In this post I want to re-visit How to Get Control of Your Money: Begin Investing to introduce you to what has become my favorite wealth building tool: Betterment. We’ve been using Betterment for the last two years, and I don’t think there’s a simpler way to invest for the long-term. Here are the top reasons why I’ve chosen to do my long-term investing through Betterment:
- Index Fund Investing Made Easy: Betterment only offers Index Funds and automatically chooses which funds to invest in and at what percentage based on your chosen Stocks vs. Bonds allocation.
- Beautiful Platform: Some brokers remind me of the internet during the late 90’s and early aughts. More was better, so companies added more tabs, banner ads, bells, and other whistles to their sites, making them clunky and user unfriendly. Betterment avoids these mishaps with its beautiful, simplistic web platform design. Everything you need is there and easy to get to (functional and intuitive).
- Low, Transparent Fees & Expenses: Betterment charges a flat .25% annual fee. According to their site, this fee “covers everything you need, including transactions, trades, transfers, re-balancing, advice, and account administration, among other things.” Betterment also chooses Index funds with very low expense ratios, and lists the expense ratio for each fund right on the platform along with an average expense ratio for all of your funds.
- Re-Balancing Made Easy: “Re-balancing” means getting your allocation of Stocks vs. Bonds back to your target allocation when things get off kilter due to growth or diminished value in one asset class vs. the other. Figuring our how much of your stocks or bonds to sell and buy in order to get back to the intended balance – and then executing those trades – can be a chore. Betterment does the re-balancing automatically for you when your portfolio becomes too “unbalanced.”
- Ability To Sync External Accounts: I use Personal Capital to track all of our accounts, but I’ve recently synced our investment accounts into Betterment’s platform as well. Now I can quickly see what our allocations are for each of our external investment accounts, as well as see what our ongoing expenses are.
The above features make for a great user experience, but for me, Betterment’s greatest feature is the fact that it is designed around the 5 considerations everyone should make before investing and keep in mind while continuing to invest. Without going through each of these considerations, you will end up either not knowing why you are investing, panicking when the market begins to drop, taking your money out out of the market prematurely, being over aggressive or too conservative, having an asset allocation that doesn’t match your particular situation, or all of the above. Betterment helps you avoid all of these pitfalls by making each consideration easy to handle in a beautiful platform! Let’s walk through each consideration to see how:
Five Investing Considerations, Made Easy Through Betterment
Betterment starts the account sign-up processing by asking you for your specific goal in investing. Three options are presented to you: Safety Net (looking to stash away emergency funds), Retirement, and General Investing. Betterment also provides these two additional options: Major Purchase and Education. In short, Betterment provides all of the purposes for which we typically invest, and provides allocations and guidance based on your specific investing purpose.
Here’s a breakdown of stock allocation ranges and characteristics for each goal offered by Betterment:
Betterment allows you to set a target investment amount which it uses to provide investing advice to help you stay on your intended track.
Betterment also allows you to plug in your time horizon for a better picture of whether or not you are “On track” or “Off track” with meeting your intended target amount.
Knowing your investment purpose, investment target amount, and time horizon will put you in a great position to determine your risk tolerance. More risk = A heavier allocation towards Stocks. Less Risk = A heavier allocation towards Bonds. Betterment provides a simple tool to help you match your risk tolerance and Stocks/Bonds allocation.
As you slide your risk tolerance to the left or right, Betterment’s Target Allocation tool will tell you whether your risk tolerance is Too Aggressive, Aggressive, Moderate, Conservative, or Too Conservative based on your overall investment goal and time horizon.
Betterment will suggest an asset allocation of Stocks/Bonds based on your investment purposes, but you can easily use the above additional tools to update your allocation at will. For example, if your personal circumstances have changed and you’d like to pull back your risk tolerance, you can easily update your target asset allocation with a few clicks. No need to manually calculate how much to sell/buy in order to achieve your new allocation!
Investing made easy through Betterment – If you’re interested in signing up and checking them out, head over to their site and create an account for free. Let me know how your investing through Betterment turns out!