SecondForge

The title of this post is a lie - I have actually only been using Betterment for two weeks. But it feels like a month, because in just two weeks Betterment has become my new favorite financial product, period.

For the unfamiliar - Betterment is a ‘robo advisor’, that is, a fully automated financial advisor. It is designed to compete against the financial advisors and private wealth managers that advise clients on what stocks (or really, mutual funds and ETFs) to buy. Because everything is online, Betterment offers fees that are significantly cheaper than a traditional financial advisor’s, and can take on clients with much smaller portfolios.

The ‘catch’, if you consider it one, is that Betterment puts everyone into basically the same portfolio, only varying the proportion of different assets to reflect your particular risk tolerance. But, the portfolio it puts you in is very efficient, backed up by solid academic research and lots of consideration by experts - chances are that it’s about as good as any retail financial advisor can possibly do.

I actually approached Betterment not as someone looking to save money on advising fees, but from the opposite place - as someone who had previously done their own investing and wanted to pay someone else to take care of it. I have had a self-service brokerage account (through Fidelity, then Interactive Brokers, then Fidelity again) for years; I (will soon have) a graduate degree in Finance, and am as financially literate as anyone. To the extent that any puny human brain can grasp the power of compound interest and efficient investing, I have grasped.

Even so, Betterment has totally changed how I manage my personal finances, and for the better¹. Although I have always known how important investing regularly was, until I had the ability to simply set up an automatic deposit every payday - and know that it’d be invested in an optimal portfolio in a tax efficient way automatically - I never really did. Not having to log into a brokerage account with a horrible interface and manually calculate how many shares of each fund I wanted to buy is a huge plus.

Perhaps more importantly, because of the small sums I am investing, Betterment lets me do something Fidelity never could - diversify. My portfolio is small enough that a 5% allocation is often less than a single share. With betterment, “I” (Betterment) can easily buy fractional shares effortlessly and cheaply. This boosts the efficiency of the portfolio and avoids the problem I have often had of having a couple hundred un-invested dollars just lying in an account, not earning anything at all. And they really do let you do fractional shares - one of my Betterment goals currently has $2.03 invested in LQD - or 0.02 shares!

The crowning achievement, though, is just how motivating Betterment’s “Advice” interface is. Plug in time horizons, differing immediate contributions, and various monthly or bi-weekly auto deposits to see how much money you can expect to have under different scenarios.

Seeing that adding a mere additional $10/month to my IRA will work out, even in the worst case scenario, to an extra $22,000 at retirement - and nearly $100,000 in the best case - truly motivates me to save in a way that nothing else can. Since signing up, I’ve reduced my spending on restaurant dining and other nice-to-haves markedly and have never felt better.

In short, I can’t recommend Betterment (or their competitor, Wealthfront, who I have not tried myself because of their minimum investment requirements) enough. Completely worth the 0.33% per year fee charged for accounts under $10,000, much less the 0.15% charged on large accounts!