If you want a hands-off approach to your investment portfolio, Betterment is for you. Here's my Betterment review.
Many people worry about investing, and choosing an online broker that will work for them. There are many brokerage options out there, and that means that you have to carefully consider the best option for you. If you are looking for straight up simplicity for the long-term, it's hard to beat Betterment.
Betterment Review: Retirement Investing Made Easy
Betterment is an online brokerage that does things a little bit differently than other online brokerages. The idea behind Betterment is to have your investment portfolio automatically allocated, depending on your changing needs, and market conditions. Betterment pretty much takes the guesswork out of investing, and does everything for you. All you have to do is set up to have your money automatically transferred from your bank account each month.
Signing up for Betterment
The sign up process for Betterment is very easy. It takes just a couple minutes. I was able to sign up quite quickly, and begin the process of setting up my asset allocation. When you sign up, you have three options available to you:
- Traditional IRA
- Roth IRA
- Personal investing
Betterment also allows you to set up goal-based accounts. You can set up an account designed to help you build your emergency fund, save up for a house, or do any number of other things.?Betterment even has a wedding registry that allows you to encourage your loved ones to help you start out right.
Since its inception, Betterment has been adding new features, and one of my favorite features is the tax reporting. For those without Roth IRA accounts, Betterment's tax tools can also help you better harvest losses. Betterment will help you figure out when to sell, as well as help you match up capital gains and losses more effectively. So, while I like Betterment for its long-term ability to help you grow wealth for retirement, there are also some effective tools for those who trade in the short term as well.
As you sign up for Betterment, you'll answer basic questions about your name and address, and share your Social Security number, as well as share information about your basic goals. Since I opened a Roth IRA (my first Roth was a financial mistake), the main question asked was when I hoped to retire. Betterment picks an asset allocation for you, using ETFs to accomplish your goals. In my case, Betterment is using an allocation of 90% stocks and 10% US Treasury bonds. If I want to tweak my goals or asset allocation, I can do so fairly easily.
Betterment automatically keeps you on track by adjusting your portfolio every three months — or when your asset allocation strays by more than 5%. Asset allocation is considered one of the most important aspects of long-term investment planning, and that is what Betterment focuses on for you. I also like the Betterment makes it easy for you to see your portfolio composition, and makes it easy to get answers to the “why” questions you might have. Betterment's transparency with why certain ETFs are chosen, and the reasoning behind other moves, is refreshing, and adds an educational dimension to Betterment's offering.
Finally, you do need to go through a verification process with Betterment before your initial deposit is taken from your bank account. You will need to confirm your email, as well as confirm two small deposits made to your bank account to verify the situation. The confirmation email came very quickly in my case, but it can take up to two days for the bank deposits to be made. Until then, all you can do is manage your asset allocation, and set up details like adding beneficiaries.
When I spoke with Betterment CEO Jon Stein recently, he pointed out that one of Betterment's goals is to get the account opening process down to five minutes. It's an ambitious goal, but one thing I've always been impressed with when it comes to Betterment's team is its constant focus on improving the user experience. There's a reason Betterment is able to continue to raise money?from interested investors.
I also like the focus on ETFs from Betterment. Investing in individual equities requires more effort and attention. ETFs also allow you to take advantage of large swaths of market performance. For many investors, using ETFs can mean that it's possible to take a more aggressive position than the generally accepted 80/20 stock/bond allocation. Indeed, my portfolio is 90/10, and I'm thinking of changing to maybe 95/5 or even 100/0. But we will see. So far this year, my performance has been much better than if I had a less aggressive asset allocation.
Costs of Using Betterment
Of course, all online brokerages come with fees. However, Betterment's fees are fairly low. Your fee is based on how much money you have in the account, and is charged as a yearly percentage. But, since Betterment makes use of ETFs to create your portfolio, it's fairly inexpensive. At the most basic level, you need to commit to invest at least $100 each month. You don't have a minimum balance requirement, but you also can't customize your portfolio. The cost at this level is 0.35% per year. You can forgo monthly deposits once you reach $10,000 in your account. Additionally, your cost drops to 0.25% a year, and you can get next day deposits. You can't actually customize your portfolio unless you have $100,000 in your account. Your cost drops to 0.15%, and you can get next day deposits.
For the most part, Betterment is meant for those who want to invest, but prefer a hands-off approach. However, you have to be committed to participate with Betterment. If you don't have at least $100 a month to invest (or $10,000 to start with a lump sum), and if you want more control over your portfolio, Betterment isn't for you. However, if you are interested in using dollar cost averaging to build a portfolio that helps you reach your goals, and you aren't that interested in being very personally involved, signing up for Betterment can be a good option.
Have you used Betterment? What do you think?