In this post you’re going to learn the ins and outs of Betterment without having to waste time downloading it, investing money, and waiting a few weeks just to lose money.
We are going to cover how it works, how it compares to other robo apps, how to set up an account, the features, the fees you’re going to pay, and my personal results from investing with Betterment.
If you want to rake in tons of cash dividends without spending 5 hours a day reading “the books,” then maybe a robo investment app like Betterment is the best route.
I know there are tons of robotic investment apps out there, but this app can change your investing life.
So if you want to make sure that you are picking the best-automated investment tool, watch this Betterment Review until the end to see how Betterment has worked for me.
So the first thing we are going to cover is…
How Does The Betterment Investing App Work?
Look, we aren’t downloading apps like Betterment because we want to learn about investing. We’re all here because we’re lazy, but we want to invest our money with the best tools on the market.
When you download Betterment, you’re going to input where exactly you are in life at this moment and where you want to be in the not too distant future.
You’re going to be asked for information like:
Your initial deposit, monthly savings, and time horizon for your investing goals. Betterment will tell you the chances of achieving your objective.
Betterment can now take into account ALL of your investments whereas before it could only take into account your investments within the Betterment investing app.
They allow you to analyze your investing goals better by allowing you to sync up your other investment and retirement accounts within the app.
This way, you can get a better, more complete picture of where you are at reaching retirement.
Betterment will analyze these external accounts to advise you on which asset allocation is best to reach your goals, as well as projecting what your money would look like if you rolled those accounts over to Betterment.
Of course they would try to get you to transfer your money into their system.
What’s great about Betterment’s Investing App is that we’re ALLOWED to be lazy. We aren’t expected to research investments or figure out what percentages go into each account. Betterment does that for us automatically.
So, if you’re a beginner, or you don’t feel like learning about investing, then Betterment is a great investing app for you.
How Is Betterment Different?
Why wouldn’t you just use some of the robo investment platforms provided by the big names, such as Schwab or Fidelity?
Betterment was initially designed to make investing easier than opening a bank account. Some would say that it’s even easier than… Waiting around to die??
But with great ease of use comes great sacrifice. Betterment IS an SEC-registered broker-dealer, BUT it is not FDIC insured.
This means that if you have money in Betterment’s platform and something goes wrong as they collapse, then you will lose your money.
With the Betterment service, you don’t actually OWN stocks or bonds. Betterment provides investors with access to ETFs, or exchange-traded funds.
I’m going, to be honest here. I literally have no idea what an ETF actually is.
My best understanding of it is that we have an Easter Basket and INSIDE of the Easter Basket, we have the Easter Eggs.
Now, the Easter Eggs represent stocks. These Easter Eggs are producing little treats, which are dividends.
When you give Betterment money for investments, you are buying a percentage of that Easter Basket, but Betterment maintains control of the Easter Basket.
They are buying and selling the Easter Eggs. When the Easter Eggs produce little treats, they take their cut of the candy and give you what’s leftover.
If I butchered that explanation, let me know in the comments below.
There is a benefit to the ETF though. As a beginner investor, when you have your money invested in an ETF vs a Stock or Company, your money is diversified more. This allows you to mitigate risks since all of your eggs aren’t in one basket.
Betterment is one of the largest INDEPENDENT robo advisors. Meaning it’s not like Schwab Intelligent Portfolios or Fidelity Co (Show screenshots of these.) in the sense that it does not OWN any of the funds that you’re invested in.
Betterment is also a fiduciary, which means that they are legally obligated to act in your best interest, whether that benefits Betterment or not.
So, there is peace of mind that your investments are not being manipulated to benefit board members and take money away from you.
Betterment’s Account Setup
Now this is what Betterment was built for. Developing an investment app that was easy to set up and use. Unlike some old clunky junkers that are available on the market, the Betterment App is optimized for mobile apps.
And to get started, you don’t have to put in sensitive information that can jeopardize you. All they are going to ask for in the initial set up is your age, annual income, and your investment goals.
Once you have this information put in, Betterment will provide you with a SUGGESTED asset allocation and the associated risk with that allocation.
Betterment also is going to ask you to connect your other investment accounts and bank accounts. Their goal is to provide you with a COMPLETE picture of your assets.
Linking your accounts also helps their new automatic deposit feature.
Users can open an individual or joint account, both Roth and traditional IRA accounts, and trust accounts.
There are no college savings 529 plans, Uniform Gift to Minors Act (UGMA) accounts, or solo 401(k) accounts.
Betterment Goal Setting
Betterment has very easy-to-follow steps for setting a goal, and each one can be monitored separately. The asset allocation is displayed in a ring, with equities in shades of green and fixed income in shades of blue.
If you’re falling behind on meeting a goal you’ve set, Betterment will encourage you to put more aside.
This can be a helpful prompt, particularly for us Millennials who may not yet feel the urgency to save for some of their longer-term goals.
Betterment Portfolio Management
Accounts are evaluated once a month and rebalanced if they have shifted from their goal allocation.
As your target date nears, your portfolio gets more conservative with the goal of locking in gains and avoiding major losses.
Having this automated risk reallocation is one of the primary reasons Robo-advisors have become so popular.
These are standard portfolio management techniques that most investors do not have the time or dedication to actually implement.
Betterment Commissions & Fees
Digital-only customers pay 0.25% per year in management fees, increasing to 0.40% per year for the premium plan.
Betterment follows society’s model of “The Rich Get Richer,” by offering a discount on management fees if you have over $2M invested by 10%.
Betterment does provide free access to their financial planning tools (Show them?), with the only cost being that you will frequently be prodded to move your money into one of their investment accounts.
So, let’s go over some example management fees.
Monthly cost to manage a $5,000 portfolio: $1.04
Monthly cost to manage a $25,000 portfolio: $5.21
Monthly cost to manage a $100,000 portfolio: $20.83
My Experience With Betterment Investing App
Now, normally, I invest my money into real estate, but when Betterment first came out, I really liked the platform so I put some money into it. Eventually, I pulled the money out for a duplex, but I left $50 in there just to keep my account open.
I put that $50 into the Betterment app in 2016. So, let’s see how well that $50 has done over the past 4 years in an Aggressive account.
Wow I can’t believe this!? So, in one of the BEST Bull markets in decades, I’ve lost 30% of my money.
Now, I’m not an expert when it comes to investing. I’m just sharing my journey, but REALLY!? How can I lose such a large percentage of my money?
If you look at the data, over the past 4 years, the DOW JONES has gone from 17,528 in January of 2016 to 28,462 in January of 2020. That’s an increase of 62.38%. So, how have I lost money?
I personally have no idea. That itself makes me skeptical of the app. I know there are a lot of people who are making money and doing fine with it, but to have lost money when the market has had a 62% increase in value??
Not for me.
But that’s all I have for this video. Let me know what your experience with Betterment is in the comments below.
And if this was helpful or plain confusing, SMASH that like button either way!