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Investing for Arborists, Part II - Betterment

 

When I first started looking at traditional brokerages, I was disappointed by the fee structures that most of them carried and overwhelmed by the large variety of choices that I was left to analyze and choose from. As a beginner to the world of investing, I wanted something simple and straightforward to get started with, and the fact that I couldn't find such an offering early on led me to delay my entry into investing for several months. That changed when I found Betterment. Betterment is the first service I signed up for on my mission toward financial independence. It's a low-fee, low-complexity brokerage account that's well-suited for beginners and just customizable enough to be a long-term account. If you're looking for an account to get you started, Betterment may be a good option.

As touched on in the intro, Betterment isn't like most other brokerages. Instead of choosing between hundreds or thousands of individual funds or ETFs, or - even worse - between individual stocks, your only concern with Betterment is what ratio of your money should go into higher-risk stocks versus lower-risk bonds. The platform automatically distributes your deposits into its portfolio based on your ratio selection. After that, you need only to sit back and relax while your money earns dividends. Over time, as the market fluctuates and your allocation "drifts", the platform will re-balance your money in a tax-efficient way to stay true to the allocation you have set.

But the simplicity isn't the only benefit that Betterment has to offer; there's also the matter of automation. I've found through my experience that the most successful long-term plans (not just in personal finance) are ones that involve automation. This allows you to set an account up and then let it run itself; specifically to Betterment, this means that you can open an account, set your allocation and then arrange for automatic deposits out of a linked bank account. This does two very important things: 1) it builds consistency into your plan, and 2) it allows you to more easily forget about your investments. Why are these so important? Well, consistency allows you to take advantage of long-term market fluctuations, and keeping your mind off of those markets helps to remove stress and lessens the likelihood that you'll self-sabotage by trying to time your transactions. It may sound counter-intuitive, but keeping your mind off the market news of the day can be very beneficial for your long-term success. For more on this, see a previous article that touches on the subject.

So we have simplicity and automation under our belts - now let's take a look at one of the reasons that Betterment is so beginner-friendly: advice and dead-simple analytics. When you open an account, you will be run through a wizard that asks some questions about your goal. Betterment is based almost entirely on the idea of goals. You set a target value and number of years to get to it, and the system will suggest an allocation configuration and monthly deposit amount to maximize your chances of reaching it. If you want to dig deeper, you can look at some basic historical data and compare it against your goal; the system can even tell you how likely you are to reach certain balances over time based on historical data.

One final thing to mention that I absolutely love about Betterment is that it integrates seamlessly in most tax preparation software. Unlike some other investment platforms (more on this in the upcoming Lending Club article), filing your Betterment taxes is completely hassle-free and automatic. This may not seem like much, but when you have hundreds or even thousands of reportable transactions, this is a tremendously important distinction.

Overall, Betterment is a solid option for beginning your journey toward retirement. The blend of simplicity, low fees and low tax-time stress add up to make the perfect hands-off investment account. I've put some basic details on the Betterment offering below. The link at the bottom is a TRMT affiliate link which helps support the site (thanks!):

Types of accounts offered: "Plain" brokerage account, IRA, Roth IRA
Fee structure: 0.35%/yr up to $9,999 balance (with $100+ auto-deposit), 0.25%/yr up to $99,999, 0.15%/yr with $100,000 balance or higher
Special features: Simple stock vs bond percentage dial, advice section, flexible automatic deposits
Link: Betterment site
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