Net Worth Update (+1.2%)

by iam1percent on July 1, 2014 · 5 comments

Click here to see my current net worth. The month of June ended slightly up.  Overall, my net worth increased by $22,038 since my last update early June.  Our net worth increase would’ve been higher, but my wife’s employer is changing her pay schedule, so her June paycheck won’t arrive until 7/15.  We used to get the paychecks at the end of the month.  Additionally, I spent about $4,250 for upgrades to my rental property.

You will also notice that my liabilities dropped significantly.  This is due to a decision to pay off my low rate auto loan….just to get it off the books.

The major drivers of the net worth increase were:

  • Broad stock market gains
  • Living below our means

As stated in a prior post, I have opened up two taxable investment accounts with Betterment and Wealthfront.  So far, they are performing as expected, but I will have them broken out on my net worth page so you can track the results of these two companies.

How did you do in the month of June?  Also, see how the rest of the other personal finance bloggers are doing by heading over to Rock Star Finance.

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Wealthfront versus Betterment

by iam1percent on June 19, 2014 · 5 comments

For the longest time, I have managed my own investment accounts. Early on, I attempted to buy individual stocks with disastrous results. After learning from this mistake, I began to invest in mutual funds without paying any attention to fees. Over the course of many years, I transitioned from mutual funds to index funds that track the S&P 500. About 3 years ago, I tried using an actively managed broker. I was hesitant because of the fees which were 1.5% at the time. I also made the mistake of thinking I would need access to the funds within a short time-frame, so I was conservative in my investments. Needless to say, although I made some money, I missed out on a lot of gains between 2011-2014.

I have recently heard about 2 actively managed funds, but they’re actively managed by a robot. There isn’t an actual robot that I can visit, but all investment decisions are done via a software based investment advisor. The two most popular robo-advisors are Betterment and Wealthfront. There are others, but these 2 seem to be the most popular. Betterment has been around since 2008 and Wealthfront has been around for 2.5 years. Wealthfront has seen tremendous success lately with now over $1 billion dollars in assets under management. Betterment isn’t too far behind and offers a very similar service.

Each company has their pros and cons which I’ll get into later. I was a bit hesitant to invest in these companies because they’re not well established from a time perspective, however, they seem to have planted a stake in the ground and seem to be here to stay. So, since I couldn’t decide on which company to use, I decided to put an equal amount in each of them and track them accordingly. Before you use either service, they ask you a series of questions that are intended to assess your level of risk. They each invest in low-cost index funds, appropriately allocate your investment based on risk, rebalance automatically, and harvest losses for tax purposes. Their fees differ, but they’re very low and worth the cost for not having to actively manage the investment.

Below are my thoughts on each service. I will provide investment updates on my networth page and break out the investments in each company so that you can track it along with me.

Wealthfront 

wealthfront

Investment: $100,000 initial deposit with a $1000/month investment thereafter

Fees: 0.25%

Risk Assessment and allocation
They ask a series of questions that assess your risk. I thought I answered them honestly and what I thought would put me into a high risk category, however, Wealthfront put me in a risk class of 5 out of 10. The 2 questions that would have put me at the highest risk class (10/10) were if I owned stock options in a private company AND if I’ve ever made an angel investment. Regarless, they give you the ability to adjust your risk, so I bumped mine up a tad to 6/10. This correlates to an approximately 75/25 stock/bond porfolio.

Pros

    • Free to use up to $10,000
    • For account balances over $500,000, Wealthfront offers an enhanced form of tax-loss harvesting called the tax-optimized US Index portfolio
    • Interesting and informative white papers on a variety of topics

Cons

    • No graduated fee schedule. Whether you have $20,000 or $100,000, the fee is the same.
    • $5,000 account minimum
    • Need a minimum of $100,000 to take advantage of tax-loss harvesting
    • Referral program is good (extra $5k managed for free if referred), but the referral link includes my real name (I blog anonymously)

Betterment

betterment

Investment: $100,000 initial deposit with a $1000/month investment thereafter

Fees: 0.15%

Risk Assessment and allocation
Betterment was a bit more aggressive in assessing my risk compared to Wealthfront. Additonally, they only asked for my age and my goal to assess risk which is a bit lacking. Initially, they put me in a 90/10 stock/bond allocation, but I changed it to 85/15.

Pros

    • Very nice use interface
    • Free to use for the first 30 days
    • Graduated fee schedule. Any investment balance above $100,000 is only assess 0.15%. There is a gradual increase for any balances below this amount.
    • Only need a balance of $50,000 to take advantage of tax-loss harvesting
    • Interesting and informative white papers on a variety of topics
    • Get up to 6 months managed for free by clicking on this referral link or by clicking on the banner link at the bottom of this post

Cons

    • Referral program is not as rewarding as Wealthfront and the referral link itself includes my real name (I blog anonymously)
    • Questionnaire to assess risk is lacking.  Seems like they only use age and goal (i.e. when you need to access cash) to assess risk.  Time will tell how this risk assessment will perform.

Summary

When assessing performance between Wealthfront and Betterment, it is important to note the difference in the asset allocation.  Different asset allocations will provide different results.  However, I do think its important that I use the risk assessment provided by each company since many new investors will use the same tool to assess risk.

Although the amount of money that we invested with each company is a lot to many, for us, it represents about 15% of our investable assets.

Stay tuned!




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7 High Costs of Renting Out Vacation Homes

April 8, 2014

Owning a vacation home is a great accomplishment for many – whether they plan to use the properties as retirement homes, frequent personal getaways or vacation rental properties. A second mortgage for a vacation home is, of course, a debt each borrower should take on with caution to avoid excess financial risk. Vacation home buyers […]

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Net Worth Update (+3.3%)

April 7, 2014
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