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Although labeled a brokerage, the firm really offers a unique product which is a cheap way to hold a diversified, regularly rebalanced portfolio. They charge annual fees rather than commissions. On the $10,000 investment it is to be .25% per year (which is $25 per year, or $2.25 per month). Smaller accounts pay $3.00 per month.

For the bonus hunter, the $250 investment would appear to yield an extra 10% in value, which over 2 months is 60% per year. A slightly better way to look at it would be you get an extra $25, reduced by perhaps $6 in fees (I am figuring you will be there for 3 months, with the first month free). This reduces the profit to perhaps $19 and the annualized extra return to 30%.

However, for this small bonus the relevant question is the return on your time, and it is only $16 for the work of opening the account, funding it, and closing it. This is not very high unless you really need money, or do want to try out their service.

While not designed for traders, someone who thought they could decide when to be in equities and when not to, this could provide a very low cost trading vehicle.

One issue I see is extra work on taxes. Basically you move between a "Treasury Basket" and a "Stock Market" basket of ETFs. There are 8 securities here, and if each is reported separately, there might be a little work. Computationally, the total profit could be computed over a holding period (if there was no trading) and just reporting this as a short term gain or loss would create no problems. They say their tax statements can be automatically downloaded to TurboTax.

One minor complication in this this deal is that the lowest fee is based on having $10,000 in the account. With a market decline, you could have slightly less and not get the best .25% pricing. The pricing would then seem to be $3.00 per month, instead of $2.25 per month (not a disaster) or you could put a little more money in to keep the average balance over $10,000. With downloading the TurboTax, the taxation complexities would not seem high.

Another specialized use for this product would be as a low risk place to park spare funds. One would choose to stay invested in the "Treasury Portfolio" and then move money in and out from your bank. The fixed income ETF can be expected to yield more than bank deposits in saving accounts, and appear to be more liquid than CD's. While you could buy these ETF's (50% TIPS and 50%SHY) in a brokerage account, this may be a cheaper way than paying commissions in and out (and suffering from the spread).

From Hustler money I learned of this brokerage bonus plan (now gone).

The Hustler review is at http://www.hustlermoneyblog.com/betterment-100-brokerage-bonus-r...

and the Betterment $100 Offer can be found at at:

http://www.hustlermoneyblog.com/betterment-100-brokerage-bonus-r...

and the $25 offer at:

http://wealthpilgrim.com/betterment-review-easy-investing-option...

The bonus offers do not appear if you just use a Google search to go to Betterment's web site, where the only offer is a 30 day free trial.

Betterment stands out with two offers, for the high rates of return. They have a $25 bonus for $250 offer and a $100 for $10,000 one. Both appear to require leaving the money there for only 60 days. The result of the short required holding periods is a high rate of "added" return (over what the underlying investments yield).

If I took this offer I would probably go in for slightly over $10,000 (to increase the probability of getting the lower charges even if there was a market decline) and chose the 100% Stock Portfolio. This would then be just another index type equity holding in a much larger portfolio.

Note: I changed the title (and details), since the $100 bonus is no longer available. The emphasis is now on them as having a unique product useful for certain purposes.

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Thanks for posting the info. Were you able to gift someone else, using a CC? Were there any additional charges posted by... (more)

bcotton (Feb. 25, 2013 @ 5:50p) |

After having invest $10,000 with them for over three months (profitably, since the market went up), here are some furthe... (more)

ProfessorEd (May. 09, 2013 @ 10:25p) |

If you do plan to use them for short term trading placing bets on the direction of the overall market (over a few days),... (more)

ProfessorEd (May. 10, 2013 @ 5:27p) |

The gifts program may let you slide under the radar for a very small amounts coded as purchases, but huge gifts will definitely draw scrutiny, and coming from a financial institution large transactions will likely be coded as cash advances.
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Do they offer a cash equivalent (money market or FDIC bank account)? If not, then any investment loss will detract from the bonus.

lokimoki said:   Do they offer a cash equivalent (money market or FDIC bank account)? If not, then any investment loss will detract from the bonus. Not to mention time out of the market while transferring funds to them. Good deal if you're going to give them a shot anyway, but I wouldn't do it just for the bonus.

Hi all. Thanks for the questions and kind words. I'm the Community Manager for Betterment so can provide clarity on a few items.
ProfessorEd said: They have a $25 bonus for $250 offer and a $100 for $10,000 one.

Unfortunately this offer has expired. We ran this promotion over a year ago and it is no longer available.
ProfessorEd said: One issue I see is extra work on taxes... There are 8 securities here, and if each is reported separately, there might be a little work. Computationally, the total profit could be computed over a holding period (if there was no trading) and just reporting this as a short term gain or loss would create no problems. They say their tax statements can be automatically downloaded to TurboTax.
We make tax reporting as simple as possible. Our system integrates with H&R Block as well as TurboTax. We will update our customers' accounts on Jan. 31 and will alert them with an email once complete. The entire process is digital (unless you choose to do your taxes yourself in which case you might print your documents).
ProfessorEd said: With a market decline, you could have slightly less and not get the best .25% pricing.
We don't increase the fee if an account drops below the minimum for that pricing plan due to market changes. For example, if you choose to go with the "Better" plan (between $10K - $100K at .25% per year) we won't change your fee if market changes make your balance fall below $10K.
lokimoki said: Do they offer a cash equivalent (money market or FDIC bank account)? If not, then any investment loss will detract from the bonus.
This is not something we offer currently but we're hoping to introduce soon.
Thanks everyone. Let me know if you have any further questions.
Johanna

Can we fund with a credit card? Don't mind paying a reasonable fee to cover your processing cost and would like to bring over around $250k to start.

Venturion said: Can we fund with a credit card? Don't mind paying a reasonable fee to cover your processing cost and would like to bring over around $250k to start.

You cannot fund with a credit card. We recommend you link your checking account, but a linked savings account is allowed instead if you prefer (but be wary of withdrawal fees from your bank). An effective setup is linking your checking account and having your investment withdrawn automatically every paycheck. Thanks, Johanna

johanna6855 said:   Venturion said: Can we fund with a credit card? Don't mind paying a reasonable fee to cover your processing cost and would like to bring over around $250k to start.

You cannot fund with a credit card. We recommend you link your checking account, but a linked savings account is allowed instead if you prefer (but be wary of withdrawal fees from your bank). An effective setup is linking your checking account and having your investment withdrawn automatically every paycheck. Thanks, Johanna


Too bad. If you ever need to show a few extra (many) millions on deposit, please reconsider and update here.

Thanks for the feedback. One thing I forgot to mention before is that we do allow credit card payments through Betterment Gifts, our gift registry.
Our gift registry can be used for any occasion - wedding, birthday, baby shower, wishing well - and other users can contribute toward that goal. This is free to set up with no transaction fees.
Johanna

johanna6855 said:   Thanks for the feedback. One thing I forgot to mention before is that we do allow credit card payments through Betterment Gifts, our gift registry.
Our gift registry can be used for any occasion - wedding, birthday, baby shower, wishing well - and other users can contribute toward that goal. This is free to set up with no transaction fees.
Johanna
Looking forward to LivingSocial promotion..

Ok, that sounds like something we can work with. Thanks.

johanna6855 said:   Hi all. Thanks for the questions and kind words. I'm the Community Manager for Betterment so can provide clarity on a few items.
ProfessorEd said: They have a $25 bonus for $250 offer and a $100 for $10,000 one.
Unfortunately this offer has expired. We ran this promotion over a year ago and it is no longer available.

What about the $25 for $500 offer, is it still valid? Thanks.
https://www.betterment.com/a/home/refer-a-friend-to-betterment-p...

DrXX said:   johanna6855 said:   Hi all. Thanks for the questions and kind words. I'm the Community Manager for Betterment so can provide clarity on a few items.
ProfessorEd said: They have a $25 bonus for $250 offer and a $100 for $10,000 one.
Unfortunately this offer has expired. We ran this promotion over a year ago and it is no longer available.

What about the $25 for $500 offer, is it still valid? Thanks.
https://www.betterment.com/a/home/refer-a-friend-to-betterment-p...


Or this one that I saw through mint.com this morning:

Mint users, get $25 when you start a Betterment Account with an initial deposit of $250 or more.

Thanks to Betterment for Updating us.

It is unfortunate that the Money Hustler Blog did not check availability before mentioning this in a list dated Jan. 11, 2013. I am sorry for the time wasted (mine and other Fatwallet readers), but it appears last night there were links to these offers and an evening phone call for more information did not get answered. Firms should avoid leaving offers up they no longer intend to honor, and should make sure they have expiration dates on offers.

The Betterment idea is interesting, and for certain investors may be very desirable. These include those desiring low cost diversification and re-balancing, those looking for bond investments for a few days without buying and selling ETF's, and possibly for those who think they can guess when stocks will outperform bonds, and are looking for a low cost way to place their bets.

Unfortunately, it appears we can no longer get paid $100 for trying them out, and probably not $25.

ProfessorEd said: Unfortunately, it appears we can no longer get paid $100 for trying them out, and probably not $25.
Apologies for any confusion we created here. We do still offer the $25 bonus through Mint. We also work with a number of personal finance bloggers to offer a similar promotion. Those are all current and available.

johanna6855 said:   ProfessorEd said: Unfortunately, it appears we can no longer get paid $100 for trying them out, and probably not $25.
Apologies for any confusion we created here. We do still offer the $25 bonus through Mint. We also work with a number of personal finance bloggers to offer a similar promotion. Those are all current and available.


I am interested in the offer through Mint. But I would like to know of any hidden fees (if any) before I sign up for this deal.

Our pricing plan differs depending on your balance. We charge an assets under management fee (or said another way, a small percentage of your balance) ranging from 0.15% for 100K+, 0.25% for $10K+, and 0.35% for balances under $10K. This is a tenth of the industry average. You can review the full details here on our pricing page. There are no fees for trades, transfers or withdrawals. Thanks, Johanna

Hi, johanna6855,

Thanks for your reply. However, the website to sign up says: Try it free 30 days. This implies there are some sort of monthly fees. Could you please clarify this? Thanks!

PS: On the Pricing, if I keep a balance in my account in cash and do nothing more, does the Annual Fee of 0.35% still apply to this balance even with Monthly Deposit of $100/mo. minimum?

@AugustFour
Sorry if I wasn't clear - we do charge a fee. It's an annual assets under management fee of 0.15%-0.35%. There are no additional fees i.e. many brokers will charge you per trade or charge you for withdrawals. We don't charge for those. Thanks, Johanna

On the Pricing, if I keep a balance in my account in cash and do nothing more, does the Annual Fee of 0.35% still apply to this balance even with Monthly Deposit of $100/mo. minimum?

@AugustFour
Hello again. Unfortunately we don't have a cash option - but hope to offer this soon.

I was looking at TurboTax and Betterment is listed among the entities that TurboTax can import data from. That would be pretty sweet come tax time if you have a taxable account with them. I like their name best among these new investment 'disruptor-type' companies.

johanna6855 said:   @AugustFour
Hello again. Unfortunately we don't have a cash option - but hope to offer this soon.


It appears that as soon as they get your money it is invested (from my short experience). In fact, it is set up so they ask how much you wish to invest and when your verify your bank, they state they intend to ACH over the amount, and do so. I am not real happy with this since you may give the planned figure, and want to set up ACH's so that you can do it when wanted, but not have the total sitting in your bank account. All other firms I am familiar with set up the ACH, and then make actually sending the money a second step. Watch this detail.

If you are not careful, the asset allocation they pick for you (free service based on how you answer questions) may be invested in before you change it. This is not a disaster since you can change it, but you mayhave had a day or so invested as you did not plan, and then at tax time find out you had sold or bought securities. For instance, they suggested 80% stock, 20% Treasury for me. My $10,000, sent over automatically almost, (fortunately, I had enough cash in my checking account due to planning) would have given me $1000 in each of their bond ETF. When changed to 100% Stock, there would have been two sells of bond ETFs to be reported.

If you want low risk (not zero), you can pick 100% Treasury option (actually half in TIP and half in SHY). Low risk, but far from risk free since their prices do fluctuate.

Legally, you are investing in a limited menu of ETF. It is a little hard to find what you own onl their site, but if you go to Summary, and then look below the clock, and click on "See details" you will get a pretty moving graphic and in the lower left hand side there will be a list of your holdings, which are the 6 or 8 ETF you actually own. It is possible to click on "Learn More" each to learn more about what each ETF owns. For instance I own a little more than $1,000 in the Vanguard FTSE Emerging Markets Fund, whose largest single holding is Samsung.

While their selection of ETF's is reasonable, and close to what I might choose, you should notice it has a "Value" bias, since it includes three value ETFs, but no Growth ones. Thus you are less exposed to stocks such as Apple or Microsoft, and more to GE or Exxon than the average investor. I believe that because of their lower management fees and use of low expense ETF's, most customers will end up better off than the typical person who used an adviser, and paid much higher fees and expenses.

They credited the bonus quickly, on the day the account was opened (although I presume they have ways of keeping you from taking the money and running).

This slightly increases your rate of return, since this is immediately invested, and hopefully earning a profit. It can also reduce the tax work, since if you got the bonus later, and they automatically invested it, you would have another 6 or 8 trades to report on your tax returns. If you use TurboTax, this may not mean much more work, otherwise it would be some trouble at tax time.

For medium size investments (5 or less digits), their service is probably easily worth their fees (about $2.25 per month on $10,000) in labor saved, commissions saved, and sensible advice and diversification. However, with much more money, and a buy and hold philosophy, it is clearly cheaper to buy the 6 or 8 ETFs in a regular brokerage account, pay commissions, and have no management fees at all, presuming you know a lot about investing (and many do not).

So at Betterment, to get this $100 bonus your $10K must be invested. And there is no way to keep this money in cash or cash equivalent. Is this correct?

AugustFour said: So at Betterment, to get this $100 bonus your $10K must be invested. And there is no way to keep this money in cash or cash equivalent. Is this correct?
Unfortunately this offer has expired. We ran this promotion over a year ago and it is no longer available. As for cash options, this is something we hope to offer soon, but do not currently. Thanks for your interest.

johanna6855 said:   Thanks for the feedback. One thing I forgot to mention before is that we do allow credit card payments through Betterment Gifts, our gift registry.
Our gift registry can be used for any occasion - wedding, birthday, baby shower, wishing well - and other users can contribute toward that goal. This is free to set up with no transaction fees.
Johanna


If I make a gift via betterment, would the credit-card company charge any fees (ie.e, would it be treated as a cash-withdrawal/advance)?

bcotton said:   johanna6855 said:   Thanks for the feedback. One thing I forgot to mention before is that we do allow credit card payments through Betterment Gifts, our gift registry.
Our gift registry can be used for any occasion - wedding, birthday, baby shower, wishing well - and other users can contribute toward that goal. This is free to set up with no transaction fees.
Johanna


If I make a gift via betterment, would the credit-card company charge any fees (ie.e, would it be treated as a cash-withdrawal/advance)?


She cannot know that for certain, why not try it and report back, and mention which card you used.

Venturion said:   Can we fund with a credit card? Don't mind paying a reasonable fee to cover your processing cost and would like to bring over around $250k to start.

If you look at their gifts program it is limited to $20,000 and you cannot take the money out for a while. It appears they pick up the processing cost. I am doing a small test to see how their process works.

Are there any other brokerage firms that permit funding via credit card?

They do not permit gifts to yourself. Small contribution were accepted by the computer and then reversed the next day. It is possible this rule results from the federal restrictions on lending to finance purchase of securities (margin rules), and it could be argued that facilitating borrowing from a credit card to finance carrying securities was a violation (just guessing).

Their total set up is similar to that of Gradsave (long thread) by which you solicit contributions for a 529 plan (and Gradsave charges fees for the processing). Both show how nice web pages can be set up and posted to Facebook etc. With Betterment you can sat up a program (possibly your child's education) by which you can create a goal and request contributions. since they run the receiving account and collect fees for that, they provide the service without a direct charge. Like Gradsave there seems to be a delay between when the funds are contributed and when they reach your account at Betterment (where they are then frozen for a while, so they can make at least some money from them).

ProfessorEd said:   They do not permit gifts to yourself. Small contribution were accepted by the computer and then reversed the next day.
Thanks for posting the info. Were you able to gift someone else, using a CC? Were there any additional charges posted by the credit card company?

After having invest $10,000 with them for over three months (profitably, since the market went up), here are some further thoughts.

I see several advantages and disadvantages to investing through them compared to doing it on your own through your favorite broker. Of course, there are their fees. For small investment they could be cheaper than using a brokerage. Eight exchange traded funds might cost you $56 (at $7 per fund) to buy in and then $56 to get out for a total of $112. On $10,000, the annual fee would be $25 and even after four years you wold have spent only $100.

A less obvious benefit of their system is that you can be fully invested. As dividends come in, they are automatically reinvested without paying a separate commission. With the $10,000 I put into them, I got several small dividend payments, one over $13.00. With most brokerage accounts these funds would remain idle until they accumulated to enough to justify paying a commission to buy something (or you culd ACH them out, but that would be time consuming). I did notice that all of the dividends hit either April 1 or April 2 which might mean they could easily be removed

For larger amounts to invest they become less attractive of course. With a brokerage firm you might be able to use limit orders to get a slightly better price, while their orders appear to be market orders, which means you can expect to lose the spread on each trade. Since the ETF's they use are traded in large amounts, I expect this may be only a cent a share.

If you have over $50,000 Merrill Edge is cheaper since you get 30 free trades per month there, so the commissions there ($0 unless you trade a lot)should be less than the $125 per year Betterment would charge. Thus, with this much money you can essentially duplicate the Betterment product and a lower cost (but with a little more work), and in additional can do more than maintain a fixed ratio between equities and Treasuries.

There appears to be no way to sell your losers (while keeping the winners)and take the tax loses. With a regular brokerage firm you could do this. You cold keep your market exposure similar by selling one equity fund and buying another very similar one. This may not be a serious problem since with only 6 equity funds, all of which are broad based, you are likely to have either all loses or all gains.

While I did not try rapid trading, their platform does permit switching from all bonds to all equity with a single instruction (but you can do this only once per day). While you would pay not commission, you would be subject to the spread. With a regular brokerage account you would also pay the spread, plus commissions. Thus Betterment would appear an economical way to place bets on whether the equity market will go up or down over a period of a few days.

While you trading only 6 equity ETF's in a fixed proportion, these are highly correlated with each other. Thus, bets on the direction of the world wide equity market can be placed at low cost.

However, if you have opinions that say the US will go in one direction, while the rest of the world goes in another, such bets cannot be placed here.

If you do plan to use them for short term trading placing bets on the direction of the overall market (over a few days), I think you would minimize the money lost to the spread by changing your allocations when the market was closed. Their system appears to operate though market orders. This means buying on the bid price and selling at the ask price. Between buying and selling you can expect to lose the spread. Fortunately, this is usually small since the securities traded are very liquid, with spreads often only a penny (and they may do better).

However, at the open you may avoid this. If you are selling when most are buying, you are likely to get the bid price and the opposite is true if you are buying when there are more sell orders.

Does anyone see any flaws in this reasoning?



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