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Betterment Review

02.06.2013 by Kevin Mercadante //

The past few years have seen the rise of a number of specialized, online investment management services. One of the better programs out there is Betterment.

Betterment describes itself as “The fully diversified, automated, and smart investment account that helps you feel good about your future.” It offers a simple, efficient investment system that will appeal to a large number of investors.

How Betterment Works

Betterment uses a simple investment strategy that’s based on two investment options, referred to as baskets. One basket is made up of stocks and the other of treasury bonds. But rather than holding individual stocks, each basket is comprised entirely of a mix of exchange traded funds (ETF’s).

As an investor, all you need to do is set your portfolio allocation and the system handles your investing for you.

Unlike many online investing services, Betterment does not require a minimum opening account balance. If you open your account with less than $10,000 however, you will be required to make monthly deposits of at least $100 until the balance is achieved. Once you reach the $10,000 mark, continued monthly contributions are optional.

You can move money easily and automatically between your Betterment account and any outside accounts you have with next day transfers. The system also allows you to do investment projections online simply by changing asset allocations and projected contributions.

One of the coolest parts is that you can “try before you buy” so-to-speak by running savings goal scenarios before actually committing the money to those investment mixes.

Betterment will also give you $25 if you open and account with at least $250.

Betterment Pricing

In regard to investment fees, Betterment has no transaction fees, but charges a management fee based on portfolio size. There are three pricing tiers that determine the amount of the management fee:

  1. for accounts under $10,000 the annual percentage charged is .35% of the balance,
  2. for accounts of $10,000 and up to $100,000, the fee is .25% of the balance,
  3. for balances of $100,000 and higher the annual fee is .15% of the balance.

If your account balance is $100,000, your annual account management fee will be .15% of the balance, or $150.

This makes betterment one of the lower cost investment systems around, especially on accounts with higher balances.

Betterment Advantages

Pricing is an obvious advantage with Betterment. To be able to maintain $100,000 of managed investments for just $150 per year would be difficult to duplicate elsewhere.

Simplicity is another advantage. You can set your portfolio allocation between stocks and bonds and management will take it from there. You don’t need to actively trade, to follow your investment positions on a daily basis or to make changes.

Betterment also has professional management which saves you the time and effort that will take to become a successful investor. And rather than investing in stocks, management invests instead in ETF’s. That not only keeps trading expenses at a minimum, but it also achieves significant diversification within each asset class.

Management’s investment philosophy also seems very solid. The bond basket is invested in ETF’s that hold Treasury Inflation Protected Securities (TIPS) with maturities of three years or less. That minimizes interest rate risk that is inherent with longer-term bonds. This makes Betterment’s bond positions more secure than typical bond funds

The stock position is held in ETF’s that invest in value funds and small-cap funds. At this time the entire stock portion is held in US based stocks. Betterment holds the stock position in several ETF’s that are determined by management to best achieve the program’s investment goals for its equity positions.

Like many of the online investment systems available, your holdings in the account will be limited to Betterment’s baskets. You will not be able to hold individual stocks, mutual funds, or ETF’s as you would in a typical online brokerage account. Betterment is, after all, a managed investment account, and not a general investment account. This is how they keep it simple for you, the investor.

On balance, Betterment looks to be a good investment choice for most investors, particularly for those who are looking for aggressive equity investments, counterbalanced by conservative bond investments. And the cost and simplicity will be hard to beat anywhere.

You can get more information on how Betterment works, and take advantage of a free 30 day trial offer and the $25 bonus by visiting the Betterment website.

Categories // Investing, Reviews, Savings Tags // Betterment, Investing, Savings, simplify

Proverb About Saving For a Rainy Day

08.24.2012 by Kevin Mercadante //

Proverb About Saving For A Rainy DayWhen it comes to money, as Christians we might be tempted to write it all off to that saying, “money is the root of all evil”. After all, that saying itself comes from the Bible (1 Timothy) and warns us against the obsession with money. But even within the Bible, money has it’s proper uses, and one of them is saving it.

This is not the wanton saving of money in order to build an ever larger pile for its own sake, nor is it an attempt to build treasures here on Earth. But the Bible teaches us to be ready for what ever happens, and a big part of that preparation is with savings.

What does the Bible teach about saving for a rainy day?

”Go to the ant, thou sluggard; consider her ways, and be wise: Which having no guide, overseer, or ruler, Provideth her meat in the summer, and gathereth her food in the harvest.” – Proverbs 6:-6-8

This verse is both powerful and effective in convincing us of the need to save money, but like all Bible verses there are several things happening at once.

Saving involves sacrifice

Notice the passage uses the term “sluggard?” Maybe that’s a bit of a harsh word, but then again maybe it isn’t.

Sluggard means “lazy” or “inactive”, and the verse implies that such an attitude might exist when it comes to saving money. The implication is that we may need to do something more, something beyond ordinary if we are to save—the business-as-usual attitude won’t cut it. Translation: saving money requires active participation. It’s not something carried out by sluggards!

To put that into practical perspective it means:

  • We may have to work a little bit harder in order to have money to save
  • We may have to reduce current consumption to free up money to save
  • We need to have a plan of action to save and a willingness to carry it through
  • We need to accept that life today may not be as pleasant while we prepare for an uncertain future

Saving is a natural process

The same verse that uses sluggard also recommends looking to the ant for direction. Ants, as we know, are constantly moving, constantly working, constantly storing up. It’s that storing up process—or saving in our world—that enables the ant to survive. Ants are not alone in storing either. Most animals that have the capacity to save do. Rodents do it (think “squirreling away”), as do many birds. We can even say that many mammals “save” by overeating in summer in order to build up fat storage for the winter months when food is scarce.

Saving then is a part of the natural process. In reality, certainly in the human realm, it’s very much a survival skill. Ever notice how people who have relatively little income or unstable occupations are able to survive all the uncertainty? It’s possible if you’re a devoted saver.

There’s a need to save “in season”

The passage specifically references ”stores its provisions in summer and gathers its food at harvest”, and I think this may be the most relevant part of the passage.

As human beings, we’re not nearly as dependent on the seasons as animals are, yet we have “seasons” of life, that are longer and often deeper in scope than seasonal weather shifts. Ecclesiastes 3:1-8 outlines this clearly, as do so many other passages and verses throughout the Bible.

Good times turn to bad, and bad times turn to good, but the takeaway is acknowledging the changes and preparing for them. In the human world, we do this by saving money. The time to do this is “in-season”, when our incomes are strong and our obligations are low, that way when “winter” comes—when life isn’t so good—we’ll have the benefit of all that we stored up from a better season.

We can think of this as playing out over various season cycles. In the near term, the cycle might include saving money in season against the possibility of a job loss—like building up an emergency fund. Over the long-term, this would involve saving money in season (during our working years) for the “winter of life”—old age and retirement.

The Bible teaches us about such seasons and tells us to prepare for them. We can think of that as scripture telling us to save for a rainy day.

How your savings can be a blessing

Moving beyond Proverbs 6, your savings can be a blessing in so many ways.

  1. By enabling you to take care of yourself in a time of trouble you’re not being a burden to others
  2. Having savings enables you to help others who are in a difficult time
  3. When you have savings you aren’t living paycheck-to-paycheck and will find it easier to be more generous
  4. Savings are a tangible way to reduce worry—and worry is one of our biggest false idols
  5. Having extra money saved can enable and embolden you to do more mission work, knowing that you’ll be in good shape even if the mission work costs you some time, money and income
  6. It’s always easier to be a good steward of your money when you have at least a little more of it than you need

Money itself isn’t the root of all evil—it’s the love of money that is. We can have it and use as long as we see it as a tool and not as something to be worshipped. Properly used, such as when we save for a rainy day, is just such a tool as well as a blessing. At a minimum, we can save for a rainy day and know that we’re doing the right thing.

After all—that’s what the Bible teaches us.

Have you ever had any sense of a conflict between your faith and saving money?

*******

Categories // Savings, Spirituality Tags // Savings, spiritual

Should I Use My Retirement To Pay Off Debt

03.23.2012 by Matt Jabs //

The question…

DFA reader Josh asked:

I am in the military and at the point were i can get a bonus of $30,000 if I reduce my retirement to 40% of my base pay at 20 years – or – stay with high 3, which is 50% of my base pay at 20 years. There are options on how to get the $30,000: one payment, two at 15,000, three at 10,000, four at 7,500, or five at 6,000.

I have done some research on the subject and everything thus far says taking the 30,000 is a bad idea, but I like to cover all bases before doing anything. Also right now I have about $125,000 in debt, but I make enough to still meet all my bills. What would be the better thing to do, take the bonus and pay off debt, or keep the retirement plan for 50%?

The answer…

Josh, I believe you’re referring to the military’s REDUX retirement system. Since I’m unfamiliar I included a few great articles from The Military Wallet in the Resources and References section below. Check them out.

In general, here are three important factors to consider before tapping into retirement to pay off debt:

  1. your goals
  2. the type of debt you have
  3. your debt-to-income ratio.

Retirement goals

Everyone has different retirement goals.

How old you are, how much you have saved, and whether or not you plan to retire at all are several criteria to help layout your goals.

I don’t plan to retire. My goal has always been to find my passionate life’s work and pursue it, in some manner, until I’m gone – so my income may be rolling in until I die.

If your plan is to work a career for so many years and retire to something else, your goals will be different because you plan to live off retirement savings.

Define your goals to best answer the question.

Type of debt you have

Everyone has different types and amounts of debt.

Josh has $125,000 but we’re not sure what type of debt that is.

If the debt is low interest rate mortgage or student loan debt, tapping into savings to pay it off may not be a great idea.

If it’s high interest credit card debt, the decision will probably be different.

Define the type and amount of each debt to best answer the question.

Your debt-to-income ratio

Commonly referred to as your “DTI,” your debt-to-income ratio is a personal finance benchmark that relates your monthly debt payments to your monthly gross income.

Everyone has a different debt-to-income ratio.

Josh mentioned making enough to meet his bills but didn’t specify how much he makes or if he has extra income at the end of each month.

If paying the minimum payments on your debts leaves you with little to no money at the end of each month, taking the bonus to kick-start better financial health may be a good idea.

If you have extra money after meeting your monthly budget, it may be best to leave savings alone and use the extra to speed debt repayment.

Define your DTI to best answer the question.

*******

References and Resouces

  • “Your Debt-to-Income Ratio: What It Is and Why You Should Care” on FiveCentNickle.com
  • “Is REDUX Retirement Worth it?” on The Military Wallet
  • “Can Your Investment Returns Make REDUX a Good Retirement Option?” on The Military Wallet

Categories // Debt, Retirement Tags // Debt, Retirement, Savings

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