Update: Betterment just announced lower fees. Their fees have dropped to between 0.15% and 0.35% a year depending on your account balance (as long as you invest $100 a month). This makes them competitive with the lowest-priced mutual funds and ETFs. I liked Betterment when we first published this review last year with the exception of the fees (as many commenters pointed out). With these new lower fees, I like them even better. Here’s the original review.
And that’s why this company intrigued me so much that I opened an account.
The company is Betterment, a new online investing platform that automatically invests and balances your money in a portfolio of exchange-traded funds (ETFs) based upon your risk tolerance. In this review of Betterment, I’ll show you how Betterment works, what it costs, and how to open an account.
How Betterment Works
Betterment bills itself as the “simplest, smartest way to invest.”
Rather than creating an online brokerage account and facing thousands of investment choices, Betterment asks just one question: How much risk do you want in your portfolio?
Betterment then automatically invests your money in ETFs, dividing your money between baskets of stocks and bonds based upon your risk tolerance. (When you create an account, Betterment also asks about your investment goals and recommends a risk profile).
Here’s what my Betterment account dashboard looks just minutes after opening an account:
Note that my initial deposit hasn’t cleared yet, but I did get a $25 account-opening bonus (see below). The dashboard is showing the aggressive 90% stocks/10% bonds portfolio I selected.
WHAT IT COSTS
Unlike brokerages which charge commissions every time you buy or sell a stock, Betterment assesses an annual fee—a percentage of your total portfolio. For example, Betterment’s fee is 0.35% for portfolios less than $10,000 (a full schedule is below). This is in line with what low-cost mutual funds charge.
The catch is that you either need to set up an automatic investment of at least $100 a month or maintain a combined $10,000 account balance to avoid a $3 a month fee. (But of course, you should be automatically investing at least $100 a month anyway.)
Betterment’s fees seem fair, especially for new investors. Consider the fact that Betterment’s fee on a $5,000 portfolio is just $17.50 annually, and the percentage rate drops the more you have invested.
WHY I LIKE IT
Studies show over and over again how miserable humans are at beating market average returns over the really long run. (A lot of people can beat the markets for a couple of years, a few lucky ones do it for five or ten years). Most investors have no business monkeying around with individual stocks and frequent trades. The vast majority of investors should be focusing on finding money to invest and investing it, not worrying about individual investments.
Secondly, Betterment may be an answer to this common question I receive:
Savings account interest rates suck, how can I earn a better return on my mid-term savings?
Although I think you should always have some cash for emergencies that is completely liquid in an FDIC insured savings account (no matter how paltry the interest rate), if you’re really hung up on returns, you might create a conservative Betterment portfolio and see if you can do better than your bank account.
OPEN A BETTERMENT ACCOUNT, GET $25
Betterment’s offering $25 to any new investor who opens an account with at least $250. There’s no minimum to start an account but you need $250 to get the bonus. I just did this and it took maybe four minutes (you will need your bank account and routing number handy), and the $25 was credited immediately, as you can see above.
I should note that as an affiliate of Betterment, I get a small fee if you create an account, so thank you if you do…consider it the virtual tip jar that keeps this site ticking!
What do you think? Do you like what Betterment’s offering? Would you try it? Do you think it’s too simple? Share your thoughts in a comment.