Earn Rewards: Sign up now and earn a special reward after your first deposit. See offer details

Now available: New and improved Socially Responsible Investing portfolios. Learn more

<title>Dismiss</title>

Betterment

Save, invest, retire

GET — On the App Store

View
<title>Dismiss</title>
Loading

Why Cost Matters

What’s a reasonable fee to pay for an investment account? How much value do you place on certain features? What will you end up paying at the end of a year – or at the end of ten years? These are not easy questions to answer and can be overwhelming when researching different investment options.

Articles by Betterment Editors
By the Editorial Staff Betterment Resource Center Published Apr. 19, 2012
Published Apr. 19, 2012
2 min read

Here are a few tips for understanding fees:

1. Cost is incredibly important.

The value of an investment is, ultimately, in the returns. You should be wary of any fund or manager that charges high fees (1% or more), because high costs will only eat into your returns. A study by Morningstar found that low-cost funds outperformed high-cost funds in every single time period and data point tested.  It’s simple: keeping costs low is the smart way to invest.

2. What else are you paying for?

At Betterment, we like to keep it clean and simple – we charge an annual management fee of 0.15% – 0.35% depending on your balance and that’s it.

Not all accounts are created equal. Do your research and understand where else you might be paying fees. Are you being charged for trades or transfers? Do you have to pay another bank to wire money into your account? Are you being charged broker fees for rebalancing your account? According to a 2007 study cited by the WSJ, these additional fees would cost an investor around 0.66% (and in some cases, as much as 1.99%).

3. What do you get?

On the flip side, it’s important to understand what’s included for the price you are paying. Are you invested in a diversified portfolio? Are you getting custom advice?  Is your account rebalanced for you, or do you have to remember to do it yourself? Can you link it to your checking and set up auto-deposit? Is it liquid – do you have access to your money when you need it?

This suite of services is included in your Betterment account and would cost ten times more at traditional investment firms. The easier it is to set up and go, the more likely you will do it (which is why we provide an end to end solution).

4. Is it easy?

In 2011, the average investor underperformed the fund they invested in by half (source: Dalbar). Investors are making mistakes like buying high and selling low, causing them to underperform the funds they invest in.

Perhaps the most important benefit of Betterment is that we make investing simple and accessible enough so that people will actually do it. Getting over the inertia and getting started can sometimes be the hardest part.  We’ve created investor guard-rails so people stay on track.

Reacting to emotional biases or simply doing nothing can be the costliest mistakes of all.

Recommended Content

View All Resources

Goal-Based Investing: A Decade In Review

As we all look forward to and plan for the future, let’s stop and take a look at the past decade to see what we can learn from it.

How a Competitive Compensation Package Can Attract Top Talent

As an employer, you know that there’s a lot more to keeping employees happy. Let’s review the five most important aspects of competitive compensation packages.

How Does Betterment Calculate Investment Returns?

Understanding and using time-weighted and money-weighted returns within your Betterment dashboard.

How would you like to get started?

Manage spending with Checking

Checking with a Visa® debit card for your daily spending.

Save cash and earn interest

Grow your cash savings for general use for upcoming expenses.

Invest for a long-term goal

Build wealth or plan for your next big purchase.

Invest for retirement

Set up traditional, Roth, or SEP IRAs to save for the golden years.

See details and disclosure for Betterment's articles and FAQs.