Hi all,
I’ve been contributing to my Roth IRA via Betterment for about 8 years, and just realized this month they have a .25% annual active management fee. After considering the compound effect, I realized this amounts to several hundred thousand dollars of loss over the course of my lifetime. I’ve also learned passive index funds often outperform active management on average. Two questions:
1) Would you recommend leaving Betterment for a passive fund? (Leaning towards yes…)
2) *(most important)* What company/tool do you recommend I switch to if so?
Thank you!
How are you arriving at a several hundred thousand dollar loss? I feel like you added a zero somewhere.
I would instead look at the annual cost of management fees and ask yourself if that’s worth the automated investing that Betterment offers. You could replicate their strategy yourself — which is mostly a balanced portfolio of passive index funds — but it would take a small bit of extra work and attention to implement and rebalance occasionally.
Eight years of IRA contributions come out to about $50,000 so the annual fee is currently about $125. Make of that what you will.
This sub has an irrational fear of fees. How does your performance compare to the market? Are they earning that fee?
For years I had funds with 1-3% fees, but they were outpacing the market by 10 -20%. I’d gladly pay 3% if I’m getting 10-20% more for it…
Why not invest in a passive fund yourself? Betterment essentially mimics a target date fund allocation. Just go directly to vanguard/Schwab/fidelity
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