Wealthfront Automated Investing vs VTSAX 10 year returns: 7.5% vs 11.9%

[thanful1]

What am I missing here? According to Wealthfront own website, a risk level of 9.0 had a 7.5% return over 10 years. Whereas a stock index fund like VTSAX had 11.9% returns. Why would you use Wealthfront Automated Investing (highest rated robo-advisor per Robo-report) instead of just putting all your money into something like VTSAX?

 

[edgarcia92]

@thanful1 You're comparing different types of diversified investments.

For a wealthfront comparison it's better to compare it to VT. Since it has ex-us.

If you go back further there was long period that a global diversified portfolio beat VTSAX. In the early 2000s-~2015 wealthfront would have beat VTSAX
(I started Jan 31 2001 through present in my comparison)

Wealthfront and the robo investors are just a 3 fund boglehead portfolio with tax loss harvesting and auto Balancing. That's it.

 

[vincentleo]

@thanful1 download both fund facts and compare their asset allocation and top ten holdings %, then you'll see why

 

[eileen88]

@thanful1 I would say the past 10 years are not an accurate measure of returns for the market

 

[joyjoy1001]

@thanful1 Is 9.0 the highest level of risk? I guess it could be, but a more common metric would be 10.0 as the highest level of risk. So for starters I'm guessing you're comparing a "not quite max risky" asset against a "max risky" asset.

Secondly, Wealthfront (like most robo advisors, or target date funds, or the Boglehead 3-fund portfolio) includes an international portion. In the past few years (actually the past decade) the US has outperformed the rest of the world. But, historically, that is not always the case and the trend can reverse at any time.

So right now the more balanced approach that a robo-advisor will give you is going to lag an all-equities-all-US portfolio. That's not going to be true forever. Nobody knows if it's going to be true over the next 12 months, even.

 

[thanful1]

@joyjoy1001 I chose 9.0 because the performance at 10.0 was actually slightly worse.

 

[believernamedkate12]

@thanful1 Op You’re making the same mistake as I started. You can’t chase past performances. Instead you have to first understand why you have to diversify with international and bonds then you’d understand how these risk levels make sense

 

[phongtranh142]

@thanful1 More risk does guarantee more returns (thats the risk part). risk level of 9 and 10 on these roboadvisors usually increases the amount of international exposure, which has under performed.

 

[srm332]

@phongtranh142 That's BS. Risk doesn't guarantee more returns. Only the chance of more returns. And a bigger chance for losses.

 

[phongtranh142]

@srm332 oh WOW i obviosuly meant to type DOESN'T

 

[elijahrhodes]

@thanful1 because people think "robot something something" sounds cool I guess? never got the appeal myself. Fund managers, actual humans, more often than not don't beat the market, let alone a "robot advisor" or w/e.

 

[grace_chaser]

@thanful1 r/thunderousargus said it. Mutual funds horizon is way different. They are buying and selling their holdings on a whim like the robot.

I would also challenge their assessment of 7.5%. It sounds like their are presenting a solid guarantee number, when in reality it will be higher assuming 2022 and 2023 don’t become a regular thing.