As I explained in my previous blog, Inside Robo Advisor Tax Loss Harvesting, it's virtually impossible to estimate the benefit of tax-loss harvesting. Rebalancing requires a similarly complex set of estimates. In the end, the value of these services is investor-specific.
Other benefits are even more personal, because they're about how much attention you can pay to your investments. Some robo advisor firms will manage your cash for you, day by day, putting dividends and contributions to work immediately. Many will also allow you to set up an automated direct deposit, helping you to pay yourself first.
Wealthfront, Betterment and Invessence will help you adjust your asset allocation over time. Wealthfront will nudge you to reassess your goals periodically, while Betterment and Invessence will automatically reduce portfolio risk as time goes by.
For busy folks, these services can be truly valuable.
Here's the list of firms and the services they offer:
|Firm||Automated Tax-Loss Harvesting||Automated Rebalancing||Cash Flow Management||Automated Savings||Portfolio Adjustments Over Time|
Here's a mother's fantasy: Fast-forward 10 years. Pretend my son has $250,000 to invest, faces a 25 percent federal tax bracket, and has $100,000 of capacity in his individual retirement account (IRA). We'll say bonds yield 5 percent over his lifetime. I scaled costs to a 60/40 portfolio, and imputed a 0.20 percent asset location advantage.
Because FutureAdvisor and Covestor accounts have trading fees, I included an estimate of 0.05 percent per year in commissions. It's a rough guess.
The asset location advantage is scaled to the IRA capacity.
Here's how all the robo-costs add up, in this very specific case: