What happened to the dividends?

The test accounts began receiving dividends last week. This post will describe how they were handled.

Betterment recorded the MUB dividend (and others on 2/6) and reinvested them on 2/10. The dividends from 4 ETFs were reinvested in 2 ETFs, presumably to try to achieve balanced re-allocation. Since Betterment deals in fractional shares, they were able to add 0.174 shares of MUB and 0.018 shares of VWO to my account.

Wealthfront also received the MUB dividend on 2/6 and added the $7.52 to the cash in the account.  It appears to me that to add more balance to the account, Wealthfront would have to add some MUB to the account. Wealthfront does not deal in fractional shares. But MUB is currently priced at $110 a share and there is only about $70 in cash. Presumably Wealthfront will have to wait for more cash build up before making the next purchase.

This points out a structural difference between Betterment and Wealthfront. I’ll discuss this in another post.

Folio Investing started recording dividends on 2/5 and recorded a MUB dividend on 2/6.  There is an option to automatically reinvest dividends, but it only applies to dividends of over a dollar. These dividends were less than that so they were added to cash in the account. I entered an order using this cash to buy more of the ETFs in one of the folios. There were 4 options offered on how to distribute the purchases over individual ETFs. I selected the option to attempt to rebalance to the original allocations.

There was only $12.42 available for these purchases. Folio Investing bought shares in the 7 ETFs that had fallen below their target allocations. This brought all of the 12 ETFs closer to their target allocations. There is a measure of how far a set of allocations has moved from their original allocations, it’s called drift (smaller is better). In this case, the drift dropped from 1.13% to 0.5%.

After the small dividends last week, Betterment and Folio Investing have used these to try to stay balanced with the original target allocations. Upcoming posts will update the test accounts performances and address the structural difference between Betterment and Wealthfront. Follow me on Twitter @billlanke and I’ll notify when I make new posts.