Vanguard Life Strategy funds

I was looking to deploy some family assets with Betterment to get low cost portfolio theory; however, I noticed they raised their price from 15bps of AUM to 25bps. Doesn’t sound like a lot, but it puts them on par with better Hybrid robos.

I came across the Vanguard LifeStrategy funds (see link below) and it seems these might be an optimal and even lower cost alternative at just 15bps all-in. Betterment was 30-50bps all-in with the underlying funds.

https://investor.vanguard.com/mutual-funds/lifestrategy/#/?WT.srch=1&cmpgn=PS:RE

You definitely get the asset allocation, but I’m not quite convinced it does a good job of rebalancing (though it states the underlying funds do rebalance). Also not sure if I’d be missing out too much on the “tilts” (e.g. overweighing to value stocks, emerging bonds, etc…). I could do that myself, but I am going under the assumption we won’t re-balance appropriately and in-time.

Any thoughts?

I have no experience whatsoever, but the lack of replies tempted me to add my two cents. When the difference is just a handful of bps in cost, does the expense ratio actually matter that much? I’d just go to the solution that best meets my needs, even if it’s 10bps more expensive

If you’re going to try to do something that is 95% the same as Vanguard, you should just use their fund. It will save time, it will be more systematic, and the fee difference is small. You might be able to save 5bp by doing this yourself, but who has time to micromanage this tiny bit of your business?

I don’t have experience with Betterment, but I am pretty skeptical in general about these new age fin tech investments. Most of these seem to have some hidden risk factor that is under emphasized.

Those were my thoughts as well. We opened up a small Betterment account to see how it works; basically just invests like the Vanguard in a bunch of index funds, but applies their own “titls.” By way of example, Betterment invests in the VG total stock market index fund, but then invests in a value stock fund. There is overlap, but the idea is to overweight value stocks. Makes sense in principle.

Comparing to a Vanguard fund, the total cost difference is now ~35bps (VG is 15bps and Betterment is now ~50bps all-in, including the underlying funds). It does have a material impact over time despite being small %'s.

What the exercise did make me realize more than anything is that our human FA is not really doing anything the Robo can’t do. He just costs an extra 50-75bps or so.

All told, I struggle to see a reason not to just go VG since it does most of what we’re asking it to. Always like to analyze these things and bounce ideas though to make sure I’m not crazy (well I am, but you know…)

^Sounds like another smart beta solution. I’d be very wary. The algos tend to chase the same factors. When the market corrects (after Trump’s presidency ends in 8 years), many smart beta funds are going to get slaughtered.

I’d rather pay 100 bps for a good active manager that doesn’t follow the herd.

In YAFFX we trust!

I certainly agree with this in principle. Heck I’d pay him/her 200 or even 300bps. The results of active managers we’ve encountered thus far though have been rather dubious. Most not outperforming, staying too conservative when the market is down (happened to us in 2009 and we missed out a lot), and those that do create alpha seem to take it all away and then some with high fees.

It’s all quite frustrating so we are moving more towards private investments.

It took years for me to come around, but there’s no denying that downside protection is far more important than upside capture. The active funds that are (handily) beating their benchmark over the last 10 or 15 year periods are the ones that did very well when the tech bubble and credit crisis hit. Boring funds tend to win over time.

What private investments are you considering?

When in doubt, Bogle.

Not sure exactly what you meant, but if you are going private, have you listened to Brent Beshore? He recently described that multiples are going too high and it has him worried. Seems like lots of dollars are chasing value in all sizes

I’ve enjoyed both of his appearances.

http://investorfieldguide.com/adventures/

I should’ve mentioned they didn’t do much by way of downside protection either in 08 and 01. I don’t want to write off active managers entirely, it’s just been a quest to find a solid one. We’ll keep searching.

Private investments include businesses, direct loans (senior & mezz), real estate, PE (being an LP), etc…

I totally agree. We actually wanted to expand our senior housing business (now sold), but I pulled the plug because cap rates and expected returns were far too low for the risk we would be taking. It’s tough to find yield anywhere and so we still sit largely in C&E.