Planting Money Seeds
Investing Review: Betterment
Written by Miranda Marquit
If you want a hands-off approach to your investment portfolio, Betterment is for you.
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, though, it’s hard to beat Betterment.
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
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 afinancial 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.
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 email came very quickly, 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.
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?