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About Betterment

Betterment is a groundbreaking online investment advisor and brokerage dedicated to helping busy people invest for their long-term goals with ease. Betterment achieves this through low-cost, well-grounded, and automatically implemented financial advice designed for smart, busy people. Set-and-for...

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  • Zachary Ehrlich's Profile Image

    By Zachary Ehrlich, Aug 14th 2012

    Editor Rating

    Betterment is an online investing tool that can help you plan for retirement or meet a number of other goals without too much effort on your part. With a linked checking account you can put your investing on autopilot with Betterment's specialized recipe of diversified stock and bond holdings. After answering a few questions to determine your investment preferences you can set automatic cash transfers every month, and your investments will be reallocated regularly.

    Betterment adds considerable value for rookies who would like to invest, but may not know how to begin. As a primarily visual product with a beautiful and straightforward design, Betterment eschews lengthy paragraphs. Once you decide your risk level, based on how much money you allocate to stocks and Treasury bonds, Betterment displays it to you clearly in graph form.

    The product is user-friendly and includes a free iPhone app. The visualization show you the returns you can expect and is up to 95% accurate, based on historical returns, and can span up to 50 years. Obviously investments can never be predicted exactly, but Betterment tries to come as close as possible.

    Pros Cons
    Great tool for beginners to expand their portfolio Limited investing education
    Accounts connect seamlessly High fees in lieu of minimum
    Sleek mobile app Only on iPhone

    Fees/Accessibility

    Betterment drastically reduced its fees since its inception to become more accessible and now offers three different types of plans based on minimum balance and monthly deposit. The annual fee is intrinsically related to how much money you load into the account (see Minimum Investment Requirement/Breadth). The Builder Plan is the most expensive at 0.35%, the Better Plan charges 0.25% (or $3 per month if you’re below minimum), and the Best Plan charges 0.15% annually. These fees are split to be assessed quarterly on a yearly calculation, which helps defray the total cost of your fees because as you grow your account your fee is based on the smaller portions of your balance instead of the largest portion at the end of the year.

    Mobile/Functionality

    Betterment has great support on the iPad and iPhone but nothing yet for Android or other operating systems. The iPhone app could be used for all the basic functions you would like to have -- including checking your balance, compositions and returns in your portfolio and adding money straight from the phone if you see a balance getting too low. You can also manage the actual investments by changing the allocation of stocks and bonds and review your goals and account activity.

    Minimum Investment Requirement/Breadth

    The most basic Betterment account does not require any minimum per se, but must be sustained by a $100 per month deposit. However, this is across all your goals and can be done on your own schedule (weekly, bi-weekly, erratically) as long as the monthly total comes to $100. Without that constant influx of cash, mandatory for the Builder Plan, you will by default be enrolled in the Better Plan, which requires a $10,000 minimum balance across all your accounts, no monthly deposits necessary. If your balance falls below the $10,000 minimum, the terms change and you will have to pay $3 per month in lieu of the 0.25% annual fee that comes with the Better Plan. With a $100,000 minimum balance, you will be upgraded to the Best Plan, which also does not require any monthly deposits.

    Betterment offers a 30-day free trial before you make any commitments to pay.

    Connectivity/Guidance

    Betterment will only let you open an account if you link it to a checking account. Then you can set your investing goal, timeline and asset allocation and let Betterment take over and automate your investing. They invest your money in a mix of ETFs, and you can even set up automatic investing transfer to allow Betterment to re-allocate your profits to your original asset allocation. You can seamlessly transfer money back and forth and even set up automatic deposit. Money can only be loaded electronically, for convenience and safety purposes. Electronic deposits from your bank to Betterment generally take 3 - 4 business days to process, while money moving the other way will take 4 - 5 business days to process. Deposits must be made by 1:30 PM ET and withdrawals by 4 PM ET to be considered within the business day.

    Education

    If you are looking for a tool that will help you learn more about investments and make better decisions, Betterment is not your solution. Your control is limited to the amount of risk you are willing to take, which minimizes your involvement in picking any actual stocks to invest in. This does allow you to simply choose how much to allocate to bonds or stocks, which are preset, as follows:

    On the side of the stocks:

    • 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

    On the side of the bonds:

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

    Betterment will not necessarily educate you in how to invest in the stock market, but it will provide advice on how much money you will need to reach a certain goal over a specific amount of time, as well as how much to allocate to stocks and bonds. It will also help you safely invest your money with good returns for less than a hiring a financial adviser and will diversify your holdings. Betterment provides a suitable plan for beginners who are interested in long-term investments.

    The Breakdown

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