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Betterment Review [Great Investment Option for Beginners]

01.16.2012 by Matt Jabs //

Betterment $25 BonusBetterment is now offering a $25 bonus for all new accounts. There are no minimum balance requirements and no transaction fees. Simply open an account with at least $250 to claim your $25 bonus.

Betterment review for beginning investors

Betterment Founder and CEO Jon Stein shares his motives behind creating a smart investment account that’s easy to use.

“I created Betterment because after years working in financial services I was amazed that no one made saving and investing money as simple as it ought to be.”  – Jon Stein

As a relatively new investor myself, I have spent the last few years scouring the online investing market for high return investments that are effective, easy to understand, and simple to maintain.  While there are no shortage of options out there… many of us are either too busy to design and maintain our own portfolio or we’re simply unsure of how to best do it.  Enter Betterment.com.

Betterment has found an awesome way to help us save and invest simply and effectively.  They allow you to easily diversify your portfolio – and – save for your goals.  They reinvest gains and rebalance your portfolio automatically based on your personal risk assessment, which you can set up and change with a few clicks of your mouse.  You have the ability to save for the long term or short term which is handy, especially since our “high yield” savings accounts are currently paying averages of less than of 1%!

Let’s examine more of the technical details that make Betterment a secure and attractive option for new, existing, and busy investors alike.

  • Betterment is both a registered investment advisor and a registered broker dealer.
  • Accounts are SIPC protected (up to $500,000 per customer) against losses resulting from fraud or mismanagement.
  • Your Betterment account links to your bank account for easy transfers, and seamlessly invests your money in smart ETF stocks and Treasury bonds.
  • There is no minimum balance requirement.
  • Transfers and trades are always free.

Betterment invests in ETFs

Betterment blends your investments between ETF baskets of stocks and treasury bonds.  The treasury bonds serve as the low risk investment and are backed by the full faith and credit of the U.S. Government.  The Betterment stock market portfolio is a diversified basket of ETFs custom built to reflect the broad US market providing instant diversification among thousands of companies. The current mix of stock ETFs looks like this:

  • 25% VTI: Vanguard Total Stock Market
  • 25% IVE: iShares S&P 500 Value Index
  • 25% VEA: Vanguard Europe Pacific
  • 10% VWO: Vanguard Emerging Markets
  • 8% IWS: iShares Russell Midcap Value Index
  • 7% IWN: iShares Russell 2000 Value Index

The treasury bond basket consists of these ETFs:

  • 50% TIP: iShares Barclays TIPS Bond Fund
  • 50% SHY: iShares Barclays 1-3 Year Treasury Bond Fund

Betterment recommends a diversified ETF stock portfolio because individual stocks are risky and expensive to trade.  Betterment is not alone in seeing the wisdom of using ETFs as an investment vehicle… many smart and savvy investors build their entire portfolio with index funds, ETFs, and Treasury bonds.  I’m one of them – not because I’m smart but because I’ve done the research!

Goals, allocation, and risk tolerance

Rather than make you read how Betterment helps investors allocate their portfolio based on their goals and risk tolerance… I can get the point across better by showing you how I did it with my own account.

Betterment $25 BonusWho should use Betterment?

Understanding who will benefit from investing with Betterment is best illustrated by an examination of the facts.

First it’s important to clarify that Betterment, like any investment account, will not be the best solution for everyone.  Beyond the obvious, we primarily need to understand who they’re competing against, what benefits they offer over their competitors, and what demographic the company is looking to serve.

Betterment’s competition

Let’s analyze who they’re up against so we can more clearly see if Betterment offers any benefits over their competitors.

As I see it, they have three main sources of competition – some stronger than others.

  1. Discount brokerage firms like Vanguard, Charles Schwab, Scottrade, eTrade, etc. who focus their efforts on individual DIY investors.
  2. Certified financial planners (advisors) who manage investments for people that typically have a lot of assets but are either too busy, have limited market know-how, or have little desire to manage their own portfolio.
  3. “High yield” savings accounts who offer investors a return on their highly liquid assets.

Let’s continue breaking this down to see if Betterment suits you.

Investing benefits Betterment offers

Key benefits that set Betterment apart from their competition include:

  1. $25 bonus to sign up – A risk free $25 bonus simply for signing up with at least $250.
  2. No minimum balance requirement – To receive comparably low fees with a financial advisor who offers complete portfolio management investors typically need to invest minimums of between $50,000 and $500,000.  If they invest less they’ll likely face higher fees or even refusal to be taken on as a client.  Betterment has no such requirement.
  3. Free trades and transfers – You never pay any fee for trading securities or transferring money to or from Betterment.  This is quite uncommon among their competition.
  4. High liquidity of investment dollars – The accessibility Betterment offers makes their investment account behave more like a bank account, whereas investment accounts with other brokers have minimums, lock up your money for a certain amount of time, or may charge on both sides of every trade.  Put another way… Betterment allows you easy access to your money when you need it without penalty or fee.
  5. Potential for much higher returns than your savings account – “High yield” savings accounts earn the rate the bank pays (currently about 1%).  Investing in stocks and bonds with Betterment delivers the possibility of earning much higher returns.
  6. Low fees for complete portfolio management – Discount brokerage firms do not offer complete portfolio management, Betterment does.

A noteworthy part of Betterment’s active management includes automatically reinvesting your gains and rebalancing your portfolio.  While it is easy to glaze over these steps and downplay their importance… reinvesting gains and staying in balance with your risk allocation are essential for investing success.  For those unfamiliar, rebalancing is simply the process of realigning the weightings of your portfolio by periodically buying or selling assets to maintain your original desired allocation.

Fees to invest online with Betterment

Note: I recently reported on how Betterment fees were lowered, the new fees are represented below.

Based on the competition and benefits offered, let’s take a look at the fee structure Betterment charges investors and compares it to their competitors.

First let’s consider what you’ll pay to purchase a targeted retirement account with a discount broker.  Vanguards targeted retirement funds currently have a really low expense ratio of  around 0.2% while the industry average for this handy investment solution is closer to 0.6% – which is not much lower than Betterment’s fee – without offering full portfolio management like Betterment.

Second let’s consider the average cost to employ the services of a certified financial planner.  Some CFPs charge commissions based on trades made – stay away from this.  Others charge a flat fee similar to the way Betterment does.  A typical asset management fee can range from 0.5% per year to 2.0% per year and is often lowered as you invest more assets with the advisor.  Most “full service” advisors will charge a blend of commissions and fees, but generally don’t do much more than what Betterment does… they just charge more.  Also, most of them have high minimum investment amounts making them less accessible to most Americans.

One other draw back to both discount brokers and financial advisors is that many times they have a limited amount of funds to choose from, whereas Betterment has the freedom to choose among many fund companies.

Now let’s look at the Betterment fee structure:

  • Balances under $10,000 = 0.35% annually
  • Balances between $10,001 and $99,999 = 0.25% annually
  • Balances over $100,000 = 0.15% annually

Fees are prorated across the entire year and charged at the end of each calendar quarter, meaning every 3 months Betterment charges 0.0375% to 0.0875% (.15 divided by 4 and .35 divided by 4 respectively) based on your average balance for the period. If you close your account and withdraw all your money before the end of a quarter you will be charged a prorated fee for only the days your money was in the account.

As an example, if you invested $10,000 today and earned a flat 10% all year you will pay just $27.50 in fees and have a final fund balance of $10,972.50 a year later.  Would you consider the $27.50 annual expense a worthwhile cost for a fully managed, diversified, and secure 9.75% return on your money?  Only you can answer that question.

If you cannot afford to invest $10,000 and do not automatically fund your account with at least $100 each month the 0.35% annual fee is replaced by a $3 monthly fee. To easily avoid that simply set up an automatic deposit of at least $100 each month. The automatic deposit is a no-brainer since you’re committed to growing your investments anyway, and there’s no point to investing if you don’t fund and grow the investments.

If this sounds like an investment solution you’d be happy with you can read more about Betterment,  open an account, and claim the $25 bonus.

Betterment $25 BonusOpen a Betterment account

If you can tie your shoes you can open a Betterment account.  The procedure takes about 5 minutes and offers a $25 sign up bonus.

Once opened they walk you through connecting to your bank account so you can fund your initial investment.  Then they help you set your invest allocation by walking you through you investment goals and risk tolerance.  After a few days you’ll be reminded to verify the two small deposit amounts transferred between your bank and Betterment, which once verified trigger the transfer of the initial deposit.

More videos to help explain Betterment.com

Betterment Founder and CEO Jon Stein on Fox News…

Open your Betterment account and take advantage of the $25 bonus – there’s no minimum balance, and transfers and trades are always free.

How I’m using Betterment

Personally, I think Betterment’s fee is quite reasonable considering the the ease of use, accessibility, and automation they provide.  I love that they have created a service that is accessible to everyone.  It’s just as easy for an average Joe to invest as it is for the wealthy – Betterment has leveled the playing field.

Initially I’m using Betterment to house a portion of my Emergency Fund.  I funded my account with $1,000 and am excited to see how my conservative allocation will perform against the 1% it was earning in my bank account.  I’m guessing it will easily outperform that benchmark!

Betterment $25 BonusA smart way for busy people to invest

Basically Betterment is a great solution for busy people, for those just getting started, and even for long time investors who don’t want to bother with it themselves but also know they don’t need to hire a certified financial planner to gain access to a diversified and managed portfolio.

If this sounds like the investment solution you’ve been looking for you can read more about Betterment and open an account if it suits you.

From Betterment.com

“There are plenty of investment products out there for active traders, the super-wealthy, and institutions, but not anything built for the doctors, lawyers, teachers, and so on who we know in our everyday lives.  Betterment is the first investment product built for people: it’s like wealth management for the rest of us.”

Betterment is now offering a $25 bonus for all new accounts. There are no minimum balance requirements and no transaction fees. Simply open an account to claim your $25 bonus.

Betterment:Smarter Investing for Busy People

Categories // Investing, Reviews, Video Tags // Betterment, emergency fund, Investing, review, Savings, video

Lending Club Note Trading Platform – FOLIOfn

04.05.2011 by Matt Jabs //

With an investment of only $3,400… my peer lending notes at Lending Club are currently earning returns of 8.8% which, at the time of writing, equates to $25 of income every month.

One of the most important ways to keep your net annualized return (NAR) as high as possible it so watch your notes (loans) carefully and sell them on the note trading platform when they reach a level of risk you’re no longer comfortable with.  Don’t worry… using the note trading platform is much simpler than it sounds and today I’ll show you how I do it.

Note trading platform basics

The note trading platform is nothing more than an electronic marketplace for the buying and selling of notes that represent consumer loans issued through Lending Club.

Sellers list notes in hopes of selling for a price of their choosing. Buyers browse available notes, review borrower payment history and credit score, and buy the notes of their choosing at the asking price. Buy orders received before 11am PST on a business day will settle same day, otherwise the transactions will settle the next business day.

Accrued interest

Buyers receive interest payments whether they buy the note on the first day, last day, or any day in between the time the previous payment was made, so be sure to factor in accrued interest to your valuation of a perspective note. You can find the accrued interest since last payment on the Browse Notes page.

Fees

Fees for using the FOLIOfn platform equal 1% of the purchase price, charged to the seller of the note. There is no fee for buyers trades.

Tips for selling notes on the trading platform

You will have to determine your own criteria for trading existing notes, and everyone will do things a bit differently according to their own risk tolerance.

Here are a few strategies I use including a screencast of me selling a note and speaking more on the topic.

  1. I sell late notes. Any notes that have become late or are even in the grace period are watched very carefully and usually sold right away.  I do this because I am not comfortable lending money to people who do not think it important to pay their debts on time.
  2. I watch credit scores. Watching credit score drops can help you head off a late payment before it reaches late status.  Chances are, if a borrowers credit score drops significantly over a short period of time, they may be in financial trouble.  I will sometimes sell the note before it has a chance to go late.
  3. I price notes accordingly. This is a bit of a gray area and will take a bit of practice, but do not charge more for a troubled note than you would be willing to pay, and at the same time be sure you’re not giving it away at a price that is too low.  As you sell more notes you’ll get a better feel for pricing them correctly.

Enjoy this screencast of me discussing note trading and selling a note on the secondary market, and invest with Lending Club if interested.

Invest with Lending Club

If these returns interest you and you would like to invest in peer lending, you can sign up to invest with Lending Club and get started.

If you have any questions or comments don’t hesitate to leave them below.

Categories // Investing, Video Tags // Lending Club, note trading, peer lending, social lending

The Wardrobe Mission

11.01.2010 by Matt Jabs //

Welcome to the first DFA Mission!

Starting today – and over the course of the next 12 months – I will embark on month long missions designed to retrain myself to live a mission minded life.

For a thorough explanation of the purpose of the missions, go read the DFA Missions page and meet me back here.

What is the wardrobe mission?

“And he said unto them, Take heed, and beware of covetousness: for a man’s life consisteth not in the abundance of the things which he possesseth.” – Luke 12:15

I have way too many clothes.  At this point in my life, my stuff has become a hindrance for the mission minded life God is calling me to live.  So I am making a change. You can too.

For the entire month of November 2010, I will wear just one outfit.  The video below also describes the mission, shows my wardrobe as it exists now, and shows the single outfit I’ll be wearing… if you’d rather watch than read you can scroll down and check it out.

The purpose of this short term mission is to reduce my clothing from what I want to what I need. At the end of the 30 days, I will pare my wardrobe down to the essentials and will either sell the rest to repay debt, will give the excess to those in need, or some combination of both.

The reason I’m wearing just 1 outfit for 30 days is to help clear the fuzzy boundaries of wants vs. needs so I can reduce my wardrobe the essentials.  The wardrobe mission is the first in a long line of short term missions to simplify my life so I can better serve God and others.  Up till now, a lot unnecessary time and resources have been spent acquiring and maintaining unnecessary stuff, and it’s time for a change.  I believe we are all here for a purpose, and that nearly all of us are bogged down by excessive debt and possession.  Because I see it as a problem in my life, I am taking steps of obedience to “take heed, and beware of covetousness.” I am excited to have others join me so we can make positive changes in our lives and the lives of others.

Encouragement from leaders around the web

Chris Guillebeau of The Art of Non-Conformity…

“It’s hard to say where these missions will take Matt, or anyone else who joins the ranks, but rethinking past decisions to live a life of pointed purpose can never hurt… I say go for it!” – Chris

Bob Lotich of Christian PF…

“I believe that the most exciting, joyful, and fulfilling life comes from diligently obeying God’s plan for our lives. As we take the plunge to give all we have to the Lord, we will find that all of our needs are met, people’s lives will be changed for the better, and God will be glorified. I appreciate what Matt is doing with DFA Missions and encourage you to get involved in any way you can!” – Bob

JD Roth of Get Rich Slowly…

“Living with purpose is the best way to get more out of life. When you have a goal or a mission, it makes every decision easier. Matt’s missions are a great way to bring focus and clarity to your finances — and your life.” – JD

Adam Baker of Man Vs Debt…

“I love the idea of Matt’s ‘Wardrobe Challenge’. Courtney and I are always looking for tips and strategies to raise the consciousness in our lives – especially when it comes to consumerism (and wants vs. needs). And this first “mission” is the perfect way to start things. I’ll be taking part at the 3 outfits level – for the month of November, I’ll only be wearing three different outfits. I’m excited about this challenge and it already has me brainstorming ways to apply this to my daily  life. Come join us!” – Adam

Participation is encouraged

The wardrobe mission begins today and will last all 30 days of November 2010.  If you have been wanting to simplify life or live more of a mission minded life… why not be a part of something bigger than yourself?  Join the mission.

I am setting rules for myself, and if you join, you’re encouraged to do the same.  In saying that, I still wanted to outline a few suggested levels of participation below.  Do not hesitate to customize any level to make it fit in with your job or what have you.

One outfit (what I’ll be wearing – see video below)

  • 1 coat, hat, pair of gloves, pair of shoes
  • 1 over shirt, pair of pants
  • 3 undershirts, socks, and underwear, handkerchiefs

Three outfits

  • 3 coats, 1 hats, 1 pair of gloves, 3 pair of shoes
  • 3 over shirts, 3 pair of pants
  • 3 undershirts,  socks, and underwear, handkerchiefs
  • add/remove any customizations you like

Five outfits

  • 3 coats, 1 hats, 1 pair of gloves, 3 pair of shoes
  • 5 over shirts, 5 pair of pants
  • 5 undershirts,  socks, and underwear, handkerchiefs
  • add/remove any customizations you like

Video explaining the wardrobe mission

Apologies for the “shakiness” of this video, I’ll do better next time. 🙂

Join and or commnt below

What do you think?  Are you ready to simplify your life, reduce your wardrobe, repay more debt, and help others?

Join us and define your plans in the comments below.  I am really excited to get started!

Categories // Life Missions, Simplify, Spirituality, Video Tags // clothes, downsize, mission, Spirituality

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Disclaimer

Content on Debt Free Adventure is for entertainment purposes only. Rates & offers from advertisers shown on this website may change without notice: please visit referenced sites for current information. Per FTC guidelines, this website may be compensated by companies mentioned through advertising, affiliate programs or otherwise. We respect your privacy. Privacy policy.

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