Egan: Changing portfolio allocations trades certain tax costs for uncertain benefits
Dan Egan · Dan Egan – Better Investment Outcomes (Capital Allocators, EP.23) · Aug 28, 2017 · at 14:17
Dan Egan, Director of Behavioral Finance at Betterment, explains the behavioral economics rationale behind confronting investors with the immediate tax costs of trading.
0:00 / 0:19exact quote · 19.5s
720p mp4 · rendered on demand · StarZero watermark
“Taxes represent a fairly certain cost. Whereas, generally when people are changing their allocation, they're looking at an uncertain future benefit. So, if I reduce my risk today, I think that at some point over the next year, markets will drop, and I will have avoided that drop. I might be right, I might not. On the other hand, the tax is pretty certain.”
quote is from the automated transcript, cleaned for reading: filler sounds and stutters are removed, nothing is rephrased. names can be misheard (the analysis reads context, assessments check outside sources). how →
More from Dan Egan
Egan: Telling panicking investors to do nothing is the worst strategy
“So the worst thing you can ever do if somebody's freaking out to say, stop, don't do anything, sit still, et cetera. You have to take that anxiety and that energy and redirect it towards more positive things.”
Egan: Advisors cannot implement behavioral finance without controlling software interfaces
“They might want to implement some of these insights from behavioral finance, but unless you control the technology, it's very hard for you to do that.”
Egan: Searching for manager alpha is only worthwhile with millions in assets
“However many hours you spend trying to find the right manager, or trying to find the right strategy and understand what this stuff is doing, is not well spent unless you already have a very, very large asset base. I'm talking in the millions, at least.”
Egan: Saving $33 more monthly matches 1% annual manager alpha for averages
“He basically found that for that person, in order to, if that person went with finding out how to, you know, save more or invest more, rather than pick the better manager, they would need to save something like 33 more dollars per month. So, that's the trade-o…”
Egan: Betterment employs human advisors primarily to study and automate their jobs
“In the longer term, to be clear, We are going to keep automating a large part of that. So it is not simply a matter of, oh, we hit some brick wall and we had, you know, we ended up having to use advisors. Every single financial planner or licensed expert on ou…”