Simplify Your Asset Allocation and Remove The Impossible From Your Investing Strategy With Betterment.com

In a single sentence – Betterment makes investing the smart way as easy as it could possibly be.

How does it do this you might be asking? Simple! Betterment only asks that you make one decision: deciding what percentage of your money you want in stocks and what percentage you want placed in bonds. After this decision (called your asset allocation) is nailed down, Betterment’s system takes care of the rest for you by investing your money in a mix of bond and stock ETFs.

Got the gist?! Now that we’ve covered what Betterment offers at a high level, let’s delve in to everyone’s favorite – the details!

Tools to Help You Decide Your Asset Allocation

If you already have a feel for what you want your asset allocation to be, great! If not, Betterment has some nifty little tools to help you get started making this important decision.

Below is a screenshot of the asset allocation decision making tool that Betterment offers. By inputing 1) how many years you have until you want to retire, 2) your current investment, and 3) your risk tolerance in 1 year and 44 years, Betterment is able to generate a suggested asset allocation.

When I tried using this tool, the recommended asset allocation was 90% stocks/10% bonds. However, I am sort of a worry-prone person, and therefore go with a slightly more conservative asset allocation split of 75% stocks/25% bonds.

What Does Your Money Get Invested in With Betterment?

Once you’ve decided your asset allocation, your money will then be invested automatically by the folks at Betterment. Even though you don’t have to personally direct your money, I feel it is a very good to have a general idea as to what funds your money is being placed in to.

• 20% VTI: Vanguard Total Stock Market
• 20% IVE: iShares S&P 500 Value Index 
• 20% IWD: iShares S&P 1000 Value Index
• 15% IWN: iShares Russell 2000 Value Index 
• 15% IWS: iShares Russell Midcap Value Index 
• 10% DIA: DIAMONDS Trust Series 1 

The bond/fixed income portion of the portfolio is invested in the following index ETFs. I think it’s really good that they thought to include the TIPS (inflation adjusted) bond ETF. Nice work!

• 50% TIP: iShares Barclays TIPS Bond Fund
• 50% SHY: iShares Barclays 1-3 Year Treasury Bond Fund 

What Fees Will You Pay? + Other Account Details

The fee structure at Betterment is in my mind, a very good deal. There are no minimum account balances (I started my account with $10), no transaction fees, and you can withdraw your money at any time. In addition, you can change your asset allocation a maximum of once per day and your portfolio is rebalanced once per quarter back to your asset allocation targets. Not bad right?!

For all of this, you pay a fixed expense ratio/fee of 0.3-0.9%, based on what amount of money you have invested. Since most actively managed funds charge far more than 1% to under perform the market, this is quite good!

Currently, Betterment is only offering individual, taxable investment accounts. I would like to see them add Traditional and Roth IRA options at some point, and the VP of Marketing for Betterment just informed me that they will be on the way shortly!

Another really cool feature of Betterment is that they offer a simulator that will allow you to predict the value of your portfolio a set number of years in the future based on various asset allocation levels. I’ve pasted a screenshot of this tool below.

 

How Does Betterment Stack Up Against the Competition?

What’s the Bottom Line?

“So, what’s the bottom line, Jacob? After reading this Betterment review, how do I decide if Betterment is right for me?”

As you might have guessed, this comes down to your personal preference of how involved you want to be in your investing strategy of any money outside of your retirement accounts (because remember, Betterment doesn’t yet have IRAs).

Betterment is not right for you if you enjoy selecting which ETFs or index mutual funds to invest in and rebalancing back to your asset allocation targets throughout the year.

Betterment is right for you if you want a very simple, low-cost way to invest the correct way by making one asset allocation decision and then just watching your money grow.