Thanks for any thoughts or perspectives you can offer. It's much appreciated!
I made a similar decision a couple of months ago. I tried to look at all that I could. It just got overwhelming. I was down to Betterment and Wealthfront. I chose betterment. I transferred in a SEP and a Roth. It went pretty smoothly. Mine has rebalances a couple of times since I started. I am not sure if it would be a benefit for you but they also offer Tax Loss Harvesting which I don't think Sofi does. I could be wrong.
You don't need a robo advisor for a Roth IRA and you certainly don't need to pay fees. Those extra fees will add up to a lot ofyour money being paid to someone else unnecessarily over the long run.
Just pick an asset allocation and find a fund that matches it. Vanguard has a series of LifeStrategy funds and target Date funds that will suit most people just fine.
If you are young you don't even need much, if any, in the way of bonds and could just invest in a broad market total stock index fund. If you don't have enough for the starting investment amount, buy the ETF version until you get the balance large enough and then you can switch with no tax consequences to the mutual fund version.
Rebalancing isn't much of an issue at low balances when you are just getting started. over the past several years I've only rebalanced once or twice.
Open a Roth IRA at Vanguard* and get started.
* or Fidelity or Schwab, but you have to be a little more careful choosing the investments there because they also have some expensive funds with similar names to their inexpensive index funds.
Note: I skimmed through that investing PDF that Jesse wrote. There's a lot of good advice, but there's also some garbage in there. The problem is most people new to investing won't be able to tell which is which
I agree excessive fees can drag down a fund over the long haul. However there are not really free investments. They all have to make a buck some how. I actually worked at Edward Jones for a very short period to time. Had my series 7 and 63 license. I hated it and quit after 6 months :)
A good question to ask any of them you choose is "How do you get paid?"
Based on my account value?
Based on mutual fund payout?
Commissions per trade?
You really need to understand how they get paid and how it will affect you. Paying for advice at times is good. They can help steer you in the right direction may more than make up for it. Other times it may be bad. I was at fidelity prior to Betterment. They have some very low cost funds like Vanguard and the rest. I think they also started a little bit of Robo Advisor. My wife has one of theirs. We really like Fidelity but they don't offer a Robo Advisor for SEP accounts or I would have stayed.
I agree that there is no reason to pay Betterment fees. If you are not inclined to learn about your investments, then picking a Vanguard target date fund is a fine option.
When you have more money and are closer to retirement you may decide to venture into building your own portfolio and it’ll cost you nothing to sell the fund and buy your new investments.
I did about a month of reading before I felt confident enough to build my own three fund portfolio, and I learned a ton of other stuff about taxes and spending considerations in the process. It’s not as daunting as it seems.