Betterment Review – An Easy Way To Start Investing

by Hank Coleman

BettermentBetterment is a fairly new investing website that tackles the perceived complexity of investing head on. I hear it time and time again from the readers of Money Q&A and even my own family members that they simply are scared to invest because they think that it is too complicated.

Betterment works to breakdown that notion and makes investing a simple process that is goal oriented. While Betterment is essentially a stock brokerage firm, it takes the title to a new level targeting the segment of potential investors that have been sorely lacking representation, the new or novice investor.

While even experienced investors can receive a lot of value from the company’s approach, the company’s niche is the new investor who may be taking that first step into investing.

Betterment is a website to help you start investing whether you are a veteran or a novice investor. Novice investors will receive the most bang for their buck. Even if you think that you do not have enough money to invest, Betterment has an answer to help you. You can invest as little as $25 per month to start, and their automatic deposits make investing a snap.

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Betterment.com will even give you $25 for just trying out their service too! If you do not know where to start or which mutual funds to invest in, Betterment helps you get started with their pre built mutual fund portfolio. You simply choose the allocation between stock and bonds that you want to invest in.

Your Investment Choices With Betterment

Betterment’s managers have chosen six electronically traded funds (ETFs) that mirror both the Dow Industrial Average, S&P 500 index, and the broader stock market. And, they have also chosen two bond ETFs that invest in inflation protected bonds as well as short term bonds. Here is a list of the stock and bond index funds Betterment invests in for their customers:

  • 10% SPDR Dow Jones Industrial Average ETF (DIA)
  • 20% iShares S&P 500 Value Index ETF (IVE)
  • 20% iShares S&P 1000 Value Index ETF (IWD)
  • 15% iShares Russell 2000 Value Index ETF (IWN)
  • 15% iShares Russell Midcap Value Index ETF (IWS)
  • 20% Vanguard Total Stock Market ETF (VTI)

When you are invested in stocks, your stock section of your Betterment portfolio is invested in the ETFs listed above in the percentages listed as well. When you invest in bonds through Betterment, you are investing in the following two bond funds equally split down the middle.

  • 50% iShares Barclays 1-3 Year Treasury Bond Fund (SHY)
  • 50% iShares Barclays TIPS Bond Fund (TIP).

Fees Associated With Betterment

When you invest with Betterment, the service charges you a low annual management fee to invest your money instead of a commission like you would receive from a typical brokerage firm. Betterment charges 0.3% to 0.9% of your average account balance each year. The percentage fluctuates depending on how much money you invest and have in your account.

If you have $1,000 investing with Betterment, you will pay $9 in fees for the year to use their service. This is an incredible discount when it could cost you that much for a single trade at some discount brokerage firms. There are no minimum balances that you have to keep. There are no transaction fees and no hidden costs. Betterment was built to make investing transparent, and that is apparent in their fee structure.

Here is a more detailed breakdown in the percentage of fees that you will pay based on your account balance.

  • $0-$25,000 account balance has a annual fee of 0.9%,
  • $25,000-$100,000 has a fee of 0.7%,
  • $100,000-$500,000 has a fee of 0.5%, and
  • $500,000+ has a fee of just 0.3%.

Betterment Is A Goal Oriented Investing Service

Betterment is a goal oriented investing company. It is not for day traders, and you will find its website further away from that purpose than anything. As soon as you sign up for an account, you are asked about your investing goals. And, from that time forward, Betterment focuses your attention and investing to obtain those financial goals.

While you can have multiple investing goals, Betterment has you also focus on one primary goal and list a date that you want to accomplish it. No matter if you want to build a fully funded emergency fund, send your kids to college, or add to your retirement nest egg, Betterment will continue to help you focus on your goals and continue to chip away at them with sensible investing in order to achieve the goal.

Incredible Visual Tools With Betterment

One of the best features of Betterment is their graphics and tools that help you visualize exactly how your investments can possibly help you accomplish your goals if you stick with a certain investing game plan. Their tools and sliding bars help give you a great visual of how changes will affect your investments over the long-term.

How To Start Investing With Betterment

It is very simple to open an account with Betterment. It took me less than ten minutes if that long. After signing up for an account, you connect a bank account to your Betterment investing account. You can choose the goal that you are investing for and then you pick a time when you want to accomplish that goal.

You also set your asset allocation between stock and bonds. You can see by the screen shot below that I have 100% of my account investing in stocks (I have bond mutual funds with another brokerage firm).

After you set up your account and your asset allocation, Betterment handles the rest by investing you in their portfolio mix of exchange traded funds (listed above). You can even set up automatic investments that transfer certain amounts from your linked bank account into your Betterment account to continue your investing towards your goal.

You can see a graph showing you your progress and where you are projected to be based on historic market returns. This is a great way to invest in the stock market using dollar cost averaging.

Betterment allows anyone to start investing with only a little bit of time, disposable income, time to monitor the stock markets, and expertise. You do not have to be a financial aficionado to invest with Betterment. In fact, Betterment is designed for those whose financial knowledge may not be as high as it should be.

Betterment is a resource to educate investors to reach their financial goals. If you are an experienced investor, you may still benefit from Betterment’s service as well. Betterment’s website offers an excellent visual and tracking component to your investments to help keep you on track. I love that this service allows me to put both long and short term cash investments to use.

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About Hank Coleman

Hank Coleman is the founder of Money Q&A, an Iraq combat veteran, a Dr. Pepper addict, and a self-proclaimed investing junkie. He has written extensively for many nationally known financial websites and publications. Hank holds a Master’s Degree in Finance and a graduate certificate in personal financial planning. Email him directly at Hank[at]MoneyQandA.com.


Hank Coleman has written 590 articles on Money Q&A. Learn more about Money Q&A on Twitter @MoneyQandA and @HankColeman.


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{ 2 comments… read them below or add one }

Zack Jones

Now that you’ve used them for a while what do you think about them? Are you still happy with the service they provide?

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Frustrated @ Betterment

I want to bring this to the attention of clients of betterment that betterment charges a fee up to $400 if you want to do a direct (in-kind) transfer from betterment to another brokerage. I have been trying to do a direct transfer of Roth IRA from betterment to another brokerage firm and was quoted this amount.

This fee is also listed in their customer agreement in section 23. Please be aware that your only option could be an indirect roll over if you don’t want to pay $400 in transfer fees.

Betterment does not openly advertise this fee, which I think they must do when they list any or all fees on their website.

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