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Betterment.com Hassel Free Investment Account Review

September 27, 2011 | Investing | No Comments

If you are tired of your bank account paying you almost nothing in interest, you may want to consider Betterment.com.   I decided to open an account with them to kick the tires and test out their service after writing a Blog post in June 2010.

Betterment wants to replace your savings accounts with an investment account that is less complex and hassle free compared to a traditional investment account.

When customers deposit money in their Betterment account, the money is invested in their chosen blend of diverse stocks or a portfolio of US Treasury bonds. Customers can allocate funds between these two investment options, setting the level of risk they’re comfortable with. Opening an account takes about 5 minutes, there’s no minimum balance, and transfers are free.

When customers deposit money with Betterment, their money is transferred to Betterment Securities (their broker-dealer), with instructions to buy ETFs (exchange-traded funds, similar to mutual funds) based on their desired allocation between stocks and bonds. Customers own shares in the ETFs, while Betterment recommends and manages buying and selling.

Betterment charges an annual fee of 0.9%, based on a customer’s average balance which is a quarter percent lower than the average mutual fund fee and much less than the average amount banks make off of customer deposits.

Betterment is a Registered Investment Advisor and Betterment Securities is a broker-dealer regulated by FINRA and the SEC. Betterment’s SIPC coverage means that the securities in user accounts are protected up to $500,000 (for more information, visit www.sipc.org).  This means you can be assured that Betterment has the same protections as you would with a larger financial institution.  The company was started in 2008 by Jon Stein, with a $3 Million series A financing round from Bessemer Venture Partners (lead) and Anthemis Group.

Since Betterment invests customer’s money in the stock market, they can lose money if the market goes down. Balances will fluctuate based on market conditions. Over the long term customers should get a much better return that their savings account.

Betterment currently only operates in the United States.

Betterment.com is currently offering $25 when you open a new account.

Review of Betterment

Signing up with Betterment is fast and easy. You supply your typical information when opening account. You then have to link your account with your bank to transfer money to and from your Betterment account. Linking to your bank takes about 3 days. Once it’s linked and money transferred, when your log into your account, you first see a summary of your account. I opened an account with $2,500 and allocated 74% in stocks and 25% in treasury bonds. See screen shot below.

You can easily add funds to your account and set up an automatic savings plan to make regular ongoing deposit to your account. See screen shot below.

Betterment allows your to play with your allocation of stock and bonds over years (1 to 40 years) to get an estimate (based on historical data) of how your investment will perform.  See screen shot below.

One unique feature of Betterment is that if offers advice of how to invest based on your goal.

Step 1 is Goal & Planned Investment where you enter your goals. Your are given goal options which includes:

  • Retirement / Build wealth

  • Major Purchase

  • College / Education

  • Wedding

  • Vacation

  • Kids / Baby

  • Emergency / Rainy Day

  • Other / Various

Step 2 is Risk Tolerance in 1 Year where you pick a scenario you are comfortable with. Options include:

  • Conservative

  • Moderate

  • Aggressive

Step 3 is Risk Tolerance in 25 Years where you pick a scenario you are comfortable with. Options include:

  • Conservative

  • Moderate

  • Aggressive

You are given projections of how much money you will make based on your choices and recommendations of your allocation in stocks and bonds. Choosing conservative will allocate less money in stocks, while choosing aggressive will allocate all of your money in stocks.

You can also compare your allocation with your peer. See screen shot below.
 

One very interesting feature of Betterment is that you can compare your account performance based on percentage allocation to stocks.  Per the graph below if I had invested in 100% stock, my account value would have fluctuated more when compare to 50% stock and 75% stock. See screenshot below.

Conclusion

If you are looking for a very easy way to invest in the market (stocks and bonds) and place it on auto pilot, Betterment is the way to go.  If you want to adjust the allocation of stocks and bonds it’s a matter of just logging into your account and using a slide bar to change your allocations.  You can set up automatic investments to deposit money in your account every month. The money is then automatically allocated to your investment choice. You pretty much, set it up and forget about it, similar to your company’s 401K plan.

If you are saving long-term for items such as your child’s education, this is very good tool to use. However, keep in mind that your money is being invested in stocks, so there are always risks. Historically, stocks have done well, so it’s a good idea to think long-term.

Visit Betterment (Get $25 to open an account)

 

 

 

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