Betterment Just Got Much Better

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When I first reviewed Betterment I gave it mixed reviews. On the positive side, it is very easy to use, has a solid investment strategy, and allows you to invest with little money. On the negative side, however, it didn’t offer international exposure and its cost was just too high. I even spoke to Betterment’s CEO, Jon Stein, about these issues.

Well guess what? He listened! Betterment now has international ETFs in its mix, and as of today has significantly lowered its fees. And if that weren’t enough, it now offers IRAs. In fact, the improvements are so good, I’ll start investing monthly with Betterment. Here are the details:

Lower Costs

The absolute best part of the changes comes in the form of lower costs. As I noted in my original review, Betterment charged expenses ranging from 0.3% to 0.9%. And to get the lowest expense ratio, you had to invest more than $500,000, and even then, all investments below that threshold were charged the higher rates.

Today, the costs range from 0.15% to 0.35%, depending on how much you have invested. You’ll pay 0.35% if you have less than $10,000 in your account and will be required to invest at least $100 monthly. When your account hits $10,000, your expenses drop to 0.25% and the monthly investment is optional. Hit $100,000 and your expenses drop to 0.15%.

So I’ve decided to invest $100,000 later today. Just kidding. But I am going to start putting $100 into my account each month now that the expenses are very reasonable.

I should say here that for buy and hold investors, keeping expenses low is absolutely critical. To see just how important, check out Mutual Fund Expnese Ratios.

And here’s a recap of Betterment’s expense ratios:

Betterment Costs

IRA Retirement Accounts

This is the second big change to Betterment. One of the hurdles with an IRA is knowing where to invest your money. With a 401(k), you have a limited number of options and can get help from your employer’s 401(k) administrator.

With an IRA that you open on your own, however, the level of support you get depends entirely on where you open the account. With Betterment, it’s a snap to set up an excellent portfolio. All you do is decide how much you want invested in stocks and how much in bonds, and Betterment does the rest.

Betterment offers both Roth and Traditional IRAs. You can rollover a 401k to a Betterment IRA.

Betterment is such a good option for an IRA in my opinion, that I’ve added it to our List of the Best Online Discount Brokers for IRA Retirement Accounts.

International Investments

Finally, I want to mention Betterment’s move into foreign ETFs. While this change occurred some time ago, it happened after my first review. And for creating a diversified portfolio, these foreign ETFs are critical.

Betterment has added investments in developed markets and emerging markets. For the stock portion of a portfolio, Betterment puts 25% in the Vanguard MSCI EAFE ETF (ticker: VEA). If you’re wondering, MSCI EAFE stands for the Morgan Stanley Capital International Europe, Australasia, and Far East. Betterment puts 10% in the Vanguard MSCI Emerging Markets ETF (ticker: VWO).

To give you a complete picture, here is my total asset allocation in my Betterment account (keep in mind that I have everything invested in stocks):

Betterment Stock Allocation

Lately as I think about personal finance and investing and the content here on Dough Roller, I ask myself one question–If my children read an article here and followed a tip or idea, would I be comfortable with their decision. This question forces me to really think about everything that is published here. And with Betterment, I would have absolutely no reservations if my children used it for their investments.

If you want to learn more or open an account, you can visit Betterment’s official site.

Published or Updated: November 1, 2013
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. Philip says:

    Good catch on the change to international ETF offerings. That’s a welcome change. Hard to dislike what these guys offer now.

  2. I found this article very useful , thanks for sharing.

  3. Ben says:

    Great post – thanks for sharing….

    Just a question – There is no way of getting around the expense ratio of what these underlying funds charge (example, the Vanguard VTI fund charges .05%, which is dirt cheap). However, you would still be paying the Betterment fee on top of that.

    So I guess the question is, would you consider Betterment a “convenience fee” for investing vs. doing a DIY directly with the ETFs used in a Betterment portfolio? Overall, you would pay lower fees doing a “build your own model” directly with the ETF broker.

    • Rob Berger says:

      Ben, absolutely. It is a convenience fee. If you are comfortable doing it yourself, investing directly with Vanguard will save you money.

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