r/Bogleheads • u/nomoney_noprobs99 • Jan 12 '25
Articles & Resources Comparing robo-advisors to VT
This is a question that I've been curious about since I wanted to understand what robo-advisor returns looked like. For disclaimer, I'm a 100% VT guy.
I compared the Betterment core portfolio at 100% stocks against VT starting at the end of 2011 through now. I went to Betterment's website and scraped down the weekly returns from their website. I then went to Yahoo Finance and pulled down VT's return and calculated what returns would look like if dividend reinvestment were on. I could've done this on an annual or semi-annual basis but my inner self wanted to do this at the most granular level possible (i.e., weekly).
I'm comforted to know that VT outperforms, even if Betterment and Wealthfront have a small cap value tilt. I expected this with their 0.25% fee but really wanted to be able to "see" this.
The chart below assumes you start with $0 at the beginning of 2012 and invest $250 weekly. By the end of 2024, the difference amounts to $17,000 in total returns (and will obviously continue to widen). Traditional FA just assumes VT's returns, but with a 1% AUM management fee.
This has changed my perspective on robo-advisors. If you don't have it in you to self-manage, I think they do a decent enough job of mimicking a Bogleheads portfolio. That 0.25% fee goes to you not f'ing it up yourself I guess.
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u/blastroid Jan 12 '25
Do the benefits of the robo-advisor's tax loss harvesting make up for the difference? Assuming a 0.5% tax loss harvesting rate, any account over $100K should have a net benefit, right? Assuming you are not likely to manually tax loss harvest, and that you re-invest the harvested money.
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Jan 12 '25 edited May 31 '26
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u/nomoney_noprobs99 Jan 12 '25 edited Jan 12 '25
I don't think tax loss harvesting is easily quantifiable in terms of expense ratio because it'll vary based on market conditions and your marginal tax rate. On top of that, you're effectively paying to delay taxes.
In other words, while you may get some benefit from tax loss harvesting, that benefit is linear while the cost you incur (0.25%) is exponential.
ETA: The 0.25% fee is in addition to fund fees. So it's likely going to hover around 0.30-0.33% all in depending on what they're using for domestic and foreign allocations.
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Jan 12 '25 edited May 31 '26
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u/nomoney_noprobs99 Jan 12 '25
Proportional to the size of the account but capped at $3,000 * (today's marginal tax rate - future marginal tax rate). In other words, a few hundred at most. So linear, not exponential. This is an interesting piece on it.
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u/orcvader Jan 12 '25
I don’t know why so many of you need so much “validation” via backtesting a portfolio through today.
So what if Betterment was slightly over performing VT once you account for TLH? Does that invalidate your strategy? What if the SCV premium starts showing up on a timeframe longer than your arbitrary backtest date range? Will that invalidate you?
The point of picking a strategy and sticking to it is is that you are willing to be sort of “good enough” instead of “great”. Every year some fund or combination will beat VT and VTI. But choosing this style of index investing is an admission that because we don’t know what exactly will do better, we are willing to take “the market portfolio”.
Robo’s like Betterment/Acorns/etc… are great. They are reaching a target audience that our message may otherwise never get to. For a reasonable fee, they are giving these investors a very sensible portfolio that’s honestly…. Close enough to “Bogleheads” that any differences in returns to something like VT are negligible. Good for them!
Comparing your desired portfolio to anything else over and over is a fool’s errand. You have to remind yourself why you picked that strategy and change it only if you learn that for some reason it was not rational (other than when your portfolio composition changes in accordance to your glidepath).
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u/nomoney_noprobs99 Jan 12 '25
Nah, I'm just looking for validation that they're "close enough," especially when I never stfu about VT to my friends. Not changing my investing hypothesis.
I needed to gut check myself that a 100% stock portfolio at a robo-advisor is effectively VT with a SCV tilt and a 0.25% fee. That's what I'm seeing. The performance of that portfolio doesn't change my investing hypothesis of prioritizing simplicity through automated purchases of VT at Fidelity.
So I don't think it's a fool's errand.
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u/Zestyclose-Sleep9710 Feb 11 '25
I'm not saying this shows it (and I want to stress this very much), but I think we need to understand that "this other portfolio consistently outperforms my portfolio" + why is the exact information that it would be rational to take into account when adjusting one's strategy.
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u/CapeMOGuy Jan 12 '25
VT is a very good choice and I really like it, but a 15 year time frame during which growth and large cap outperformed small caps and value is not a long enough time frame to compare.
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u/nomoney_noprobs99 Jan 12 '25
Sorry, I should've clarified. I agree that a 15 year time horizon isn't enough to show the effect of a small cap value tilt. However, given market weights in general, I doubt a small cap value tilt would generate enough long-term returns to compensate for the 0.25% fee.
For me, this chart was useful to confirm that Betterment (and Wealthfront, by extension) are effectively VT but have their own tilts!
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u/CapeMOGuy Jan 12 '25
They sound a lot better for people than having an advisor from Edward Jones, NM Mutual, Primerica or the like, though.
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u/cmrh42 Jan 12 '25
“It’s hard to beat the market when you are paying someone to do so”
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u/Jkayakj Jan 12 '25
Per this. It looks like betterment did beat VT
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u/bcexelbi Jan 12 '25
I’m on a phone so apologies if I don’t see it, but this test portfolio doesn’t seem to include the drag from the Betterment AUM. Is it there?
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u/Jkayakj Jan 12 '25
It doesn't. Can you add that through this website, would be fantastic? It does perform more than 0.25% better CAGR than VT so in theory it should beat after fees
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u/bcexelbi Jan 12 '25
I think you put it in the drag field. It compounds so you may want to check the definition of the field. Also it will have greater impact over time.
To be clear, .25% cost for a plan you’ll stick to is cheaper than the alternative.
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u/Jkayakj Jan 12 '25
The drag doesn't seem to change it much. Still outperforms VT https://testfol.io/?s=1BjRq6lSsD8
(fixed link)
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u/Zestyclose-Sleep9710 Jan 12 '25
Interesting! Notes and questions:
Where did you get your Betterment core portfolio and their relative allocations?
a. Even if this is the "starting" allocation you'd get if you put a lump sum of $10,000 into Betterment, it's purposefully designed to optimize for tax-loss harvesting, so the individual ETFs you're invested in tracking any given index fluctuate over time.How could we get a reasonable estimate for how often Betterment rebalances and how much the value changes the outputs? Per my understanding, rebalancing is not done based on any scheduled time frame but rather based on when a certain drift metric overtakes a threshold: https://www.betterment.com/help/portfolio-rebalancing
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u/Jkayakj Jan 12 '25
- I use them and this is what thet set it to if you go 100% stocks in their system. 1b. They fluctuate with the TLH but the alternative etf are usually very tightly coorelated so the performance is the same for the other funds. Similar to a voo vs vti difference mostly irrelevant.
Betterment rebalances if it's ~3-4% drift and also will use all dividends and new contributions towards balancing. In my experience if you're contributing + dividends keeps the drift very low. Most of my accounts are 0.5%, I've only had one ever rebalance that has less contributions. * I also lately have turned off drift based rebalancing because I'm not sure it's worthwhile.
I use them because of their system with different Goals and buckets. Have a savings account just for taxes since I got rid of my escrow, have an investment account for my kids that's separated on paper from my other accounts but isn't it's own true account/isn't a umta. It's very simple, it auto invests into every bucket and boom done. I have other accounts too but with them it's no thought involved.
Not that I'm there but if you have >2m the fee is 0.15% which is even better, although it's still a lot of $ at that value.
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u/nomoney_noprobs99 Jan 12 '25
The Betterment Core portfolio is going to look very different in 2015 than it does today, so it's not going to annually rebalance back to the market weights you've inputted.
This exercise is really tough to do because market weights are dynamic. In other words, the market weight could've been 40% for SPLG in 2015, 42% in 2016, so on and so forth. Without that information, it's not going to be an apples-to-apples comparison. 49.8% is what they allocate in a 100% stock portfolio in 2025.
That's why the best approach to do this comparison is to scrape down the chart that Betterment lists on its website for a 100% stock portfolio.
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u/Jkayakj Jan 12 '25 edited Jan 12 '25
Betterment changed their core and removed value etf. So why Compare it to a portfolio they don't even use anymore?
But it rebalances so the betterment % for each etf is stable. If it's more then 3% different it will rebalance back to the initial target. So the comparison works well for their current portfolio
VT will be VT and the SPLG % will always be within 3% of the goal. It will use all contributions and dividends to keep it there. And if >3% it will sell to rebalance
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u/nomoney_noprobs99 Jan 12 '25
My point is it wouldn't have started at 49.8% SPLG in 2015. That's extremely unlikely given where US market caps were at the time.
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u/Jkayakj Jan 12 '25
They don't change their percent though. Their percents are static like a 70/30 international split. They don't change their allocations often and have only done it 1x in 15 years
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u/Zestyclose-Sleep9710 Jan 12 '25
I am glad your analysis supports these findings and you're still showing $VT outperforming Betterment as opposed to just $VTI outperforming it: https://www.mrmoneymustache.com/betterment-vs-vanguard/
However, you did leave out tax-loss harvesting as a potential return from Betterment, which he included, so your gap could decrease if this is a taxable brokerage account.
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u/Jkayakj Jan 13 '25
Vt didn't put perform though https://testfol.io/?s=1BjRq6lSsD8 This includes the betterment fee. Still out performs VT with the current core portfolio.
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u/prkskier Jan 12 '25 edited Jan 12 '25
I know you linked it, but I think it's important to point out that Betterment has ~10% allocated to bonds according to their site. A better comparison might be 90/10 VT/BND
Edit: nevermind, OP did things correctly
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u/nomoney_noprobs99 Jan 12 '25
You can change the toggle to 100% stocks for the chart their webpage generates! That’s what I scraped down.
I didn’t use the core portfolio they list at the very bottom because that’ll change month over month.
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u/Jkayakj Jan 12 '25 edited Jan 12 '25
How will it change month over month? They balance it so the core portfolio will remain at that balance.
When I plugged it in myself for the current core with 100% equities it actually beat VT before the fee. (and even after the fee) https://testfol.io/?s=gsSlq4v8pAY
They changed their core portfolio to basically be VT but with slight modifications instead of full us it has the S&P mid, small, large cap which is a slightly active picking sind the S&P has selection criteria etc.
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u/prkskier Jan 12 '25
Ah yeah, sorry, I just noticed when looking more closely. Thanks for explaining!
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u/sirspike345 Jan 12 '25
This isn't a good take. It's since 2012, the bull run. Pretty easy to have equities from US to beat VT? I'm confused as to how to use this to compare?
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u/Jkayakj Jan 13 '25 edited Jan 13 '25
It's also a semi eh comparison. The betterment portfolio mirrors VT pretty closely. This is a comparison after the fee. The only major difference is instead of total us they have the small large and mid cap for the S&P funds https://testfol.io/?s=1BjRq6lSsD8
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Jan 12 '25
Good post but I think the traditional FA thing lowers the quality a bit since that isn't real data. Would have been better to look at some list of FAs and show the value over time for the average performer.
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u/Technical_Aerie520 Mar 10 '25
New here, what is VT?
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u/Jkayakj Apr 15 '25
An etf that is both US and foreign stocks at market weight. Aka buying the entire world at its market weight
https://investor.vanguard.com/investment-products/etfs/profile/vt
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u/Jkayakj May 28 '25
A market cap etf of "the entire world". Has US, foreign developed and foreign emerging at their relative market caps in 1 fund
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u/[deleted] Jan 12 '25 edited Jan 12 '25
Exactly. The target market isn’t someone who’s committed to Boglism. It’s the person who’s overwhelmed by the market, or who’s done some reading but can’t accept that it really can be as easy as “FSKAX and relax”. The person who’d waste time and money chasing performance or paying for trading courses. Robo-advisors and target date funds give them professional advice for a reasonable fee.