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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

Your Money Ratios – Review and Giveaway

01.08.2010 by Matt Jabs //

Book Review and Giveaway

Today you have the treat of reading a review of the new personal finance book, “Your Money Ratio’s: 8 Simple Tools for Financial Security”.  Thanks to TLC Book Tours I am also facilitating a gracious giveaway of this book to one random DFA reader.  Are you feeling lucky? 🙂

To win a copy of the book just leave a comment here.  The winner will be chosen (using random.org) and will be announced on January 15th, 2010.  This book is a heck of a read, so go ahead and enter to win.

While you’re at it, if you haven’t already why not subscribe to daily DFA article updates by RSS feed delivery or email delivery – and no subscription pitch would be complete without mentioning the option to follow via Twitter.

What is Your Money Ratios?

This book is self-dubbed, “A groundbreaking and simple approach to tackling personal finance by applying formulas used by the most successful businesses.”

The book aims to instruct us in the ways of financial security by helping us determine:

  1. How much total savings we should have accumulated at our age.
  2. How much we should be saving each year.
  3. What tax and investment vehicles we should use to maximize our savings.
  4. How much mortgage and education debt we should be carrying at our age.
  5. How to manage our investments for prudent growth and principal protection.
  6. How to purchase the disability, life, health, and long-term care insurance necessary to protect our income and assets.

The author also applies a very wise “Unifying Question” to each of his ratios – “Will this financial decision help move me from being a laborer to being a capitalist?”

Sounds good right?  So what are these magical ratios, and just how simple are they to graft into the life of financial laymen?

What are theses simple money ratios?

The author is a total ratio/math nerd… which I love.  The cool thing is that he presents the ratios (aka tools) in a simplistic manner so we don’t need a doctorate in mathematics to understand and use his strategy.

Here are the 8 simple tools (ratios):

  1. The Capital to Income Ratio – How much capital (savings) you should have at your age if you plan to retire at sixty-five.
  2. The Savings Ratio – How much of your income you should be saving each year to help you reach your Capital to Income Ratio.
  3. The Mortgage to Income Ratio – The maximum mortgage debt you can carry while saving sufficient capital to retire comfortably.
  4. The Education Debt to Average Earnings Ratio – The amount of education related debt you can safely incur, based on anticipated average earnings after obtaining your degree.
  5. The Investment Ratio – The fundamental split between stocks and bonds that you should consider at different stages of your financial life cycle.
  6. The Disability Insurance Ratio – Why you need it and how much you should consider getting.
  7. The Life Insurance Ratio – You buy life insurance not for yourself, but for your spouse and children.  How much you need to acquire at each stage of your life.
  8. The Long-Term Care Insurance Ratio – How much of, and why you need this least loved, least understood, but very important form of insurance.

Should you buy this book?

If you are interested in a hands off, simple approach to preparing yourself for financial security… then buy and read this book.  Some people may think it a bit dry, but I found it entirely captivating since it addresses all areas of personal financial concern and attempts to master them with a non-emotional and simple solution.  You can pick it up on Amazon at a 34% discount off the regular price of $26 (at the time of writing.)

One sentence can sum up the philosophy of the book… the tortoise always wins.  It is the same concept laid forth in countless personal finance books – those who want to win at money exercise strategic and consistent self-control and self-discipline… which makes perfect sense to me.  This book helps you construct and implement your consistent and winning strategy using the simple ratios.

What could the author have improved upon?

The answer to this question is going to be different with every review you read, so take this with a grain of salt.  I would have liked to see the author address God, faith, or the bible.  Personally, I have a hard time fully trusting the advice of someone who can write an entire book and never even think to bring up the wisdom of the scriptures or the being who created all things.  Call me crazy.

About the author

Charles J. Ferrell, an investment adviser, lives and works in Denver, CO.  When he is not writing stellar personal finance books Charles enjoys writing the “Retirement Roadmap” column for the CBS Moneywatch site.

You can visit Charlies website at YourMoneyRatios.com.  The website has some cool features that allows you to input your data and get a simple report in reference to the ratios laid out in the book.  The ratios are only available to those who buy the book and use the secret code contained therein.  🙂

Don’t forget about the Giveaway!

To win a copy of the book just leave a comment.  The winner will be announced on January 15th, 2010.  This book is a heck of a read, so go ahead and enter to win.

While you’re at it, if you haven’t already… why not subscribe to daily DFA article updates by RSS feed delivery or email delivery – and follow me on Twitter.

Categories // Reviews Tags // books, money, review

Pay For Quality – Birks for Dress and Keens for Play

08.13.2009 by Matt Jabs //

I may be Frugal…

  • I live below my means.
  • I spend less than I earn.
  • I currently focus almost all of my available monies (after giving) on debt reduction and personal savings using my Balanced 75/25 method.
  • My wife and I have recently cut our grocery bill from $400/month down to $250/month.
  • We canceled our satellite TV service to save $75/month.
  • We make our own laundry and dishwasher detergents.
  • We do frugal camping by going rustic and pre-making all of our meals.

But I am NOT Cheap!

Although I am always looking to cut costs, slash debt, boost savings, etc… I am always willing to pay good money for a high quality product!

Most recently… I just bought my first pair of Keens.  For those unfamiliar – from the Keen website:

“Keen began with a moment of pure vision with a simple design challenge:  Can a sandal protect the toes?  The answer was yes.  The answer was The Newport.
From the Newport, Keen created a company built on hybrid innovation, redefining the outdoors and giving back to the community.”

Basically Keen sandals are the bomb!  I have been wanting to get a pair for years, but just hadn’t gotten around to it… until yesterday.  I finally found the right style Keen in the right size in the right color in the right store for the right price.

I am also a huge fan of Birkenstock sandals… and am not such a noob when it comes to the German sandal powerhouse.

I have owned, wore, and swore by Birkenstock sandals for over 10 years now.  How many pair have I bought in that time?  ONE!  And that my friend is the meat of this post.

Pay For Quality!

Just as Solomon says in the awesome and motivating book of Ecclesiastes:

“To every thing there is a season, and a time to every purpose under the heaven:”  ~ Ecclesiastes 3:1

Just as there is a time to save money… there is also a time to spend.  Paying for quality often saves you money in the long run.  As I mentioned earlier in the post I purchased a pair of Birkenstock sandals over ten years ago.  I paid around $75 for them and have not had to spend money on a pair of dress sandals since.

I paid $100 for the Keens and plan on having them for 10 years or more as well.  Granted the sandals will last different people different amounts of time based on usage, etc… but 10 years is an accurate projection based on my needs and my use.

If you divide the amounts paid over the length of 10 years you will find that I pay an average of $17.50/year for sandals ($175 spent divided by 10 years).  This amount is equivalent to or less than the amount I would have to pay for 2 different pairs of sandals every year or two.  If I were to buy a “cheap” pair of sandals — one for dress and one for play — I would likely pay upwards of $50+ every year or two.

Not only would “buying cheap” cost me just as much or more, it would also fail to deliver the comfort I receive from my Keens and Birkenstocks!

Though I am a indeed a very frugal man… I am not a cheap man!  I will always pay for quality.

What about you?

When it comes to quality… are you afraid to pay – or do you make it a habit to pay good money for good things?

Perhaps you have a testimony from your past that converted you from a cheapskate into a lover of quality… c’mon, don’t be afraid to share – spill the beans man!

Categories // General, Tips Tags // quality, review

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