Is Betterment a scam? Since you have found your way here, let me give you a pat in the back! Nowadays, it seems that automated investing is the trend in the market. There are only two ways a trend could come out, a life-changing experience or a complete and total scam.
That’s why it’s important to do research all the time when it comes to products, especially when it comes to investments.
Betterment is one of the representatives in the niche of automated investing platforms. After some research, I have found which direction this platform would go to! You may not like it, though. Are you sure you can handle the real tea on this one?
If you have the courage, well then, let’s get right to it!
Betterment is a financial brokerage known for one of the leading online robo-advisor app providing portfolio-based investment options and allows you to invest money while also simplifying the process itself.
If you’re wondering what a robo-advisor is all about, these are digital platforms utilizing mathematical equations or algorithms that generates customized advice, adjust your investments as needed, and manages your existing investment portfolio.
Betterment is founded by Jon Stein back in 2008, and was casually launched in 2010. It is now a financial institution. Ever since then, it now has more than $15 billion under management and has been catering to over 400,000 users. It boasts of their algorithmic portfolio investing instead of utilizing human labor minimizing inevitable errors.
What makes this stand out from the rest of robo-advisor apps out there is that it’s designed for both those who are just starting investing and the experienced with the knowledge of asset allocations and investment theory.
It is worth to note that Betterment does not only provide a robo-advisor app. Betterment also offers trusts, financial planning tools, individual retirement accounts, and comprehensive educational materials for you to further understand the basics of investing, saving, retirement and other topics regarding finance.
Is Betterment a scam? Let’s get to that later on. We’ll address first how it works.
Your journey with Betterment starts by downloading the app on your smartphone. Then comes signing up. It is easy to sign up since it is a user-friendly brokerage. It’s also worth mentioning that Betterment only caters to US residents.
You will be instructed to provide an email address, password, contact information, employment status, and annual income.
Take note, though, Betterment is a financial institution. This implies that upon signing up, you will be instructed to indicate your social security number.
After signing up for a few minutes, you will be opted to transfer funds to your account. This is the option to go if you want to start from scratch.
On the other hand, Betterment also allows you to link your external investment and savings accounts to the app. These funds will then be deposited into one of 12 ETFs. These ETFs are basically collections of different types of investments whether it be currency, stocks, or bonds.
Which ETF it will be deposited to is automatically all up to Betterment’s algorithms, but of course this algorithm takes into account how long you want to invest, how much you think you can invest, how much risk you are willing to take, and your financial goals which you would have to manually indicate.
Betterment will also assign the best investment strategy based on this information you have provided.
The mathematical algorithms Betterment utilize is particularly designed to be parallel with the newest and latest profitable trends. These algorithms handle your investments automatically in a way that will be of utmost profits to you.
Take for instance, any dividends you will gather is rebalanced and Betterment will reinvest this amount to your account to ensure that cash flow is continuous.
Since it is hard to track and calculate your capital losses on your own, Betterment also offers the feature of tax loss harvesting.
One of the most asked questions about Betterment is how does the portfolio-based investment all come into place?
Well, first off, Betterment helps you put together a model portfolio by answering their questionnaire. Your portfolio mix will be based on the answers you have provided on this questionnaire. The good thing here is you can tweak and rewrite your answers if you deem necessary depending on your financial situations.
This model portfolio invests in a wide range of assets, thus reducing the risks in your investments.
All this is taken into account by the algorithm to fully optimize your investments. Considering everything, the main goal of Betterment is to maximize your returns all the while minimizing your potential risks, as well.
Financial Planning and Resources
Betterment excels in this department since they are one of the few investment platforms that actually help newbie and young investors understand more about the fundamentals of investments.
With the use of Betterment, you can gain access to their collection of financial articles covering everything you must know to build you an elaborate plan and strategy for your retirement.
The purpose of these is to walk you through the importance of starting early in investments and make sure you won’t get lost along the way in your venture.
Trusts are basically investment accounts in which you can deposit funds that will eventually be handed over to a person of your choice. An example of trusts is putting up a trust fund for your children.
Individual Retirement Accounts (IRAs)
If you are planning to retire anytime soon, maybe it is time to consider building a retirement fund already. Creating an IRA with Betterment enables you to build it from scratch by depositing funds.
Just like what I have mentioned before, Betterment has added a tweaked feature in which you can link your existing investment or savings account to transfer funds to this IRA.
You could choose between traditional or Roth IRAs. The difference between these two is that traditional IRAs get taxed once your retirement funds are withdrawn, while Roth IRAs get taxed within the year in which you contribute to them.
Betterment Smart Saver
This Smart Saver automate investments by depositing your extra cash into low-risk bonds that will enable you to get higher returns.
Budget Planning Packages
Whether you are saving up for college, planning to get hitched or have the intent to retire anytime soon, Betterment has your back on your plans with several financial planning packages it offers.
- Getting Started Package: If you are just starting investing, this package shall provide you with a finance professional to assess your account setup.
- College Planning Package: Got a child and want to save up for college? This plan is crafted just for you. Invest and deposit funds for the safe and secure future of your child.
- Financial Checkup Package: Want to take it to the next level? With this package, you will be provided with opinions on your portfolio and financial instances coming from professionals themselves.
- Retirement Planning Package: Of course, you can’t go wrong by investing and saving up for your retirement.
- Marriage Planning Package: Life as a married couple is totally different from a life as a bachelor/bachelorette. You are not sustaining just yourself anymore. Plan for the future of your family with this package.
When you sign up for the Basic plan, Betterment will charge you an annual fee of 0.25% depending on your account balance. Availing of this plan does not require you any minimum balance at all. With this, you can benefit from the automated digital portfolio management.
This is perfect for beginner investors.
With the Plus plan, you will be provided with an annual call together with Betterment’s CFPs and licensed financial professionals. You would need to have a minimum balance of $100,000 in your account. Take note, as well, this one requires a yearly fee of 0.45%. Considering the math, this means you would have to pay at least $4,500 worth of fees.
Unlike the Plus plan, the Premium plan provides you unlimited calls with the CFPs and financial experts. This is particularly put together for those who spend more and extensive time investing. Here, your portfolios and accounts will be continually monitored by Betterment’s team of financial experts.
This one will cost you 0.5% of the total balance in your account.
Is Betterment a scam? I have found a clue which you will see in the next section.
Not for the Investment Savvy
If you are an advanced investor with knowledge of asset allocation and investment theory, there is little need for an app like Betterment.
Since this is a robo-advisor doing all the work for you with the help of its algorithm, there is not much options for you if you’re interested in choosing investments of your own or want to trade directly.
Even if Betterment claims this platform is both for newbie and advanced investors, its market leans more towards the beginners in this niche.
Although it is not BBB accredited, it is still rated with an A which translates to a legitimate business.
Say Goodbye to a Financial Professional
Financial advisors can get costly, and of course, human errors are inevitable. With Betterment, you only rely on an algorithm which takes into account all the information about the profitable financial trends of the market at particular circumstances. This cuts down all the risks from human errors, plus, you can cut down on the costs!
No Minimum Balance
Although this only applies to the Basic plan, it is still worth noting that Betterment allows you to invest without having the need to own hundreds of thousands of dollars.
Aim for the Goal!
Depending on your age or your current income, Betterment suggests goals for you in which it has also estimated the target and asset allocation. You can tweak these targets to your liking and also add your own customized goals.
No, Betterment is not a scam. If you are just starting with your investment ventures and want a robo-advisor to do all the work for you, this platform is especially made just for you! Let Betterment set plans for your children’s future, your marriage life, and even for your retirement. Maximize the returns and minimize risks all the while cutting down on costs and human errors with Betterment.
But of course, if you are the type who does not want an algorithm to handle your investments, you may want to find other options.
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