My family has never been wealthy. We are solid lower middle class folks. My dad is a high school teacher and my mom is a bank teller, neither of which claims notoriety for raking in the big bucks. Ever since I was a kid, we purchased everything at Wal-Mart. I didn’t try sushi until I was 18 and in college. And my motto with clothing was (and still is) “If you’re fit, most everything looks decent even if it’s cheap!”
But now that I’ve grown up, things have changed. I worked hard to get a good job and have managed to pay off $36,000 in college loan debt. I have a savings account in case of emergency. Since my parents constantly struggled just to pay the bills, at first I wasn’t sure what to do with “extra” money I had. After maxing out my IRA each year, I just left whatever I managed to save in my bank savings account where it earned almost no interest.
And then my fiancé’s father told us about Betterment.
Betterment is a robo-adviser and investment tool. Betterment customers get a 4.3% higher return than a typical DIY investor—and with hardly any work required at all. Customers also get to take advantage of Tax Loss Harvesting, something that used to mainly be employed by the super wealthy.
Imagine a robot (I prefer WALL-E) who is constantly working for you. He’s doing things like rebalancing your portfolio, scheduling deposits, and investing excess cash. He’s an experienced investor, and has great advice for you. And since he doesn’t eat, he doesn’t charge you all that much for his work.
Here are the reasons I love it.
Your Own Personal Robot Adviser
Many people from a less-than-wealthy background have a sense that financial planners are for the super-rich. They feel that unless they have $100,000 or more laying around, they can’t afford to go to a planner. There’s some truth to that—financial advisers are expensive! And from personal experience, I can tell you that fee structures can be confusing. I once worked with a planner who didn’t tell me she got paid to promote specific investment vehicles.
People may avoid financial advisers because of the obvious emotional component —if you feel you should have more money to invest, it’s scary and weird to lay your financial skeletons in front of someone else, even if they are a paid professional. Hell, it’s hard to lay out those skeletons to the people you care about most, much less a stranger!
This is part of the Betterment magic.
Using the “Advice” tab, you can create goals for your life, like:
- Saving for your child’s college education
- Building or buying a house
- Taking a dream vacation
- Retiring early
The technology gives you advice about the risk you should take in the investment, and how much you’d need to contribute in monthly payments or a one-time contribution to meet your goal. Graphs automatically adjust to show you how your money will grow over time.
Once you have a goal ready to go, you can set up automatic contributions from your bank account and forget about it! Betterment actually released an article lately showing that people who check their account more frequently have lower returns than those who don’t! Lazies of the world, rejoice!
I help couples use Betterment to realize their dreams at my site Couples-Finance.com. Couples go through dreamscaping exercises, which guide them through the process of estimating how they can achieve goals like buying a second home or funding their own new business startup. Click the button below for the free dreamscaping teamplate.
Lower Taxes = More $$$
I don’t know about you, but I don’t know all that much about taxes. Since I’m self-employed, my taxes tend to be so complicated that I always have an accountant do them.
Betterment has something called “Tax Loss Harvesting +”, where they look at your investments to find out if there are losses. If there are, those losses can offset capital gains taxes. They estimate an additional +0.77% in after-tax returns annually. If you have $100,000 invested, that’s an extra $770 per year!
The technology also uses tax-efficient investing. Let’s say you have a goal to save for your children’s college education, and the account is set on “aggressive” and you decide you want to set it at “conservative.” Betterment gives you a button to click that shows you the impact of that decision on taxes, so you can make an informed decision.
Lower Fees = Even More $$$
This is something that hits very close to home. When I started doing well financially, I randomly met someone on an airplane who told me his wife was a financial advisor. He seemed like a nice guy, so I met up with her.
She helped me set up some accounts, all of which I later learned charged an arm and a leg to remove my money. One of these accounts had a fee of $85 per month, even though my balance was under $10,000!
I finally realized this craziness when I realized my account had gone down significantly in just a year. Not only was the market not doing well, my account was shrinking like mad due to high fees!
With Betterment, the more you invest, the less you pay in fees. If you’re over $100,000, it’s only 0.15%, which is VERY far below the industry standard. But even if you only have $100 to invest, the fee is still only 0.35%. There are no trade fees, transaction fees, or rebalancing fees. The transaction fees is a big one—I lost a lot of money when removing money from my old investment accounts. Luckily, Betterment doesn’t charge you anything for removing or depositing money.
Simple Platform for Non-Investor Brains
Finally! Investing is catching up with the rest of the world. If you live in an area of the country where cabs are far from ubiquitous (like me, in Denver!) you’ve probably dealt with the nightmare that is calling a cab. If you want to go somewhere in a cab in Denver, be prepared to wait on hold for a while, then wait for the cab for at least 30 minutes. Then Uber came along. Now, I can go anywhere in the city quickly and cheaply, and the app is super clean and simple to use.
Betterment is a lot like that! There isn’t a ton of technical jargon you have to learn. The platform isn’t loaded down with links or articles. It’s just simple, clean, and super easy to understand what you’re supposed to do.
Companies like Vanguard provide excellent investment products. But the user experience is absolutely terrible. When I’m logged in, it usually takes me a while to figure out how to do what I want to do. Once, I forgot whether I had an IRA or a Roth IRA and I spent 30 minutes trying to find it before giving up and calling customer support.
For me, this is one of the biggest benefits of Betterment. I don’t have a lot of extra time during the day, and any time I do have I’d rather spend hanging out with my fiancé or playing with my big brother’s new Husky puppy rather than trying to figure out if my investments are doing okay. And while I’m having fun doing those things, I feel fabulous knowing that I’m achieving my dreams…hands off.