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Betterment Review [Reviewed 2010]

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BettermentBetterment was named one of the Finovate Fall 2010 Best in Shows and they’re looking to make investing as simple as possible. The basic idea is that you open an account at Betterment (they are a registered broker-dealer), deposit funds, pick an allocation, and then go about your day. They offer a taxable investment account (no IRA’s yet) and two investing options.

This is a review of Betterment when it was first introduced at Finovate 2010, the service has added many new features and changed quite a bit so please check out our updated Betterment review for 2012.

With Betterment, you just pick how much of your investment you want in equities (Stock Market) and how much you want in Treasury bonds (TIPs). Within each category, they divide it up into a variety of ETFs so that you get diversification in that category. For Treasury bonds, you get iShares Barclasy TIPS Bond Fund (TIP). For the Stock Market, you get a mix of IWS, IWD, VTI, IVE, DIA and IWN.

If this sounds like a Lazy Portfolio, you’re right.

Why So Few Options?

The first question I asked Jon Stein, their CEO, was why there were so few options? He gave me an excellent answer – it’s important to keep things simple. A lot of the other investment options only act as distractions. You throw in a small cap option, a dividend option, an emerging market, and it doesn’t necessarily improve returns. By keeping it simple, you keep the fees low, remove distractions and focus on the core, and lower the hurdles that prevent people from saving this way.

Fees

Betterment has since updated its fee structure, I’ve included the old fee information for reference. Now, the fees are now 0.15% to 0.35% of your balance, down from 0.3% to 0.9%. They are still prorated every quarter and everything else below still applies (no transaction fees, deposit fees, withdrawal fees, etc.).

Old fee structure: Their fee structure is very simple, there’s an annual 0.9% fee prorated across the year and charged after each calendar quarter (at 0.225% a quarter). There are no transaction fees, no deposit fees, no withdrawal fees, no rebalance fees, no maintenance fees, and no other hidden fees. Just 0.9% prorated over the year, collected every quarter, and you’re all paid up.

Rebalancing

One of the other features of the Betterment account is automatic rebalancing. “Betterment rebalances you back to your desired allocation quarterly, or whenever your portfolio composition drifts by 5%.” Rebalancing is one of the most often cited, least implemented piece of investing advice. Rebalancing refers to the idea that you need to move your assets back to your desired allocation on a regular basis. Since different assets perform differently, you may find an 80/20 allocation drift to 75/25 over the course of a few months. Since 80/20 is your desired allocation, you should rebalance back to that. Betterment does that for free.

Finally, Betterment LLC is a Registered Investment Advisor with the SEC and they’re SIPC insured, so they’re legitimate. Those aren’t rubber stamp type of credentials so you can be assured of the same protections as a larger named financial institution. That said, this is an investment account, no a savings account, so your account may lose money.

They have a demo you can play around with. One fun tidbit… the demo times you out for inactivity. :)

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8 Responses to “Betterment Review [Reviewed 2010]”

  1. cubiclegeoff says:

    So I guess from what I can tell, the demo basically sets up an allocation that they think is reasonable, and all you do is set your risk profile. I think that’s interesting, since one of the problems I have is deciding what diversification I need within my portfolio, something that’s not easy to decide on.

  2. cdiver says:

    There are no load fees either? What about ETF maint. fees?

  3. Pat says:

    I invest with a lazy portfolios and re-balancing is my only problem with them. I would probably go for this except that the choices are so limited.

  4. zapeta says:

    Interesting idea. This makes it pretty easy to set it and forget it and you are automatically rebalanced. If the fees were a little lower it might be something to consider but if you are willing to manage your investments you can do a lot better on the fees. Also, no IRA options? I hope they will change that.

  5. Brent says:

    Betterment is great but don’t be fooled by the $25 bonus marketing ploy! You can’t actually withdraw it from your betterment acct to your bank acct. These bonuses are just meant to sit in your betterment acct and bump up your returns by a fraction of a cent by increasing your principal investment. However betterment is still very innovative and great! And gotta give them credit for that marketing ploy b/c that’s pretty much the only reason I invested ha!

  6. MEIER says:

    My principal investment IS insured isn’t it; I’ll not lose it?

    • raggedyanton says:

      No its not, like said above, its an investment account not a savings account, you can lose money. Invest a couple hundred bucks and see what happens. You won’t lose your principle over night.


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