Free for 90 days: Sign up now and get 90 days managed free after your first deposit. See offer details

<title>Dismiss</title>

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: April 19, 2012

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

The Recommended Allocation For Our Safety Net Goal Has Changed

Your Safety Net goal should ideally beat inflation while also taking on minimal risk. Learn about our updated portfolio allocation recommendations for your emergency funds.

High-Yield Savings Accounts: The Ultimate Guide

High-yield savings accounts can offer higher interest rates than traditional counterparts. Learn everything you need to know about them in this guide.

Betterment’s Model for Financial Advice: An Overview

Achieving your financial goals is only possible if you plan effectively. Saving enough, choosing the right accounts, deciding when you can buy a house or when to retire—all of these are essential decisions even before you build an optimal portfolio.

Explore your first goal

Cash Reserve

Our high-yield account built to help you earn more on every dollar you save.

Safety Net

This is a great place to start—an emergency fund for life's unplanned hiccups. A safety net is a conservative portfolio.

Retirement

Whether it's a long way off or just around the corner, we'll help you save for the retirement you deserve.

General Investing

If you want to invest and build wealth over time, then this is the goal for you. This is an excellent goal type for unknown future needs or money you plan to pass to future generations.

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