Betterment Review: Put Your Investments On Autopilot.
I’ve been a long time user of Betterment for many years now. In fact, I’ve been using Betterment for pretty much as long as they’ve been around, having stuck with them as they’ve evolved their business model. I’ve seen them go from no minimums to a required monthly deposit or minimum balance depending on account value, I’ve seen them adjust their management fees and I’ve been also seen them improved their platform. All of these enhancements have actually made Betterment an ideal solution for automatic, long term investing. We’ve all seen Betterment and their competitors in articles titled, “Rise of the Robo Advisors.” Hopefully, I can give a better understanding to Betterment actually is.
So, What is a Robo Advisor?
Today, financial institutions are using technology to provide greater access to investing. By removing brick mortar locations and having less staff overhead, they are able to offer a lower fee structure and extend their reach to demographics that would have otherwise not been able to invest. By automating the process, the barrier to entry and knowledge required by the novice investor has been lowered and now more people than ever can find their way into investing. While it is easier for the novice investor to access these services, they aren’t just for beginners. They provide anyone with an automated strategy with very minimal fees.
How Betterment Works
Betterment is a completely online investment system. There are no sales people or advisers to speak to. You simply sign up here and you are on your way It takes about 60 seconds. Upon signing up with Betterment, you will need to attach your bank information so that you can transfer funds over. Depending on the amount that you transfer to your Betterment account, you may need to set up a recurring deposit amount of at least $100. Pretty much if your account is under $10,000. You can wave this recurring minimum $100 direct deposit by paying a $3 monthly fee. I don’t see the recurring fee as a deterrent and would highly encourage anyone at any level to continue to automate their contributions to their account. I mean why else are you looking for an automated strategy? Additionally, it will help your portfolio grow faster and larger. Once we’ve gotten things all set up, the last thing to do is set your risk tolerance by adjusting how much of your of your assets you want allocated to stocks and how much to allocate to bonds. From here it is pretty much as close to set and forget as you want it to be. It’s still important to keep an eye on things, however all the heavy lifting is done. My recommendation is to gradually increase your recurring deposit amounts as you get more comfortable with the performance and if your life situation allows for it. Betterment also allows for IRA accounts so you aren’t just limited in that aspect.
The Betterment dashboard also comes with some very interesting tools. My favorite is the “Advice” tab. What this does is allows you to see, based on your current risk tolerance setting and how much your recurring deposit amount is, where your account balance will be at retirement. It predicts a a good market, bad market and anywhere in between. You can also get goals such as how old you want to be at retirement and a target at OK market performance account value at that time. Betterment will then keep track of where things are and if you are on target to hit that goal at retirement.
Additionally Betterment also offers the same strategies that most other investment houses offer such as portfolio re balancing and tax loss harvesting ($50,000+). These tools should keep your account in check for the long haul and help you minimize your risk during bad times.
While Betterment does not have a minimum, they do have a 3 tier fee structure which, even at the lowest tier is very low. All tiers include no re balancing fees, no trade fees and no transaction fees. The tiers are as follows:
- 0.35% for accounts balances under $10,000
- 0.25% for accounts balances with a minimum of $10,000 and under $100,000
- 0.15% for account balances of $100,000 or more
The Bottom Line on Betterment
So how does Betterment actually stack up in my opinion? What has my experience with it been? I am an active user so that right there says a lot. I do practice what I preach. As of today, my lifetime return is at a 19%., which in my opinion is great since this is a set and forget automated strategy for me. I leave my higher risk adverse investments in my own self managed brokerage accounts. Being as there is almost no thinking involved, this is an no brain-er, no pun intended. Of course with any type of investments, you will have your ups and downs. Fortunately for me, I have yet to see a red month for as long as I’ve been with Betterment. I’ve definitely seen daily and weekly fluctuations between red and green numbers however I have not seen my account balance fall below my cost of investments. As such, I view my Betterment account as a lower risk vehicle and have significantly increased the amount of my monthly recurring deposit into my account and continue to grow it today.