Automated portfolio managers like Betterment will set you up with a diversified mix of index funds and manage it for you for a small fee. I’m an investing geek, so I always lean towards keeping the small fee and manage things myself. But an important variable to this equation is tax-loss harvesting (TLH). Tax-loss harvesting tries to improve your returns by minimizing your tax bill, but it is also tedious work that is ideally suited to handing over to a computer.
If the management fee they charge is theoretically 0.25{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}, as long as the benefit from tax-loss harvesting is at least 0.25{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}, then you’re already ahead of the game. The problem is that predicting the actual benefit of TLH is difficult. Betterment claims that based on past data, their Tax Loss Harvesting+ service could add an estimated +0.77{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6} in after-tax returns, annually:
Up until recently, you also needed $50k in your portfolio. But Betterment just sent me an e-mail today (April 2015) that their tax-loss harvesting service will be available to all taxable accounts with no minimum balance requirement:
Using our smarter technology, we’ve now made Tax Loss Harvesting+ available to you and all of our customers—regardless of balance—at no additional cost.
We are the only automated investing service to provide this tax-reduction strategy, once only available to the wealthiest, for all investors. By democratizing tax loss harvesting, we are continuing our mission of making smarter investing accessible to everyone.
I would not have predicted this a few years ago: automated tax-loss harvesting for any account size and at such a low cost. A customer with $10,000 would be getting TLH and portfolio management for $25 a year. Betterment has no minimum investment requirement.
I would say that I am confident the benefit of TLH over the long-run will be greater than zero. However, I would not count on 0.77{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}. But even if we split the difference and assume it is 0.4{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}, then using such a service still has to be considered as it is greater that their management fee of 0.15{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6} to 0.35{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}. I hate giving up control though, so while I have put a little seed money in various places, I am still 95{01de1f41f0433b1b992b12aafb3b1fe281a5c9ee7cd5232385403e933e277ce6}+ DIY and keeping a close eye on future developments.
Current sign-up promotions. Betterment is currently offering up to 6 months of free portfolio management fees, depending on your initial deposit amount.
(Note: Competitor Wealthfront has a similar tax-loss harvesting service. I know my posts about both are very similar, but I wanted to make sure any readers that may see only one post get the full context.)
Betterment Offers Tax Loss Harvesting With No Minimums from My Money Blog.
© MyMoneyBlog.com, 2015.
SOURCE: My Money Blog – Read entire story here.
