Betterment Review

I started an account with Betterment today. From what I can tell this is a perfect way for many of us to invest and I’m recommending people try it.

Click here to set up your own account.

The User Interface is really simple and offers a service that I appreciate the most in the investing world yet it’s so rare: Transparency! Your summary page shows you all the necessary details to track how much you’ve invested, how much you’ve earned and how much the fees cost.

It’s basically an automated system investing in low cost Exchange Traded Funds (ETFs).  As the website says, “Through diversification, automated rebalancing, better behavior, and lower fees, Betterment customers can expect 4.30% higher returns than a typical DIY investor.”

This speaks to me personally because I have not been able to excel in investing by doing it myself. Last year I decided to reassess my investing style and move towards Index Funds and this Betterment account should help me reach my goals faster than what I’ve been able to do.

If you’re interested in setting up a Betterment account, please click here to participate in their referral program where you and I both get 30 days free account usage (no fees).

USAA Index Funds (USSPX & USPRX)

This March, LeBron James asked Warren Buffett for investing advice. Mr. Buffett simply told him to keep 10% in cash and 90% of his money in an S&P 500 Index Fund (http://www.cnbc.com/id/102467435). This is becoming the common advice from most professional money managers now. As a whole, individual investors are unable to beat the market and often pay more fees to brokerages trying. Hedge and Private Equity Funds, which are sometimes able to beat the market, are often outside the reach of individual investors. To make the most of your money, Index Funds offer the greatest exposure to American (domestic) stocks; diversify for the lowest overall risk; and often have the least amount of fees.

Military members often choose to bank with USAA because of its exceptional customer service and understanding of the military lifestyle. Personally, I use Fidelity for my brokerage for my IRA and taxable accounts but there have been times when some of the uniqueness of my military career has made transactions difficult. Thanks to fully online services, my military service hasn’t interfered with much of my banking needs. But if you do like to bank with USAA, then USAA offers two S&P 500 Index Funds.

1. USSPX – S&P 500 Index Fund Member Shares with a minimum investment of $3K. The expense ratio is ~.26% which is really low (a good thing) compared to the category’s average of .59%. The Fund has a 4-star Overall Morningstar Rating which is good and has a 7.78% 10-year average return.
2. USPRX – S&P 500 Index Fun Reward Shares with a minimum investment of $100K. The expense ratio is ~.16% which is lower than the Member Shares Index Fund because it’s a larger amount of money being spread across the mutual funds and reduces overall transactions for the fund manager. The fund also has a 4-star Overall Morningstar Rating and has a 7.9% 10-year average return which is only slighter higher than the Member Shares fund probably because of the lower expense ratio. If you have $100K to put into one investment then you probably don’t need the advice of this blog (joking).

Index funds are a great way to invest in the stock market without having to make individual stock and mutual fund selections. An S&P 500 Index Fund is still exposed to stock market risk so if the stock market sinks so will the Index Fund. If the market does sink, regular monthly investments, you will be buying more of the fund at lower stock prices. Another risk is the S&P 500 invests in the Top 500 American companies so you may not be exposed to international growth from emerging markets. The Index Fund is ~98% in stocks so as you get older you may be exposed too much stock. LifeCycle Funds often provide better protection as you get older so having a LifeCycle Fund and an Index Fund is the ideal investment strategy.