Simplify Your Asset Allocation and Remove The Impossible From Your Investing Strategy With

Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
Click here to enter my free giveaway for 2 copies of H&R Block At Home Premium Edition

If you’ve stopped by my site before, you probably know that I am a proud supporter and practitioner of passive investing strategies. In fact, in January of this year, I started The Carnival of Passive Investing just for the purpose of spreading the word about this very effective style of investing.

Essentially, passive investing involves the use of different types of index ETFs and mutual funds to obtain a target asset allocation based upon your personal tolerance for risk. By applying this simple passive investing approach, we are able to actually outperform 70-80% of investing “professionals.”

So, needless to say that I am a big supporter of any new products or services that makes it easier for individual investors to get off of the foolish active investing (individual stock investing) track and in to the proven world of passive investing.

One of these services facilitating passive investing that I was recently exposed to is

What Does Offer?

In a single sentence – Betterment makes investing the smart way as easy as it could possibly be.
How does it do this you might be asking? Simple! Betterment only asks that you make one decision: deciding what percentage of your money you want in stocks and what percentage you want placed in bonds. After this decision (called your asset allocation) is nailed down, Betterment’s system takes care of the rest for you by investing your money in a mix of bond and stock ETFs.
Got the gist?! Now that we’ve covered what Betterment offers at a high level, let’s delve in to everyone’s favorite – the details!

Tools to Help You Decide Your Asset Allocation

If you already have a feel for what you want your asset allocation to be, great! If not, Betterment has some nifty little tools to help you get started making this important decision.
Below is a screenshot of the asset allocation decision making tool that Betterment offers. By inputing 1) how many years you have until you want to retire, 2) your current investment, and 3) your risk tolerance in 1 year and 44 years, Betterment is able to generate a suggested asset allocation.
When I tried using this tool, the recommended asset allocation was 90% stocks/10% bonds. However, I am sort of a worry-prone person, and therefore go with a slightly more conservative asset allocation split of 75% stocks/25% bonds.

What Does Your Money Get Invested in With Betterment?

Once you’ve decided your asset allocation, your money will then be invested automatically by the folks at Betterment. Even though you don’t have to personally direct your money, I feel it is a very good to have a general idea as to what funds your money is being placed in to.
The stock/equity portion of the Betterment portfolio is made up of the following index ETFs. Personally, I feel that simply investing in the VTI Vanguard Total Stock Market ETF would have been sufficient. However, the other ETFs are high quality and will still achieve the desired result.
  • 20% VTI: Vanguard Total Stock Market
  • 20% IVE: iShares S&P 500 Value Index 
  • 20% IWD: iShares S&P 1000 Value Index
  • 15% IWN: iShares Russell 2000 Value Index 
  • 15% IWS: iShares Russell Midcap Value Index 
  • 10% DIA: DIAMONDS Trust Series 1 
The bond/fixed income portion of the portfolio is invested in the following index ETFs. I think it’s really good that they thought to include the TIPS (inflation adjusted) bond ETF. Nice work!
  • 50% TIP: iShares Barclays TIPS Bond Fund
  • 50% SHY: iShares Barclays 1-3 Year Treasury Bond Fund 

What Fees Will You Pay? + Other Account Details

The fee structure at Betterment is in my mind, a very good deal. There are no minimum account balances (I started my account with $10), no transaction fees, and you can withdraw your money at any time. In addition, you can change your asset allocation a maximum of once per day and your portfolio is rebalanced once per quarter back to your asset allocation targets. Not bad right?!

For all of this, you pay a fixed expense ratio/fee of 0.3-0.9%, based on what amount of money you have invested. Since most actively managed funds charge far more than 1% to under perform the market, this is quite good!

Currently, Betterment is only offering individual, taxable investment accounts. I would like to see them add Traditional and Roth IRA options at some point, and the VP of Marketing for Betterment just informed me that they will be on the way shortly!

Another really cool feature of Betterment is that they offer a simulator that will allow you to predict the value of your portfolio a set number of years in the future based on various asset allocation levels. I’ve pasted a screenshot of this tool below.


How Does Betterment Stack Up Against the Competition?

The niche in which Betterment operates is what I call the “single solution index investing asset allocation” space. They are targeting investors that do not want to devote the time to 1) investing in individual ETFs or index mutual funds on their own and 2) rebalance periodically throughout the year.
So, even though you could easily obtain lower overall expenses/fees by employing an investing strategy with individual ETFs or mutual funds (as I do), this does not qualify as competition for Betterment.
However, I did some brainstorming to think up products that would qualify as Betterment’s competition, and compared these to Betterment below:
  • Target Retirement Date Mutual Funds
    • These funds are similar to Betterment in that they place an investor’s money in a mix of equity and fixed income mutual funds.
    • An example of this category of funds are the Target Retirement Funds from Vanguard.
    • Vanguard’s expenses are much lower than Betterment’s (0.1-0.2% vs. 0.3-0.9%). However, they do require a $1000 minimum initial account balance, and you don’t have complete control over what asset allocation levels the funds uses (Vanguard decides for you).
    • One good thing though about these Target Date Retirement Funds is that you can invest them in an IRA with Vanguard.
    • So, in this case, Betterment has higher fees, but MUCH more flexibility.
  • Target Retirement Date ETFs
    • An interesting new type of ETF that has come out is the ETF version of the target retirement funds discussed above.
    • The only provider of these that I could find was iShares. You can view an example of one of these target date ETFs by clicking here.
    • These ETFs offer lower expenses than Betterment (around 0.3%) and slightly more flexibility in withdrawing your money. However, the asset allocation level is still dictated to you by the folks at iShares and you will most likely pay commissions on each trade you make.

What’s the Bottom Line?

“So, what’s the bottom line, Jacob? After reading this Betterment review, how do I decide if Betterment is right for me?”

As you might have guessed, this comes down to your personal preference of how involved you want to be in your investing strategy of any money outside of your retirement accounts (because remember, Betterment doesn’t yet have IRAs).

Betterment is not right for you if you enjoy selecting which ETFs or index mutual funds to invest in and rebalancing back to your asset allocation targets throughout the year.

Betterment is right for you if you want a very simple, low-cost way to invest the correct way by making one asset allocation decision and then just watching your money grow.

How about you all? Have you used Betterment? Are you a fan of these single solution asset allocation investments? 

Share your experiences by commenting below!


  1. THanks for your sharing about Betterment.I have never used it but after reading your post,I am checking it.

    • Thanks for reading Haley! It's definitely worth checking out if you are looking for an investment solution that is super easy and pretty much takes care of everything for you.
      My recent post Tips For Buying A Foreclosed Property

  2. Ya looks pretty good for people who dont want to or dont care to learn a whole bunch about investing.Seems good for people who don't have an advisor as well.
    My recent post 6 Ways to Buy Stock in Facebook before the IPO

Speak Your Mind


CommentLuv badge