Betterment Review: An Easy Way to Invest

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You know a couple weeks ago when I told you that I was finally going to open a retirement account? I said I was going to open an SEP IRA.

Well, I lied. Kind of.

You see, I had every intention of opening an SEP IRA. So when I was ready to open my retirement account I started weighing options. Which brokerage should I go with?

I started reading reviews. Then I would go to each website and check them out.

And with my beginner investing abilities I wanted to go with something easy. Something really easy.

In the end I was really loving Betterment. It seemed to suit me much better than anything else. Unfortunately, Betterment doesn’t offer an SEP IRA so I instead chose to go with a Traditional IRA.

For those of you who have yet to open a retirement account let me tell you why I’m in love with

Betterment Logo

Quick Summary

  • Robo-advisor that allows automatic investing
  • 0.25% to 0.45% per year management fees
  • Great tool for those who never want to think about investing

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Quick Navigation

Betterment Review – How it Works
Setting Up a Goal in Betterment
How Your Money is Invested
What About Minimums, Deposits, and Fees?
Betterment Financial Advice

Betterment Review – How it Works

When you create an account Betterment will ask you some basic questions about yourself in order to determine your risk tolerance.

They use these questions as well as your age to determine this.

After answering my set of questions they determined my risk allocation to be 90 percent stocks and 10 percent bonds. Yep, sounds about right to me!

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After determining your risk allocation you can then set up your chosen an account (which takes about a minute) and create a goal.

The accounts you can set up are:

  • Roth IRA
  • Traditional IRA
  • House Down Payment Savings
  • Education Savings (not to be confused for a 529 college savings account, Betterment’s Education Savings is not tax advantaged.)
  • General Savings (Feel free to name this what you want.)

After setting up your account and linking up your bank info you simply choose a goal and Betterment will give you advice.

Setting Up a Goal in Betterment

One of my favorite parts about Betterment is setting up the goal and reading the investment advice.

When I opened my Traditional IRA I needed to set a target amount and an end date for my goal. By doing this Betterment can tell me how I’m doing.

I winged it and punched in that I needed $400,000 by the time I was 50.

Betterment Review

(Note: this is not really what I would need for retirement. I should actually go back and change this. Realistically I’ll need about $750,000. An easy way of coming up with your retirement number is to multiply your annual spending by 30. For me this is $25,000 * 30. And it will probably take me more than 23 years to hit this goal. I’m being ambitious right now!)

When I opened my account I put $50 in it and opted to have $100/month automatically deposited. This is Betterment’s predictions of what I need to be contributing to hit my goal:

Creating Betterment Goals

How Your Money is Invested

The next thing you’re probably wondering is how will your money be invested?

Well it works like this: Based on your allocation, Betterment will automatically invest your money in a diverse group of Index Funds. (Read: What are index funds?)

Here’s how my initial $50 was invested:

betterment investments

You do no work at all here. You simply deposit your money and Betterment invests it for you. And you can adjust your allocation ratio at any time.

If you feel the allocation they give you is either too risky or too boring simply adjust it to what you prefer!

What About Minimums, Deposits, and Fees?

My favorite part about Betterment?

There are no minimums to open an account and no required automatic deposits. This is perfect news for beginner investors with little money to put down!

And the fees work like this. (Straight from Betterment’s site.)

Betterment charges a management fee of 0.25% to 0.45%, depending on your balance, and is prorated across the entire year and is charged at the end of each calendar quarter (every three months).  In other words, every three months Betterment charges 0.0625% to 0.1125% based on your average balance for the period. If you withdraw all of your money before the end of the quarter you are charged a prorated fee only for the days your money was managed by Betterment.

Betterment’s single management fee covers everything you need including transactions, trades, transfers, rebalancing, advice, account administration, etc.

If you opt to make automatic deposits like I did they lower your fee. Pretty sweet!

Also, if you have over $2,000,000 invested, you get a break: 

  • New customers with balances greater than $2M will be given a 0.10% marginal discount for the portion of their balance above $2M.

    • For Betterment Digital, customers will pay 0.15% for the portion of the balance above $2M.

    • For Betterment Premium, customers will pay 0.30% for the portion of the balance above $2M.

    Finally, you don’t get charged any fees to withdrawal your money either.

    Right now you can get up to 1 year of free management when you sign up for Betterment using our special link.

    Betterment Financial Advice

    What if you want to actually talk to someone and get some real help or advice? Betterment has that too. 

    Betterment customers at any balance can purchase individual financial advice packages to receive in-depth guidance around various life events. These packages include a personalized action plan and educational content related to the life event or financial goal they are seeking guidance on. All calls will be handled by a CFP or licensed financial expert. 

    The currently have 5 different packages, ranging in price from $149 to $399. Unlike their management fee for your portfolio, this is a one-time fee.

    The packages are:

    Getting Started package: For new customers who want confirmation from a professional that they’ve set up their account correctly.

  • Financial Checkup package: For customers who would like a professional review of their investment portfolio and situation.

  • College Planning package: For parents or guardians who are looking to send their children to college in the next 5-18 years.

  • Marriage Planning package: For engaged or newly married couples to get advice around combining assets and accounts.

  • Retirement Planning package: For anyone who has started saving towards retirement and wants to see if they are on track and investing correctly for their goals.

  • These are great deals because you likely won’t be able to speak to a financial planner for less. It can be especially good if you just want to talk about one specific goal or plan. 

  • Conclusion

    I love Betterment for the fact that it’s so easy. Every single part of the process is simple.

    You don’t get charged any transaction fees, you start investing with practically nothing, and your money is invested based on your risk profile.

    This is exactly what a beginner needs.

    Have you ever tried Betterment? What did you think?

    The post Betterment Review: An Easy Way to Invest appeared first on mimblewimble price blog.

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