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Betterment.com Review: Making Investing As Easy As 1-2-3

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There's been quite a bit of buzz lately about a new investing and brokerage account through a website called Betterment.com.

A lot of personal finance blogs are writing about it because it takes a topic that can be confusing for a lot of people, and makes it accessible. 

They take the investing process and make it as simple as 1-2-3.  Sign up, fund and invest.

Ok, let's back up for just a moment. 

What is Betterment?

At it’s very core it’s just another of the online brokerages that we hear about all the time on this site and others.  They allow you to hold stocks and bonds as investments via ETFs, like an account through Scottrade or ShareBuilder. But it’s more than just a brokerage account.  It’s also a tool that helps automate the investing process,  to make it simpler for the average Joe. 

You can set up automatic investments every month, and it will also automatically re-allocate your investments for you on a regular basis. In essence it's a set it and forget it investing solution.

I recently signed up for Betterment to give it a run-through, and today I thought I'd do a quick review of Betterment.com.

Quick Navigation
Betterment History
Recognition & Awards
Simple Investing? How Simple Can It Get?
Forecasting And Visualization Tools
Portfolio Out Of Whack? Automatic Re-allocation To The Rescue
What Does It Cost?
I’ve Signed Up For Betterment

Betterment History

Betterment.com was founded back in 2008 by Jon Stein.  While it was founded back in 2008, Betterment.com only recently launched at TechCrunch Disrupt 2010 NYC. In December 2010 Betterment.com received $3 Million in a series A financing round from Bessemer Venture Partners (lead) and Anthemis Group.

Betterment LLC is a Registered Investment Advisor with the SEC and they’re SIPC insured.  You can be assured of the same protections as you would with a larger financial institution.  Of course since this is an investing account and not a savings account, there is no assurance of not losing your money.

Betterment only launched a few months ago, but because they've got such an innovative concept, it's receiving a ton of buzz.  They've received writeups in The New York Times, CNNMoney, Investment News, Mint.com and more.

Recognition & Awards

While Betterment has only been around since the end of last year, they've already started garnering a ton of attention, and a few awards for their trouble.

  • TechCrunch Disrupt NYC 2010 “Battlefield Finalist”
  • TechCrunch Disrupt NYC 2010 “Best NYC Startup”
  • FinovateFall 2010 “Best of Show”

So while they have just launched folks are already starting to recognize them and their concept as a powerful one.

Simple Investing? How Simple Can It Get?

So what's the idea behind Betterment?   Their basic idea is this – so many folks in this day and age are either too busy to get too involved or too intimidated by the complexity of investing that they just don't do anything at all.  Betterment looks to take all of that away by just making investing simple, and removing a lot of un-necessary choices. Here's a video run-down of how Betterment works:

http://www.youtube.com/watch?v=qArLnDl5YuY

So when you sign up for an investment account with Betterment, the process will be as simple as choosing:

  • How much to invest.
  • How much of your investment you want in equities (Stock Market).
  • How much you want in Treasury bonds (TIPs).

You can also set up automatic investments on a regular basis if you want to.

Within stocks and bonds, they divide up your holdings into a variety of ETFs so that you are diversified.   Here is what you get on the stocks side:

  • 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)

For Treasury bonds, you get

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

So the stocks and bonds you get will give you a nice diversified portfolio that will for the most part track index performance across various sectors.

Forecasting And Visualization Tools

One of the cool things in the Betterment account are the allocation and visualization tools that they have available. The tools make it easy for the average investor to see what kind of returns they might see (given historical returns)  if they invest with a 5, 10, 20 or even 30 year time horizon.   Once you come up with an allocation and time horizon that you are comfortable with, just hit the button to change your allocation, and within a few days your changes are made!  Check out their online demo here: (demo).

Let’s say that you have about $50,000 invested as the demo account does.   If you have 80% invested in stocks and 20% in bonds, given a 20 year time horizon it will show you a forecasted range of returns that you could expect to see – anywhere from $100,000-$600,000.  Change the percentages and time-line and it can drastically affect your results.  It's interesting to look at just how drastically things can changed based on the decisions you make.

So if you decide you want to change your allocation either to include more stocks or bonds, you just move the slider up or down, and then hit the “change” button, and Betterment will update your account holdings and purchasing decisions going forward.

Portfolio Out Of Whack? Automatic Re-allocation To The Rescue

One thing that often happens with traditional retirement accounts is that the account owner neglects to ever update his or her portfolio on a regular basis, and in the end their allocations get all out of whack.

One of the nice things about an account with Betterment is that you never have to re-allocate your money. It will automatically re-balance your portfolio for you every three months, or if your allocations ever drift more than 5% before that.  Without re-balancing your account can easily shift over time to have an allocation that is heavier on stocks or bonds than you want it to be. If you start out at say 90/10 stocks to bonds, if you don’t reallocate over time you could one day find that your account has an allocation more like 80/20 or 85/15.

This is one of those things that most investors neglect to do on a regular basis, so it’s nice to have that part of the account be automatic.

What Does It Cost?

What kind of fees can you expect to pay for using Betterment   Well first off, there are no minimums to invest, and there are no fees for trades.   The only fee Betterment charges is a pro-rated yearly fee that is in a range of 0.15% to 0.35%, depending on your account balance. For most beginning investors it will come out to .35% annually.

For starter accounts with a minimum balance of $0 and $100/month minimum deposit, you'll have a .35% annual fee.  Minimum balance of $10,000?   You'll get next day transfers and a  .25% annual fee.  Minimum balance of $100,000?   You'll get next day transfers and custom portfolio options along with a low .15% annual fee.

For an account where you'll be having someone manage your investments for you, re-allocating their portfolio every so often, and not having to worry about ever paying any other fees or charges for making trades – these are some pretty reasonable fees.  It makes the account a winner.   I think it definitely makes sense for most people.

I've Signed Up For Betterment

While I did have some reservations about the site back when they launched,  I went ahead and signed up for Betterment.com.  I'm gonna try it out for a while. One of the great things about the account is that it's more like a traditional bank account in that getting your money in and out of the account is as simple as withdrawing it. No fees associated with making trades. The only risk you take is the same risk that any investment in equities has.   Add to that they've got a account signup bonus now as well, and you've got nothing to lose. So why not try it out?

Personally I just really love the idea of making investing that much more simple as it will make it more accessible for a ton of other folks.  So we'll see how it goes – I'll probably report back in a while to give a rundown of what I think of the site after I've actually been investing – and playing with their tools for a couple of months.

Get a bonus when you open your Betterment account. Click here.

 Get StartedWith Betterment

Why Your Credit History Matters

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You've probably heard a lot about the importance of a good credit score. However, many people point out that they don't use credit cards, and they already have a house, and they buy used cars with cash. For those folks, it seems as though there is no need to worry about a credit history. The truth, though, is that even if you live an all-cash lifestyle, your credit history might still matter.

You Are Judged By Your Credit History

Fair or not, service providers and others make assumptions about you based on your credit history. Your credit history is no longer only a peek into how you have handled borrowed money in the past; it is also used to measure your general level of responsibility in various aspects of your life. Auto insurers think that your fiscal responsibility translates directly into your responsibility on the road. A lower credit score = a higher insurance premium.

Employers might decide that if your credit history shows what might be considered questionable financial habits, your work habits might not be desirable. On top of that, if you apply for a job of sensitivity, you might be suspected of being vulnerable to bribe attempts. What if you are required to handle cash? A sketchy credit history might red flag you as a potential embezzler.

None of this may be true, or fair, but it is a judgment that is made when people look at your credit history. Landlords and cable TV providers might also check your credit history. They want to know if you will cause potential problems when it comes time to make payments. Even some banks check your credit history before allowing you to open an account. A poor credit history can cost you more than just higher interest rates.

Be Prepared: What If You Do End Up Needing a Loan?

Even if you are convinced that your job is stable, you can live with a slightly higher insurance premium, and you don't need cable TV, you never know when circumstances might mean that you will need a loan, or to get a credit card. Your car may be unexpectedly totaled, and you may need to buy something else on short notice, necessitating an auto loan while you wait for the insurance check to arrive. You might end up with an emergency medical procedure that results in the need to have good credit to qualify for a payment plan.

There are any number of unexpected problems that can force you into getting a loan, even if it is only for a short period of time. Keeping up with your credit history, and making sure that it reflects your solid financial habits is part of financial preparedness. The good news is that building a good credit history doesn't have to mean going into debt. You can get a credit card and use it occasionally, for planned purchases, paying off the balance without paying interest. Make all your payments on time, and encourage your utilities and others to report to alternative consumer reporting agencies like PRBC.

Hopefully, with interest in alternative consumer reporting picking up steam, there will be more focus on good financial habits in general, and less on borrowing behaviors. But, until then, it's wise to be prepared and make sure you have a good credit history.

Get your free credit score now with GoFreeCredit:

When Is The IRA Contribution And Recharacterization Deadline?

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I‘ve written quite a bit on this site about how I believe everyone should open and fund an IRA, whether it's a Roth IRA or a Traditional IRA.  For a lot of folks it's one of those things that they just continually put off, and once it has hit the new year, they believe it's too late to contribute for the previous year, so they continue to procrastinate.  The problem is, that's not the case.

What a lot of people don't realize is that the deadline to open and contribute to an IRA or to recharacterize an IRA contribution is not the last day of the 2010 tax  year, but instead it's tax day.  This year that falls on April 18th, 2011.

IRA Contribution Deadline

As people start putting all of their tax documentation together it can be easy to forget about all the tasks that you can still perform for the 2010 tax year, even once it turns over to 2011.

Even if you haven't opened an IRA prior to 12/31/2010, you can still open one in 2011 before tax day, and contribute to it for the 2010 tax year.  That applies to both the Traditional and Roth IRA.  So there's no excuse not to open one – it isn't too late!

Add to that the fact that you have 3 extra days this year to open an account and contribute, and it should be a lock.  April 15th, which is usually tax day, falls on a federal holiday this year – Emancipation Day – which is observed in DC.   Holidays impact tax deadlines for everyone, so this year the tax filing deadline is April 18th.

IRA Recharacterization Deadline

Sometimes people will make a contribution to their retirement account, and later on they'll decide that they want to recharacterize the contribution so that it is in a different type of IRA (traditional vs. Roth).    Some of the reasons why you might do this include:

  • Your income exceeds certain limits: Sometimes you may plan on meeting an income limit for your taxes, but when you make a contribution or conversion to your IRA, it bumps you over the limit. This happens sometimes when receiving a substantial bonus at the end of the year.
  • Your situation changed: Since you contributed you have realized that a Roth IRA (or traditional) would be better for your situation.
  • You need to lower your AGI (adjusted gross income): Sometimes certain tax credits or deductions are only eligible to folks in certain income levels.  You can lower your taxable income by recharacterizing.

Whatever the reason for your recharacterization, There are a few steps you must perform by the deadline on tax day, April 18th.  You must complete a transfer, and report the recharacterization on your taxes (Form 8606).

Are you putting off performing either of these tasks?  Has your procrastination caused you to miss the deadline in past years?  Tell us your thoughts in the comments.

Government Considers New Rebates For Electric Vehicles: Cash For Clunkers Part Two?

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A while back the Obama administration put out a rebate program for new car buyers called Cash For Clunkers where the  new car buyers could get between a $3500-4500 rebate on the purchase of a more fuel efficient new car, in exchange for trading in their old less fuel efficient vehicle.  The program had the goal of trying to get old gas guzzling clunkers off the road, while at the same time getting people to buy more fuel efficient vehicles.

The program, while it was a  nice idea, was limited in scope as one analysis estimated that less than 5% of vehicles still on the road at the time were even eligible to be turned in, in exchange for the rebate.  Add to that the fact that the program didn't really lead to an appreciable gain in new car sales as was hoped, just taking future sales and moving people's timelines up in most cases. The program was also fraught with government paperwork problems, and a lot of car dealers reported problems in claiming the rebates.

Now, we may have another green vehicles rebate coming down the pipe if the Obama administration gets it's way.

Rebate For Electric Automobiles

If you look at President Obama's budget, a current $7500 tax credit that can be claimed on purchases of energy efficient vehicles would be changed to be a direct rebate that would be available at the point of sale.

Ready for another cash for clunkers program? It looks like General Motors is attempting to replace it's own consumer incentives with tax payer money. The car company, bailed out of bankruptcy in 2009 by the American tax payer, appears to be turning the government into an automatic rebate provider.

The Obama administration and their friends on Capitol Hill are floating around a proposal to change the $7500 tax credit for green vehicles. This change can be found not only in President Barack Obama's budget but also a bill proposed by Senator Debbie Stabenow, Michigan Democrat.

Edmunds.com, a 45 year old trade magazine company that provides automotive information, posted a Department of Energy document listing the department's funding highlights. The proposed Obama Budget, changes the existing $7,500 electric vehicle tax credit “into a rebate that will be available to all consumers immediately at the point of sale.”

In an appearance at a battery assembly plant in Indiana, vice-president Biden also talked about the change that they're hoping to make and how they believe it would be good for companies making products for green vehicles.

Last month, the White House endorsed making the $7,500 tax credit for electric vehicles available at the time of purchase. “You won't have to wait,” Vice President Joe Biden said at an a Indiana battery assembly plant, adding it would be like the cash-for-clunkers program.

Since the change has made it into the president's budget, and Senator Stabenow of Michigan has introduced a bill (“Charging America Forward Act” (S.298)) , it does seem like the administration is interested in seeing this through.

$7500 Green Vehicle Rebate

So how exactly would the rebate work?  It would essentially be a $7500 coupon that consumers could use in buying an electric vehicle at the dealership.

Essentially, if one were to buy a $41,000 Chevy Volt, the buyer gets a $7,500 coupon, so the final price is $33,500. In the end, the auto dealer assumes the risk of the government giving them this tax credit.

There aren't a lot of purely electric vehicles on the market currently, but among the vehicles eligible for the rebate are the Chevrolet Volt, and the Nissan Leaf.

So how long would the rebate be available?

Representative Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, said last month he backed legislation to enable automakers to claim the tax credits on 500,000 electric vehicles. The current cap is 200,000.

So at the 500,000 electric vehicles cap, that would be around $3.75 billion dollars.

Who Does The Rebate Benefit?

To me one thing that is a bit funny about this rebate is how the company it most affects, GM, is one of the few companies that the government actually has a big interest in via the “too big to fail” bailouts of a few  years back.  So in essence the government owns a big interest in one car company and is now making legislation that mainly helps that company. Interesting.

GM, with about 24 percent of the electric-vehicle market, and Nissan will be the winners, because they’re already selling the cars, said Michael Omotoso, director of powertrain forecasting at J.D. Power. Honda Motor Co., which is at least a few years away from selling an electric model, will be among the losers, he said.

Other carmakers have expressed some displeasure with the idea of the rebate as it will give an unfair competitive advantage to GM and Nissan, the companies with an electric car on the market already.  Others, like Ford, are rushing to get their electric vehicles on the market for end of 2011 or early 2012.

In the end the  those who were considering buying electric vehicles previously will most likely be jumping on this rebate once it becomes available- if it becomes available.  For many others even with the rebate electric vehicles are still pretty costly, and even a rebate of this size may not be enough to convince them to move over.

What do you think?  Will this rebate become law, and what effect will it have on the sales of electric vehicles? Would it be enough to convince you to move to electric, or do electric cars have more hurdles to clear before you'll consider them?

Are You Sacrificing Your Retirement?

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Many of us don't realize that we're sacrificing retirement. Indeed, we are often unaware that some of the choices we make now can have far-reaching consequences that can put retirement at risk. Whether you are trying to create an income stream that can help you with your retirement expenses, or whether you have a target number for your nest egg, you need to watch out for behaviors that can sacrifice your long-term prosperity during your retirement years.

Raiding Your Retirement Account

One of the most obvious ways that you might be sacrificing your retirement is by raiding your fund. Tax-advantaged IRAs and 401ks sit there, beckoning, full of cash. You might tell yourself that you will replace the money, since you are only getting a loan, but many people don't actually put the money back.

If you don't put the money back, you end up paying penalties and taxes. Even if you do actually “pay yourself back,” the fact of the matter is that you have removed some of your capital from the account. You miss out on earnings that you could have had if your retirement account hadn't been missing funds for those months.

Saving Less Than You Should

Another way you might be sacrificing your retirement is by saving less than you should. Sure, it is important to enjoy yourself now. But without planning your spending, you might find that you have frittered away your tomorrow for things that you regret getting today. Do what you can to save as much as possible in retirement accounts. If you set aside $300 a month for 20 years, and earned 6% interest, the Money Chimp compound interest calculator says that you would have $141,335.96. Put $200 more in a month, you end up with $235,559.93. That's a pretty substantial difference.

Consider, too, what you could be missing out on if you aren't maxing out your tax-advantaged retirement accounts before you open a brokerage account. You will lose money to the government if you aren't fully using the savings resources available to you.

It is also possible to sacrifice your retirement when you don't think about what you could be doing to diversify your income. If you have maxed out your retirement accounts, it is possible to begin investing your money in a way that can build up other income streams. Invest in dividend paying stocks, consider investing in yourself by starting a business, or look for some other way to use your money to make more money.

Inflation: The Hidden Enemy

You might be sacrificing your retirement by not paying attention to inflation. Inflation erodes your purchasing power. $1 million in 20 years won't buy you as much as $1 million does today. Just think about what you could get with $1 even 10 years ago. You'd be hard-pressed to get that same value today. When planning for retirement, it is important to take into account the ravages of inflation.

Make sure that you factor inflation into your plans; you might end up meeting your target, but the money might not last as long since you will need more of it to meet your lifestyle requirements. Consider diversifying to include a mix of investments that can help you offset the effects of inflation.

What other ways might you be sacrificing your retirement?

Vote For Me In The Free Money Finance March Madness Elite Eight

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For a few weeks now I've been asking folks to vote for me in the Free Money Finance March Madness competition. Basically it's a March Madness tournament for personal finance writers. I've mainly been asking for votes through Twitter and Facebook, but today things change cause I need your help.

Thanks to your votes I've made it through to the Elite Eight of Free Money Finance’s March Madness. That means if I win in this current round – I’ll win at least $100 for my charity! My charity that I'm playing for is Second Harvest Heartland, a midwest food bank that helps feed hungry families. It's a charity close to my heart as my father worked in social services and at a local food shelf for many years. I know this donation can directly help people in need.

Vote For Broke

Round 4, or the Elite Eight, launched today! If you feel so inclined, please head on over to Free Money Finance and vote for me today. Vote for my article, 10 Things That Broke People Do (That Keep Them Broke) (Broke) in the comments.

To give you an idea of how my donation will be used if I do win, for each $1 donated, Second Harvest Heartland will distribute more than $9 worth of grocery products to those in need in our communities. First place in the contest means $500 donated to the charity of the winner’s choice, all the way down to $100 for fourth place.  So that means a win for this blog in this round would help donate at least $900 worth of groceries to needy families! Help me make that happen!

Favorite Posts Of The Week

Here are a few of my favorite posts from around the personal finance blogosphere this week.