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.