Free From Broke
Betterment.com: Investing in Stocks and Bonds Made Easy – Review
By GLEN CRAIG
Have you been wanting to invest your money but haven’t been sure how to go about it? 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?
Betterment is an easy way for people to start investing in stocks and bonds. 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 Treasury Bonds. Pretty simple, huh?
The other big choices are how much to invest and what allocation to pick (how much in stocks versus Treasury 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.
What you are investing in?
There are only two investment baskets – Stocks and Treasury 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.
Here is what the stock basket is made up of:
- 20% Vanguard Total Stock Market (VTI)
- 20% iShares S&P 500 Value Index (IVE)
- 20% iShares S&P 1000 Value Index (IWD)
- 15% iShares Russell 2000 Value Index (IWN)
- 15% iShares Russell Midcap Value Index (IWS)
- 10% DIAMONDS Trust Series 1 (DIA)
Here is the Treasury Bond basket:
- 50% iShares Barclays TIPS Bond Fund (TIP)
- 50% iShares Barclays 1-3 Year Treasury Bond Fund (SHY)
If you want to see what makes up each ETF either look up the ticker symbol or go to the Bettement 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 incur 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 your self. Yup, you are going to have to re-allocate on your own as the percentages change with market fluctuations.
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.
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.
Competitive low fees of 0.3% to 0.9%. Starting off at a low 0.9% fee for accounts with a $0-$25,000 balance, your fees range all the way down to 0.3% for accounts with a $500,000 balance or more. The fees are are charged quarterly.
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.
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 withBetterment 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.
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 two simple 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. The only thing I would like to see is an option for IRA’s (perhaps there’s a good reason for this or it’s in the works?).
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.