Betterment LogoAfter I paid off my last credit card, I decided that I needed to work on my retirement funding.  I already have a 401k through my employer, but I wasn’t maximizing its potential.  I ran the numbers and maxed it out to the point where I would get the full match from my employer.  Now, I had to figure out what to do with any left over funds, as a high-interest savings account isn’t really high interest anymore.  For this reason, I decided to open a Roth IRA.

[box type=”info” ]I have been with Betterment for over two years. I have had excellent service and my returns have been really good. The system is really easy to use and they do most, if not all of the work for me. I gladly use and recommend Betterment![/box]

There is much debate out there about having both a 401k and a Roth IRA, but since I was able to fund both, I thought that I would be better off in the long run.  There are tax advantages to either one, but since I would have both, I know that I will win with one of them.  There are income limits to a Roth IRA, but I don’t believe I will hit those anytime soon.  The big question that came to mind was how/where was I going to setup a Roth IRA?  There are the big players, such as Vanguard, Fidelity, T. Rowe Price, and a few others, but they all require at least $1,000 to fund the Roth account.  Well, I just didn’t have that, since I just pulled the trigger on the lump sum payment to my Citibank card.  That is when I discovered Betterment.

A Simple Investment

Betterment was founded on a simple principle, “to make smart, goal-based investing accessible to everyone.”  Betterment turns investment lingo into easy to comprehend advice for anyone looking to invest their money.  While there are many companies out there that will help you invest in a Roth IRA, I didn’t find one that made it as easy as Betterment.  All you have to do it sign up, fund your account (no minimum deposit), and then pick your investment allocation.  You don’t even have to choose a Roth IRA, as you can just open a personal investment account to earn yourself some money.

The one thing that makes Betterment different from the pack is how they allow you to pick your investment allocation.  The larger investment firms allow you to pick from a myriad of index funds, mutual funds, and others, but Betterment just gives you stocks and bonds.  While some of you look down on this, you have to remember that most people don’t have time or the knowledge to research the ins and outs of investing.  Betterment makes it simple for beginners, period!

Once you fund your account, you go to your investment allocation section and pick how you want to divide your money.  You just move a simple slider based on percentage and that is how it is done.  I am currently running a 90% stocks and 10% bonds.  This is a risky investment allocation, but I am young and have plenty of time to gain returns.  If you are closer to retirement or not a risk taker, you can put your allocation to anything you want.  Just note that Bonds are the safer of the two investments and usually gain money slowly, but steadily.  If you put 100% in stocks, you can either gain a good amount of money based on the stock market, or you could lose your shirt.  Just remember that investing money in the stock market is not guaranteed, unlike a savings account at a bank.  You can lose all of your money if you are not careful.

Fees and Allocation

Whenever you invest in a Roth IRA, you will pay fees based on the company that you choose.  This is a fee that management companies like Betterment or Vanguard charge to manage your investments.  Usually it is based on how much you have invested with the firm, but it all depends on the investment firm.  Vanguard is usually the cheapest management fee, but their initial investment into one of their index fund is $3,000.  Betterment charges their fee based on how much you have invested.  Here is the breakdown of their fees.

Betterment Fees

As you can see, Betterment offers a better rate as you increase your minimum balance.  Also, if you don’t have much to initially deposit, then you can still get a low fee if you deposit $100 monthly.  While this may be a lot for some, it is not a requirement.  You can still use Betterment’s service, but for a $3 monthly fee.  As your investment grows, Betterment will automatically switch you to the other accounts.

One note about Betterment is you pay this fee on top of the ETF fees which you would pay anywhere. This does make this service more expensive than just going to Vanguard and getting all of the funds which Betterment uses. The main difference and selling point of Betterment is they do all the adjusting for you. You just put money in and pick your goals and their system does the rest. They move your money around to reduce taxes and add better diversification.  This fee is small compared to the convenience. This is why I recommend Betterment to beginner investors. It’s a great way to get started!

Most of you are probably wondering what type of investments Betterment uses in their portfolio.  This is probably one of the best questions.  With traditional Roth IRA accounts, you can choose your investments, depending on how much you have to invest.  Betterment doesn’t allow you to pick investments because they feel that they have chosen the best portfolios that will make you money.  You can control your money by moving your investment allocation percentage up or down.  Here are the current stock market ETFs that Betterment utilizes.

Here are the current Bond ETFs which Betterment utilizes.

The RoundUp

As many of you work on paying off your debt, make sure to keep your retirement in the back of your mind.  If you have a 401k, then make sure you are maximizing it.  If you can afford to fund a Roth IRA, then I would take some time to research which service would be good for you.  As a beginner investor, I found Betterment to be easy to understand, easy to fund, and easy to pull out my money if need be (which I don’t recommend).  While Betterment’s fees are somewhat higher than traditional Roth IRA providers, the ease of use far outweighs the small increase in cost for me.

[box type=”success” ]Betterment is currently offering new customers up to 6 months of free commission. This depends on how much you initially deposit, but it’s a great way to try their system and get it commission free![/box]

I wouldn’t recommend Betterment for large investments, as with a lot of money, you could be better off with more control over which funds you invest in.  For small investors looking to start their retirement fund, then Betterment could be the easy choice.  My plan is to fund my account until I can move over to the Vanguard index fund, which is one of the best options available.  If you have been thinking about opening a Roth IRA, then check out Betterment.

Open a Betterment Account

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  1. I didn’t find one that made it as easy as Betterment. Is there a free trial available before I choose to pay?

  2. I want to bring this to the attention of clients of betterment that betterment charges a fee up to $400 if you want to do a direct (in-kind) transfer from betterment to another brokerage. I have been trying to do a direct transfer of Roth IRA from betterment to another brokerage firm and was quoted this amount.

    This fee is also listed in their customer agreement in section 23. Please be aware that your only option could be an indirect roll over if you don’t want to pay $400 in transfer fees.

    Betterment does not openly advertise this fee, which I think they must do when they list any or all fees on their website.

    1. Thank you for passing along this information. I appreciate it. I will reach out to Betterment for a reply to see what they say about the charge. I have not heard about it, nor seen any other information about it online.

  3. This is a great review of Betterment! I have been utilizing their services for the past few months and I have nothing but positive things to say. Their customer service is excellent and they go above and beyond to make investing a seamless process for you. I am pleased to see that you have been using Betterment for over two years and provide them with a 4.5 star rating. That is comforting and I look forward to utilizing their services for years to come.

  4. Seems pretty interesting, and ideal for someone looking to get into investing/saving for retirement but can’t afford that initial hurdle that most services require.

    Are the fees listed there for Betterment on top of the fee for the funds that they place you in, or are those all inclusive?

    1. I picked Betterment when I just got out of debt and didn’t have much to start with. I just wanted to get started. This is a great target market for them.

      Yes, those fees are on top of the fund fees, which are quite low already as they are Vanguard ETFs. This is a turn off for many, but as I said in the review, I recommend this resource to those who have never invested, but want to get started.

  5. I was gearing up to write a review on this myself…but you nailed it! Going to share this article. Great job!