Author Topic: Betterment.com  (Read 23796 times)

Honest Abe

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Betterment.com
« on: October 03, 2012, 02:31:00 PM »
I recently started stashing some money away at Betterment.com.. I actually rolled an old 403(b) into a traditional IRA with them. Was wondering what some of you thought of this service. I know some of the Vanguard diehards would just stick with them, but dollar cost averaging into Betterment is great because there are no transaction fees. Also the automatic rebalancing is nice.

I must say also that the customer service I received from them while going through the rollover process was really second to none.

I encourage some of you to investigate Betterment.com and let me know what your thoughts are!
« Last Edit: October 06, 2012, 07:22:43 AM by priuspilot »

AJ

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Re: Betterment.com
« Reply #1 on: October 03, 2012, 03:03:47 PM »
I used Betterment for a while until I had enough funds to meet the minimums at Vanguard. I was happy with their service. But I prefer the low cost and flexibility of Vanguard. You mention no transaction fees as a benefit, but I have never paid transaction fees at Vanguard.

I think Betterment is great for what it is - a place to start and get people investing.

sheepstache

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Re: Betterment.com
« Reply #2 on: October 03, 2012, 04:59:24 PM »
I looked into this when someone else mentioned it in a reply to an MMM post on the blog.  It seems like a rip-off to me.

They charge a fee (from .15%-.35% depending on your balance) in order to invest in ETFs for you. Meanwhile the ETFs charge their own fees of course, so why not just invest in them directly? As you say, there's the convenience of liquidity and not needing to deal with broker fees (or brokers for that matter) if you're DCA or withdrawing.  But then why not invest in the fund version of the ETFs which have an only slightly higher fee?

For example, 25% of the “stock portfolio” is in Vanguard Total Stock Market ETF which has its own fee of .06 so if you were using betterment your fee on top of the ETF would be .35 for a total of .41.  Meanwhile the fund version only has a fee of .18.   If your betterment account is $10,000 or over the fee is .25 but that’s still .31 total.  And if you've got that kind of money, you could get the Admiral version of the fund for an even lower fee.

I suppose there may be a sweet spot based on someone's balances and activity level that would make this a good solution?  Seems like it would be a narrow range though.  Can't see it myself

The other argument to be made would be the "diversity" that comes from holding multiple broad stock market indices (and multiple broad bond market funds), but as is obviously indicated by my use of quotation marks, I don't see that either.  I'm not in any way an experienced investor, though, so I could be missing something there.  Vanguard might go under, but I think SIPC insurance would help you out there, up to $500,000.  (Again, though, I'm pretty novice, so if that's something that worries someone they should research that.)

ps. oh wait, here's a little more about Vanguard and loss and SIPC http://www.bogleheads.org/forum/viewtopic.php?t=19041

Nords

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Re: Betterment.com
« Reply #3 on: October 03, 2012, 09:29:42 PM »
I looked into this when someone else mentioned it in a reply to an MMM post on the blog.  It seems like a rip-off to me.
They charge a fee (from .15%-.35% depending on your balance) in order to invest in ETFs for you. Meanwhile the ETFs charge their own fees of course, so why not just invest in them directly? As you say, there's the convenience of liquidity and not needing to deal with broker fees (or brokers for that matter) if you're DCA or withdrawing.  But then why not invest in the fund version of the ETFs which have an only slightly higher fee?
Over a year ago when the NYT profiled Betterment, they were charging 0.9%:  http://the-military-guide.com/2011/07/20/trends-in-personal-finances/

But they certainly serve a portion of the population who either cannot or who chooses not to handle their investing.  Sort of like buying pre-made PB&J sandwiches at the grocery store instead of making your own.

stealmystapler

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Re: Betterment.com
« Reply #4 on: October 04, 2012, 08:22:52 AM »
I've been using Betterment since January, and I'm generally pretty happy with it.

Unlike many of you here on the forums, I am new to investing and this gives me a good way to get my feet wet. I'm currently using it to hold most of my emergency fund rather than letting that money sit in a very low interest credit union savings account. True investing is a ways off for me - paying off student loan debt, saving for a house down payment, etc. - but Betterment feels like a fair start.

sheepstache

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Re: Betterment.com
« Reply #5 on: October 04, 2012, 09:58:28 AM »
I've been using Betterment since January, and I'm generally pretty happy with it.

Unlike many of you here on the forums, I am new to investing and this gives me a good way to get my feet wet. I'm currently using it to hold most of my emergency fund rather than letting that money sit in a very low interest credit union savings account. True investing is a ways off for me - paying off student loan debt, saving for a house down payment, etc. - but Betterment feels like a fair start.

See, I can see that the convenience factor could put this in a sweet spot for some people.  If learning anything (anything!) about investing is currently way down on the list of priorities and this is how someone wants to handle it, that's cool.  Although, like I say, Betterment's claim that they do "tons of research" when all they're doing is sticking you in stock and bond indices (indexes?) isn't worth anything like what they charge to my mind.

However!  You say that you have your emergency fund in this.  I hate to use the word "typical" because I don't mean to tell you what your risk tolerance is, but typically people do not invest their emergency fund in stocks and bonds and this is exactly what you are doing with Betterment.  Typically an emergency fund is money that people can not risk losing, but even if you are all in bonds, you could still lose some of this money.

And see, you're the second person I've seen refer to Betterment in terms of a savings account.  So I'm worried that while they're trying to come up with a solution for very new investors, they're reaching people who are new enough to not be fully aware of the risks.

Kind of like selling pre-made PB&J sandwiches to people with nut allergies who don't know what PB&J stands for.

Again, I'm talking about the general way they've positioned themselves.  I hope you understand I don't mean to be patronizing by bringing up issues you may already be aware of and comfortable with.

stealmystapler

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Re: Betterment.com
« Reply #6 on: October 04, 2012, 11:03:21 AM »
To each their own!

Before choosing to open an account, I did my research - reviews, etc. Betterment actually advertises themselves as a savings account, and I do think that this is misleading. I am completely aware of the fact that I could lose money - as you could in any investment. When compared to earning .9% in a savings account or 3% in Betterment, I'd rather accept the risk.

Jonstein

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Re: Betterment.com
« Reply #7 on: October 04, 2012, 08:31:29 PM »
Jon Stein, CEO and Founder of Betterment.com here. We're building a better investment - the only investment account that helps you save time, money, and make better decisions. I saw some great Q&A here, and will try to be of help.

I recently starting stashing some money away at Betterment.com... dollar cost averaging into Betterment is great because there are no transaction fees. Also the automatic rebalancing is nice. I must say also that the customer service I received from them while going through the rollover process was really second to none. I encourage some of you to investigate Betterment.com and let me know what your thoughts are!

First, @PriusPilot, that's music to my ears. I'm so glad you found us and that you've had a good experience. Please do reach out (you can mail me at jon@betterment.com) if you have questions or feedback.

@AJ, Good call starting with us - but what on earth made you want to go to Vanguard? Betterment is a better investment for most successful investors.

Why? Because we save you time & money and get you to your goals faster.

How? Let's imagine that you had the $3k or whatever to open a Vanguard Fund. Heck, let's say you have 10x that, $30k. At Betterment, your annual fee would be 0.25% = $75, or $6/month. Include the underlying ETF Fees, and it's 0.4% = $120, or $10/month. Compare that to Vanguard, I dunno, some stock and bond funds, average cost 0.15% = $45, or $4/month. So you're saving $6/month, 25bp, by investing with Vanguard (or less than $1/month if you only had $3k). Or are you?

1) Rebalancing is worth 0.40% per year ($10/month), or perhaps more, depending on whose research you're reading. Rebalancing is one of many good behaviors that Betterment automates. It more than makes up for our fees, alone. That is, you're likely to earn more, in the long term, after fees, by investing with Betterment. Some say, "I rebalance on my own," but that neglects:

2) Your time is money. If you spend just 10 hours/year managing and rebalancing your accounts - well, if you're making $75k/year, that's $375/year, or $31.25/month that you're spending on maintenance. Weak. Wouldn't you rather be making more money, or spending that time with your family & friends? To say, "I'll do it myself," also neglects:

3) Behavioral reality. There are few of us that stick to exercise plans, to diets, to reading lists. We start with good intentions, keep up for a while, and eventually slack off. And that's in things that we talk about socially, or people can see (in our appearance!). When it comes to investing, which is hidden, private, boring - we're much more likely to slack off. And yet slacking is costly; an un-balanced portfolio not only costs money, but potentially exposes us to greater risk. Some will still say, "I'm disciplined, unlike others" to which I would reply:

4) You can't do what Betterment does anywhere else, not even on your own. a) We handle fractional shares - which means we can diversify every penny of every dollar you invest. b) We diversify and rebalance your account dynamically, tax efficiently, as you invest. So say you earn a dividend today. Yay! We look at your portfolio and invest it in the funds that need to be topped up. At the end of the quarter, there's less rebalancing to be done as a result. Which saves you capital gains taxes, while keeping you balanced. c) Our auto deposit is truly auto - no second (or third, or fourth) step. And also rebalances dynamically. Great for dollar-cost-averaging and investing autopilot. And yet, no one else offers this. d) We're goal based - which means you can easily have separate accounts for your multiple needs in life, with different time-horizons, and appropriate asset allocations. Easier tracking, easier management, better understanding of your situation. e) We enable gift contributions, so others can give toward your goals. I used it for my own wedding - got a big investment for a future apartment - so much better than china I didn't need!

5) Aside from the above advantages, we offer advice (Vanguard does not, or not without a ~$100k investment and a ~1% or greater fee). Many reading this will say, "I have no need for your advice!" That's fine for you, you may be right. However, most people DO want investment advice, and even more people could use it. Unfortunately, most who invest on their own under-perform those who get good professional, passive index-based advice. This is predominantly due to "3) behavioral reality:" We do stupid stuff. We time the market, or we change our asset allocation when the market tanks. This stupid stuff is terribly costly. Betterment can't protect you from all of it, but we try, and we do give our customers free advice about the big important things that matter: how much to save, how to allocate your assets, and how to avoid typical costly behaviors. Free because you don't have to invest with us to get our advice. And, I believe, that's the way it should be. I think the value we provide (and you pay us for) is in convenience, automation, and behavioral reminders along the way - the advice is and should be free.

6) Vanguard mutual funds have trading costs that are not disclosed in the fees they quote and that do not show up on your statement. This is true with all mutual funds; they are allowed to take trading costs out of fund assets, and disclose them only at the fund level. Vanguard is a great company, so I have to imagine that these trading costs are low. But with other mutual funds, buyer beware. Betterment pays your trading costs for you, out of our quite transparent, fully disclosed management fee.

In sum: Fees are important, perhaps most important, all else equal. But all else is not equal. And those who see only fees are missing the bigger, more comprehensive picture. Vanguard would love to do what Betterment does, is trying to copy it now (we've heard that so are Fidelity, Schwab, etc.), and someday they will offer a version of it - but they're a big ship, slow to turn, and we're innovating all the time and continuing to offer a better and better service. We have a vision, here, for how we can help make life better, through better investing. That vision will prevail.

@sheepstache - The value in holding a diversity of funds is in large part the benefit of rebalancing. Then there is the benefit of having someone monitor the portfolio for you, to make sure you're getting the most liquid, lowest cost funds in each category. And there is the added benefit at Betterment of owning a slightly value and small cap tilted portfolio (better than the VTI - which is going to be moving in this direction soon anyway, due to changing their tracking index, but not far enough, in our view), to properly capture the value they represent in the economy. (Most experts agree this leads to higher risk-adjusted returns in the long term, but I have seen it argued either way, so not going to lead with this benefit.)

@stealmystapler - Betterment has never advertised itself as a savings account; we are always clear that this is a better way to invest. Heck, it's in our name. If you find evidence to the contrary, please bring it to my immediate attention at jon@betterment.com. There IS one TechCrunch video from 2.5 years ago in which I say, "Betterment is the replacement for your savings account," which, for those with too much in their savings accounts (like me, before Betterment), is true. However, realizing that people might be confused by that statement, I never used it again (and we've asked them to change the headline on that article, with no response). We still can and do contrast our offering with a savings account or CDs - Betterment, like any good investment, has more risk, and more expected return. We're always careful to properly explain the risks of investing. Soon, we will offer a savings-account like money market or FDIC-insured product, so you can both save and invest in the same account. And that will be sweet.

However you choose to do it, happy investing.

Honest Abe

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Re: Betterment.com
« Reply #8 on: October 05, 2012, 07:15:24 AM »
Jon,

It's wonderful that you posted here, since this is a an energetic and knowledgable personal finance community.

To reiterate your point, I was having a conversation with my colleagues the other day (I'm a teacher) and I was shocked that there were people of 5-6 years work experience who still hadn't contributed to their tax-deferred accounts, and whose eyes glazed over when I tried to explain Pre-tax vs. post-tax contributions.

Now these are talented, smart individuals with advanced degrees, but when it came to their wealth I was amazed (and a little saddened) that they had absolutely no idea how to build their nest egg. This made me realize how important a service like Betterment is.

Kudos to you for taking these time-tested principles of investing and making it available to everyone. You are truly making a positive change in the world!

lr

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Re: Betterment.com
« Reply #9 on: October 07, 2012, 10:54:04 AM »
Jon,

That was a great reply!  Now that your fees are much lower, I'm actually considering Betterment. I don't mind paying a small premium for ease of use, personally, but this might be even better for some friends of mine who are just starting to clean their finances up.   Looking at the site again, a few things came to mind.

1) It's not easy to see the costs of the underlying funds, even in the mouseovers in the demo. The problem with trusting brokers is that they try to get you into expensive funds.  You'd earn more of my trust by quickly proving that you haven't, somewhere (maybe at https://www.betterment.com/about/investments/), without me looking up each symbol. Wealthfront seems to do this in the plan details (see pic attached).

2) Could you explain Vanguard's trading costs and what that means for us?  I thought I avoided these by buying direct from Vanguard, which is why a lot of us have accounts there.  If they're bundled in the mutual funds' prices, aren't they the same for everyone, including Betterment customers?

3)  Here's a page where Betterment seems to advertise itself as an alternative to savings accounts and CDs, since you asked. https://www.betterment.com/why/  To be fair, you'd want a row that said "risk of losing money" or a warning that people should have an emergency fund with someone else before investing in stocks.

Jonstein

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Re: Betterment.com
« Reply #10 on: October 07, 2012, 12:10:36 PM »
Jon Stein, CEO and Founder of Betterment.com here again.

@lr - Glad to hear you're considering Betterment! I think you'll love it, because it's a unique, unmatched product, and getting better all the time. Thanks for your great questions and feedback. My responses inline:


1) It's not easy to see the costs of the underlying funds, even in the mouseovers in the demo. The problem with trusting brokers is that they try to get you into expensive funds.  You'd earn more of my trust by quickly proving that you haven't, somewhere (maybe at https://www.betterment.com/about/investments/), without me looking up each symbol.

You're right. The average cost of our funds is 0.15%. One of the key reasons we choose them is for their low cost (also for proper exposure, and for liquidity). Why not advertise that? Will do.

Quote
2) Could you explain Vanguard's trading costs and what that means for us?  I thought I avoided these by buying direct from Vanguard, which is why a lot of us have accounts there.  If they're bundled in the mutual funds' prices, aren't they the same for everyone, including Betterment customers?

Here's a recent WSJ article on the topic of mutual fund trading fees. It says trading fees can be as much or more than the stated expense ratio on mutual funds.
http://online.wsj.com/article/SB10001424052748703382904575059690954870722.html

Now, I do not believe that Vanguard's trading fees are that high (though I could believe that they might be that high for other firms). Doing a little digging earlier this year into Vanguard prospectuses, I found that they are only a few basis points, as best I can ascertain. Still, I only looked at the funds we trade and comparable funds. The target date funds are the most difficult to figure out, because they're funds of funds, so they don't even disclose at the fund level (you have to research the constituents).

ETFs are not subject to these internal trading costs that mutual funds can hide. Mutual funds pay their trading expenses out of fund assets. Their trading is ongoing, constantly occurring, as other fund holders buy or redeem shares, and as the fund rebalances or changes its positions.

ETFs cannot do this, by design; with and ETF, you own a fixed ratio of various stocks. You only pay a trading cost when you buy or sell the ETF. When you buy or sell, you pay a commission to trade with your broker, plus a bid-ask spread that the counterparty market maker/dealer earns. At Betterment, we pay the commissions, and we minimize bid-ask spreads by routing to find the best price (all brokers are required by law to do this for customers; it's known as "best execution") and trading only in the most liquid securities, where the spreads are tight. Make sense?

Complicating matters is that Vanguard has a unique ETF structure where its ETFs are wrappers on its mutual funds. I'm not sure how they do it. They're not a public company, and so their financial disclosures are light; anyway, this may be proprietary info. I would expect that the ETFs are not affected by mutual fund trading costs, but I wouldn't swear by it. Elsewhere, with more traditional ETF structures, they are definitely not affected by internal trading costs.

Quote
3)  Here's a page where Betterment seems to advertise itself as an alternative to savings accounts and CDs, since you asked. https://www.betterment.com/why/  To be fair, you'd want a row that said "risk of losing money" or a warning that people should have an emergency fund with someone else before investing in stocks.

Got it. Will amend as you suggest.

My views on this may be controversial, but I don't agree that everyone needs a cash emergency fund - if you're young and earning well, you should start investing right away, and invest every cent you can. For anyone, once you build up a 3-6 month cushion, and you're earning well, you should put everything (including that cushion) in higher-yielding assets than savings. This is so you put all your money to work as hard as it can - and for the appropriate emergency horizon - which is not immediate, but indeterminate. That's not to say that savings accounts aren't appropriate for short term goals (next 1-2 years) or for people who aren't earning, or have risky earnings streams, where near-term security is paramount.

Ben

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Re: Betterment.com
« Reply #11 on: October 11, 2012, 03:01:46 PM »
Jon,

Appreciate you coming on the board as yourself and not a shill. I'm happy to hear about your product's success and the education it provides.

I've got a question about the following bullet:
"6) Vanguard mutual funds have trading costs that are not disclosed in the fees they quote and that do not show up on your statement. This is true with all mutual funds; they are allowed to take trading costs out of fund assets, and disclose them only at the fund level. Vanguard is a great company, so I have to imagine that these trading costs are low. But with other mutual funds, buyer beware. Betterment pays your trading costs for you, out of our quite transparent, fully disclosed management fee."

As a fund-of-funds, isn't this statement true for you as well? In other words, the ETFs that you buy on behalf of your clients also have costs associated with running them.

I appreciate the service that you are providing and it is certainly more reasonable than many financial products on the market, but investment drag (even an extra 0.15%-0.35%) can really slow down investment growth over long periods of time. As a do-it-yourself community, this seems like an opportunity to save yourself some money.

My advice to other Mustachians would be to take the time to educate yourself on financial investments and pocket the management fee yourself. If using Betterment is a stepping stone to getting that education, or your current career is so lucrative that its worth your hourly rate to slightly simplify your investments, than this product may meet your needs.

BYUvol

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Re: Betterment.com
« Reply #12 on: October 12, 2012, 01:00:47 PM »
Jon,

Appreciate you coming on the board as yourself and not a shill. I'm happy to hear about your product's success and the education it provides.

I've got a question about the following bullet:
"6) Vanguard mutual funds have trading costs that are not disclosed in the fees they quote and that do not show up on your statement. This is true with all mutual funds; they are allowed to take trading costs out of fund assets, and disclose them only at the fund level. Vanguard is a great company, so I have to imagine that these trading costs are low. But with other mutual funds, buyer beware. Betterment pays your trading costs for you, out of our quite transparent, fully disclosed management fee."

As a fund-of-funds, isn't this statement true for you as well? In other words, the ETFs that you buy on behalf of your clients also have costs associated with running them.

I appreciate the service that you are providing and it is certainly more reasonable than many financial products on the market, but investment drag (even an extra 0.15%-0.35%) can really slow down investment growth over long periods of time. As a do-it-yourself community, this seems like an opportunity to save yourself some money.

My advice to other Mustachians would be to take the time to educate yourself on financial investments and pocket the management fee yourself. If using Betterment is a stepping stone to getting that education, or your current career is so lucrative that its worth your hourly rate to slightly simplify your investments, than this product may meet your needs.

Yes, his quote misrepresents things slightly. I actually created an account to clarify, until I saw that others had pointed it out. I have no affiliation with Betterment, or any financial services company, I do have my Roth IRA at Vanguard.

The main problem is this, suppose you have a S&P 500 ETF that holds every stock contained in that index according to it's market weight. Now lets suppose Sears is dropped from the S&P500 (which it recently was), that ETF has to sell its shares of Sears (and buy the replacement) or risk not tracking the index properly. Because it sells those shares, there are transactional costs which anyone holding those funds can't escape. This isn't exclusive to Vanguard ETFs, its how all ETFs operate.

A second minor quip with Jon is that he seems to express that rebalancing provides a bonus on returns, this is not true under all circumstances. At times it can help, especially if you are using assets with low correlation (say US bonds and emerging market small stocks), but there are many instances (especially if you are using a taxable account) where rebalancing lowers your returns. One such example is Japanese investors over the past couple of decades, where rebalancing would have constantly taken assets from overperforming foreign assets and replaced them with underperforming domestic assets. The real benefit of rebalancing is to keep your risk in line with where you want it.

My final concern is just my personal opinion, so feel free to disregard. If you are in an industry highly correlated with the S&P500 (technology, biotech, etc), it would be unwise to keep your emergency savings invested in stocks because the biggest likely time you would need to withdraw your savings is if you are laid off, which is likely to happen when the S&P500 is doing poorly, thus forcing you to "sell low" and "lock in losses."

I think Betterment is a brilliant idea for what it is, a fairly priced, hands-off and accessible way to broadly diversify your investments. If you are interested in managing your own portfolio, there are more cost effective routes to go.

JohnGalt

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Re: Betterment.com
« Reply #13 on: October 12, 2012, 05:36:54 PM »
Jon,

Thanks for personally stopping into our little community to answer questions about your product.  I think that probably speaks volumes (positive) about how the company is operated. 

I'd be curious to know what your thoughts are on https://www.folioinvesting.com/.  I tried betterment a few months ago and, while I liked most things about it, I just found the options to simplistic for my taste.  I don't know that you need to go as far as folioinvesting goes and let people pick 0-100 stocks/etfs/mutual funds to invest in (though that would be nice), but at least being able to control my own allocation for all of the etfs you use rather than just picking the stock/bond percentage.  Any thoughts on offering more options for those of us looking for a little more control?




Jonstein

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Re: Betterment.com
« Reply #14 on: October 18, 2012, 09:30:30 PM »
Jon Stein, CEO and Founder of Betterment.com, once again.

@Ben - You asked about how mutual fund expenses are different from ETF expenses:

I've got a question about the following bullet:
"6) Vanguard mutual funds have trading costs that are not disclosed in the fees they quote and that do not show up on your statement. This is true with all mutual funds; they are allowed to take trading costs out of fund assets, and disclose them only at the fund level. Vanguard is a great company, so I have to imagine that these trading costs are low. But with other mutual funds, buyer beware. Betterment pays your trading costs for you, out of our quite transparent, fully disclosed management fee."

As a fund-of-funds, isn't this statement true for you as well? In other words, the ETFs that you buy on behalf of your clients also have costs associated with running them.

Thanks for the question. The answer is complex; I have read up on it for hours and talked to folks on both sides of the industry - working for ETFs and mutual funds - and there are lots of nuances. The main ideas are that:
  • Creation/redemption trading costs for mutual funds come out of NAV and are inadequately disclosed;
  • Creation/redemption trading costs for ETFs are paid by individual shareholders and are fully transparent (commissions are zero at Betterment)

While I don't always like citing Investopedia, due to the ads, and it's not a complete explanation, the second paragraph under "compare the costs" summarizes the point: http://www.investopedia.com/articles/mutualfund/05/etfindexfund.asp

How does this work? There are differences in 1) how they collect fees, 2) how they disclose fees, and 3) how they trade:
  • Fee collection:
    Mutual funds collect fees from the fund's net asset value (NAV). They keep some of your cash sitting around un-invested, so that they can redeem shares when necessary, and they can collect fees from this cash or use it to pay trading expenses.

    ETFs, on the other hand, collect fees from the cash dividends they receive, before they pay out the remaining dividends to shareholders.

  • Fee disclosure:
    Mutual funds are required to disclose the fees they collect as a % of assets under management. These include their management fees, 12b-1 fees for paying the middle-men who distribute their funds, and/or other loads and fees. They are not required to disclose as a % of assets any costs incurred in trading (commissions or spreads). Mutual funds can incur heavy trading costs, particularly when trading to add to or remove from their cash piles to exchange cash with shareholders moving in or out of the fund.

    ETFs are required to disclose fees they collect as a % of assets under management. They may not collect 12b-1 fees or other fees, so there's nothing else to disclose. They may incur internal trading costs, but they pay these out of the fees that they collect and disclose.

  • Trading:
    When mutual fund shareholders redeem shares, the fund sells securities for cash to pay to those shareholders, and the cost of those transactions comes out of the total NAV of the fund as explained above. These costs are disclosed deep in the fund's annual report, after the fact, and not as a % of assets. They are effectively hidden.

    When ETF shareholders redeem shares, a market maker pays cash for them. The expenses of these transactions are born by the redeeming shareholders and the market maker - not the other holders of the ETF. In Betterment's case, we pay those commissions for our customers.

Jonstein

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Re: Betterment.com
« Reply #15 on: October 21, 2012, 12:56:29 AM »
Jon Stein, declaring myself a Betterment.com affiliate again.

@JohnGalt - great question about customization:

I tried betterment a few months ago and, while I liked most things about it, I just found the options to simplistic for my taste.  I don't know that you need to go as far as folioinvesting goes and let people pick 0-100 stocks/etfs/mutual funds to invest in (though that would be nice), but at least being able to control my own allocation for all of the etfs you use rather than just picking the stock/bond percentage.  Any thoughts on offering more options for those of us looking for a little more control?

Indeed, if you're a >$100k customer today, you can customize your portfolio @ Betterment. By working with these customers, we're trying to figure out the right level of customization to offer everyone. Let me know if you want to give it a spin.

Honest Abe

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Re: Betterment.com
« Reply #16 on: October 21, 2012, 07:00:53 AM »
Jon Stein, declaring myself a Betterment.com affiliate again.

@JohnGalt - great question about customization:


Indeed, if you're a >$100k customer today, you can customize your portfolio @ Betterment. By working with these customers, we're trying to figure out the right level of customization to offer everyone. Let me know if you want to give it a spin.

Jon,

Thank you again for your insights into Betterment and investing in general.

This post made me wonder how finding the "right" level of customization must be a huge challenge. The very premise of Betterment seems to be low-cost and success through simplicity.

As far as the $100k+ accounts are concerned. Let's say one day an investor reads an article on QE, gets spooked and tries to set their entire $100k portfolio into GLD or SLV. This is a dangerous investment position to take, yet there are many people who have jumped and continue to jump down this rabbit hole.  Does the customization in Betterment give them the ability to do so, or are there limits to protect people from themselves, essentially?
« Last Edit: October 21, 2012, 07:21:12 AM by priuspilot »

Anti-ComplainyPants

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Re: Betterment.com
« Reply #17 on: October 31, 2013, 03:00:46 PM »
This topic seems long-past dead, but it seems wiser to revive it than to start an identical thread:

I'm strongly considering using Betterment to save for my house downpayment. It's about 5 years down the road, so my savings would have time to take advantage of an interest rate higher than that of a savings account. And even if the market took a nose dive, I don't HAVE to buy a house at that 5-year mark, so I could always keep renting and rebuilding my assets in that scenario. It also seems that when I enter that 5-year timeline into the Betterment account, it would automatically adjust the stock/bond ratio to something that balances potential yield and risk. And although the fee rates seem higher than the total cost of fees using Vanguard, it's simplicity has value to someone with little investing experience (like me) and the difference in fees is not huge considering I'm looking at a goal total of about $20k.

Also, as background, I have no investing experience. As a Mustacian in training, I'm obviously going to gain some of that experience, but this seems like a valid option to pursue in the meantime.

grantmeaname

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Re: Betterment.com
« Reply #18 on: October 31, 2013, 04:45:02 PM »
Eh. The sooner you learn the skill the sooner it'll enrich your life and stash. It's not that hard to start, so why don't you just go for it?

wtjbatman

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Re: Betterment.com
« Reply #19 on: October 31, 2013, 09:37:21 PM »
This topic seems long-past dead, but it seems wiser to revive it than to start an identical thread:

I'm strongly considering using Betterment to save for my house downpayment. It's about 5 years down the road, so my savings would have time to take advantage of an interest rate higher than that of a savings account. And even if the market took a nose dive, I don't HAVE to buy a house at that 5-year mark, so I could always keep renting and rebuilding my assets in that scenario. It also seems that when I enter that 5-year timeline into the Betterment account, it would automatically adjust the stock/bond ratio to something that balances potential yield and risk. And although the fee rates seem higher than the total cost of fees using Vanguard, it's simplicity has value to someone with little investing experience (like me) and the difference in fees is not huge considering I'm looking at a goal total of about $20k.

Also, as background, I have no investing experience. As a Mustacian in training, I'm obviously going to gain some of that experience, but this seems like a valid option to pursue in the meantime.

Similar approach here. While my 401k and Roth IRA are the focus of my retirement funds at the moment, I've also started using Betterment as a platform for investing that also gives me the option to withdraw money when I choose. It's nice to be able to put money into an account that is being invested wisely for me, with what seems like reasonable fees. Yes, my idea is using it as a possible savings account for a future large purchase (with hopefully a badass return along the way). But if the return I'm hoping for doesn't happen due to the market slumping, or I even start to lose money in it.... that's ok. I still treat it as investments that will eventually go back up. It's a type of savings that I do not need to touch. Now, I wouldn't put my honest to god emergency fund in it, since obviously it could lose value. But as an easy way to invest money, according to the stock/bond allocation that meets my personal risk level, I am a fan. I have my allocations set, I have money deposited every month, and now I'm just sitting back and letting it (hopefully) grow!

Honest Abe

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Re: Betterment.com
« Reply #20 on: November 02, 2013, 05:55:41 AM »
I'm still a happy camper.. The fees don't bother me at all (I pay .25%) and I don't have to think about it AT ALL. It rebalances me on every deposit and dividend. Not that it's necessary to do that but it's nice peace of mind knowing that my house is always in order so to speak.

zweipersona

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Re: Betterment.com
« Reply #21 on: November 02, 2013, 07:50:22 AM »
... it's simplicity has value to someone with little investing experience (like me) and the difference in fees is not huge considering I'm looking at a goal total of about $20k.

Also, as background, I have no investing experience. As a Mustacian in training, I'm obviously going to gain some of that experience, but this seems like a valid option to pursue in the meantime.

Do yourself a favor and try betterment.  The reality is, even though betterment can be used by everyone, it is geared specifically for people who have goals like yours.  'ie, I want 20k in 5 years for a home'.  Betterment will let you create said goal, set time, and project how much money you'll have in set time.

As far as investing and knowledge of investing goals, you'll hear a ton of anecdotes, but the facts remain that diversification is best, offering adequate returns while minimizing risk.  And that is what betterment does, among other things. 

dadof4

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Re: Betterment.com
« Reply #22 on: November 04, 2013, 12:05:19 PM »
I'm giving this a try. I also found a promo which gives you $100 for investing $1k. On a  $10k investment, that covers their fees for the next four years :)

https://hello.betterment.com/affiliate/100/

Michread

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Re: Betterment.com
« Reply #23 on: November 04, 2013, 01:41:17 PM »
Eh. The sooner you learn the skill the sooner it'll enrich your life and stash. It's not that hard to start, so why don't you just go for it?

+1  It's NOT hard! 

We started with one Vanguard fund 20 yrs ago.  Pick ONE and start!  I suggest Vanguard Wellesley or Wellington. 

ASquared

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Re: Betterment.com
« Reply #24 on: December 16, 2013, 03:11:21 PM »
Any other opinions from actual users out there? Seriously considering Betterment for our non-401k investments  (would be >100k for the lowest cost tier)


JohnGalt

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Re: Betterment.com
« Reply #25 on: December 16, 2013, 07:02:57 PM »
I haven't been back after that initial couple months where I tried it out.  I think it's fine for what it is, basically a tool for those who want to go full autopilot on investing.  At >$100,000, they're charging you .15% on top of the fees charged by the funds they invest in.  They choose pretty cost effective funds - so those probably run in the .05 - .3 range.  At the end of the day, their .15% on $100,000 is ~$13/mo.  Of course that's your starting point, as your investments grow, so will that monthly cost.  At the end of the day you just need to decide if the fee (less what it would cost you to do it yourself) is worth not having to re-balance your investments manually (assuming you've already decided that their investment strategy is for you because you don't have much control). 

« Last Edit: December 16, 2013, 07:04:59 PM by JohnGalt »

MilStachian

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Re: Betterment.com
« Reply #26 on: December 16, 2013, 08:14:38 PM »
Our friend JLCollins just endorsed betterment.com.

http://jlcollinsnh.com/2013/12/16/betterment-wants-to-give-you-25/

tjt

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Re: Betterment.com
« Reply #27 on: December 19, 2013, 04:59:13 PM »
Betterment Blog links Mr Money Mustache and ERE!

https://www.betterment.com/blog/2013/12/13/early-retirement-30s/


Oh, looks like people are discussing this article already in:

http://www.mrmoneymustache.com/forum/mustachianism-around-the-web/how-to-live-on-a-$2mil-windfall/
« Last Edit: December 19, 2013, 06:13:40 PM by tjt »

sobezen

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Re: Betterment.com
« Reply #28 on: July 11, 2014, 05:49:54 PM »
I was researching more about Betterment and I was pleasantly surprised to learn Jon Stein the CEO of Betterment historically made time to reply to questions.  Does anyone have any experience with both Betterment and  Wealthfront? Here is information about us:  About https://www.wealthfront.com/who-we-are and Tax Loss Harvesting https://www.wealthfront.com/tax-loss-harvesting

Looking forward to reading about everyones experiences and if by some odd chance Jon replies, I'd like to hear how you feel Betterment differentiates itself from Wealthfront.  Thank you all!

GGNoob

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Re: Betterment.com
« Reply #29 on: July 11, 2014, 07:30:40 PM »
I was researching more about Betterment and I was pleasantly surprised to learn Jon Stein the CEO of Betterment historically made time to reply to questions.  Does anyone have any experience with both Betterment and  Wealthfront? Here is information about us:  About https://www.wealthfront.com/who-we-are and Tax Loss Harvesting https://www.wealthfront.com/tax-loss-harvesting

Looking forward to reading about everyones experiences and if by some odd chance Jon replies, I'd like to hear how you feel Betterment differentiates itself from Wealthfront.  Thank you all!

I have not used Wealthfront, but it seems very similar to Betterment. I've been a Betterment customer since about April 2013.

Betterment just introduced tax loss harvesting and has a minimum account balance of $50,000 versus Wealthfront's $100,000.

One thing Wealthfront had before that I liked is that they offered muni bonds in your taxable portfolio. Betterment also just introduced that as well.

For Betterment, you can open an account with a deposit as low as $10. With Wealthfront, you need $5,000. Betterment invests in fractional shares while Wealthfront invests in whole shares.

At Betterment, the stock ETFs always seem to have a similar allocation in the stock side of your account, no matter the % of stocks you are in. The bonds adjust a bit more as bond ETFs like SHV and VTIP disappear when you have more stocks (aka a riskier portfolio). But at Wealthfront, each ETF is weighted differently depending on the risk you want. So a high risk portfolio is heavily weighted towards emerging markets.

I also prefer Betterment because once I get to $100,000, the fee goes down to .15%. My account and my wife's account are linked (just e-mail them and ask) so that both of our balances count towards fee. So we just need to get $100,000 between our 2 accounts and then we can start getting charged the lowest fee. To me, Betterments benefits are completely worth .15%! According to my "5 year plan," we should hit $100,000 in about 4 years.

I've been very happy with Betterment. My wife and I each have an IRA with Betterment. We also have our emergency fund and will eventually have our taxable savings account. I actually just withdrew $10,000 from Betterment today to pay off a student loan. Now I get to add that monthly loan payment to my monthly savings deposit.
« Last Edit: July 12, 2014, 09:18:58 AM by logant1337 »

windypig

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Re: Betterment.com
« Reply #30 on: July 11, 2014, 07:38:27 PM »
@JonStein,

I signed up for you service because of your support of the Freakanomics podcast. Great product you have an I appreciate you supporting such a badass podcast.

RapmasterD

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Re: Betterment.com
« Reply #31 on: July 11, 2014, 08:02:54 PM »
Eh. The sooner you learn the skill the sooner it'll enrich your life and stash. It's not that hard to start, so why don't you just go for it?

+1  It's NOT hard! 

We started with one Vanguard fund 20 yrs ago.  Pick ONE and start!  I suggest Vanguard Wellesley or Wellington.

+1 for Vanguard. I spend a total of about two hours per year managing my liquid assets.

soccerluvof4

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Re: Betterment.com
« Reply #32 on: July 12, 2014, 08:57:38 AM »
+2

sobezen

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Re: Betterment.com
« Reply #33 on: July 13, 2014, 04:43:21 PM »
So has anyone else used Betterment and/or Wealthfront?  Would really like to hear about your experiences. Thanks.

grantmeaname

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Re: Betterment.com
« Reply #34 on: July 13, 2014, 05:07:06 PM »
Use the forum search tool - you'll get six pages of results for Betterment and another page for Wealthfront.

Mr Mark

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Re: Betterment.com
« Reply #35 on: July 13, 2014, 09:31:52 PM »
Again, let's start a MMM investment account via Vanguard, at half the fee rate of betterment.

Win win.

ProfWinkie

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Re: Betterment.com
« Reply #36 on: July 15, 2014, 01:39:57 PM »
+1 Betterment