**Enormous Disclaimer:** No part of this post constitutes investment advice, nor am I saying this is the right or intended use of Betterment’s savings tools. It’s a pure thought experiment; all comments and discussion are welcome.

I’ve been thinking about using Betterment for some of my Rule 2 funds – like Christmas, or my annual life insurance premium payment.

Risk and return frame the whole conversation: how much interest could I earn, and what risk would there be of coming up short when I need the money?

Let’s say I want to have $1,800 ready for holiday gift giving, and we’ll pretend it’s January 1, giving me nearly twelve months to save (because I procrastinate my holiday shopping to the extreme).

I head over to Betterment to add a new goal called “Christmas.”

Betterment wants to know my target amount and when I’ll need the money. I plug in $1,800 and 1 year.

What I find interesting is the next screen that shows Betterment’s recommended allocation: 15% stocks and 85% bonds. You’d think such a short timeline would involve 95% or 100% bonds, but they must have math to support this recommendation.

Clicking on ‘See Advice’ I can see how Betterment recommends I set aside $147.96 per month to reach my goal:

So, there’s a small win – rather than setting aside $150 per month for my annual premium, using Betterment might allow me to set aside just $147.96. That frees up $2.04 to be spent on two donuts per month at the local bakery. I like where this is headed.

Where things get mildly entertaining is when you look at Betterment’s probabilities at the end of the period:

(Hover your cursor over the projected balance lines on the graph to see where you might end up.)

Looks like I’d have a:

- 2.5% chance of having at least $1,879.42
- 10% chance of at least $1,857.55
- 90% chance of at least $1,769.81
- 97.5% chance of at least $1,749.68

So, here’s the summary:

**Monthly Cost:**

Checking: $150

Betterment: $147.96

**Probably of having $1,800 after 1 year:**

Checking: ~100% (barring financial catastrophe)

Betterment: ~85%

**“Best” Case Scenario:**

Checking: $1,800

Betterment: $1,879.42*

**Betterment’s math only gives us a 2.5% chance of getting there. Returns could be much better, in theory.*

**“Worst” Case Scenario:**

Checking: $1,800*

Betterment: $1,749.68**

**The bank could fail, and I’d have $0.*

***Again, Betterment offers a 2.5% chance the balance would be lower. In theory, it could be much lower.*

What do you think? Transaction costs are low (easy transfers between checking and Betterment), so you really only have to ask yourself if you’d take this 85% “bet” that you’ll have at least $1,800 at the end of the year, with your upside being the $25 in annual savings ($150 – $147.96 x 12) ~~and maybe $25 to $50 in investment returns.~~ (Jesse just pointed out that the $2.04 per month *are *the returns.)

Combined with a couple other similar-sized Rule 2 funds, this plan could put an extra couple hundred dollars per year in your pocket – or leave you a little short when the bills come due.

Worth it?

In any case, it’s always good to have a reminder to employ your money as profitably as possible.