Last week we discussed retirement investment options. Because of tax advantages, that is where most of our build wealth money goes at this point. When it comes to keeping money or giving it to the good ole’ US government, you can guess who wins every time! However, we all know it’s a good thing to keep diversified. Maybe you want to retire early or have money that’s accessible without penalty before age 59.5. After reading about a million reviews of brokerages, I decided to try out Betterment. I wanted to do a year in review, but my, how time flies. When I logged into my account last week before writing this post, I was amazed that I’ve been investing with Betterment since March 2013!
Honestly, I don’t promote many brokerages because I think Vanguard is almost always the easiest and cheapest way to go. I still believe that for IRA and 401k type accounts, it’s the hands down winner. However, if you want to invest in non-retirement account stocks or funds outside of Vanguard ETF’s AND don’t have at least $50,000 already invested, Vanguard’s fees are $7 each for the first 25 trades, then $20 after that. Plus they have a $20 per year account management fee. You also have the individual fund management fees, which are generally very low, but it all adds up. Since most of us have to start with small amounts, Vanguard would eat quite a bit of that money in fees.
I chose Betterment because you can start investing small amounts without a significant portion taken out for fees. They charge a flat .35% for accounts under $10,000 if you schedule a minimum $100 monthly auto deposit. If you invest less than $100, there is a flat $3 fee. At a glance, this might seem higher than some of the broad index funds that are available, but if you only invest $100 per month, having fees of $.35 instead of $7 is huge.
As you invest more, your fee percentage decreases. At $10,000, it drops to .25%, and with $100,000, it drops again to .15%. I added up all the fees since opening my account, and they came to right around $10 so far. I expect this to grow as my account balance increases, but so far, that’s pretty sweet.
Betterment is Easy
When you sign up for a Betterment account, you will be asked some questions to determine your risk tolerance and investment goals. An investing plan is created based on your answers. In my case, I have a very boring 80/20 stock/bond mix that is made up of large, medium, and small cap stocks as well as bonds and emerging and international funds. It took about 5 minutes to set this up.
I think many novice investors, self included, are guilty of setting things up and forgetting them. I don’t think you should necessarily log in and check your balance every day, but you do need to evaluate and rebalance from time to time. Since I’m so
lazy busy, I often get way behind on that task. Betterment does this automatically so that your allocations stay in line with your goals and risk tolerance. I love easy!
Are the Returns Good?
My total return for the year to date is 14.7%, with a 9.7% return since account opening in March 2013. That seems to track right with Vanguard funds of similar allocations. If you are like me and forget to rebalance, or if you have a tendency to go with the herd, Betterment will keep you on track so you don’t become too loaded in whatever portion of your portfolio is doing well at the moment. You also won’t be tempted to try and time the market.
How Much Should I Invest?
I think one of the hardest parts of investing is getting started. If you have no investments, I’d start with your 401k or Roth first. If you already do that and want to try some non-retirement fund investing, I really think you should try and start with $100 per month. If you don’t have an extra $100, then make it your goal to increase income or cut expenses to get to that point.
I did start with $100 per month and have increased that amount as money became available. Cutting our satellite TV added about $70 per month. We don’t have day care costs like we used to. We also had a reduction in our mortgage escrow amount this year. I thought about putting that extra cash toward mortgage principal, but that return would only be 3.25%. If I can get 9-15% from investing, that make more sense. If you invest found money instead of finding something else to spend it on, you’ll be surprised how fast that money grows!
Should I Invest With Betterment?
That’s for you to decide on your own. I will say that I’ve found Betterment very easy to use, and I think the fees for beginning investors are really competitive. I have been happy with the service and return, and their dashboard is very user friendly. If you don’t like to micromanage your accounts and want it to be very simple, Betterment might be a good fit. Whatever platform you decide to use, get started. The longer you have to let compound interest work for you, the sooner you’ll hit your financial goals.
To make it even easier, you can sign up for Betterment right here today!
Do you do any non-retirement investing? Are you good about rebalancing?