This is a part of our review series. For a full list of recommended products and services, check out the Resources page.
In 2015, I decided two things. One, I had to increase the amount of money I was investing. Two, I had to simplify my investments. I ended up accomplishing both by moving nearly all of my investments to Betterment, but before I get into my Betterment review you need to understand what I went through to get there.
That one time fees were eating up my IRA…
You see, I’ve been investing and saving for retirement since I was 22. Granted, low wages and then quitting my job to run my business full-time meant that I never reached the maximum contribution for a given tax year (in my case $5500). Even still, I chugged away and invested whatever money I could.
Because I didn’t know a whole lot about investing back then (I was literally learning everything from personal finance books) I invested some money into a target-date fund with a large financial institution because that’s what was recommended to me. They were also all the rage. Just throw money in and the manager automatically adjusts your allocations according to your age? Sign me up!
I faithfully continued putting money in the fund until around 2015 when I was well-versed enough to run some calculations. When I began calculating the fees for my target date fund, I realized I would have paid out $250,000 over time with my current investment rate. On top of that, the returns weren’t great.
Hold up! Weren’t these things supposed to be low cost? Wtf?
And so began my journey to simplify my investments and find a new home for my money. First, I went over to Vanguard. I wanted to invest in their index funds which are well known for being low cost and mirroring the market. In my book, I don’t need to beat a damn thing, I’m okay with just mirroring for now.
Everything went swimmingly from there – not.
As much I love Vanguard as a company (seriously, I love you guys), it took weeks to roll over my IRA and then, to make matters worse, their user interface isn’t very intuitive. I had to call just to figure out how to set up automatic deposits.
Downside number two was that I couldn’t really invest whatever money I could into my desired fund. I could make the initial requirement, but then the rest of my money would just get deposited into a money market fund until I could reach the threshold.
I’m self-employed, have to deal with variable income and like to throw in whatever money I can. Also, it’s not like I’m totally rolling in the dough yet. I’m bootstrapping a growing business here.
So the fact that there seemed to be no option for me to easily invest directly into my desired fund (I had to call for this too) was no bueno. Again, totally great company with amazing funds, but it just wasn’t going to work for this stage in my life.
Back to the drawing board…
At this point, the company I thought was supposed to be low cost wasn’t and the company I loved made it really hard for me to actually invest. Back to the drawing board.
Over the course of the next few weeks, I would hear many of my friends and colleagues talking about a company called Betterment. It’s a robo-advisor, meaning your investments are automatically managed by a computer. This allows them to keep things low cost for their customers. Better yet, they were targeting young and first-time investors because their needs weren’t directly being met in the market.
Given that I’d already forked over a ton of money in fees and didn’t have enough money to continue investing directly into a good fund, my millennial ears immediately perked up. I’m pretty much the epitome of their target market. I’m happy to say that I’ve been with Betterment for nearly a year now and I’m very happy with the results.
Here is exactly what I’m digging…
It’s easy to use.
Whereas the IRA Rollover took weeks to figure out with Vanguard, it was a simple five-minute process with Betterment. I simply answered the questions they asked, printed out a sheet reminding me of my next steps (in this case sending a letter – which Betterment wrote and found the address for – to Vanguard) and I went on my merry way. All my money was in my Betterment account in a matter of 14 days.
From that point, I used their Retirement Guide to figure out exactly how much I should be investing each month (and where) according to my desired goals. I was no longer guessing like I was before, I had some hard numbers to work with thanks to Betterment. I set up my automatic deposit and again, went on my merry way. The entire process took 10 minutes – if that.
The fees are straight forward.
Trying to figure out fees for my first target date fund required me to go find a book about fund management fees. I’m not even kidding. Again, this stuff isn’t intuitive and it’s certainly not straightforward in many cases.
With Betterment, I know exactly how much I’m getting charged because it says it right on the website. For the record, it’s not $250,000. You get charged a small percentage based on how much money you have in the account and whether or not you have auto-deposit. They also give you an incentive to invest more by reducing your fees. Easy peasy.
They offer things that would be otherwise difficult for young investors to attain.
Betterment offers tax loss harvesting and portfolio rebalancing as a part of their services. Everyone gets this. Before, you would have to hire a financial planner to do this for you.
First, financial advisors can be expensive. Second, although this is changing, it used to be that many financial planners would not work with young investors because they didn’t have many assets (and therefore, they couldn’t make money off of us).
My returns are better.
Okay, so I haven’t had Betterment for very long, but I can already see that my returns are already outperforming what I had with my first fund. It’s not a totally fair comparison at this point (I was with T. that first company for years) but I’m confident in the fact that Betterment has a similar investment strategy to Vanguard.
I’m investing in Vanguard funds.
I may not have been able to invest in Vanguard funds through Vanguard, but I’m sure as hell doing it with Betterment. As I already mentioned, Vanguard is known for being low cost and having good returns. If Mr. Money Mustache can do it, then I can too.
I can invest whatever money I have.
At this stage in my career and my life, it’s easier for me to throw in whatever extra cash I have into investments than it is to consistently put the same amount of money away every month. Don’t get me wrong, I have a bare minimum that I automatically invest, but it’s easier for me to increase my savings rate by making small deposits as I go along.
In other words, if I’ve got an extra $20 at the end of the month, I can invest it through Betterment. Sometimes I throw in an extra $200 I saved up with Digit. Sometimes I over saved for estimated taxes and throw it into the IRA. The point is, there’s no need to meet a minimum which makes it easy for me to invest whatever I can.
Get started with Betterment.
If you’re looking for a way to start investing, keep your fees low or just invest whatever money you have into Vanguard, Betterment is the way to go. It’s easy to use, the fees are low and you get access to investment vehicles and services that may otherwise be a little harder to get.
Click here to sign up via my referral link and you may qualify for a few free months.