FutureAdvisor’s algorithms and recommendations have been helping customers do some great things over the past several years. Our 250,000 clients have seen firsthand our ability to find opportunities to keep savings in their portfolios.
As just one example: the average FutureAdvisor Premium customer with a taxable account saved $600 in taxes in December alone through our powerful tax-loss harvesting capabilities. For many investors, these savings cover the cost of our premium service for an entire year.
We’re still pushing to improve. Our engineers are making some smart updates to our algorithms this year. Today, we’re excited to announce an update that can generate additional cost savings for you. These savings can translate into a considerable amount of money over the long term.
We’re using our algorithms to make smart trade-offs between factors you may not even be aware of, but which should make a difference in your portfolio. Today’s update means our recommendations software now performs a dynamic cost analysis of many available ETFs, which ensures that your portfolio is designed efficiently for your unique portfolio size and the number and types of your accounts.
This analysis takes into account ETFs’ bid/ask spread (which can be as high as 5% on underused ETFs), alongside ETF commission fees and expense ratios to help minimize the total cost. The bid/ask spread is an expense many small investors forget about or don’t ever notice. Our ability to act on this analysis increases efficiency for portfolios of all sizes, as it determines and factors in the trade-off between commissions and ongoing expenses.
What does this mean for you? Here are some hypothetical examples to demonstrate how our algorithm can help investors like you:
Joe and Sarah are average investors, with a $50,000 account. They might, on their own, otherwise invest in a Target Date mutual fund. In doing so, they could expect to incur an average expense ratio of 1.04%, and pay four $20 commissions per year if contributing regularly.
However, our new methodology could save Joe and Sarah $275 per year at Fidelity or $385 per year at TD Ameritrade on their $50,000 investment.
Compounding that annual savings at 7% growth for 20 years would result in a sizeable chunk of additional cash for their retirement: $47,000 at Fidelity, or $66,000 at TD Ameritrade.
It’s also worth noting that this figure represents their savings just before our added tax efficiency, asset allocation, and tax loss harvesting value adds all come into play.
Robert and Nancy have a larger investment account — $1,000,000 — and are already using lower-cost ETFs in their portfolio. However, our new algorithm can still save Robert and Nancy up to $490 per year per $1,000,000 invested compared to a commission-free approach.
This $490 savings may not sound like a lot initially, but, it compounds to an extra $20,000 for every $1,000,000 invested after 20 years.
If we are also able to reduce Robert and Nancy’s expense ratios and advisor fees, this number skyrockets to hundreds of thousands of dollars over their investment time horizon.
Long story short: whether you’re new to investing or a seasoned pro, FutureAdvisor’s diligent algorithms and persistent improvements can make a real difference in your portfolio. To learn how our technology can provide you with personalized recommendations in two minutes or less, click below. If you’d like to read more about our process, visit our Investment Philosophy page. And if you have any questions, our team is here to help.
Disclaimer: The views expressed herein are not intended to serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities. Differences in account size, timing of transactions and market conditions prevailing at the time of investment may lead to different results, and clients may lose money. Past performance is not indicative of future results. The tax loss harvesting strategy discussed should not be interpreted as tax advice and it does not represent in any manner that the tax consequences detailed will be obtained or that its tax loss harvesting strategy will result in any particular tax consequence. Clients should consult with their personal tax advisors regarding the tax consequences of investing. Read more about this in our full disclosure.