Betterment Review: The Way Investing Should Be

I’m a fan of simple, low cost, buy-and-hold investing.

Traditionally, simple investing meant investing in index funds. These are securities that track the entire stock market or large sectors of it in a single low-cost investment. But even index investing isn’t that simple. There are thousands of index funds to choose from and index investors paying attention to their asset allocation strategy will likely end up with more than one or two funds that they then must monitor and rebalance periodically.

Betterment is an automatically managed investment account, or “roboadvisor” with 270,000 customers and over $10 billion in assets under management. Betterment’s goal is to make index investing as easy as possible. According to Betterment, accounts can be set up in as little as 10 minutes.

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Put simply, Betterment is an ideal way to invest for anybody who doesn’t want to worry about picking stocks or mutual funds.

Betterment makes rolling over an old 401(k) as easy as possible, too. While almost every other financial services company requires long phone calls and snail mail to rollover your 401(k) into an IRA, Betterment claims to have the only completely paperless 401(k) rollover, which they claim can take as little as 60 seconds.

Disclosure: It’s important to mention here that Money Under 30 is a Betterment affiliate; we may receive compensation if readers follow our link and open an account. It’s usually a win-win for everyone, so if you choose to support our free content in this way, thanks!

How Betterment works

Betterment bills itself as the “simplest, smartest way to invest.” We’ll leave smartest up for debate, but I don’t see how investing gets much simpler.

Rather than creating an online brokerage account and facing tens of thousands of investment choices, Betterment guides investors through questions about goals and risk tolerance.

Betterment then automatically invests your money into index funds, dividing your money between baskets of stocks and bonds based upon your risk tolerance.

For newbie investors, stocks, or equities, have the greatest chance of long-term appreciation, but are risky. The bond market, by contrast, offers more modest returns but less volatility. Smart investors create a portfolio of both stocks and bonds according to their desired risk tolerance. In general, the longer you have to invest before you need your money back, the more risk you can handle.

If that starts to get confusing, don’t worry, Betterment handles it all for you. When you create an account, Betterment also asks about your investment goals and recommends a risk profile. If you’re saving for a car in three years, your recommended risk level will be lower than if you start an IRA you won’t need for 30 years.

Here’s an example account dashboard, so you can see how simple it really is:

What Betterment costs

Unlike brokerages which charge commissions every time you buy or sell a stock, Betterment assesses an annual fee-0.25 percent of your total portfolio, charged on the first $2 million. (Anything above $2 million has no additional fees. This means that the fee is, at most, $5,000 per year.)

Betterment’s fees seem fair, especially for new investors. Consider the fact that Betterment’s fee on a $5,000 portfolio is just $12.50 annually.

Retirement guide

In addition to making it easy to invest your mid-term savings, Betterment also makes it simple to save for retirement. Betterment offers tools that can help you invest and plan for retirement. If you have an old 401(k) from a former job, or an IRA you’d like to move over to Betterment, Betterment will walk you through the process of moving your outside investments to their platform.

Betterment also offers tools and calculators that predict what your retirement might look like, dollar wise.

“60 second” 401(k) rollovers

Betterment makes rolling over your 401(k) to an IRA as painless as possible. Rather than filling out and mailing paper forms, Betterment gathers the require information using intuitive online questionnaires.

In many cases, Betterment will handle the rollover process for you, transferring assets from your old 401(k) to your new Betterment rollover.

Learn more about Betterment 401k rollovers here.

Access to Certified Financial Planners

Robots actually do an excellent job of handling investments. Human emotions and biases are shown to actually reduce returns over time. However, once you have a significant amount saved, it’s normal to start looking for a financial expert with whom to discuss things. It’s your life’s savings, so it’s understandable to want to rely on more than a computer to decide where to invest.

In an effort to make financial advice more accessible to everyone, Betterment is combining the Plus and Premium plans to make unlimited phone call access to CFP® professionals available at a 0.4 percent annual fee.

If your balance in Betterment is at least $250,000 you can have unlimited access to a CFP as well as having your account monitored by a team of licensed experts. For this level of service, the fee is 0.5 percent (double the rate for the standard plan).

While the plans for access to financial professionals is more than the standard plans, it is still extremely reasonable when compared to the fees that other investment firms. It’s common to see fees as high as one or two percent, and they often have minimum fees of several thousand dollars. So Betterment is a great option for those who want a little more hands on approach to their investments.

Also, all Betterment customers can now message a licensed financial experts via out mobile app. Customers can safely and securely send Betterment’s financial experts questions-big or small-and get a personalized response.

Experts can assist in deciding which funds to move to Betterment, setting goals (like saving for college, a house, or retirement), and identifying which Betterment tax features may be right.

Betterment also offers coordination between spousal accounts for Tax-Loss Harvesting. Learn more here.

Socially Responsible Investing (SRI)

SRI portfolio options are now available to all Betterment customers,so you can align your investments with your personal values.

You can invest in a low-cost, globally diversified portfolio that reduces exposure to companies that don’t meet certain social, environmental, and governance criteria.

According to Betterment, their SRI portfolio reflects a 42 percent improvement in social responsibility scores on US large cap assets (compared to the Betterment portfolio) without sacrificing diversification and control of cost.

Two additional portfolios

In addition to the Betterment and SRI portfolio, new and existing customers can now invest in the Blackrock Target Income Portfolio Strategy and the Goldman Sachs Smart Beta Portfolio. With these four portfolios, customers have a variety to choose from.

The Blackrock portfolio is designed for those in retirement or those seeking a low-risk alternative to the Betterment portfolio. On the other hand, the Goldman Sachs portfolio is for those with long-term goals. It follows multiple rules-based investment strategies that select stocks and bonds with the goal of outperforming a traditional market index.

Why invest with Betterment?

Studies show that beating the stock market is nearly impossible over the long run. A lot of people can beat the markets for a couple of years, a few lucky ones do it for five or ten years. Most investors have no business monkeying around with individual stocks and frequent trades. The vast majority of investors should be focusing on finding money to invest and investing it, not worrying about individual investments.

Secondly, Betterment may be an answer to this common question I receive:

Savings account interest rates are terrible; how can I earn a better return on my mid-term savings?

Although you should always have some cash available for emergencies that is completely liquid in an FDIC-insured savings account–no matter how paltry the interest rate-if you’re really hung up on returns, you might create a conservative Betterment portfolio and see if you can do better than your bank account.

New customers can also get up to a year of investment management free based upon the amount you invest within your first 45 days of account opening. See Betterment’s site for details.

Learn more or open a Betterment account now