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‘ve written a lot recently about digital advisors (including the piece I wrote for AARP, “Do-it-yourself made easy“). Wealthfront, one of the leaders in this space, now has $1.7 billion under management.
That seemed pretty impressive, until I saw a recent piece in InvestmentNews about Vanguard’s Personal Advisor Services. Although still basically a pilot program, the “human-augmented online advice platform,” as IN termed it, now has $4.2 billion under management.
For all that’s been written about the start-ups who use powerful algorithms to manage your portfolio while you sleep, it’s the the Vanguard offering that may be the game changer. Vanguard can offer everything the start-ups do–asset allocation, automatic rebalancing, ultra-low-cost investment choices–in the mantle of a trusted firm known for its integrity and thrift. The cost? Three-tenths of one percentage point, or $300 a year for a $100,000 portfolio. That’s only slightly more than the .25 percent the newcomers typically charge.
Advisors charging more certainly will argue they’re adding value. But if you’re paying much more for financial management, you might want to at least take a look at what you can get for less.
Very helpful article, as always, Liz. Just a sample size of one, but I had used a Vanguard model back in 2006 or so. Then came the recession and market crash of 2008 and the model didn’t reallocate our mix of stocks and bonds in any way that would have reduced our losses as the market plummeted. So I “fired” the robot and took things into my own hands. I happened to time the bottoming out of the market pretty well and when that happened I reallocated more heavily into stocks so that we at least caught the benefit of the upside as the market rose. Bottom line, at least for me, was that the model wasn’t proactive but instead reactive…it didn’t prove capable of dealing with major market swings like the one we experienced.
Most people who try to time the market fail miserably, which is why digital advisors (and many of the best human ones) favor a passive approach that features diversification and constant rebalancing using ultra low-cost ETFs. Over time that approach seems to offer better returns than attempting to predict market highs and lows.