New Investing Vehicle: Betterment
I am passionate about finances and investing but it is a very large and mobile topic to cover. Companies are constantly offering new information services, new platforms, and new investment vehicles. While not constantly on top of the latest investing news I do strive to teach myself new things on a regular basis. That being said I will be sharing new investing vehicles that I have found as I continue to expand my horizons on investing. The first is an instant managed portfolio of mutual funds for low cost (http://www.betterment.com/).
Disclaimer: I do have a very small amount of money invested in Betterment however the time period that I have been invested has been extremely short so I cannot personally speak to performance yet. Always remember to do your own research and due diligence before choosing to invest. I am not responsible for any losses incurred by anyone else's investing choices. Fundamentally I believe Betterment to be a good way to diversify my portfolio and have added it with high hopes. Now on to the good stuff.
Betterment: As close to free as active management gets
(Depending on performance I may be suggesting Betterment to the majority of family and friends looking for lower balance investment opportunities)
What is Betterment? Simply put it is a collection of actively managed mutual funds meant to offer the investor instant diversification across multiple industries and markets. It has several distinct advantages for lower balance accounts and people unfamiliar with the stock market.
Pros:
Zero trading cost - This is huge for the smaller investor. Imagine you have $100 and you want to invest in stocks. Typically you will pay between $5-$10 just to make the trade. That means you start your investing with a 5% to 10% loss on your money.
Liquidity - Sometimes you just need to get to your money. Betterment will cash you out that day. Some vehicles such as Savings Bonds require a minimum amount of time to hold the cash before it can be available.
Active Rebalancing - Your Betterment account is actively managed which means that you will never become overweight in one area or another. You can even set how far off you want to allow your allocation to be before it rebalances.
Diversification - Mutual funds tend to have a minimum investment gateway. Unless you have $2000 to $5000 dollars some of them won't let you begin a position with them period. Betterment lets you spread even $100 over 12 different funds. Your eggs are in so many baskets that I don't want to do the math to find out how many (though I may eventually).
Cons:
Management Fee - The one drawback to Betterment is that it has a management fee. This fee varies depending on the size of your account. Under $10,000 the fee is 0.35% annually IF you invest at least $100 automatically each month. If not then the fee is $3 a month. I highly suggest the $100 automatic investment. At lower balances $3 a month will eat away at your account too quickly to make up the difference. Keep in mind this is (in my opinion) extremely cheap for what they are offering and you can liquidate your account at any time. Fees are taken out quarterly from dividends or pro-rated from withdrawals.
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