I've been considering moving from holding Vanguard ETFs (one of their Total Retirement funds) over to Betterment or Wealthfront to take advantage of their automated tax loss harvesting.
Does anyone have any thoughts about whether automated tax loss harvesting is worth the 0.15-0.25% fees that the robo-advisers charge?
Probably not worth it unless you have a very large portfolio and you're too lazy to do the tax loss harvesting yourself. It's especially not worth it if you're correctly holding most of your retirement savings in tax-advantaged accounts (401k/403b/IRA/HSA). You are, right?
Also, it's worth noting that Schwab is launching a free robo-advisor service early next year[0] so that may be the nail in the coffin for startups like Betterment.
Thanks for the tip about Schwab, looks interesting, especially the 'free' part.
Thinking about it, basis points feel too expensive for something that's done entirely in software. I suspect competition from existing players will drive the price right down.
I made a comment elsewhere in this thread, but will reiterate it here: tax loss harvesting only shifts the tax burden to the future. If you put in $100k today (post tax dollars), and tax loss harvesting is able to fully "realize" that $100k, you'll have to pay tax on that $100k when you go to sell it (because the basis will be down to $0).
Yes, you get the potential gain on the difference in your net worth; consider it a loan from Uncle Sam to you until you need the capital. It's a much more minimal gain than it seems, though. The only real place I see tax loss harvesting being a no-brainer is in estate planning for money left upon your death.
I'll take any interest free loan that I can get, offsetting today's gains to lower my tax bill means more money to invest.
I agree that in many situations tax loss harvesting isn't helpful and even in the best case it's not amazing but if over the long term it can be worth the 50 basis points that the robo-advisors claim then it might be worth paying 15-25 basis points for it.
Hearing about Schwab's entry into the market makes me think that I should at least hold off to see what changes an established broker makes on the robo-advisor market.
I feel like the services that tout tax-loss harvesting don't do a clear job of explaining that it's only interest free loan if your future tax bracket is the same.
For example, if you're going to be moving to a different state after the tax losses are harvested—say, from MA to CA—then that "interest free" loan will cost you ~5% (the difference in tax rates between those states).
Or, if you're just starting out in your career, and you're going to be in a higher tax bracket in a few years—about the same time that many would start looking at buying real estate—then it's again a cost equal to the delta in marginal tax rates (say, 3% or 8%, depending on how your starting salary compares with your salary 5 years into your career).
I'd love if Vanguard got into this market as well; although it seems like they already are, with their target date index funds. Admittedly, no tax-loss harvesting, if that's important to you.
Schwab is also aggressively pricing their ETFs vs Vanguard, beating them in many cases. Not worth switching, but "Vanguard is Best" isn't the rule either.
Does anyone have any thoughts about whether automated tax loss harvesting is worth the 0.15-0.25% fees that the robo-advisers charge?