Author Topic: How to set my Betterment allocation...  (Read 13143 times)

FuckRx

  • Pencil Stache
  • ****
  • Posts: 788
How to set my Betterment allocation...
« on: February 16, 2014, 11:30:07 AM »

I'm going to invest some of my money in Betterment. For those of you familiar with it can you help me determine what ratio stock:bond I should select? I am planning on investing about 1-2k/mo into my betterment. Right now I have about 13k in there. Do they adjust the ratio automatically as well or does it stay at what I select?

matchewed

  • Magnum Stache
  • ******
  • Posts: 4337
  • Location: CT
Re: How to set my Betterment allocation...
« Reply #1 on: February 16, 2014, 11:33:11 AM »
a) Isn't the benefit of the betterment so you don't have to worry about this (semi serious question as I don't know the extent of their services)?

b) Ugh, DIY

c) See - http://www.bogleheads.org/wiki/Investment_policy_statement and http://jlcollinsnh.com/stock-series/

Honest Abe

  • Bristles
  • ***
  • Posts: 376
  • Emancipate Yourself from Mental Slavery
Re: How to set my Betterment allocation...
« Reply #2 on: February 16, 2014, 11:58:03 AM »
It depends what your goals are and how soon you would need the cash. I have mine set to a 90/10 stock/bond split but this money is purely for long term wealth-building purposes.

I'm not sure if the ratios automatically adjust as your time horizon draws closer, but I always had the impression that it would. (My time horizon is 23 years away.)


FuckRx

  • Pencil Stache
  • ****
  • Posts: 788
Re: How to set my Betterment allocation...
« Reply #3 on: February 16, 2014, 12:26:51 PM »
I'm thinking I'd want to start taking off the top sometime in the next 10 years...
I have mine at 60/30 stocks/bonds. So that probably needs changing.

toga62

  • 5 O'Clock Shadow
  • *
  • Posts: 29
Re: How to set my Betterment allocation...
« Reply #4 on: February 16, 2014, 01:37:25 PM »
I opened a Betterment account, and a week and a half later closed it.  I was anxious at investing myself and that is why I wanted to go an easier route, but I took the extra time to cram and research and when it came down to it, the monthly charge would be a large hit in the long run.

Even with the amount I'm starting with, 30-50K, its $7 a month for their "management".  In a year that is $84, and 10 years that is almost $1000 which would nearly double to $1,967 in 10 years at 7% interesting.  This math is of course assuming that your betterment account never grows, because their billing amount becomes larger the larger your account holding is!  So as your portfolio grows with them, the management cost and loss for you grows as well!

The thing you need to realize is they are investing in index funds, which are purposely unmanaged.  What they are offering as "account management" is simply the reallocation portion.  Picking indexes and then moving funds around as time passes.  The toughest part is picking the indexes, reallocation is easy.

Once you have your index funds selected, and then what % you want to put into each (say 60% stocks, 40% bonds) you then just need to manage those percentages.  As one grows more than the other in your account, and gets reinvested in the same index fund(s) that percentage of your portfolio will increase.

Think of it like this;

You have a bowl of M&M's and Skittles.  The M&M's are Stocks, the Skittles are Bonds.  The Bowl is your portfolio.  The total number of both candies represents 100% of your portfolio.  The split, is the number of each candy you have in your bowl.  In our case, lets say we have 60% M&Ms, 40% Skittles.

The total number of candies in your bowl grows based on the candies values in the market. Lets say the market is a brown bag mixed with both candies.  As times goes by, the brown bag pours returns, (more candy) into your bowl.  Now lets say with that pour you earn 7% more M&Ms, and 3% more Skittles.  In volume of each type of candy (which represents the $ value) your percentages will change.  If you make more of one than the other, than you might now find yourself with 70% M&Ms, and 30% Skittles in your bowl.  The total number of both has grown (in our scenario) but the percentage of each in relation to the whole bowl has changed.

Reallocation is easy.  You then take the extra 10% of M&M's, and trade them for Skittles, bringing your bowl total back (re-allocating) to the 60/40 split you want.  This works the same if you were to make it more complicated and lets say, Split your M&M's into two types.  One being Regular M&M's (lets say this is Large Growth Domestic Stocks), and the other being Peanut M&Ms (International Stocks).  Of the 60% of M&Ms in your bowl, 40% might be Regular, and 20% might be Peanut. 

Again, as the brown bag (the market) pours more of all candies into your bowl, you reallocate by trading in your candies to maintain your percentages.

This is a basic example, not accounting for loss instead of gain, or more complex splits, but it is what re-allocation is all about.  It forces you away from managing winners and losers, and simplifies it by simply working towards maintaining percentages.

If you think you can do that, then Betterment isn't for you.  Reallocation isn't something you need to do regularly, you can do it every year, or few months, depending on your preference.  For a taxable account, the longer you go before reallocating the better chances you have of paying less taxes due to Long-Term Gains instead of Short-Term.

If you just want to give your money to someone else and tell them the percentages you want and then not have to move things around ever yourself, then go with Betterment.  It might be worth the cost.  But keep in mind, there are Vanguard Index funds that do this as well, and with no monthly account management fee!! 

Picking a Life Strategy Fund, or Retirement Fund through Vanguard takes all the stress out of it.  One maintains a split for you, the other will gradually change the split to safer investments as years pass.  They are very much "Set it and forget it" type funds, and all without the cost of "active management" that Betterment is offering.
« Last Edit: February 16, 2014, 01:44:53 PM by toga62 »

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28137
  • Age: -999
  • Location: Seattle, WA
Re: How to set my Betterment allocation...
« Reply #5 on: February 16, 2014, 02:20:01 PM »
But keep in mind, there are Vanguard Index funds that do this as well, and with no monthly account management fee!! 

Picking a Life Strategy Fund, or Retirement Fund through Vanguard takes all the stress out of it.  One maintains a split for you, the other will gradually change the split to safer investments as years pass.  They are very much "Set it and forget it" type funds, and all without the cost of "active management" that Betterment is offering.

This.

Even if you don't want to manage it yourself, but just want to turn on automatic withdrawals and let it invest for you, there are things set up to do this already.  Why would you pay bettermint?

Pick one of Vanguard's Target Date Retirement Funds.  Done.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Honest Abe

  • Bristles
  • ***
  • Posts: 376
  • Emancipate Yourself from Mental Slavery
Re: How to set my Betterment allocation...
« Reply #6 on: February 16, 2014, 03:16:15 PM »
Since this has once again turned into a Betterment vs. Vanguard thread as opposed to the asset allocation question that OP actually asked, here is some reading on the Betterment portfolio.

https://www.betterment.com/blog/2014/02/11/portfolio-optimization/

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28137
  • Age: -999
  • Location: Seattle, WA
Re: How to set my Betterment allocation...
« Reply #7 on: February 16, 2014, 05:38:00 PM »
Since this has once again turned into a Betterment vs. Vanguard thread as opposed to the asset allocation question that OP actually asked, here is some reading on the Betterment portfolio.

https://www.betterment.com/blog/2014/02/11/portfolio-optimization/

Well sure, if someone asked how to change the tire on their giant SUV we'll help them figure out how to do so, but we may administer some face punches along the way.

Having your portfolio done with a catheter and bedpan by bettermint when one could easily achieve the same effect much with targeted funds deserves some face punching... Or, as actually given here, some gentle guidance,
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

wtjbatman

  • Handlebar Stache
  • *****
  • Posts: 1313
  • Age: 36
  • Location: Missouri
Re: How to set my Betterment allocation...
« Reply #8 on: February 16, 2014, 08:53:20 PM »
I'm thinking I'd want to start taking off the top sometime in the next 10 years...
I have mine at 60/30 stocks/bonds. So that probably needs changing.

First of all, 60/40?

That might not be bad if your time horizon is "only" 10 years or so. If it was longer I would recommend a higher percentage in stocks, but your investments could be in a better position for withdrawal in 10 years than if you put more in equities.

If you're comfortable with Betterment btw, don't listen to the haters. For the simple deposit money to be invested and forget it type of investor, there is nothing wrong with Betterment. And the fees aren't too far off most target retirement funds, especially as your account balance grows. It's better that you're investing with Betterment than not at all, or letting your money sit in a savings account earning less than one percent interest.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28137
  • Age: -999
  • Location: Seattle, WA
Re: How to set my Betterment allocation...
« Reply #9 on: February 16, 2014, 10:01:44 PM »
If you're comfortable with Betterment btw, don't listen to the haters.

Hah. Thanks for the laugh. :)

I don't think I've ever been called a "hater" of anything before.  I guess giving measured, logical responses to something makes one a "hater" nowadays?

For the simple deposit money to be invested and forget it type of investor, there is nothing wrong with Betterment.

I disagree.  See the above arguments (which can't be dismissed with a "there's nothing wrong" - there is, and it was explained above).

It's better that you're investing with Betterment than not at all, or letting your money sit in a savings account earning less than one percent interest.

I agree, it certainly is.  But there's an even better method that's just as easy.  Why not use it?

Just because option Bettermint is better than "do nothing" doesn't mean you shouldn't use superior option Vanguard.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

wtjbatman

  • Handlebar Stache
  • *****
  • Posts: 1313
  • Age: 36
  • Location: Missouri
Re: How to set my Betterment allocation...
« Reply #10 on: February 17, 2014, 01:09:33 AM »
I believe it's even easier than Vanguard, which is something that people may appreciate. There is something to be said for convenience, ease of use, and a really snazzy website that is easy to navigate and presents information in a very clear manner. All of which is provided at what I believe is a very reasonable expense rate (.35 to .15, depending on your account balance). That .15 is even cheaper (albeit not by much) than Vanguard's Target Retirement funds, which is saying something considering Vanguard's usual low fees.

Cyrano

  • Stubble
  • **
  • Posts: 123
Re: How to set my Betterment allocation...
« Reply #11 on: February 17, 2014, 04:22:51 AM »
I believe it's even easier than Vanguard, which is something that people may appreciate. There is something to be said for convenience, ease of use, and a really snazzy website that is easy to navigate and presents information in a very clear manner. All of which is provided at what I believe is a very reasonable expense rate (.35 to .15, depending on your account balance). That .15 is even cheaper (albeit not by much) than Vanguard's Target Retirement funds, which is saying something considering Vanguard's usual low fees.

If you think Betterment's fee can be compared to a fund's expense ratio, the snazzy web site has done a better job of concealing than presenting information. Betterment invests in several funds from Vanguard and iShares. These funds have fees of their own. For a 70/30 stock portfolio at Betterment, the weighted average of these fees is about 0.16. The 0.15 or 0.35 Betterment charges is on top of this. The effective expense ratio is more like 0.31 or 0.51.

Betterment doesn't compete with Vanguard funds at all. They're one of Vanguard's customers. They're not charging more than Vanguard or less than Vanguard, they are charging more for Vanguard.

Betterment competes with investment managers who invest your money for you, and compare to the 1% often charged in this business, they're a very low cost provider. But it has become so easy to do it yourself that this isn't a service you need to pay anyone anything for.

Honest Abe

  • Bristles
  • ***
  • Posts: 376
  • Emancipate Yourself from Mental Slavery
Re: How to set my Betterment allocation...
« Reply #12 on: February 17, 2014, 05:47:15 AM »
I think someone who hijacks a thread on AA only to be condescending (bedpan and catheter? Really?) qualifies as a "hater." Kind of surprising coming from a Mod.

Whatever, I guess even MMM gets what he pays for.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28137
  • Age: -999
  • Location: Seattle, WA
Re: How to set my Betterment allocation...
« Reply #13 on: February 17, 2014, 08:42:47 AM »
I think someone who hijacks a thread on AA only to be condescending (bedpan and catheter? Really?) qualifies as a "hater." Kind of surprising coming from a Mod.

Whatever, I guess even MMM gets what he pays for.

I'm a person.  A user of this site, just like you.

I don't represent anyone else's opinions.

If you feel I've broken one of the site rules, feel free to report the post, and one of the other moderators will deal with it as they deem necessary.

Cheers!
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

kpd905

  • Handlebar Stache
  • *****
  • Posts: 1759
Re: How to set my Betterment allocation...
« Reply #14 on: February 17, 2014, 03:48:58 PM »
(.35 to .15, depending on your account balance). That .15 is even cheaper (albeit not by much) than Vanguard's Target Retirement funds, which is saying something considering Vanguard's usual low fees.

That .15 to .35 is on top of the expense ratios of the funds.

wtjbatman

  • Handlebar Stache
  • *****
  • Posts: 1313
  • Age: 36
  • Location: Missouri
Re: How to set my Betterment allocation...
« Reply #15 on: February 17, 2014, 09:23:03 PM »
(.35 to .15, depending on your account balance). That .15 is even cheaper (albeit not by much) than Vanguard's Target Retirement funds, which is saying something considering Vanguard's usual low fees.

That .15 to .35 is on top of the expense ratios of the funds.

Thank you for pointing that out (and Cyrano much earlier). I think I knew that before, but totally blanked when I was thinking about the fees. I still think Betterment is worth it, but it's definitely more expensive than I originally said. However I always knew it was more expensive than Vanguard index fund fees, and thought all of the rest of what they offer makes up for it.