so in this video today we’re going to be
doing a review of the robo advisor
known as betterment which is essentially
an
automated solution for passively
investing your money
into the market so we’re going to cover
basically what betterment is
what they’re offering what they charge
in fees
and then what may make them unique when
it comes to investing through a robo
advisor
versus just going out there and picking
stocks and bonds
or different funds to invest in yourself
now before we get into that i just want
to mention
two things here number one if you do
decide at the end of the video that you
want to sign up for betterment
i do have an affiliate link down below
if you would like to support the channel
and second of all i’ve actually put
together a completely free
robo advisor comparison table that
essentially takes the top five robo
advisors
out there and makes it very easy to
compare the different features
fees minimums and things like that all
in one place
so if you want that guide completely
free that’s also going to be down
in the description below for your
convenience at the end of this video
so in a nutshell betterment is a robo
advisor which essentially means
rather than having a financial advisor
managing your money and determining what
we call your asset allocation
this is instead handled by a robot or an
algorithm and so essentially in the past
if you were looking to invest
money with a financial advisor you would
have a meeting with them
you would go over you know what are your
goals what is your income and basically
what your whole financial situation is
and then that financial advisor would
figure out this asset mix for you
based on the information provided well
there’s two main problems with that
number one in order to work with a
financial advisor
you would generally need to have
thousands if not tens of thousands of
dollars
to make it worth their while and second
of all when you have this level of human
involvement
in the process it leads to higher fees
paid
to again make it worth their while so
what these
robo advisors did instead is figure out
how to do this with an algorithm
where you basically sign up and fill out
a questionnaire
and they will create the portfolio based
on the answers that you provide
and by doing this they pretty much solve
the two biggest problems
number one they can work with much
smaller accounts because
basically all human involvement has been
taken out of the equation
and number two they were able to
drastically lower the fees
compared to what you might pay to a
traditional financial advisor
again because there is no real human
involvement
now when you invest with betterment your
money is going to be invested in
index funds or exchange traded funds
so essentially they’re going to be
buying funds of
u.s companies as well as international
companies
and mixtures of different bond funds as
well
and based on your goals and risk
tolerance
they’re going to determine what
percentage of your money
is going to go into each fund so for
example a young person
just getting started has more risk
tolerance and so
more of their money would be in stocks
and less would be in bonds
on the other hand if you’re nearing
retirement you’re going to want to have
more of your money in bonds
and less of your money in stocks so when
you start out with betterment
they figure out your target allocations
and they get you set up
however then as you get older and closer
to your goal
they’re going to rebalance this
portfolio automatically
and change your target allocations to
make sure that you stay
on track so now let’s go ahead and talk
about the pricing because there’s
actually two different plans offered by
betterment
first of all you have betterment digital
which is the basic plan
where there is no human involvement and
it’s all handled by the algorithm
and because of that the minimum amount
to get started is
literally zero dollars you can open up
an account with them
with any amount of money that you have
and their annual asset management fee
is 0.25 percent so to put that into
perspective guys
that is two dollars and fifty cents per
every one thousand dollars that they
manage for you
so we’re really not talking about a heck
of a lot of money here
and in exchange for paying that fee
they’re going to basically
manage your portfolio for you rebalance
it as those
numbers change and then as you get
closer to your goals
they’re going to change your target
allocations and there’s also a number of
different features
offered as well one of which is tax loss
harvesting
which we will talk about in a second now
recently betterment rolled out another
plan
which is called betterment premium which
solves the problem
of not having access to a financial
advisor
essentially with betterment premium you
have unlimited access to a team of cfp
professionals
which can give you advice about
investments within your betterment
account
as well as investments outside of
betterment so for those who are looking
to
still reduce what they are paying in
fees but they
also want to be able to call someone up
on the phone to ask questions
that is what betterment premium is
designed to do
now for that reason because of that
human involvement the minimum investment
is one hundred thousand dollars and the
annual asset management fee
is slightly higher at zero point four
percent
so just for example sake here if you had
a hundred thousand dollars invested
with the betterment premium account
you’re paying about four hundred dollars
per year
in asset management fees now the good
news is even if you don’t have a hundred
thousand dollars to
invest and you’re in the digital plan
and you still want to talk to
a financial planner or financial advisor
they offer one-time advice packages that
you can purchase
which will allow you to call somebody up
on the phone and have a discussion about
your finances
you do have to pay for those advice
packages but it is a one-time
payment but if you’re just looking to
call someone up and ask a couple of
questions
that is a service that they provide as
well now another thing you should know
about betterment is that they offer a
wide variety of different account
types which serve a number of different
needs so first of all we have the basic
taxable account which is the one that
most of us are familiar with and then
they have a number of different
retirement accounts
so with betterment they have both the
roth ira
as well as the traditional ira and the
sep ira
for those who are self-employed they
also offer
joint accounts as well as trust accounts
that being said they do not offer the
529s and they do not offer custodial
accounts
either and one other feature i want to
talk about here quick with betterment
is something called tax loss harvesting
and this is one of those things that
makes robo advisors unique
and this is an added value that you
won’t get on your own if you just go out
there and purchase
individual stocks and funds unless you
are consciously doing this on your own
so tax loss harvesting is essentially
where a robo advisor is going to
sell a given asset for a loss
and buy a near identical investment
in order to recognize a loss for tax
purposes
now i know that might be a bit confusing
so i drew a quick diagram here
let’s say both of these right here are
index funds that track the s
p 500 offered by different fund
companies
maybe one is from vanguard and one is
from blackrock or ishares
well earlier this year the s p 500
tanked
during the global pandemic and what tax
loss harvesting allows betterment to do
is they could sell one of these funds
for a loss
and buy back the near identical fund or
completely identical fund
being offered by a different company and
this allows them to capture
what’s kind of an artificial loss and
basically
offset your capital gains or even have a
capital loss
to lower your taxes now the exciting
part about this is that
over the long run betterment from the
research they have done
has found that with this tax loss
harvesting it has boosted returns
in taxable accounts by point seven seven
percent
annually so if you’re investing with
betterment through a taxable account
you’re actually pretty much paying for
that fee
when you account for the added benefit
of tax loss
harvesting now beyond the investment
side of the business
betterment also offers an online savings
account
and an online checking account
essentially they’re looking to become
a well-rounded financial service company
offering
all kinds of different tools for you to
utilize
and manage your money as far as that
betterment checking account goes
they offer full reimbursement of all atm
fees and foreign transaction fees
and in the future they’re also going to
be rolling out joint
checking accounts for those who want to
save together the online savings account
is called betterment
cash reserve the apy of that account
changes quite a bit based on the federal
funds rate
so i’d recommend using the link below to
check the apy
but it is six times higher than the
national average apy
as far as what is paid with an online
savings account
another thing you should be aware of is
that there are unlimited
transfers in and out of that online
savings account whereas many of their
competitors have a limit
on how many transfers you can have per
month so anyways guys
that is the gist of betterment in a
nutshell on the investment side
it is 100 passive long-term investing
for those who want a set it and forget
it type approach
to investing in the stock market and the
bond market
you’re not going to find individual
stocks you’re not going to find real
estate or reits
within betterment they just stick to the
stocks and bonds
and they pretty much do it all for you
if you want to have somebody where you
can
call them up on the phone if you have
the assets available you could
opt in to betterment premium or simply
pay for the one-time advice packages
and if you want to take advantage of the
checking and savings accounts
that’s an option as well and you also
don’t have to use all these things
together
you can pick and choose what components
you want to use
so if you just wanted to have a savings
account through cash reserve
you can do that without having to do the
investing either
so there you have it guys like i said if
you want to check out that free robo
advisor comparison chart
that’s going to be down below as well as
a link to sign up for betterment if you
want to support the channel but thanks
so much for watching this video guys i
hope you enjoyed it
and if you have any questions drop them
down in the comment section below
and i hope to see you in the next video