Betterment Review: Establish An ETF Portfolio With Ease

By Silicon Valley Blogger

Move over online brokers, there’s a new great service in town called Betterment. This new service combines the features of a standard broker as well as that of an investment adviser. In fact, the company behind it is a registered broker and adviser.

How is this service any different from those offered by a traditional broker? Well, many brokers cater to the active stock picker, and provide a lot of free investment education to their members. With a standard broker, you’re typically bombarded by financial news, tools, charts and graphs, and if it’s a discount firm, then you’ll most likely make investment decisions on your own. For some, it can seem like it takes too long to just get started with building an investment portfolio. So to counter the perception that investing is akin to an esoteric rite, there is one new option that you can try. The Betterment investment servicedescribes itself as an easier way to invest.
What can Betterment do for you? It caters to both passive and active investors. However, it’s geared towards addressing an investor’s goals and asks relevant questions first, to determine what it is you’d like to achieve with your money. You’ll then receive a recommended asset allocation of ETFs that has the added benefit of being automatically rebalanced over time.

Betterment Investment Service Review: Investing Made Easy

So here’s what I really like about this service:

  • It invests in indexes. Right off the bat, you’re going to own equities that track the U.S. stock market and government-backed U.S. bonds. You’re immediately diversified!
  • It is flexible. You can choose whatever blend of investments suits you so that you get an established portfolio right away.
  • It is easy to get started. It affords a simple, yet powerful way to have you get started with an investment portfolio. Based on your goals, you are recommended the right portfolio mix.
  • It is easy to maintain. To do well with our investments, we also need to regularly monitor our holdings to make sure they remain on track to fulfill our requirements. Monitoring a portfolio is typically a hassle for many investors. Betterment actually takes away that hassle by doing the regular rebalancing for you, so you are as close to “set and forget” as you can be, when it comes to your portfolio.
  • It’s cheap! We further discuss the costs of running your account below. Needless to say, it’s very affordable, with costs that rank at the low end of mutual fund account management fees.
  • Your investment risks are carefully managed. Their investment approach aims to control risk while seeking healthy market level returns.
  • The average small investor will appreciate Betterment’s investment principles. They eschew trading, speculating and market timing. In my mind, their investment approach is perfect for those seeking to simplify their core portfolio holdings.
  • Pick up a $25 cash bonus by opening a Betterment account through our site! You’ll need to make an initial deposit of at least $250 to receive the bonus.
Receive $25 by opening an account with Betterment.
Open an account with Betterment.

New users will need to provide their address, checking account information, and a Social Security Number. Accounts are restricted to U.S. customers due to regulations. Betterment’s registered with the SEC and the securities in your account are protected by the SIPC for up to $500,000.

How It Works: Build A Diversified ETF Portfolio Automatically

So let’s talk about how to get started with the service. To begin, Betterment offers a quick and easy sign up process which involves linking your checking account to your Betterment account. After this step, you can set up goals and receive a recommended asset allocation. You can also set up automatic deposits and override the recommendations through a “set allocation” function.

Betterment Goals

Betterment’s underlying investments are in two baskets. In particular, they are comprised of a variety of stock or equity Exchange Traded Funds (ETFs) and Treasury Bond ETFs.

The stock market basket contains ETFs as follows:

25% VTI: Vanguard Total Stock Market 25% IVE: iShares S&P 500 Value Index 25% VEA: Vanguard Europe Pacific
10% VWO: Vanguard Emerging Markets 8% IWS: iShares Russell Midcap Value Index 7% IWN: iShares Russell 2000 Value Index

The prospectuses for each of the 6 ETFs are available. Meanwhile, the Treasury Bond basket contains 2 ETFs: the iShares Barclays TIPS Bond Fund (50% TIP) and the iShares Barclays 1-3 Year Treasury Bond Fund (50% SHY).

If you prefer, you can settle for a low risk approach (more Treasury Bond ETFs) or move to a higher risk option (more stock ETFs). You have the freedom to make changes to your allocation at will.

Betterment Asset Allocation

There are demographic tools so you can see how others are setting up their allocation models or you can use tools that will advise you on how to allocate the various asset classes.

Compare Investment Portfolios via Betterment

You’ll get an email each time your trades are completed. Another place to monitor what’s going on with your transactions is through the Activity tab on your account. This tab shows your deposits, market changes, and rebalances.

You’re limited to making one allocation change a day because of day trading rules. You can make transfers on your own or set up automatic transfers from your bank account. Your dividends are automatically reinvested by Betterment, so you don’t have to take time out of your schedule to micromanage them.

Easy to Follow Fee Schedule, Mobile Investing & More

What about the fees? Firstly, the costs involved are very easy to calculate — there are no minimum balances required, zero transaction costs and no hidden charges to worry about. There are also no transfer costs. Instead, you’re charged with an annual management or maintenance fee of 0.3% to 0.9% (depending on your balance amount), which is comparable to that charged by low cost mutual funds.

Specifically, the simple to understand fee schedule works in a tiered fashion. A portion of your balance is charged a particular amount as follows:

Portion of Balance
Maintenance Fee
$0 to $25,000 0.9%
$25,000 to $100,000 0.7%
$100,000 to $500,000 0.5%
$500,000+ 0.3%

You are charged the given fee against a portion of your balance and not against your entire balance. The first $25,000 of your investment will be charged 0.9%, while 0.7% will be taken from the next $75,000, and so on. Also, the fees are charged quarterly and are prorated in case you need to withdraw your funds before the end of a quarter.

On Additional Tools. When you’d like to keep tabs on your account on the go, there’s the Betterment iPhone app. This free app lets you check your balance and returns, and allows you to change the allocation of your stocks and bonds. You can also add or withdraw funds right from the app. It would be nice to see apps for Android and other mobile users in the future.

A Well Received Investment Service

This review wouldn’t be complete without the mention of Betterment’s standing in the industry. As mentioned, they are considered BOTH a registered broker dealer and a registered investment advisor, with a service that covers the bases in these areas. They received an award from the TechCrunch Disrupt 2010 as “Best Start Up In NYC” and snagged the “Best In Show” award from FinovateFall 2010. As someone who’s attended past Finovate conferences, I can say that it’s no small feat to overshadow the other innovative products that are showcased in this event.

As you can see, you don’t have to be a Buffett or an aspiring Wall Street quant to get into investing. Betterment is a way for you to begin investing without having to spend a few weeks training for it. Benefits like free trades and transfers as well as no minimum balances can make this an appealing choice even if you’re a more experienced investor. You can check the demo out on their site for more information. Or if you’re interested in additional platforms for ETF investing, check our list of ETF brokers.

 

Read the Original Article

This article originally published September 23rd, 2011 on The Digerati Life.