By Phyllis Furman
When John Stein was in his twenties and working as a banking consultant in the city, his friends would often hit him up for some free advice: How should they manage their money?
One option was to hire an investment advisor – but these money pros often require a minimum investment, at least $100,000 – and generally charge an annual fee of 1% to 2% of assets under management.
Another was to research investments and manage them on their own, something his friends didn’t have much time for.
“There wasn’t anything out there that made it easy and accessible,” said Stein, 31.
He decided he could do better.
Last May, Stein launched Betterment.com, a new spin on online brokerages that won top honors last year at Finovate, a conference that showcases financial technology.
Patterned after online banking pioneer ING Direct, Betterment’s goal is to take the hard work out of investing.
You can set up a Betterment account that is linked to your checking account in a matter of minutes. Using a simple slider tool bar, you indicate your risk tolerance. Based on that, Betterment allocates your dollars between two investment baskets: exchange traded funds invested in stocks and U.S. Treasury bonds.
And there’s no need to pick those ETFs, which are passively managed, low-cost funds that track a variety of indexes. Betterment has chosen six stock funds that it believes reflects the broad U.S. market, as well as two lower-risk bond funds.
Want to know how other people your age invest their money to help you choose your allocation? Betterment offers tools for that, too.
Fees range from 0.3% to 0.9%, depending on the size of the portfolio. The bigger your investment, the lower the fee. There are no minimum investment requirements – you can start with as little as $10 – no trading or transfer fees and no holding periods.
Rebalancing – buying and selling funds so that you keep your target allocation – is done automatically, at no charge.
The online broker is registered with the Securities and Exchange Commission and is a member of the Securities Investor Protection Corp., meaning accounts are insured up to $500,000 should Betterment go under.
But unlike a savings account, a Betterment account is invested, meaning you run the risk that it could go down in value.
Betterment isn’t for sophisticated do-it-your-selfers who can scout investments on their own and would likely find less expensive ways to trade. Instead, its target is people who prefer ease and guidance.