Betterment Review: Investing Made Simple

by Darwin on April 13, 2011

Betterment is a hot new investing service that boils down the litany of investment options to just a few basic choices.  It’s simple.  Stocks or Bonds.  And how much.  It can’t be any simpler, right?

Should It Be This Simple?

Granted, there are numerous investment strategies and sectors out there for retail investors ranging in everything from investing in solar stocks and quant funds to various emerging market bonds and preferred hybrids.  But the reality is, a key determinant of actual market returns isn’t so much individual stock-picking and strategies, but rather, long secular trends that occur in markets like P/E Expansion and Contraction which occurs over multi-year cycles.  So, in many cases, you will get virtually the same returns in a “stock” and “bond” portfolio compared to trying all kinds of fancy ETFs, mutual funds and options strategies.  After all, markets are efficient, aren’t they?

Betterment Buzzzz

Betterment has had some notable buzz from noteworthy outlets, including:

  • writeups in the New York Times
  • Finovate’s 2010 “Best of Show”
  • Tech Crunch’s Disrupt NYC 2010 “Best NYC Startup”

Betterment Portfolios

With the stock and bond portfolios, they rely on some simple low-cost ETFs with the following makeups:


  • 10% SPDR Dow Jones Industrial Average ETF
  • 20% iShares S&P 500 Value Index ETF
  • 20% iShares S&P 1000 Value Index ETF
  • 15% iShares Russell 2000 Value Index ETF
  • 15% iShares Russell Midcap Value Index ETF
  • 20% Vanguard Total Stock Market ETF


  • 50% iShares Barclays 1-3 Year Treasury Bond Fund
  • 50% iShares Barclays TIPS Bond Fund

Based on some simple questions, you’ll arrive at a suggested asset allocation of say, 70% stocks, 30% bonds and then set up the account from there.  A simple account link and money transfer ensues and you’re off to the races!

Portfolio Auto-Balancing

Another cool feature is that your portfolio is rebalanced for you each quarter if your mix shifts by more than 5%.  So, in a year where stocks rally and bonds sell off, you’ll stay in sync with your desired asset allocation over time as opposed to self-managing in a self-directed account.

What Does Betterment Cost?

It costs nothing to get started.  There are no per-transaction trading commissions.  However, there is an annual fee assessed that starts at 0.9% annually and drops as your account balance increases.  For instance, exceed $25,000 and it drops to 0.7% and so on.  For sophisticated investors who have the capability and inclination to set up their own long-term retirement accounts and invest themselves, they can beat those fees over the long term, but the reality is most Americans are not there – or they trade in and out of stocks and ETFs so much that they end up exceeding 1% annually anyway.  Many people would benefit from some handholding, prodding/discipline a system like this offers as well as the modeling tools.  So, check it out and see if it’s for you at

Open An Account at Betterment

The signup process is pretty quick, you can sign up here:


{ 3 comments… read them below or add one }

Ravi Gupta April 14, 2011 at 9:16 am

It seems like a unique service but one that I would never pay for. .9% starting could be your gain for a single bad (REALLY bad year) but you also have expenses in funds as well. Those fees can all add up and then in several bad years you’re losing a lot more and good years you’re making less because money is being funneled elsewhere.

-Ravi Gupta


Jerry April 14, 2011 at 11:38 am

All of the brokerage firms let you buy and sell ETFs for free nowadays, and if you are just holding them for the long-term I don’t see the point in paying these guys .90% on top of the ETF charges, to do what I could for free at TD Ameritrade with one click…


Darwin April 17, 2011 at 6:45 pm

It’s not accurate that all brokerage firms allow you to trade ETFs for free. A few firms allow to trade a select few ETFs for free. But regardless, the fees are a drawback. However, given that most Americans don’t get around to opening their own trading account, buying ETFs, holding, them, modeling their goals and tracking performance, etc. – that is where the value proposition lies. Like I stated in the article, I prefer to go it alone for lower fees. But if this program is the motivation it takes to get people investing, then so be it. After all, you could conceivably start with the program and invest similarly outside the account if you so chose, right? But enjoy the tools and modeling to go with it!


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