Money Smart Life
Betterment, Kapitall and Motif – Which Will Work Best for You?
November 26, 2012
There are a number of relatively new online investment services coming to the market with unique approaches to investing. Three of the more popular are Betterment, Kapitall and Motif. Each has its own pluses and minuses and can work for a different investment purpose. Which one will be best for you? We’ll take a look at all three side-by-side and try to help you answer that question.
All three investment services have been summarized on Money Smart Life, so we’ll just hit the high points here (including recent revisions).
Betterment‘s investment strategy is based on two investment options: a treasury bond basket and a stock ETF basket. Each basket includes a mix of different ETF’s that are selected by Betterment’s management in what they consider to be the optimal mix for that investment class.
The purpose of this approach is to keep this strategy simple. All the investor needs to do is decide on a portfolio allocation for each basket and the rest is handled by Betterment’s management.
For the Basic account, there is no minimum account balance. However, that type of account does require minimum monthly deposits of $100. The monthly deposit requirement ends once your account balance reaches $10,000.
In regard to fees, Betterment is one of the best investment deals going. They don’t charge transaction fees! Instead they use an expense ratio that’s based on account size. For the Basic account the annual fee is .35% of your account balance. If you have $5,000 in your account you would pay $17.50 per year. The annual fee drops to .25% for the next tier that starts with the balance of $10,000. On balances of $100,000 or more, the expense ratio is reduced to .15%.
Betterment now offers Traditional and Roth IRAs and allows rollovers into those IRAs as well.
Kapitall offers a unique feature that allows you to “test drive” investing by playing an investment game before venturing into the real thing. How many people actually try the game first is an open question but it’s an interesting feature that could be a benefit to a novice investor who wants to try it on paper before committing real money.
Like Betterment, there is no minimum balance required. Transaction fees are on the reasonable end of the scale at $7.95 per trade.
One of the issues of Kapitall is that investment choices are very limited. In addition, the service offers no provision for retirement accounts such as IRAs. But like Betterment, it is a relatively new venture having only begun operations in 2008.
Motif is completely unique in its approach to investing. The system uses a unit similar to a fund, but refers to them as motifs. Each motif is a unique investment creation in that it is built around themes and ideas that are developed by the investors in the system. Though you purchase a motif as a single investment unit, you hold the stocks within it as a direct owner.
Motif does have an investment minimum of $250. And there is a transaction fee of $9.95 per trade. The commission is high when compared to discount brokerage firms, but it is being used to purchase the motifs which are not only customized, but completely unavailable elsewhere. As such, you’re paying for a unique product.
It’s important to remember that Motif itself does not provide professional investment management. A motif is established by the investors in the program and you as an investor have the option to buy into that motif or to try and customize one in a different direction. It’s a bit complicated, and probably is not something for the average investor, and certainly not a beginner.
Unlike Kapitall, Motif does offer IRAs including rollovers. The company is even younger than the other two, having been founded in 2010.
Which will work best for you?
Though all three investment strategies have definite similarities, there are nuances for each that would appeal to a different type of investor.
Betterment is probably the better choice for the average investor. It offers professional management and uses a mix of various ETF’s in order to accomplish investment goals. It’s a simple system in which all you need to do is decide on your portfolio allocation. The fees are very low and the system requires very little trading activity.
Kapitall is probably best for a beginning investor. It offers the online investment game that can help the novice investor find his or her way around the investment world before trying the real thing. This can also help a new investor determine what their risk tolerance is and that’s very important for any investor.
Motif is probably the better choice for the seasoned investor who is looking to try something new and different. You have to have some understanding of investments in addition to a desire to invest in a very specific type of asset mix. The program also offers retirement accounts, which will be an obvious advantage to someone looking to prepare for retirement.
Which investing option is right for you? What interests you most? Leave a comment!