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Investing Made Simple with Betterment

June 17, 2015

Here at SMD, we’ve talked a lot about debt and what it means to live a frugal lifestyle, but if there’s one aspect of personal finance that truly deserves more attention, it’s investing. You can never hope to build and live off of a sufficient nest egg without making wise investments.

While you’ve probably heard a great deal of advice on the importance of investing, the main issue is typically the question of how to get started. You don’t need to have the knowledge and dedication of a day-trader to be a successful investor. In fact, it’s likely best that you avoid that sort of investing. Day traders, as their name implies, typically trade securities on a daily basis, which can be extremely risky and lead straight to poverty if you don’t know what you’re doing. The key to successful investing for the average person is long term investing in low-fee index funds.

Two Ways to Invest

While you might accept the above advice, it still doesn’t answer the question of exactly how to start buying funds on a practical level. There are two methods of doing this:

  1. Open a brokerage account through one of the many online brokerages such as E-Trade, Fidelity, or Scottrade (among many others).
  2. Use an automated investing service, or robo-advisor.

The first option allows you to make your own investment choices, for better or worse. You could buy individual stocks and bonds or diversified funds. I recommend that everyone with at least $2,000 in extra cash open a brokerage account (they typically require a minimum deposit to open an account) and begin looking over investment options, but I would avoid diving into buying stocks, bonds, or funds without first expanding your knowledge of setting up a quality portfolio.

Enter Betterment

For everyone else, one of the best investment moves you can make is to begin investing today. The second option listed above, using an automated service, is one of the very best ways to begin making wise investments today without the immediate need to understand large chunks of the market.

Hands down, one of our favorite automated investment services is Betterment. Think of Betterment like an easy-to-use bank account, but instead of storing your money in a low-interest account, Betterment invests your money in a diversified portfolio of low-fee index funds. What it lacks in ability to hand-pick funds, it makes up for in overall ease of use and efficiency. You simply adjust a sliding scale of Stocks vs Bonds (stocks provide higher risk with higher possible returns, while bonds provide lower risk but lower possible returns on average). Here’s a look at our current allocation of 90% stocks and 10% bonds:

Screen Shot 2015-06-16 at 11.18.56 PM

Seeing all of these various funds might mean nothing to you, but the point here is that Betterment does most of the work for you. You simply set up a Betterment account, make a deposit, and let Betterment take care of the rest. You can reasonably expect an average of 6% returns on the money you invest through Betterment each year. That’s far better than the average 1% return in a high-yield savings account.

At this point, you might be wondering how much it costs to use Betterment. Surprisingly, not much. If you were to utilize an investment advisor, you would likely pay a 1% fee from your invested money, along with an additional 1%-2% fee for the actively managed fund that your money will likely be put towards.

If you instead invested your money through Betterment, you would be charged only 0.35% if your assets are below $10,000. As you contribute more and your money grows to $10,000 and $100,000, your fee drops to 0.25% and 0.15%, respectively. Not only that, but the portfolio that Betterment uses consists of very low fee passive index funds, which on average, outperform actively managed funds over the long term. You’re paying less and seeing superior returns on average.

Needless to say, Mrs. Saver and I are huge fans of Betterment. It’s simply one of the best ways to jump into investing and start making serious progress towards building wealth.

If you’re ready to start investing with Betterment, open an account by clicking the link below*. It costs nothing to open an account, and you won’t be charged fees until you begin making contributions. You’ll also get 30 days fee-free when you open an account, with additional no-fee time depending on the size of your initial deposit.

Open a Betterment account

*Affiliate Disclaimer – while the link above is an affiliate link, we are truly big fans of Betterment, and it’s important to us to only advertise services that we believe in. We are current Betterment users and make regular contributions. By signing up through the link provided, we are paid a commission directly from Betterment, which in turn helps us keep the blogging up and running. Thanks for supporting us!

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