Should I Keep My Christmas Fund in Betterment?

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 Two 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.