robo-advisor (Betterment) tax loss harvesting vs. manual

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mookie
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Joined: Sun Jul 12, 2015 1:35 pm

robo-advisor (Betterment) tax loss harvesting vs. manual

Post by mookie »

Here is the Betterment method of automated tax loss harvesting.
https://www.betterment.com/resources/ta ... ethodology

Do you think that the automation generates significantly more tax losses than manually doing it, assuming a 3 fund portfolio and a $1000 threshold to harvest a loss?
quietseas
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Re: robo-advisor (Betterment) tax loss harvesting vs. manual

Post by quietseas »

One can take the short term perspective and say sure, automation can do better.

But the long term perspective, over decades, it's not a big deal if you roughly watch the market and do it yourself, and the robo TLH will give you a more complex portfolio with a lot of tax lots that will can be a hassle if you ever decide to move from one brokerage to another. You do have to make sure cost basis transfers over lot by lot. Usually it does, sometimes it doesn't.

We all certainly hope we are never tax loss harvesting what we bought in April 2020 or 2008.

Even if you get a large windfall, you TLH it on the way down and at some point you hit the bottom, then never do it again.
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retired@50
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Re: robo-advisor (Betterment) tax loss harvesting vs. manual

Post by retired@50 »

mookie wrote: Sat May 21, 2022 10:32 am Here is the Betterment method of automated tax loss harvesting.
https://www.betterment.com/resources/ta ... ethodology

Do you think that the automation generates significantly more tax losses than manually doing it, assuming a 3 fund portfolio and a $1000 threshold to harvest a loss?
I think the best way to do this sort of thing is to "learn to fish", so to speak, and handle it yourself. TLH is comprehensible if you put in some small amount of effort.

Failing that, then using Betterment would / could be okay with an account of under $50,000 or so. The 0.25% AUM fee will eat into the tax savings as the account grows larger. In other words, don't put $1 million under AUM of 0.25% for tax savings that will be dwarfed by the AUM fee.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
livesoft
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Re: robo-advisor (Betterment) tax loss harvesting vs. manual

Post by livesoft »

Since one can have their broker send you an alert when a price is reached, one can have their broker text them when a loss of $1,000 is available to harvest.

However, if there is no $1,000 today and the market goes up tomorrow, there will be no $1,000 tomorrow. Eventually you will figure out that harvestable losses only first occur on big down days such as when headlines light up with the word "Worst" in them and/or bogleheads.org lights up with posts about RBD and TLH and tax-loss harvesting. Basically, one can be blissfully unaware and will not miss opportunities when they happen. This is especially true if one invests mainly in broad market index funds which are tax efficient. One might have other index funds in tax-advantaged accounts, but no TLHing in those accounts.

Thus manual harvesting is easy and uncomplicated. Also only folks who are contributing periodically to a taxable account relatively large amounts will have opportunities.** For instance, when I stopped working many years ago, we stopped taxable account contributions and have not made any meaningful tax-loss harvesting sales since about 2016. That's despite things like March 2020. Even this year, we are selling shares to pay expenses, but the shares with the least gains still have 35% gains.

**Or those that have invested a big lump sum, say a recently received windfall, inheritance, or they sold a business or real estate.
Last edited by livesoft on Sat May 21, 2022 11:35 am, edited 1 time in total.
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Topic Author
mookie
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Re: robo-advisor (Betterment) tax loss harvesting vs. manual

Post by mookie »

retired@50 wrote: Sat May 21, 2022 11:12 am I think the best way to do this sort of thing is to "learn to fish", so to speak, and handle it yourself. TLH is comprehensible if you put in some small amount of effort.
I do it myself now, but I'm wondering if their methods are different or superior to those described in the bogleheads wiki. Other than harvesting more small losses compared to my $1000 loss threshold, I don't think they're doing it any differently or better than I am.
Topic Author
mookie
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Re: robo-advisor (Betterment) tax loss harvesting vs. manual

Post by mookie »

livesoft wrote: Sat May 21, 2022 11:15 am Since one can have their broker send you an alert when a price is reached, one can have their broker text them when a loss of $1,000 is available to harvest.

However, if there is no $1,000 today and the market goes up tomorrow, there will be no $1,000 tomorrow. Eventually you will figure out that harvestable losses only first occur on big down days such as when headlines light up with the word "Worst" in them and/or bogleheads.org lights up with posts about RBD and TLH and tax-loss harvesting. Basically, one can be blissfully unaware and will not miss opportunities when they happen. This is especially true if one invests mainly in broad market index funds which are tax efficient. One might have other index funds in tax-advantaged accounts, but no TLHing in those accounts.

Thus manual harvesting is easy and uncomplicated. Also only folks who are contributing periodically to a taxable account relatively large amounts will have opportunities. For instance, when I stopped working many years ago, we stopped taxable account contributions and have not made any meaningful tax-loss harvesting sales since about 2016. That's despite things like March 2020. Even this year, we are selling shares to pay expenses, but the shares with the least gains still have 35% gains.
Thanks, that makes sense.
NYCaviator
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Re: robo-advisor (Betterment) tax loss harvesting vs. manual

Post by NYCaviator »

mookie wrote: Sat May 21, 2022 10:32 am Here is the Betterment method of automated tax loss harvesting.
https://www.betterment.com/resources/ta ... ethodology

Do you think that the automation generates significantly more tax losses than manually doing it, assuming a 3 fund portfolio and a $1000 threshold to harvest a loss?
All the anecdotal evidence points to the robos being very good at tax loss harvesting, but - at least with Betterment - I don't think you can do a 3 fund portfolio. I think you have to choose one of their model portfolios, which have a lot of different low cost ETFs. This is how they're able to tax loss harvest more frequently.

I'm not sure of any options that allow you to choose a 3 fund portfolio on your own where the robo just does the tax loss harvesting.

Before you go down that road, read some of the posts on what a nightmare it can be to unwind portfolios at the robo advisors if you choose to move brokerages or stop using them. You need be sure its right for you.
hafjell
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Re: robo-advisor (Betterment) tax loss harvesting vs. manual

Post by hafjell »

Does anybody have experience with VG? My 81 year old father recently had auto-TLH recommended to him by his advisor at VG. He is very pleased with their service, fyi.
passive101
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Re: robo-advisor (Betterment) tax loss harvesting vs. manual

Post by passive101 »

I use Betterment with my taxable account and they do a great job with TLH it seems. I currently have a 100% stock portfolio with 20k balance. It's already done over 2k in TLH this year.

They use 2 funds for all the investment funds. The primary ones are low cost vanguard index funds. Then for each class they have an alternative that they use for TLH. So if it's available it can switch them every month to use TLH.

If you have bonds it has even more opportunities to do TLH simply because they don't follow each other as often between the equities and bonds and they have more funds to deal with every day.
wetgear
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Re: robo-advisor (Betterment) tax loss harvesting vs. manual

Post by wetgear »

As other have said the robot is probably slightly better but not enough to make up for the extra fees at Betterment. No need to be penny wise at the expense of being pound foolish.
passive101
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Re: robo-advisor (Betterment) tax loss harvesting vs. manual

Post by passive101 »

wetgear wrote: Thu Aug 18, 2022 10:16 am As other have said the robot is probably slightly better but not enough to make up for the extra fees at Betterment. No need to be penny wise at the expense of being pound foolish.
If Betterment averages around 2k+ a year with TLH wouldn't it average out the fees if you don't otherwise TLH on your own even if the account gets to 500k? .25% of 500k is 1250.00. Average TLH could be more then that. Does that make it worth it? TLH could be 2x that. I also don't know how to TLH on my own, so I'm not entirely certain how everything works.
wetgear
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Re: robo-advisor (Betterment) tax loss harvesting vs. manual

Post by wetgear »

passive101 wrote: Thu Aug 18, 2022 11:38 am
wetgear wrote: Thu Aug 18, 2022 10:16 am As other have said the robot is probably slightly better but not enough to make up for the extra fees at Betterment. No need to be penny wise at the expense of being pound foolish.
If Betterment averages around 2k+ a year with TLH wouldn't it average out the fees if you don't otherwise TLH on your own even if the account gets to 500k? .25% of 500k is 1250.00. Average TLH could be more then that. Does that make it worth it? TLH could be 2x that. I also don't know how to TLH on my own, so I'm not entirely certain how everything works.
You have to remember that TLH decreases your cost basis so when you eventually sell you have to pay more taxes. It’s not free money it’s just more in your pocket today by kicking it down the road.
passive101
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Re: robo-advisor (Betterment) tax loss harvesting vs. manual

Post by passive101 »

wetgear wrote: Thu Aug 18, 2022 1:00 pm
passive101 wrote: Thu Aug 18, 2022 11:38 am
wetgear wrote: Thu Aug 18, 2022 10:16 am As other have said the robot is probably slightly better but not enough to make up for the extra fees at Betterment. No need to be penny wise at the expense of being pound foolish.
If Betterment averages around 2k+ a year with TLH wouldn't it average out the fees if you don't otherwise TLH on your own even if the account gets to 500k? .25% of 500k is 1250.00. Average TLH could be more then that. Does that make it worth it? TLH could be 2x that. I also don't know how to TLH on my own, so I'm not entirely certain how everything works.
You have to remember that TLH decreases your cost basis so when you eventually sell you have to pay more taxes. It’s not free money it’s just more in your pocket today by kicking it down the road.
Wait... So I'm not comfortable trying to TLH myself. Are you saying that I would be better off just never TLH and getting the exact same returns if I pay lower fees?
wetgear
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Re: robo-advisor (Betterment) tax loss harvesting vs. manual

Post by wetgear »

passive101 wrote: Thu Aug 18, 2022 1:57 pm
wetgear wrote: Thu Aug 18, 2022 1:00 pm
passive101 wrote: Thu Aug 18, 2022 11:38 am
wetgear wrote: Thu Aug 18, 2022 10:16 am As other have said the robot is probably slightly better but not enough to make up for the extra fees at Betterment. No need to be penny wise at the expense of being pound foolish.
If Betterment averages around 2k+ a year with TLH wouldn't it average out the fees if you don't otherwise TLH on your own even if the account gets to 500k? .25% of 500k is 1250.00. Average TLH could be more then that. Does that make it worth it? TLH could be 2x that. I also don't know how to TLH on my own, so I'm not entirely certain how everything works.
You have to remember that TLH decreases your cost basis so when you eventually sell you have to pay more taxes. It’s not free money it’s just more in your pocket today by kicking it down the road.
Wait... So I'm not comfortable trying to TLH myself. Are you saying that I would be better off just never TLH and getting the exact same returns if I pay lower fees?
Yes. Although you’ll actually get better returns with lower fees. There’s no need to fear TLH yourself, just do your homework and ask questions here. If you don’t want to do that then just don’t worry about TLH. It’s one of the lowest priority things to worry about for long term success. Fees on the other hand are one of the highest priority things to think about.
passive101
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Re: robo-advisor (Betterment) tax loss harvesting vs. manual

Post by passive101 »

wetgear wrote: Thu Aug 18, 2022 3:09 pm
passive101 wrote: Thu Aug 18, 2022 1:57 pm
wetgear wrote: Thu Aug 18, 2022 1:00 pm
passive101 wrote: Thu Aug 18, 2022 11:38 am
wetgear wrote: Thu Aug 18, 2022 10:16 am As other have said the robot is probably slightly better but not enough to make up for the extra fees at Betterment. No need to be penny wise at the expense of being pound foolish.
If Betterment averages around 2k+ a year with TLH wouldn't it average out the fees if you don't otherwise TLH on your own even if the account gets to 500k? .25% of 500k is 1250.00. Average TLH could be more then that. Does that make it worth it? TLH could be 2x that. I also don't know how to TLH on my own, so I'm not entirely certain how everything works.
You have to remember that TLH decreases your cost basis so when you eventually sell you have to pay more taxes. It’s not free money it’s just more in your pocket today by kicking it down the road.
Wait... So I'm not comfortable trying to TLH myself. Are you saying that I would be better off just never TLH and getting the exact same returns if I pay lower fees?
Yes. Although you’ll actually get better returns with lower fees. There’s no need to fear TLH yourself, just do your homework and ask questions here. If you don’t want to do that then just don’t worry about TLH. It’s one of the lowest priority things to worry about for long term success. Fees on the other hand are one of the highest priority things to think about.
I have so many more questions. I'll start a new thread about it later. Thanks!
wetgear
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Joined: Thu Apr 06, 2017 10:14 am

Re: robo-advisor (Betterment) tax loss harvesting vs. manual

Post by wetgear »

passive101 wrote: Thu Aug 18, 2022 3:13 pm
wetgear wrote: Thu Aug 18, 2022 3:09 pm
passive101 wrote: Thu Aug 18, 2022 1:57 pm
wetgear wrote: Thu Aug 18, 2022 1:00 pm
passive101 wrote: Thu Aug 18, 2022 11:38 am

If Betterment averages around 2k+ a year with TLH wouldn't it average out the fees if you don't otherwise TLH on your own even if the account gets to 500k? .25% of 500k is 1250.00. Average TLH could be more then that. Does that make it worth it? TLH could be 2x that. I also don't know how to TLH on my own, so I'm not entirely certain how everything works.
You have to remember that TLH decreases your cost basis so when you eventually sell you have to pay more taxes. It’s not free money it’s just more in your pocket today by kicking it down the road.
Wait... So I'm not comfortable trying to TLH myself. Are you saying that I would be better off just never TLH and getting the exact same returns if I pay lower fees?
Yes. Although you’ll actually get better returns with lower fees. There’s no need to fear TLH yourself, just do your homework and ask questions here. If you don’t want to do that then just don’t worry about TLH. It’s one of the lowest priority things to worry about for long term success. Fees on the other hand are one of the highest priority things to think about.
I have so many more questions. I'll start a new thread about it later. Thanks!
Happy to help. Start here:

https://www.bogleheads.org/wiki/Getting_started

https://www.bogleheads.org/wiki/Tax_loss_harvesting
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