Betterment Review (I’m a Huge Fan)

I’m not a financial advisor, but I’ve studied investing for a while and recognize that it can be a fairly complex issue. Investing comes across as so complex, that people end up not investing at all.

As I see it, there are three primary reasons people aren’t building a sufficiently-sized retirement nest egg:

  1. They don’t invest (enough).
  2. They don’t diversify their investment.
  3. They don’t allocate their investment appropriately for their specific situation.

Are You Investing (Enough)?

To those of you that are not investing at all, you need to start. Please.

Those of you that are investing, if you’re doing average, need to contribute a lot more, as soon as possible.

The average baby boomer (people between the age of 49 and 66) has a retirement savings of $88,000. If they don’t have a qualified retirement plan, their average retirement savings is $38,000.

People, we need to step to it!

Betterment makes starting and accelerating very easy. This is one of the reasons I really, really like their service.

Are You Properly Diversified?

I don’t want to get into all the ins and outs of diversification. Just follow the old adage, and don’t put all your eggs in one basket.

In Monopoly, would you rather own Boardwalk and Park Place completely, or own a percentage of every other property on the board? No matter what happened, you’d make some money. Instead of having really big peaks and valleys, you’d have much more even, steady growth.

That’s diversification. The SEC.gov website puts it nicely:

By picking the right group of investments, you may be able to limit your losses and reduce the fluctuations of investment returns without sacrificing too much potential gain.

Betterment makes diversification easy. Even if you don’t understand every in and out of diversifying, you can rest assured that they do. They diversify in a very simple, transparent way. More on that later.

Are You Properly Allocated?

Asset allocation, simply stated, is…um…how your assets are allocated. What are assets? Things with value. Different assets behave very differently. Let’s discuss a few briefly:

  • Cash. We all get this one. The more you have, the better. Cash can be stored in a checking or savings account, where it’s virtually risk-free. What’s the risk of your cash losing its value? Essentially zero. (Let’s avoid inflation, and please avoid hyperinflation discussions here… maybe we’ll get into that in another post.) Does your cash earn a lot more cash? No, because you’re not subjecting it to any risk.
  • Stocks. Some of you get this. Others don’t. When you purchase a stock, you become an owner in a company.  If you wake up the next morning, will your stock still have the same value? No. It will go up. It will go down. You don’t know. Stocks are subject to risk, so their potential return is higher.
  • Bonds. This is where you give a company or government your money, and they promise to pay you back. You’re a lender, they’re a borrower. Is your money at risk? Absolutely. Some bonds are riskier than others. US Treasuries are seen as riskless, so their return is low. Junk bonds are seen as risky, so their potential returns are higher.

So regarding asset allocation, would you want to be 100% in cash? Well, probably not, because your return would be really, really low. 100% in stocks? Maybe not, because your risk would be too high. 100% in bonds? No…because your return might still be too low. But what about a mix of all three?

That’s where it gets interesting. And that’s asset allocation.

If you need your money tomorrow, you should be in cash, right? Zero upside, zero downside, and that’s great because you need it for groceries in the morning.

If you need your money in five years? You’re okay with a bit of risk, because you don’t need it for groceries in the morning, but are you okay with it being 100% in stocks? I don’t think so. Too risky. We’ve seen that stocks can be flat, or down, for years. So maybe you’d mix it up and lean more toward a conservative bond set, and some stocks to still catch potential upside.

What if you need the money in 20 years? Let’s take some risk! Over the long haul, stocks have proven to be fantastic investments. With 20 years to go, you can ride out the downs and hope for a larger return than you would have gotten in cash, or bonds.

Whew. So much for making the asset allocation explanation short.

Betterment does the asset allocation bit automatically based on your time horizon. They let you explore different scenarios (based on solid historical data, which is not an indicator of future results, but at least a starting point), adjust your horizon, and even set different goals at different time horizons.

For example, your daughter will be getting married in 20 years. Yes, I know I’ve mentioned this a lot in the podcast. Because it terrifies me.  I could set a target date in the future for when I would allow my daughter to be married, and Betterment would rebalance my porftolio as I approached that target date.

Being 20 years out, we’d invest the funds aggressively. With five years to go, the funds would be invested more conservatively. And of course, six months before the wedding the funds would be in cash. And then the funds would be consumed with vigor until only dollar dust remained.

Conclusion #1

If you’re intrigued by how Betterment solves the starting, accelerating, diversifying and allocating problems associated with investing, but don’t care to see all of the details in my account setup, and associated thought processes, then you can stop here and go check out Betterment yourself.

If you want to get into the nitty-bo-bitty-gritty, please read on.

My Betterment Experience, in Extreme Detail Because I Know No Other Way

I’ll walk you through the sign-up process, highlighting what I love about their interface, especially the clarity of fees, and performance. We’ll cover some under-the-cover stuff re: what they’re investing in, talk about some Betterment alternatives (of which there is no shortage) and then (finally) offer some final thoughts.

The Sign-Up Process

We start with the basics. Name, email, choose a password. I found it surprising that they don’t ask you to confirm your password :)

Standard address and security questions for password recovery.

They need to know your Date of Birth, as any broker would. I’m not certain why they need to know my employment status (happily), annual income and/or net worth. Probably just to better understand their customers (same reason I survey YNABers every few years and ask the same questions). Plus, this gives you an opportunity to brag! ;)

You select the account type, which is where you can set up an IRA (traditional or Roth), or just do a normal investment account. I went the normal route because I already have IRAs set up with Vanguard (Betterment will roll IRAs over, but I doubt I’ll go through the hassle unless I really get the itch to consolidate accounts. I do love simplifying.)

You’ll notice that they have you set up your first goal here. As mentioned above in Part I, Betterment is goal-oriented.  I set up my first goal to retire in five years. Hey, one can dream.

Then we get to the funding details, where we specify which account we’ll use to fund our Betterment investment account:

Favorite part of that is the helpful, plain-language explanation that doesn’t leave you guessing at all as to what’s happening.  And for you high rollers, sorry, but the maximum funding amount at one time is $100,000 USD.

Once the funding section is complete, you get some required-by-the-SEC questions:

And then we’re done!

One thing I like about Betterment is their attention to design. It’s friendly. That won’t help your investments grow any faster, but…it may subconsciously help you feel that investing isn’t as hard as you thought ;)

You’re left with a few steps you can do at your leisure: 1) confirm your email address, and confirm the bank account you’ll use for funding. This is pretty standard stuff if you’ve ever signed up with any other brokerage, online savings account, or Paypal.

Setting Up My First Betterment Goal

I already had the framework of my goal in place, but Betterment needed some more details. As soon as I logged in, I was presented with this:

You’ll notice how I had said that my goal was to retire in five years, right? Since Betterment does our asset allocation based on our goal’s timeline, you can see that it picked a 58% stock market mix—enough to still earn some returns, but not enough that in five years I’ll be wanting to see my principal, and we’ll be in a down year (or five years).

With Betterment knowing my timeline, they still need to know the amount I want to have when I retire. I decided to go with the plain-vanilla million bucks:

I also got to customize my goal a bit:

So Betterment then does some number crunching in their back room, and calculates (based on historical performance, and my given asset allocation of 58% stocks, and the rest in bonds) that I’ll need to save $14,246.45 per month if I’d like to hit my target.

Hrm, a little steep.

So I mess with the slider. Okay…I want to retire when I’m really old.  40.

Much better. I guess ;)

Isn’t the underlying calculation cool though? Even if it is a wee bit unrealistic? Betterment has us focused on the one thing that we can control — What we put in.  I know you can’t put in as much as you want, as you’re restricted by life’s other obligations, but this at least gets you focused on the number you can influence over the long run: your investing efforts.  I really like that the focus is here, and not on the return side of the equation.

Once I accept my changes, I’m ready to implement my savings plan:

That $6k is pre-filled in, and I set it to hit monthly (I adjusted this later to my actual amount, which unfortunately is well below the $6k mark).

With the automatic deposit set, notice how well the text explains what will happen:

I signed up on September 10.  Deposits for account verification hit on September 12, so I logged back in and confirmed the account:

I dug through the couch cushions and found $800 in quarters, so once my account was confirmed, I initiated a transfer to see what would happen:

Again, clear text that manages my expectations on what will happen, and doesn’t leave me fretting:

It would be nice if the transfer were faster, but honestly, we are in it for the long haul. And this prevents you from taking a sip from the highly addictive Fountain of Market Timing. So maybe it’s a good thing.  Major bonus points when I hovered over a question mark to find out more about making a deposit:

I began the transfer on September 13th, and received notice that it was deposited into my Betterment account on September 18th:

Fee & Performance Clarity with Betterment

My absolute favorite part of the whole system has to do with the main dashboard:

My goal, conveniently named ‘Retire at 36′ still needs some work. But notice the first-grade math you need to do in order to understand how your investment is doing:

  • What you’ve invested, and
  • What you’ve earned.

When you expand those, it gets even better:

Okay, this isn’t that exciting since I took these screenshots before my $800 deposit landed, but still…this is fantastic clarity.  Your fees are right there, in one place.

Betterment Fees

The cost of an investment is one of the most significant drivers of your investment results, so it cannot be ignored.

Betterment’s fees are extremely straightforward, and have actually come down significantly from when I originally talked with them a year or two ago.  Their fees, beforehand, were the sole reason I didn’t recommend them to YNABers earlier. Now that they’re extremely competitive, well, here’s my recommendation.

So let’s get to it.

Betterment – No transaction fee. .35% if you deposit $100 per month with no minimum balance requirement. If your balance is at least $10,000 then you don’t need to do an automatic deposit and your fee is .25%. If you’re a high roller with a minimum balance of $100,000 or more, it’s .15%.

So somebody with $8,000 invested, and $100/month deposited would pay $28 per year.  Their pricing table actually makes this clearer than me writing it out :)

Scottrade – $7 per trade. If you’re investing small amounts, say $100 per transaction, then you’re automatically getting a 7% hit to your investment performance.  Pretty much investing suicide at that point.  Scottrade also has a $500 minimum. I’ve used them for years (just closed my account with them last week, and dumped it into Betterment) and really like their service and site. I just like the simplicity of Betterment more. Plus Scottrade made it too tempting to purchase individual stocks :)

Wells Fargo – I have a PMA package with Wells Fargo. I bank almost completely with them — both business and personal.  And it’s a love-hate relationship. I love that it’s all in one place, and I hate that Wells Fargo is a massive bank that doesn’t care one iota about me and my tiny problems.  At any rate, because I’m a PMA customer of their’s, I get 100 free trades per year with their brokerage arm.  There are “potential account maintenance fees” but I think those are waived for me as well.  For the *ahem* little guy, they charge $9 per trade and $35 for no-load mutual funds!  Also, the account maintenance fees really annoyed me. Either get me coming, or get me hanging around, but don’t get me both ways.

Honestly, I should use Wells Fargo, but I just don’t want to because of that PMA status. But I’m not.  The main reason has to do with automatic asset allocation (which you can read all about way down below).

E-Trade is also very popular. I haven’t used them personally but their pricing page was like reading a Tale of Two Cities.  The short of it: $10 per trade, or $8 if you trade over 50 times per month! Please don’t trade that often :) Based on that pricing, I don’t see a reason to use E-Trade over Scottrade.

Sharebuilder is owned by ING, which is owned by CapitalOne, which is why I don’t really recommend ING anymore :(  (I’ve been doing some research into some other online banks, because I used to recommend ING a lot, and it’s promising.  I’ll write more on that later.)  Sharebuilder has great pricing where it’s $4 for stocks and ETFS, and $0 if you auto-invest with certain fund families. I’m not a fan of the restriction on fund families, but that’s not the end of the world. If you don’t do auto-investing, it’s $20 per mutual fund transaction, which is pretty steep.

Vanguard is the leader in low-cost investment options. I like them a LOT, but wish they were less intimidating for new users.  Their pricing is fairly complex, where, based on how much you have invested with them in total, the fees can change substantially. Also, please elect to go paperless if you want to avoid their annual $20 fee. (You should go paperless anyway, people! :))  If you want to recreate what Betterment gets you, it would be $7 per trade with Vanguard.  Again, a per-trade fee would not be ideal if you’re doing low-dollar amounts.

Betterment’s Portfolio

Betterment doesn’t put their portfolio out there to find very easily, but I also didn’t look terribly hard. The Google gave me the following breakdown (the ticker is in parentheses):

Stocks

  • 25% Vanguard Total Stock Market (VTI)
  • 25% iShares S&P 500 Value (IVE)
  • 25% Vanguard Europe Pacific (VEA)
  • 10% Vanguard Emerging Markets (VWO)
  • 8% iShares Russell Midcap Value (IWS)
  • 7% iShares Russell 2000 Value (IWN)

Bonds

  • 50% iShares Barclays TIPS Bond ETF (TIP)
  • 50% iShares Lehman 1-3 Year Treasury Bond ETF (SHY)

Don’t worry too much about digging into the why behind the breakdown. I just want you to see that 1) there’s a very good mix of investments, spread across the globe, and that 2) these investment choices are fairly inexpensive (ETFs, as a rule are).

A quick note on ETFs, they are indexed to a basket of stocks, but trade like a single stock. So when I buy a share of the iShares S&P 500 Value, I’m buying teeny tiny slices of stock of every “Value” company on the S&P 500. What’s that mean? Don’t worry about it. Just know that when you buy an ETF, it’s like a stock of a bunch of pieces of stock.  It’s extremely liquid, and very cheap.

This portfolio handles the problem of investment diversification in one fell swoop. Yes, you can diversify on your own, and yes, that’s more difficult and time-consuming (but I’ll show you how later).

Asset Allocation

The allocation with Betterment was discussed at length above. The gist of it is that as you approach your target goal, your fund is invested more conservatively: less in stocks, more in bonds.  The mix would be fairly easy to alter with some quick spreadsheet work (which we’ll do below).

As a quick example, if I was invested 50/50 in Stocks and Bonds, based on the Betterment portfolio, I would own 12.5% in VTI…12.5% in IVE..and on down to 3.5% in IWN. In the bonds, I’d own 25% TIP, and 25% SHY.  I just multiplied 50% against the weight of each ETF in the allocation.

There are Fees, and then Fees…

Now, when you invest in ETFs, you do pay a fee. As mentioned above, they’re very reasonable. Cheaper than most mutual funds by a long shot.  So in that Betterment screenshot where it was showing Market Changes, your fee is taken from that. You won’t see it outright, but the value of your investment is basically reduced by the fee amount.  Fees are expressed annually when you look them up online.

For instance, the Vanguard Total Stock Market Index ETF (VTI) is .06%.  If you invest $100 in VTI, you’ll pay six cents.

So when you’re determining your investment options, and maybe considering Betterment, you’ll want to be aware of the entire fee structure, which consists of the ETF fees and the Betterment fees.  Bear in mind, those ETF fees are had no matter where you trade (Scottrade, E-Trade, any other brokerage, etc.)

I took the portfolio weights of the Betterment Portfolio, and multiplied them by each ETFs respective fee. The result was that, all-in, the Betterment Portfolio has an “embedded cost” of .158%.  If you invest $100 at Betterment, almost 16 cents will go toward the ETF fees and then, based on your balance (discussed above), you’ll pay another 15 to 35 cents annually, directly to Betterment.

I’m a Cheapskate so…How Could I Do This for Free?

I definitely thought of this.  Though I wouldn’t necessarily call myself a cheapskate ;)  Let’s recognize value here, and see if Betterment’s value proposition makes it worth the extra .15-.35% you’ll pay.

Our three hangups with investing are:

  1. Starting, or increasing.
  2. Diversifying.
  3. Allocating.

On starting, or ramping things up, the starting part is definitely easier with Betterment, but the easier UI certainly isn’t the value proposition here. You can set up any brokerage to do automatic withdrawals. So we’re going to call that a wash.

Second, any cheapskate would simply copy Betterment’s portfolio, so the diversification “service” is had for free. Jon Stein, the CEO, and a Certified Financial Analyst (and a nice guy as well), has done the legwork for you cheapskates!  Just copy him!

Diversification, done.

On the asset allocation, this is where Betterment really starts to deliver value. Now, before you say, “I can just reallocate myself!” Know that talk is cheap. People’s heads are filled with the best of intentions (“This year, I’m not going to EVER eat out!”) that don’t make it past Tuesday.  So regardless of what you say you do, 80% of you won’t do it, and you’ll end up with a portfolio that isn’t balanced appropriately for your time horizon.

This can be solved a few ways:

  • Use Betterment (my choice)
  • Invest in cheap target date funds, (An inexpensive example would be Vanguard’s) (that is not investment advice, it’s jus tan example of target date funds).  Those are titled in fancy ways like “Target Retirement 2025″ and they will rebalance appropriately as you approach that year.  Drawbacks: they’re only in five-year increments, and many of the target date options out there are more expensive, and actively managed (I’m a fan of passive investing).
  • Handle the asset allocation yourself.

So let’s talk about the steps required to do it yourself.  You would do these steps every time you purchased more assets, or at least quarterly.

  1. Know your target asset allocation. What mix should be stocks and bonds? When in doubt, use Betterment’s tools to figure out what they do, and just copy them.
  2. Record your current fund balances across all holdings.
  3. Calculate your current allocation, based on the holdings.
  4. Enter the additional amount you’re investing (if any).
  5. Apply the (new) balance to the target allocation from [1].
  6. Compare the difference in the allocation of each fund [5] to the current fund balances [2].
  7. Buy and sell funds as needed, to re-balance (this step could take you a bit, don’t underestimate it… it’s a tedious nightmare. Trust me, this is coming from a guy that rebalanced his Solo 401k for two years, with each paycheck.)

You’d go through those seven steps every single time you’d invest new money, if you wanted to do it as well as Betterment.

I decided to make a spreadsheet to mimic the Betterment portfolio.  Feel free to use that if you’re keen on rebalancing yourself.

Some of you probably caught on to the problem that’s apparent with rebalancing. You can’t purchase fractional shares. In my spreadsheet example, you’ll see that I should Buy $1,161 of VWO. Well, what if VWO’s price is $32 per share? That means I would need to purchase 36.28 shares. You can’t do that. So you’d round down to 36 shares, leaving you with remaining funds of $10.08. Not the end of the world, by any means, but annoying if you’re a bit OCD like yours truly.  Betterment allows you to purchase fractional shares, so that problem goes away (I’m not certain on the purchasing of fractional mutual fund shares, such as the Target Date funds..if someone knows, please let me know!).

So…asset allocation done. Just an hour later! :)

Conclusion #2, and Automation

If you know YNAB at all, then you know we aren’t huge fans of automating your money so much that you don’t stay involved.  With investing, the opposite approach is the appropriate one. I want you automating the heck out of it. I want it out of sight, out of mind. I want you to make the decision once to invest, and then just focus on bringing home lots of bacon!

The impact you’ll have on your retirement nest egg if you can throw a lot of money at it, while it’s well-diversified and appropriately allocated, is massive.

In the end, what I’m saying is this. If you want something drop. dead. simple, I recommend Betterment. If you want something that won’t confuse or intimidate you, I recommend Betterment. If you want to (pretend to) rebalance your portfolio, and diversify on your own, then I wish you the best of luck.

The key is this: You are not, nor will you ever be, a professional investor. You didn’t build your own home, or build your own car, because you found it economical to pay someone to have the skills necessary to do it for you.  Betterment is that tool for me. It takes the mystery out of investing, keeps things simple and transparent, and saves me a lot of cognitive overhead.

Try ‘em out if you’re so inclined.

P.S. If you have built your own car or home, you are awesome, and my idol.

Affiliation Disclaimer: If you click on any of the above Betterment links AND sign up, YNAB earns a referral fee. I only recommend products I actually use, and feel great recommending this one. If you DON'T want YNAB to earn a referral fee, you can use this link.

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About jesse

Jesse is the founder of YouNeedABudget.com. When he’s not speaking on, writing about, fine-tuning software for, or doing his own budgeting, he enjoys playing the piano, working in the garden, CrossFit, marksmanship, and honing his golf swing. Jesse graduated from Brigham Young University with a Masters of Accountancy degree. Immediately after he obtained his CPA license, he let it lapse so he could work on "You Need A Budget" full-time. Jesse lives in Utah, is married to Julie, and has five children. You can conect with Jesse on Google+ here.

86 thoughts on “Betterment Review (I’m a Huge Fan)

  1. Interesting service, bit a few things jump out at me…. Their stock selection has a decided Value tilt, which may or may not be a good thing. It’s not something I’d throw investors into unknowingly. Their nominal bonds are super-short term, which is not something I’d recommend to long term investors either. For folks looking to get started simply, I’d probably continue to look at Vanguard target date funds.

    Anyone interested in the DIY route, come on over to bogleheads.org/forum, and we’ll help you get started. ;-)

    And yes, all mutual funds can issue fractional shares.

    • Thanks for the heads up on the fractional shares with mutual funds. I think the bonds are there for principal preservation and would hope with a long term allocation, that they’re weighted lightly.

      I’m a big fan of Bogleheads!

  2. Jon Stein, Founder and CEO of Betterment here.

    Jesse, thanks for your kind words and detailed review. We are huge fans of YNAB, too – it’s the best budgeting software out there. Your write-up is amazing and spot on – you and I agree on virtually everything about investing, including the three keys you start with (invest enough, diversify, allocate appropriately). So important to invest the right amount – that’s why that’s our first (and increasing, as we role out more advice) focus. Diversification, check. On allocation & rebalancing – right on.

    A couple comments on points you raise in your review:
    * We ask for employment and income info because we’re required by the SEC to “know our customers” and so we ask what’s typically thought to satisfy that requirement. We also can use this info to give folks advice that is specific to them and to provide comparisons to other customers in similar life situations.
    * On automation and simplicity: In addition to our streamlined signup process, and the fact that we NEVER send you anything in the mail (which you might recycle without opening anyway) we are the ONLY broker that lets you auto-deposit into a diversified portfolio of ETFs – and the ONLY one that uses each and every deposit (and withdrawal, dividend, etc.) to dynamically re-balance you (for tax efficiency – a huge, FREE value add from our platform, and available nowhere else).

    And on the only other comment (so far), about stock and bond allocations:
    * Our value and small cap tilt are only slight, perhaps less than that advocated by DFA, and we feel justified in recommending this tilt based on long-term studies of persistent mis-pricing of these factors, perhaps due to behavioral factors and cyclicality (consistently buying value/small cap stocks might work over the long term for the same reason rebalancing works over the long term)
    * We do have a relatively conservative bond allocation (50% TIPS and 50% 1-3 year treasuries; blended duration is about 4 years). We aim to make this a low-risk option (to approximate, from Modern Portfolio Theory, the hypothetical “risk free asset” – though nothing is truly risk free, and that certainly includes our bond portfolio, which carries risk). For most goals, a blend of this bond portfolio and a diversified stock portfolio is appropriate, because short-term goals will be more in bonds and long-term goals will be more in stocks. This is particularly true when yields are as low as they are, and bond prices at historic highs. There is out-sized risk in owning long-term bonds today. I wouldn’t recommend longer term bonds to anyone right now; the risk doesn’t justify the potential reward. That’s not to say that if you’ve been holding them you should trade them, or that you shouldn’t try to duration match, in general. Instead, it is to say that the large retail fund-flows into long-dated bond funds of late are unjustified and, will likely end (as most major retail fund-flow movements do, sadly) in a bubble/badly. At Betterment, we aim to tamper these movements, and instead focus on good old passive investing.

    Thanks again,

    Jon.

    • Hi Jonathan

      I am an Irishman living in China who will be working internationally for the next 10+ years. Your service sounds fantastically set up to allow somebody like me the freedom to invest my earnings long term, with minimum fuss. I

      t’s just such a shame that I can’t avail not being a resident of the US! Is there any way a fella like me could access the service, or are there plans in the pipeline to open up the service globally?

      Thanks for your time

      Barry

  3. I work at a company called Folio Investing that allows you to hold fractional shares and does the re-balancing work for you. However, it costs $290 a year (you don’t pay per trade). But it seem that Betterment is a better choice unless you have investments over 193k (290/.0015) or are willing to pay a premium for the ability to fine-tune your diversification strategy (such as being able to pick the ETFs you invest in, allocate to foreign stocks, etc). Anyway, they are both good mutual fund alternatives!

    BTW, I just bought a YNAB key today. I’ve been using it for the past month and love it!

  4. Why not simply invest in a Vanguard Target retirement fund? You pay less in fees, it re balances, it knows your target and therefore gets more conservative with time. It’s simple, and cheaper?

  5. I just realized you mentions the Vanguard Target funds. I apologize for not reading thoroughly before posting. I’m unsure how the 5 year separation between the funds is such a drawback? The savings .10% in fees is massive over time. Check out this article for a direct comparison.

    • Thomas, Jon Stein, Founder and CEO of Betterment, replying to your question.

      Target date funds are great – a fine innovation. I see Betterment as the next step in evolution – toward more personalization, more sophisticated advice, and more transparency.

      Target date funds have their critics, too. Many say they are overly conservative. My biggest issue with them is that they reduce your stock market exposure so much before you retire that you miss out on decades of significant earning potential later in life, as you approach and enter retirement – at the time when you have the most to gain – because you have the most capital exposed to the market. I think, in the long term, more people will use products like Betterment that handle allocations on a customer-by-customer basis, and give the customer control, with advice.

    • Hi Thomas,
      The 5-year separation is one aspect, the other that I didn’t mention in the review (but am employing personally) is the ability to have multiple goals within one system. For instance, I have my retirement fund, but I also have a car replacement fund there (with a much more conservative allocation). Each is independent, setup of another is very quick (much more like an online savings account in the setup (not in the risk!) aspect of things).
      My main attraction to Betterment–especially for beginner investors–is that it is far less intimidating. To a seasoned investor like yourself, that’s a moot point, but for someone like the friend I spoke with last week, it’s a total deal-breaker. I showed them Betterment’s site and they set up a $100 monthly investment. The contrast was stark, and if it means more people START investing, even at 10 more basis points, I think that’s totally worth it.
      That being said, for many, Vanguard is a great option. To each his own. There’s no one “right” way to invest (though there are certainly correct principles to follow), and with this review, at least some more people are exposed to one more option.

    • Well it’s time to confess. After some time, I’ve converted to Betterment. While Vanguard is a fantastic, low cost option. I’m way to “smart” for my own good. Betterment makes the entire process very simple and very hands off (which I need.) I spend much less time watching my accounts, and am able to set up a savings account for our baby fund, our vacation fund, retirement, house purchase, and vacation. The best part by far is the behavioral aspect. It’s a savings account, money goes in, done. I set my goal, and then when the timeline timer runs out, I look at the account, and use the money. I no longer track my investments in YNAB, It’s simple “spent” money. When I need the money, or plan to use it, it’s simply “Income for current month”. While I still believe that saving on fees is one of the best ways to increase your portfolio in the long run, the simplicity of betterment is worth the modest fees.

      In the end, I too now recommend Betterment, and am happy to report that from a fee perspective, I see the value, and see it as worthwhile. Thank you to Jesse and Jon Stein for helping me to see the value in this investment tool. I actually invest more as I’ve moved my home purchase, baby fund, vacation fund, and other “savings accounts” into Betterment (not my emergency fund, that stays in my checking account for emergencies.) I actually don’t have a savings account anymore, and I spend much less time pouring over my finances. I’ve since streamlined YNAB as well. I have a credit card (for rewards) and a checking account, thats it. Part of the budget is our goals, and all of those are simple outflows. Then I have betterment with all of our savings goals. I don’t track it daily anymore, and I don’t stress about it. My life has been simplified. Thanks again to JEsse for YNAB, and to Jon Stein for Betterment.

  6. I certainly understand the appeal of simplicity regarding investing. I just want to make it clear to all that fees have much bigger and constant impact on your returns than anything else under your control. For example, over a 25-year period a participant paying 1% less in plan expenses will realize an additional 28% in retirement income. (assuming 8% gain on an initial $10,000 investment with monthly compounding) Now I’m not saying that Betterment is a bad option, I’m simplyy pointing out that there are some fairly simple, lower cost options. For many people the simplicity is going to be the right option, but on the same coin, lower fees will win. I have personally used Betterment, and I liked it for the reasons you point out, I realized however that (especially since I am so young) my investments have a lot of room to grow if I cut back on fees. That’s not to say simplicity won’t win, knowing where to put your money and never doing so will not get you anywhere.

  7. Another question for Jesse; What’s your method for tracking investment accounts in YNAB? Personally I keep investments in an off budget account. I transfer money from checking to investment and categorize this transaction as retirement (or whatever my find may be for) and I clear the transaction when it clears my bank, and my portfolio. On the first of each month I look up my account total. I quickly calculate the difference and add a transaction of the difference. I DON’T ever clear this transaction. Over time, at the bottom of the screen I can see: Cleared transactions = My contribution, Uncleared transactions = Growth/Loss, and the total of the account. I have a similar method for our car loan, at the bottom I can see the cleared transactions = My payments, uncleared transactions = total interest paid, and the total balance, the remaining balance. At the end of the loan period, I will see exactly how much I have paid, how much was paid as interest, and the balance will be at zero. I think YNAB is just about perfect when it comes to the budget and on budget accounts, but I think we can see more usability in the off budget area. Separation of off budget debts and assets, and tracking of changes in off budget accounts. (Debts, investments, assets, depreciation) Once again, thanks for the wonderful software, I will always be a fan (especially if it ever hits windows phone, we’ll see how that pans out)

    • Your method is more sophisticated than mine Thomas :) I have all investments as non-accounts, and when I send money to an investment, it’s an outflow and that’s the end of it, as far as the budget is concerned.

      In other words, I don’t put my investment accounts in YNAB at all.

      • I do the same thing as Jesse – the investment is treated as a “bill”, and then vanishes. I use YNAB for month-to-month, and it was too distracting to have all the off-budget accounts because of the time to balance (etc).

        • Same here. I have a Savings category with sub-categories for Retirement, Education, Investing, and Emergency. I budget for those categories in YNAB, but they are just outflows (not transfers) and the balance is not tracked in YNAB. I have found wikinvest.com to be a good way to see an aggregated listing of my investment accounts (including Vanguard, and others).

  8. Now that your getting serious about investing – maybe we can entice you to add investment tracking transactions (buy, sell, splits, dividends, etc) in the non-budget accounts so we can see how we’re doing. Call it the YNAP (you need a portfolio) add-on.

    • If we ever did something like that, it would be a whole new application. And honestly, there’s too much work still to do with the desktop/mobile/tablet stuff! (Not to mention the web stuff.)

  9. Jesse, something else detracting from the idea of doing it yourself, each trade to purchase an ETF has brokerage fees associated with it. If you opt for the fund version (available for the Vanguard at least), that brings with it 3 fold increase in management fees.

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  11. Jesse, you mentioned a book called “Seven” in your podcast, but not the author. Could you give us the author’s name? The book is proving hard to find

  12. You mention using Betterment to save for a new car fund. Is Betterment your preferred tool for that kind of saving? How do you get the money out when your goal is met?

    • Hi Ben. I did try it for the car saving (allocated very conservatively). It was cool because I actually only had it in there for about three months before we bought our car and it made us $200 :) YMMV!

      To get the money out, you just initiate a withdrawal and it will land in your linked checking account within a few days. It’s a LOT like an online savings account.

      • Are there any withdrawal fees? Can you withdraw before your goal date is met?

        I have never considered setting up an “investment” account as a savings account for these type of things (car replacement, new HVAC, etc) but it makes a lot of sense. I want to pay off our credit card debt before serious investing, but setting up an investment for a specific purpose in the near future would help get our feet wet.

  13. I hate to be one of those annoying Vanguard diehards, but I think your characterization of Target Retirement funds is a bit disingenuous. You specifically mention Vanguard as an option, then in the same breath mention that many target date funds are expensive, actively managed funds. But the Vanguard target date fund expense ratios range from 0.16% – 0.18%, making it cheaper than Betterment by default (assuming you go paperless, which is simple enough.)

    I appreciate services like this for making investing more accessible and manageable, and for being a relatively lower cost option than many firms that are out to bilk you or even just for having lower expenses than the average actively managed fund. But when putting a few days up front towards the financial literacy of understanding investments and a few hours a year towards rebalancing your portfolio can mean tens of thousands of dollars in the long run, I can’t stress the importance of doing it yourself enough.

    Kudos to you for the comprehensive review and discussing other options, though – I’m sure Betterment is a good choice for lots of people.

    • Hi John,

      I reworked that paragraph to make it not look like I was saying Vanguard’s Target Date options were inexpensive, and then later saying they were expensive and actively managed :) I invest heavily in Target Date funds from Vanguard as part of YNAB’s 401k option. I actually pay more to administer our 401k just so I can make those options available to YNAB’s employees (verses the default available through our 401k provider that are awful). I’m a fan. I’m just a bigger fan of Betterment for people that are getting started. It’s very easy for those of us already in the know to say how easy it is to rebalance, learn the principles, follow our game plan, but for many people starting is just the thing they struggle with, and that’s where I believe Betterment still shines.

      • Thanks Jesse, that is clearer now. Awesome that you make Vanguard funds available to the employees – I’m jealously wasting a couple hundred bucks a year on the inflated expense ratio of my work’s 401k funds.

        I’d say that simply caring is the tougher thing for a lot of people than starting, but I’m 25 so I guess most people my age are going to be less concerned with retirement savings than others.

    • I’m not a fan of Capital One (the company). But honestly, I just don’t use online savings accounts at the moment.

  14. I’m surprised that someone who has taken the fundamental discussion of a budget and has expanded it into a more detailed science, would get into a discussion about investing without more clarity about the three roles of money. YNAB does better than any other software I am aware of in planning and tracking money that is being spent. When you do not spend all your income, you only have two other choices. You must choose to “Save” or you must choose to “Invest” Those are the only three choices for money …. Spend, Save or Invest it. Many people do as you did and have the thought that savings must go to bank. Wrong! The other type of institution that accepts savings accounts is an insurance company. The difference between savings and investing is that there are guarantees on the principle in savings. In today’s economy, savings will earn from 3 to 7% interest while investments could earn more than 7%, but with risk. I’m not a fan of Vanguard or any other mutual fund because of the risk factor. Why put your money with any group that tells you not to worry about market losses, because experience tells us that “The Market will come back” without addressing the obvious that if it didn’t go south on us quite often, we would not have to “come back” from anything. Maybe you would let me post on a blog or something about alternative savings vehicles that don’t ever go backward or lose money.

    • Hi Randall, what are some the alternative savings vehicles you’re referencing?

      Being in a fairly high tax bracket, I looked into some whole life policies over a several-day period, following the “bank on yourself” method (infinite banking, or whatever you want to call it), and actually spent several hours with an agent going over the numbers. At the end of the day, it still just didn’t look that great to me. And for people in lower tax brackets, it would obviously look much less appealing.

      Or were you referencing an alternative savings vehicle other than whole life policies with paid-up additional riders? My apologies if I was being presumptive.

    • I’m sure whole life insurance works great for you and all other shysters that sell it, unlike 99% of the unfortunate customers that are buying it.

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  17. I really love the idea of Betterment, but unfortunately I live in Australia and so can’t use them. Can anyone recommend a similar company for Australia? Or alternatively what I should search for? I know that I can find tons of fund managers but I’m not sure how I would separate the wheat from the chaff.
    thanks, Tim

      • Hi Pranil, no, I’ve had no luck with finding something in Oz. I posted the same question across in the Investing forum (http://www.youneedabudget.com/forum/investing-f90/betterment-equivalent-australia-t21688.html) but so far have had no replies.
        I guess when you consider Australia’s population of 23 million versus USA’s of over 300 million we are just too small for a service like that to have enough people to make it pay.
        The closest thing I guess would be a managed fund that allows you to swap between different asset class mixes, although I have no idea how to pick a good one.

          • I think the reason that OZ doesn’t have such good systems is because we have mandated Superannuation unlike the US. Hence your super fund can help you with details like betterment can do. Still it would be nice for those not looking at putting money into super to have an online strategy we could use. Most managefund provide very little in the way of online tools like betterment.

  18. Jesse,

    I just opened an account with Betterment after getting your 8th email in the series of 10 emails about investment. Betterment is secured with SIPC so I am not worried much.

    I had read Intelligent investor By Ben Graham and the commentator Jason Zwaig had mentioned same strategy in it. I knew instantly your emails are coming from someone who understands that investor’s behavior is the most harmful thing to the portfolio.

    In short after reading Intelligent investor, I knew what to do, I just did not know how to do it. Betterment is the exact investment vehicle, I was looking for.

    I am on and off with usage of YNAB and not sure if I have the temperament to use it consistently. However with your Betterment recommendation, I will pretend that $65 paid for YNAB has paid off with your advice, YNAB is free.

  19. I really enjoyed this article (and the recent series of investment emails), even though I don’t live in the US so can’t use Betterment. My only investments so far are through a company retirement scheme and I just have whatever default options they provide. I just checked and the main fund is an actively managed fund with a charge close to 3%! I’ll be looking to change that…

    If I’ve understood correctly, the advice is to stick to passive funds (and bonds) and to diversity as much as possible by picking whole market funds. This will cause the return to equal the market rate in the long run.

    You actively advise against buying individual shares. Have you got any words to say on value investing? From my reading it seems to go completely against your advice, yet the returns seem a lot higher as by definition they beat the market rate. They are also purely hands-off: buy the stock and leave it. I guess the biggest difference is that it requires a lot of up-front research, which is a massive barrier to getting started. And it could be easy to make an early mistake.

    • That’s right Adam, value investing is great if you have the savvy and time to know which stocks to buy, and then the wisdom and discipline not to sell. It can be done, it’s just far too much work for me to seriously recommend to anyone :)

  20. Hi Jesse,
    Betterment looks like a fantastic way for a beginning investor like me to get my feet wet in a simple and clear way. I do have a question about what kinds of companies are being invested in. At work my IRA with TIA-Creff is invested in a plan called something like “socially responsible choice” funds. (i.e. no nuclear energy, no tobacco companies, weapons manufacturers,etc.) I don’t need to micromanage my investments, and I’m not insanely obsessed about it, but it would kind of tug at my conscience to think that my small car fund was enriched by companies that I would not wish to give my money to. Do you know if Betterment has an option like this?

    Thanks!

    Laura

    P.S. just ftr, YNAB has saved my not-truly-endangered marriage. After almost two decades of fighting about money, once we got YNAB, and followed the system, miraculously the disagreements and tensions have completely gone. So, hey, thanks!

    • Hi Laura – Mark here. Jesse was asked this question elsewhere (so you’re not the only one wondering). To the best of our knowledge, Betterment doesn’t have such an option at this point. We’ll get the word out if we hear otherwise. Glad you’re loving YNAB!

      • Thanks Mark, I appreciate your fast response. Maybe Jon Stein (who was following this thread last year) would be willing to weigh in on this at some point.

        • Hi Laura – Jon here, still following this thread – what a good one! Thanks for the question and personal request.

          You are not the first, nor even in the first 50, of our customers who’ve asked about a socially responsible portfolio. There’s enough demand that it’s almost surely something we’ll do some day.

          One issue, and a reason we haven’t done this yet, is that it’s really hard to define what socially responsible means. We could look at TIAA-CREF’s definitions as a good starting point. But one person’s socially responsible company is another’s enemy. Some people don’t like nuclear, others oil, coal, or any energy. Some don’t like tobacco, others processed or fast food. Some don’t like pharma, or technology companies manufacturing in Asia. Some people like guns, others hate them. Pretty soon you’re left with little to invest in. Diversification becomes a challenge. I’m open to ideas – email me if you have socially responsible ETFs that you like.

          For now, remember that when you invest with Betterment, you’re invested in broadly diversified index funds – like owning a little piece of every company in America and around the world. That should be easy to feel good about, from an investment strategy standpoint.

          • Thank you for your answer, Jon. I’m impressed that you took some time to give your personal attention to this question.

            I get the difficulty — and as a historian, I certainly don’t have any kind of investment information that could help here. But it was just a thought. Maybe there should be a Red Fund (nuclear, oil, weapons, etc.) and a Blue Fund (solar, big organic, etc.) Something for everybody! (Joking. But as a thought experiment, it would be interesting to see which one performed better…)

            Seriously, though, thank you for thinking about it. I do hope it stays on Betterment’s radar, anyway, as a future possibility.

            Betterment looks like a really great, simple and understandable way to invest. I’ll look forward to investing with you when I’ve achieved YNAB goals #2 and #4.

            cheers-
            Laura

  21. I’m a little while off from getting to investing, as I’m only in Dave Ramsey’s baby step two, but once I get to Baby Step 4, what would be your suggestion if I were to use Betterment for some of my investing for say my drive free cars fund or my save for a home fund? Should I wait until I get $10,000 saved up to open an account or start with whatever money I can and build it up progressively to $10k?

  22. I signed up with Betterment and opened a Roth IRA. I have a question about the asset allocation. I’m 36 and set a target retirement age of 68. I put the allocation slider to 90% stocks/10%bonds. Does Betterment automatically shift asset allocation over time to a more conservative allocation as I get closer to my target date (the same way Vanguard Target Retirement Fund does) or do I have to adjust the slider manually over time to shift to a more conservative allocation as my target date draws closer each year. I know with the Vanguard Retirement fund, it is a completely hands off approach and the fund becomes more conservative as time goes by without me having to shift anything.

    • It does not become more conservative over time (Nor should it.) Everyone has a different tolerance for risk and some will want to remain a bit more aggressive longer, while others would like to transition to a conservative approach sooner. The choice is up to you, it’s VERY easy however, just remember to stick with your changes don’t be a the person flipping from conservative to aggressive, you will effectively lock in your losses at that point, set it, review it periodically, and move on.

    • Katherine from Betterment here. Thomas, thanks for your comment – we agree with your long-term asset allocation philosophy!

      Rudy, Betterment is like a personalized target date fund. After suggesting an appropriate asset allocation for your goal, Betterment monitors your progress towards reaching your goal. If you are off-track, we provide actionable advice to get you back on-track.

      Rather than invest your money on an automatic glidepath that may or may not achieve your investment goals, Betterment can help you invest appropriately with constant monitoring. If you do decide to update your asset allocation, Betterment won’t change any trading costs to do so.

      Target date funds are one-size-fits-all, and do not update in tandem with your circumstances. While target date funds decrease risk the closer they get to their target date, target date fund providers frequently neglect to emphasize that the average return you can expect also decreases. This can actually lead to a missed opportunity for most investors: Regular savers tend to save more as they get older, and also have the most wealth in the market closer to retirement. As a result, many investors experience the highest expected returns when their portfolios are small and the lowest expected returns when they have more investable assets.

      Happy to discuss further if you have additional questions.

      Regards,
      Katherine
      Community Manager at Betterment

  23. I think it’s great that betterment allows you to have multiple goals and makes recommendations based on those goals. However, when it comes to retirement, this can also be a disadvantage. I’ll give an example. I open a Roth IRA at betterment, give my current age, expected retirement date of 2046, my retirement goal: 2 million, and initial deposit (assuming zero). Betterment recommends 90 percent stocks and suggests 1300/month deposit with option to auto deposit. It will tell me how I’m doing and if I’m off track eg: (perhaps I’m not investing enough. If I’m only investing 200/month, it will show I won’t hit my goal of 2 million by 2046. Ok that works well as does the investment advice. One thing however. I can’t invest 1300/month into my Roth. There is a limit of 5500/year, so it will always show me as being off. I could invest part of it in Roth and part of it in taxable account with a goal of investment. However, they are considered separate goals. If I have a Roth IRA, Traditional IRA and Regular Taxable investment account with Retirement as my goal, those three get separate advice from betterment. Eg: Betterment advises me to invest 1300/month for retirement. I invest 400/month to Roth IRA, 400/month to Traditional IRA and 500/month to normal taxable account for retirement goal. According to betterment, I’m off target for retirement because it’s treating all 3 goals as separate. Of course, it complicates things even more if part of the investments are going into spouses IRA and into employment 401K.

    I think it would be easier if you could link multiple accounts to one goal.
    Eg; GOAL- RETIREMENT – Roth IRA, Traditional IRA, Taxable Retirement. That way any deposit/allocation advice would take all linked accounts into consideration. If you put 400 to Roth, 400 to IRA and 500 to regular, betterment would count them as being on target with recommended deposit of 1300/month and overall goal of 2 million (not per each account but in total). Would be even better if you could specify what other investments you are making monthly with other external accounts (spouse,401K,etc) so they can be taken in to consideration.

    • You bring up an excellent point, and your suggestion for linking multiple accounts to one goal is a great one. We’re excited about the possibilities introduced by goals, and want more ideas like this from customers and fans. Keep checking in with us as we make Betterment better.

      Regards,
      Katherine
      Community Manager at Betterment

  24. I have been trying to find something like Betterment for the UK, the closest I can find is Nutmeg (www.nutmeg.com). Although they charge 1% annual fee dropping down to 0.3% if you have enough nutmegs, they’re point system. I am not keen on the point system but it is clear how much the fees are. There is no charge for withdrawals as long as its on their schedule (fortnightly) and you also have to have an initial investment of £1000.

    So as you can see it’s not as good as Betterment unless you have a lot of money to invest or can gain enough “nutmegs” to get the rate down to 0.3%.

    I haven’t invested using them yet, mainly due to the £1,000 initial deposit and the 1% fee, they have got a demo version you can try out which I will give me an idea if it would be worth using.

    Any better suggestions for the UK?

  25. 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.

    • Hi F@B,

      Thanks for the comment. As I posted in response to you on another blog, you are correct, there is a fee that would be assessed should a 3rd party direct transfer be requested. This is because it would involve a 3rd party to complete the action – it is not a feature provided with your account. Betterment will NOT charge any transaction fees to allow you to complete an indirect transfer of your account, and is our recommended method.

      While we apologize that the new brokerage may charge fees for the trades of moving funds into your account as cash, we do our best to provide an option that does not cost anything extra.

      Thanks,
      Katherine

      • But doesn’t completing an indirect transfer require liquidating all your holdings such that the transfer is done in cash? This can create tax liabilities that are avoided by an in-kind transfer.

        • So having a Roth IRA with Betterment with the intention of moving it to vanguard et al once the % fee outweighs what the others would charge would be a bad thing if I understand this correctly – so betterment for 10 years or less type savings good – 10 years or more maybe not so much…sorry anything beyond my 401k is new to me however tax implications are not am always concerned.

          I started with betterment because it would allow me to start a Roth without a $3000 requirement to open the account – and at least I could start

  26. Betterment looks pretty great, and I love YNAB, but there’s one thing I’ve noticed: some “other” sites out there provide a Betterment referral link that gives you $25 account opening bonus (see, e.g., PTMoney’s review).

    I’d like to give YNAB credit for turning me on to Betterment, but I’d also like the $25 account signup bonus. Any way I could get both? :-)

  27. Jesse, thanks for this great thread and the Betterment recommendation, a product definitely worth researching. I was intrigued by the concept of using an investment tool for separate short term savings goals, but was wanting your opinion on a specific scenario.

    We’ve been using YNAB for just over 2 years (Quicken for about 15 prior to that), and love your product. We’ve done well and enjoy living “in Rule 4,” but I wanted this months money waiting to be used to earn some income. Through my credit union, I’m able to earn 4% APY on amounts up to $25,000 in my checking account (yes, checking). This is a great place to hold this months money to use next month, but I was wondering if you think the money I have on hold (in this account) for short term savings goals (primarily vacations) would be “better invested” in a tool like Betterment? I’m talking any money within the $25k, not excess beyond that amount, which no longer earns the 4%.

    Your thoughts on this scenario would be greatly appreciated.

    Thanks,
    Dave

    • Dave,

      What are the qualifications to earn that 4%? Assuming you’re in North America, interest rates like that are unheard of on interest bearing accounts. I have to assume that there are is more to the situation than simply “deposit your money, we’ll give you 4% interest.” If not, then you’ve got a pretty sweet credit union–care to share the name? There would be people beating down the doors to open an account like that.

      -Josh

      • Josh, the requirements are 15 debit card transactions per month, one ACH transaction per month, and sign up for electronic statements, that’s it. The CU is Southwest Airlines Federal Credit Union (www.swacu.org), and the account is called LUV rewards Checking (check it out). I believe there are specific requirements for membership, but you’re right, this is a great deal for a checking account.

        Any thoughts on my question?

        Dave

        • My thought is that if I could get a guaranteed 4% rate of return, it’s where I would be parking any money I had for short-term goals. I would probably put any goal that’s inside of 5 years in that account.

          The nearer your goal, the more likely that when you need the money, money in stocks & bonds will be down. An FDIC insured account with 4% guaranteed rate of return is, well, guaranteed to be there for you.

          Essentially, this is a risk aversion question. The spread between your checking account, and “good” Betterment returns is somewhere in the 4%-8% range. Let’s say it’s 6%.

          In return for the *possibility* of an extra 6% return, do you want to put your vacation money (needed in 9 months) in Betterment, knowing that it might tank on you right when you need to withdraw it, and you’ll have to either cancel your vacation or seriously curtail your vacation costs?

          For me the answer is absolutely “no, it’s not worth that risk.”

          And I sure wish I qualified for membership with SWACU! I checked, I don’t.

          • Thanks Josh, great advice and exactly what I was thinking, but I’m always open to other opinions.

            I’m not sure of the membership requirements for SWACU, but I believe organizations are allowed to apply for membership for their employees. Good luck, because it’s great getting $80+ a month in interest just for keeping my “liquid” cash in this account.

            Thanks again,
            Dave

    • Hi Dave,

      Katherine from Betterment here. We introduced a new bond basket in Q4 2013 that optimizes investing for short-term goals. The added fixed income diversification provides better expected returns at every level of risk, even those low-risk investments with a time horizon of 5 or fewer years. You can take a look at a post we wrote about it here: https://www.betterment.com/blog/2013/09/16/short-term-investing-savings-account-alternative/

      Don’t forget your Betterment assets are liquid and accessible whenever you need to withdraw.

      Feel free to reach out to me if you have additional questions about short-term investment goals, or Betterment in general. Always happy to be a resource for the YNAB community.

      Take care,
      Katherine
      Community Manager at Betterment
      buck@betterment.com

    • I’m in the same Aussie boat as you, Chris. I have arrived at Betterment through Jesse’s stuff with YNAB, but it doesn’t look like anyone is able to help us out…
      Someone mentioned Vanguard, but it’s harder to start with them and requires a bigger start amount.

      Can anyone help us???

  28. This is wonderful stuff. I’ve been using YNAB since the summer, and we have already applied all four rules–which has made opening bills a completely stress-free event–but we are saving into the bank because investing overwhelms me. This feels like a knucklehead move, especially now that I also follow Mr. Money Mustache. But I was under the impression that because we might want to use our savings on a house downpayment, we would need it to be accessible and couldn’t invest it. Is that not true? Would Betterment be a good option or us, to grow our downpayment? We might move the savings out in 6 months, or we might sit on it another 3 years and keep growing it each month. What do you think we should do? Betterment all the way? If Betterment, what kind of investment choices would we make? I love the idea of actually having the money work for us, but I’m a very low-risk person on these issues, so I don’t want to lose any money in the process (I suppose nobody wants to lose money, eh?)

    • Heatherkl,

      Take a look at the reply above from Katherine (“buckka”) who works for Betterment. Looks like they may have a good option for you.

  29. This column seems to be active over months. You must be answering lots and lots of questions. My issue is that I am 67 and looking to park money (partly inheritance) into a fund like Betterment. Most of your questions have been about investing. What I’m concerned about is withdrawing money automatically on a monthly basis to use as income along with 401k and Social Security. How does this work with an organization like Betterment?

  30. Hi Michael, Alex here from the Betterment Product team. We’ve just launched a new product for retirees like yourself which does exactly what you mention. We provide guidance for properly allocating your investment for your age and risk tolerance (using our portfolio of diversified, low-cost ETFs), and then allow you to set up regular automated withdrawals to your linked account. We also help you determine the “safe” withdrawal amount, if your goal is to make the income last a certain period of time. You can change the allocation and withdrawal amounts at any time.

    See https://www.betterment.com/retirement-income for more information
    and our recent blog mentioned by Harry. (https://www.betterment.com/blog/2014/04/11/retirement-income-shouldnt-be-a-guessing-game)

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