Betterment Review

(In full disclosure, the below referral links provide me a bonus ($10) but also provide you a larger $25 sign-up bonus. If you are not comfortable with that but want to sign up, feel free to navigate there on your own.)

At some point in your military career, hopefully sooner rather than later, you’ll want to begin saving and investing your money. Even as an E-1 or O-1, you should begin to start saving, whether it be through TSP or a Roth IRA, or both!

Let’s say though that you’re very aggressive about paying yourself first, and even after maxing out both your TSP Roth and your regular Roth IRA, you still have some leftover cash to invest, even if it’s only $25 per month. According to bankrate, the average CD (certificate of deposit) is 0.67%, and the average checking account, savings account, and money market account is even less. Remember that the time for an amount of money to double is 72 divided by the interest rate – so if we had $100 in a 0.67% account, it would take 107 years until it was $200. Hmmm, we want to do better than that. What other options do we have?

We could invest it directly in the stock market, into individual stocks or mutual funds. When I was young and single and had a little bit of extra time on my hands, I would spend it combing through investment websites and blogs, and utilize this strategy or the next attempting to out-invest professionals whose job it was to make money on the stock market. Buying individual stocks, for the non-professional stock picker, is fraught with risks, and is very difficult to do profitably; trust me, myself and many friends have lost a lot of money this way.

Mutual funds are groups of stocks together that you can purchase shares of; since you’re diversifying amongst many stocks, it should bring down the overall risk right? Actually mutual funds are no less risky than individual stocks, and because they are actively managed by professionals, cost quite a bit more to buy and hold on to. There are both load funds (funds with an initial purchase price, up to 5% of the money you invest), and no-load funds (no initial purchase price), but both types charge yearly prices, anywhere from 1% – 3% generally, based on which fund you buy. If you bought a an amazing mutual fund, one that beat the S&P 500 by 2% every year (which is a slim minority of funds), but it charged 2% per year, you’d be doing no better than just by investing in an ETF (exchange traded fund) that tracked the S&P 500 and charged far less.

After doing much exhaustive research on where best to put my money, I had several criteria: it had to have good returns; it had to have a low cost; it had to be very liquid, ie easy to deposit and withdraw money; and it had to have a simple user interface. I finally found a place that meets all these criteria, it is called Betterment. It is a company that invests your money in 5-6 broad-based ETFs at a time, minimizing the risk by diversifying, while maximizing the return based on their computer model of what is a good value at the current time. It lets you pick your allocation of stocks to bonds, and lets you invest as little as $100 per month. One of the greatest things about it is it’s low cost structure; it offers 3 tiers of membership, with the highest cost structure only 0.35%! I’ve included the fee structure below:

The allotment of ETFs is as follows:

25% VTI: Vanguard Total Stock Market

25% IVE: iShares S&P 500 Value Index

25% VEA: Vanguard Europe Pacific (EAFE)

10% VWO: Vanguard Emerging Markets

8% IWS: iShares Russell Midcap Value Index

7% IWN: iShares Russell 2000 Value Index

The one obvious negative is the lack of choice in regard to funds. You basically set your allocation of stocks to bonds, which is also a basic risk allocation, and then it passively invests for you. If you like to take active part of your investing, this may not be the place for you.

You also could purchase this allocation by yourself, for a little bit less money, but when you use this service, it automatically reallocates your entire investment based on your risk parameters, and it doesn’t cost that much more than doing it yourself. For the convenience alone, I highly recommend this site for the average investor.

For a $25 bonus to your account, use this link if you plan on signing up.