Betterment Review: Popular and Few Minimum Requirements

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Introduction

One of the least appealing aspects of investment trading is having to deal with all the minimum requirements — minimum balances, paying fees, and so on. If you’re looking for something that gets you started trading without a lot of fuss, Betterment may well be the option for you.

What are Betterment’s Main Features?

Founded in 2010 by Jon Stein and Eli Broverman, Betterment has spent the last six years building up a customer base of more than 175,000 people, totaling over $5 billion in revenue. They have built up quite the reputation for themselves as a quality private investment services company.

According to NerdWallet, Betterment has more customers than any of their competitors, which speaks to their level of success. Most of this is likely due to the fact they have a $0 account minimum — there’s literally no required buy-in for investment other than what you want to throw in.

Betterment’s other main feature is its goal-based approach to investment. They have a number of tools at their disposal to help customers determine what they are saving for and how long/how much it will take to accomplish those goals.

One thing many Betterment has that many other robo advisors lack is automated tax loss harvesting, or selling securities that have suffered a loss. By harvesting that loss, Betterment users can offset taxes on both their gains and on their incomes. The best part? The robo advisor automatically knows to replace the tax-loss-harvested security with a similar automated investment so that your asset allocation doesn’t suffer, and you stay on course with your expected returns.

Another thing that sets Betterment above the rest is their reasonable management fees. They only pay .15% of assets managed for accounts over $100,000, and clients do not have to pay any commissions or transaction fees.

The methodology behind Betterment is also worthy of note: The company invests funds according to the Modern Portfolio Theory (MPT), meaning they place investments in a large pool of diversified assets. This creates a much lower risk pool and, over a long enough period of time, creates stable returns for customers.

The Betterment digital interface is slick and easy to use, and can be used on any smartphone or computer. Not only that, they let you easily sync your other investment accounts outside of Betterment so you can see what your net worth is. Even when you don’t invest with them, their tools are really useful for planning your retirement or other investment/savings goals.

Overall, a Betterment account provides a bevy of options and services for you to invest in. Among their goals are financial planning, retirement planning, mitigating risk with index ETFs, IRAs, trusts and tax loss harvesting, giving you a number of ways to direct your money towards the proper goals.

What are the Pros and Cons?

Pros

  • No minimum balance needed to get started
  • Their user interface is simple and easy to use
  • Signing up is a breeze
  • Flat fees, no fluctuation based on mitigating factors
  • Modern portfolio theory-based investment practices
  • Accessible beginner tools for starting investors
  • Goal-based savings plans that are easy to understand
  • Simple, straightforward retirement planning with RetireGuide

Cons

  • No direct indexing of investments
  • Investments require automatic deposits up to $10,000
  • Unlike conventional stock advice, safety net goals advise you to take a 40/60 split of stocks to bonds
  • Not useful if you want to deposit large funds and make in-person transfers

Update: Betterment’s New Service Plans

At the end of January 2017, Betterment announced three new service plan options.

First, there is Betterment Digital, designed to provide baseline services for traders who are comfortable interfacing with the digital platform alone (i.e. they don’t need to get a broker on the phone). There is no minimum balance, and Betterment charges 0.25% of your balance per year.

Next, there is Betterment Plus, an upgrade that lets you speak one-on-one with a member of the Betterment team once per year when a specific question comes up. This requires a $100,000 minimum balance and costs 0.40% of your balance per year.

Finally, there is Betterment Premium, the option designed for traders who need to speak with a live advisor a little more often. “The Premium plan includes unlimited access to our team of CFP® professionals and licensed financial experts,” says Alex Benke, Betterment’s VP of financial advice and planning. “They’ll help keep tabs on your accounts, even when you’re not thinking about your investments, and they’ll also be available any time you have a financial question.” Betterment Premium requires a minimum balance of $250,000, and the company charges you 0.50% of your balance per year for the service.

How Do You Open a Betterment Account, and What are the Requirements?

Because Betterment focuses largely on beginning investors, their sign-up and registration process is extremely easy to follow. Betterment’s focus is to avoid beginner confusion and get people started on the road to proper investment.

All you have to do is go to their website, click Register, and enter your name, email and password. They then ask you to establish security questions for your account, then ask about your address, date of birth, and employment status, annual income, and net worth. While these questions may seem invasive, they’re par for the course so Betterment can fulfill your goals.

After that, it’s easy — just pick your account type (Roth or traditional IRA, or typical investment account). If you already have IRAs set up, it’s best to just set up investments; it can be a bit of a hassle to roll your IRA over to Betterment.

Once that is established, you link your banking account to your Betterment investment account and begin to set your goals. You can set specific years at which you want to be at a certain amount, and then answer some SEC-required questions (nothing too big), and then you’re set up.

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What Are the Rules for Trading on Betterment?

One of the things to keep in mind about Betterment is that it’s definitely for lower-net-worth investors. (Not that there’s anything wrong with that.) As such, there are a few caps on spending, depositing and investing that you need to keep in mind.

For one thing, the maximum amount you can deposit at one time ins $100,000. Granted, that’s usually more than enough for the average Joe, but if you’re looking to move around a lot more money than that, there are better options out there.

The company’s fee structure is fairly low for an investment platform of this size. Obviously, there are no fees for a zero balance (of which Betterment is basically the only service that even allows it), but you must pay a .35% annual fee for any balance up to $1,000. This requires you to deposit $100 into your Betterment account a month; otherwise, you get charged $3/month.

Once your account gets in the $10,000 range, fees go down to .25% annually, with no required recurring deposit. If you manage to get $100,000 in there, those go down to .15%. Obviously, those price ranges are a good incentive to pour money in, but are still reasonable if you don’t.

What Kind of Trader is Betterment Best For?

Judging from their plain-language interface and the low caps on maximum account deposits, Betterment is certainly ideal for investors who are just starting out. With the lack of a minimum account balance, and the flat fees, Betterment’s approach seems to be to make the act of investing as easy to understand as possible.

In essence, Betterment allows people who have never invested before, and maybe do not have a lot of funds to use for investing, to dip their toe in the water with relatively low risk. There are no account minimums, no commission fees, and no hassle, making starting to invest as easy as opening up a bank account.

Traders who want low overhead and a hands-free approach to investment could do much worse than Betterment. All you have to do is start your account, put funds in, establish your goals, and let Betterment do the rest. If you want, you don’t have to look at it for months, maybe years.

Maybe the best part about Betterment is that they do all the investment research for you, which is even better for a hands-off investor just hoping to save for retirement. Betterment focuses on your investment goals first and foremost, and puts your funds toward those goals without burying you in overly technical details.

While Betterment does not give you as much information as many other platforms, this is done in the spirit of simplicity and straightforwardness. It is clear that their major goal is to not bog down beginners in investment jargon, which is an admirable quality for an organization hoping to make investment easier for those just getting started.

Other Good Products

If you like Betterment, but want something a little more hands on, there are a few more options for you. Scottrade has similar software and a similarly low barrier to entry, even though it does come with a higher minimum account balance. However, if you want to make sound investments, Scottrade might be a suitable alternative.

For traders who want something even more hands-free than Betterment, and want easy access to their investments over their phone, Stash Invest is a stock trading app with only a $5 minimum balance and the ability to invest in a variety of pre-packaged diversified portfolios.

A Few Final Thoughts

In the wide world of online investment platforms, Betterment has a good reputation for being slightly newer to the scene. The lack of a minimum balance, and the flat fee structure, are great incentives for people who have not yet tried investing to do so without losing much of their money to the very act of investment.

One element that has not yet been mentioned is their customer service, which is maybe some of the best in the business. Betterment has a well-rounded digital customer service platform that is easy to use and puts questioning customers in touch with experts who will walk you through any question or concern you might have.

If you’re looking to make big waves with your investments, and have a lot of money to throw in at once, you may want to choose something with a larger learning curve and potential for high returns. Betterment is for the little guy, the person just getting started in investment and wants things as simple as possible. For those reasons, Betterment is easy to recommend.

images by:
stevepb, FirmBee

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