Betterment is the website that prides itself in offering low cost investment choices to individual investors. It’s an online broker that helps to make investing easier for novices that may not know exactly what assets to invest in. The company’s website does all of the work for you.
Here’s how it works: You just sign up for an account using the online application form. You just need to enter some basic personal information to open a new account. You will link your Betterment account to your checking account in order to fund the account. The entire account sign up process can be completed in just five minutes. There is no minimum balance requirement in order to open an account.
Betterment uses exchange traded funds to build investment portfolios. Why ETFs? Exchange traded funds have low expenses that are well below the expense ratio on mutual funds. The average fee of an exchange traded fund in the market is well below 1%.
Types of ETFs
The exchange traded funds offered invest in individual stocks and government bonds. Individual stocks offer a lot more risk and growth potential. Government bonds offer lower rates of return but they are guaranteed by the federal government.
The Betterment Advantage
The advantage of Betterment is the fact that you do not have to select your portfolio assets. You just indicate your risk tolerance and Betterment will make the investment selections automatically for you. This takes the hassle of selecting the right investments from you. Betterment will automatically re-balance your portfolio for you if the asset allocation gets out of line.
One of the reasons that people like Betterment is that there are no transaction costs or commissions. You do not have to pay a fee every time that your portfolio buys or sells a fund. The only fee that you pay is an annual asset management fee. The fee is based on your portfolio balance. If you have under $25,000 in your account then your fee is 0.9% of fund assets. Investors with $25,000 – $100,000 in assets invested are charged a fee of 0.7%. Investing $100,000 – $500,000 will result in a 0.5% fee. Investors that have $500,000 or more to invest will pay a 0.3% annual fee.
Betterment gives investors low cost automated portfolio management. This is a convenient way of investing for individuals seeking to take investment decisions out of their hands.
Mark Riddix is the founder and president of New Horizons Financial Management, an independent investment advisory firm that provides personalized investing and asset management consulting. Mark is a regular contributor to Seeking Alpha and has written financial columns for Baltimore and Washington, D.C. area newspapers. Mark publishes his own financial blog, BuylikeBuffett.com and has written the book Your Financial Playbook.