Have you been wanting to invest your money but haven’t been sure how to go about it?
Let’s face it, there are lots of choices out there when it comes to investing. Even if you choose a couple of funds to cover everything you need to know which ones and find a brokerage to invest with.
There may be a simpler, easier way to do it for those who those who want to invest but don’t know where to start or think it is too difficult for them.
That answer may be Betterment.
Follow along in our review…
What is Betterment?
Too many people out there are intimidated with all of the choices they could make — What funds? What stocks? What Indexes? Where? How do I start? What are the fees?– It gets to be that a person is stuck in paralysis analysis and they end up not investing at all!
Betterment makes those choices easier.
They have two baskets of funds you can invest in: Stocks and Bonds.
Pretty simple, huh?
The other big choices are how much to invest and what allocation to pick (how much in stocks versus bonds). The site has tools to help you decide on your allocation and can show you how others in your demographic have invested.
Why? Because trying to understand where to invest is too much for you now but you want to invest. Because you aren’t sure what indexes,stocks, and bonds to put your money into and you don’t want to see a broker.
If that’s you then look into Betterment.
Where is Your Money Going In Betterment?
There are only two investment baskets – Stocks and Bonds. These are made up of ETF’s that have been picked by Betterment to give you a broad exposure to stocks and Treasury bonds (that’s called Diversification) while keeping fees low.
You give Betterment your investing goals and they will suggest allocations for their investments based on your goals and rick tolerance (that’s Allocation). This keeps your choices limited while still giving you room to fine-tune your allocations.
Put simply – you tell them what you expect and they tell you where to put the money.
Here are the stocks Betterment invests in:
- Vanguard Total Stock Market (VTI)
- iShares S&P 500 Value Index (IVE)
- iShares Russell Midcap Value Index ETF (IWS)
- iShares Russell 2000 Value Index (IWN)
- Vanguard FTSE Developed Market Index ETF (VEA)
- Vanguard FTSE Emerging Markets Index ETF (VWO)
Here are the bonds Betterment invests in:
- iShares Short-Term Treasury Bond Index ETF (SHV)
- Vanguard Short-term Inflation-Protected Treasury Bond Index ETF (VTIP)
- iShares US Total Bond Market Index ETF (AGG)
- iShares Corporate Bond Index ETF (LQD)
- Vanguard Total International Bond Index ETF (BNDX)
- Vanguard Emerging Markets Government Bond Index ETF (VWOB)
If you want to see what makes up each ETF either look up the ticker symbol or go to the Betterment site where you can download the prospectuses of the ETF’s.
What you are invested in is pretty transparent.
Wait, If They Are Telling Me the Funds Why Don’t I Do It Myself?
That’s a pretty good question!
Go right ahead. You can find those funds through most online brokerages. But you will have to invest individually in each of the ETF’s and pay commission fees for each transaction (and pay that commission every time you add more money). And you will pay commissions if you want to change your allocation.
With Betterment there are no commission fees.
Oh, and you will have to allocate those funds yourself and keep track of it yourself. Yup, you are going to have to re-allocate on your own as the percentages change with market fluctuations. And you’ll have to go through each fund and adjust them to your level of risk.
Is it impossible to do?
Not at all. But I think the other point here is that if you are a person who is willing to invest in all of these funds yourself then you might not need the “set it and forget it” ease of Betterment.
You Tell Them Your Goals
We all have different goals for our money, don’t we? Well you can set up different goals in Betterment. You can set up goals to buy a house, save for college, retirement… it’s up to you. Betterment will adjust its investing advice depending on your goal.
About their advice — for each of your goals you will get guidance on what allocations to pick how much to fund your account. Set up one-time investments, automatic investments, or add as you can — it’s your pick.
Sounds Great But What Does Betterment Cost?
They have to get paid something, right?
And they do. They get paid a management fee based on your balance. This fee can range from 0.15% to 0.35% and is charged every quarter (every three months so that fee is cut in four over a full year, i.e. 0.0375% to 0.0875% of your average balance each quarter).
They break their fees into three tiers:
- Builder – up to $9,999 and the management fee is 0.35%
- Better – from $10,000 up to $99,999 and the management fee lowers to 0.25%
- Best – $100,000+ and your management fee is 0.15%
And right now you can try an account for the first 30 days free.
You also get fee free bonus months added depending on how much you open your account with. Here are the tiers:
$1-$4,999: One month free
$5,000-$24,999: Three months free
$25,000-$99,999: Four months free
$100,000+: Six months free
A note about accounts under $10,000 — you need to have an automatic deposit of at least $100/month for the 0.35% management fee, otherwise you pay $3/month. That’s a pretty strong incentive to either get to that $10k threshold or set up a $100 a month transfer. Still, the potential $36/year in fees can end up less than what you might pay in commissions and fees at other brokers if you wanted the same fund choices and allocations. It’s food for thought if you are opening an account under $10k and don’t plan on adding $100/month in auto-deposits.
Their management fee covers all trading fees (no commissions every time you add more in your account), rebalancing, allocation advice, and everything else Betterment needs to keep things running.
Compare that with your average online broker where you pay a commission every time you buy or sell a fund. There are some brokers that have free-trade funds but you may have to have a minimum balance in order to get in.
Oh, you are free to add or remove funds without any fees. Try doing this at other brokerages. You’ll have to sell your securities first and pay the commissions on those and then close your account.
Here Are Some Other Features of Betterment:
A fast signup of only five minutes.
After entering things like your contact information, your birth date, social security number, employment information, and your checking account information (they use your existing checking account for easy transfers and management of your money), you will be able to start investing in their portfolios of stocks and bonds.
No minimum balance.
You do not have to keep a minimum balance like you do in many investment accounts. You are free to move your money around when and how you choose among their funds. There’s also no minimum investment.
Great customer service.
Help is always available to you by phone or email if you have any questions or concerns.
The ease of having your account linked to your checking account.
Your checking account will be electronically linked to your Betterment account. You can transfer money back and forth any time you like with no fees. If something comes up where you need your money, it can be back in your checking account in 2 to 4 business days.
Want to see your Betterment account on the go? Betterment has iPhone and Android apps for that.
You can rollover your retirement account.
You have the option to rollover retirement accounts like IRA’s, 401(k)’s, and 403(b)’s.
They automatically rebalance your account and reinvest your dividends.
As the markets change, your portfolio of investments will as well. Betterment rebalances your account back to where you desire quarterly, or if the portfolio composition goes below 5%.
Rebalancing your portfolio on a regular basis is recommended, as it can increase returns and decrease risks. Generally, most investors don’t even do this because of all the work involved with it, so with Betterment doing this automatically for you can make managing your investments even easier.
You also get the benefit of investing in fractional shares. Every bit of your money will be invested.
Safe and Secure.
Betterment values your trust and therefore does not sell any of your information to a third party without your permission. They also use banking industry standards to protect your account. All your funds are SIPC protected against any fraud or mismanagement (up to $500,000).
With Betterment, you are investing in thousands of companies all at once due to their diverse stock portfolios of ETF’s.
Their portfolio consists of stocks that reflect the broad U.S. market. Since stocks are a risk with generally a higher long term return it is wise to have a diverse portfolio. While bonds generally have a lower return, they also have a lower risk.
As with all investments though, there is always a risk, as is the case with Betterment’s investments as well.
As the only investments you can make with them are in stocks and bonds (in their choice of ETF’s), you have limited investment options and are at a risk of losing money due to market fluctuation. When markets are up your investments will go up as well, but when markets are down you can expect to see your investments go down.
At the same time, your money will be invested in broad indexes so you won’t have the risk of individual stocks or bonds not doing well. You will follow the market returns to a degree.
Final Thoughts on Betterment
I think Betterment is a great idea.
So many people want to invest but they really get overwhelmed with all of the choices. With Betterment you get guided choices that invest in broad stocks and Treasury bonds. You also get the benefits of easy allocation, re-balancing, re-investment of dividends, and fractional shares. And it’s as easy as opening an online bank account.
So if you want to start investing and want a real simple way to do it, take a look into Betterment and see if you like it and it’s a good option for you.