Isn't technology grand? Well, sometimes it is. Over the next several weeks, we will be evaluating investing websites that leverage technology, to better serve your financial life. Some of these solutions will be good, some will be great, and we are unlikely to evaluate the sites that aren't either good or great. So without any further ado, here we go.
What is the site?
How does the site describe itself?
We have developed software that seamlessly invests your money into both stocks and bonds and maximizes your returns for a selected amount of risk. Using our online platform, tell us your financial goals and we'll automatically balance risk and reward to get you there.Our advice: Set it and forget it. We'll do the math for you and take the mystery out of long-term investing.
How long has it been around?
Since 2010.
Do I personally use it?
Not yet. But I intend to.
What investment vehicles does this site use?
Exchange traded funds (ETFs). ETFs are built like mutual funds or index funds, but trade like stocks. This means you can have a very diverse investment holding, and still maintain the nimbleness that stock trading provides. ETFs are known to be very low cost.
What problems does Betterment solve?
The two biggest problems that exist in the investment space are solved by Betterment:
1. High fees- If you want to have your investments monitored and managed by a professional investment advisor, you are likely to pay that advisor .75%-1.25% of your investment balance, every year. If your investments grow, your fees grow. If your investments shrink, your fee shrinks, but you still pay a fee. If you have $100,000 invested, you will pay between $750-$1,250 per year to have it managed by an investment advisor on a fee-based platform. Betterment accomplishes the task of managing assets in a sophisticated manner, using modern portfolio theory. And they only charge .15%-.35% of your investment balance, every year. A $100,000 portfolio managed by Betterment will only cost you $150 per year.
2. Virtual ignorance of anyone with $25,000 or less to invest- Fee-based investment management generally is not accessible for anyone that has less than $25,000 to invest. Not only does Betterment provide a slick solution for people with less than $1,000 to invest, but it will only cost them .35% per year. That means a $5,000 investment can be managed for just $1/month.
Other things you should know
The management fees that Betterment charges are on top of the ETF fees. This is a very standard modus operandi for fee-based advising. The ETFs that Betterment uses range in annual cost from .13%-.16%. This brings the total cost range to .28%-.51%.
What does Betterment's CEO have to say about the site?
Excellent question. I had CEO Jon Stein on my radio program to discuss Betterment. Listen to both parts of our interview, right here.
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