Betterment Review

Not everyone has the time or inclination to invest their own money; some are maybe a little hesitant to get involved in the stock market, especially at the moment. Others have been stung before with bad investment advise and are looking to stick their toes back in shark infested waters.

Fortunately there’s a solution for people just like you; Betterment is halfway between a savings account and a full investment account. Their product has been specifically designed for people who are new to investing with limited experience or don’t want to manage their own investment account.

Who Are They and What Do They Do?

Betterment was created in 2007 by Jonathan Stein a former investment strategist with First Manhattan Consulting Group; despite only being 31 he’s advised some of Wall Streets most prominent banks and private equity firms.

He realized during the course of his work that whilst there was a lot of support for people who have more than $100,000 to invest, the little guy had to fend for himself. He was left to manage his own investments through a non too helpful discount broker.

The idea behind Betterment was simple; provide a service to the little guy that’s as easy to use as a savings account, with the returns of an investment account. Of course that’s easier said than done, but he persevered until he found a workable solution.

How does it Work?

Basically what you get is an index linked savings account, but there’s more to it than that. You deposit your money as you would any other savings account, but in the background a percentage of your money is invested in a broad selection of index Exchange Traded Funds (ETFs). It’s basically like owning a little piece of every publicly listed company in America, without the hassle of buying shares.

What’s left over is invested in US Treasury bonds; even in this day and age a pretty safe investment with guaranteed returns far and above what you could expect form a standard savings account.

But here’s the kicker, you get to set the level of risk you’d like to take. So if you want a high risk portfolio you could set your account to invest 70% in index ETFs and 30% in US Treasury bonds, if you don’t want to take so much risk you can change it accordingly.

Don’t worry if this seems a little daunting, it isn’t, especially since Betterment provide risk templates based on your own individual circumstances. You simply tell them your age and a few other personal details and they’ll show you a recommended risk profile along with expected returns.

Investing doesn’t get any easier than this, its quick, painless and simple. I really can’t think why someone didn’t come up with it years ago.


What Happens After I Open an Account?

Once you open an account with Betterment they immediately invest a percentage of your money in US Treasury Bonds. Of course you determine what percentage when you open your account and it can be changed at any time.

But what happens to the rest? Well it’ll be invested in a range of 3500 stocks across a diverse range of sectors. This means your portfolio is not reliant on one particular company or sector for its returns.

Betterment investment analysts do all the research for you in the background, so you don’t have to worry about a thing. All you have to do is decide how much of your capital you want to invest in stocks and how much in bonds then leave the rest to them.

What if they do a Bernie Madoff, Is My Money Safe?

Don’t worry your moneys in safe hands, but you’re right to be concerned. All deposits up to $500,000 are protected by the Securities Investor Protection Corporation (SIPC). So you’re covered if the worst happens.

Betterment is not a hedge fund it’s an investment account. The money you invest is backed up with underlying investments and not leveraged. So the performance of your fund is directly related to the performance of the market as a whole. Of course you’ll always get a return from your US Treasury bonds even in a market downturn.

Is Betterment Right For Me?

Betterment isn’t for everyone, if you’re a keen amateur investor and like choosing your own investments and enjoy the thrill and excitement that goes along with that, you’re not going to be satisfied with a Betterment account.

But if you’re new to investing or you’re looking for better returns than a normal savings account offers without the hassle of managing a full investment account, Betterment could be just the thing you’re looking for.

If you think Betterment is right for you, open an account and try it out for yourself. There’s no minimum account balance so you can start off with a small amount just to see how it goes. Just remember this is a long term investment strategy so don’t expect amazing returns over night.

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