I’m trying something new this week. I built a calculator just for you. It’s meant to help with your retirement planning and look at the next baby step on your retirement path. The calculator asks you some basic information—your age, future retirement details, whether you’re conservative or optimistic about investments—and then calculates a suggested retirement savings goal for 2021.
I know New Years is more than a month away. But it can’t hurt to start thinking about 2021’s resolutions today. Saving money can be one of those resolutions, and retirement is a great thing the save for.
But a retirement savings goal is a difficult number to quantify. What if you retire at 60? At 55? At 50? What if your investments do well? Do poorly? What if they’re somewhere in between? You certainly don’t want to run out of money, so how should you account for that? This calculator answers all these questions.
There are lots of moving pieces in retirement planning. This calculator isn’t a cure-all, but it does simplify some complex math. It boils all the inputs down into one simple output: how much should you save next year to keep you on your retirement path?
And don’t worry—I explain all of my assumptions towards the end of the post.
Go ahead—give it a shot!
There it is! The field above shows your calculated retirement savings goal for 2021. This is the amount of cash the Best Interest recommends you should put into long-term investments. If you follow this advice year after year, you’re likely to achieve your retirement goals.
Below you’ll find a few different ideas: a FAQ, some Things to Try, and a list of Assumptions.
As always, let me know if you have any questions.
Retirement Savings Goal FAQ
As you ask more questions, I’ll update the FAQ below.
“What Should I Do With the Money I Save?”
I’m happy to tell you how I invest. That’s what I’ll be doing with my retirement savings in 2021.
“I Think the Calculator is Broken…”
I did not test this calculator like a software company would, so I admit that some inputs might “break” the calculator or lead to strange results.
My first recommendation: make sure you use “realistic” inputs. I tested a bunch of realistic scenarios, and they all ended up working as expected. But I didn’t try every possible combination. If you say you’re 50 years old and want to retire at 40, then you need a time machine, not a blog calculator.
That said, if you’re being realistic and you still think it’s broken, let me know.
“My Retirement Savings Goal Seems Really High…”
First, I recommend you read the next section. Most of us will have supplemental income in retirement (e.g. social security), and the next section describes how you should incorporate that into the calculator. It’ll lower next year’s retirement savings goal.
After that, there’s a stark realization here. Retirement is expensive! If you hope to retire soon, live a rich retirement, and/or have a long retirement, then you’ve got to save a lot of money.
There’s a reason why your younger years are so important for investing.
“How Should I Consider Supplemental Income in Retirement?”
There are dozens of ways you might supplement your income in retirement. Common examples include Social Security and pensions. The lotto doesn’t count.
If you fall into one of these camps, I recommend re-running the analysis after reducing your “Annual Spending in Retirement.” Let’s work through an example.
The calculator is pre-set to assume $36,000 in annual spending. The average Social Security pay-out in 2020 is about $1500 per month, or $18,000 per year. Therefore, I’d recommend adjusting the calculator’s “Annual Spending in Retirement” to $18,000 ($36k – $18k = $18k).
“Why Is My Retirement Savings Goal NEGATIVE?!“
There are a few simple explanations why your savings goal might be negative.
The first and most common: you already have enough money saved for retirement! This is really good. This especially applies if you’ve been diligently saving for years and plan a low-cost retirement.
If you doubt you already have enough saved, go back and check your calculator inputs.
If you’ve checked your inputs and something still seems wrong, let me know.
“I Have NO IDEA What My Spending in Retirement Will Be. Help!”
Fair enough. It’s hard to predict what you’ll spend in retirement.
My recommendation: start with what you spend right now. And if you don’t know what you spend right now, that’s your sign that you should start budgeting.
Once you know how much you spend right now, take your largest expenses and scale them for retirement. Here’s my personal example of simple scaling:
- Housing – I expect this to decrease, since I’ll have my mortgage paid off when I retire. (-$900) per month.
- Kids – I don’t have any now, and I also plan that I won’t have any who I’m actively supporting when I’m retired. No change in this category.
- Automotive – about the same.
- Food, consumer good, etc. – about the same.
- Medical – to be safe, I’m going to increase this number. Based on some quick research, +$500 per month.
- Fun stuff – I think I’ll do a bit more fun stuff in retirement. For now, I’ll allocated +$200 per month to fun.
That’s it. This brief, simple scaling suggests I’ll spend about $200 less in retirement than I’m spending now.
But Jesse—by the time you retire, won’t the Best Interest be pulling in millions of dollars due to its amazing ability combine financial education with entertainment?!
Maybe, but I’m playing it safe for now.
“Should I Include Taxes?”
Most likely! Let me give you my personal example. About 75% of my current retirement savings lie in accounts that will get taxed upon withdrawal in retirement.
So if I need $40K for my actual spending, I’ll probably need to withdraw between $45K and $50K—the extra goes to income tax and capital gains tax. As such, I should input that $45 – $50K value into the Annual Spending on the calculator.
“Is My ‘Current Long-Term Investments’ Just My Net Worth?”
Not quite. Net worth includes many assets and liabilities that should not be considered long-term investments.
Your emergency fund is part of net worth, but it’s not growing like an investment. Your house might be a long-term asset, but you likely won’t be selling it in order to retire. And you debts count against your net worth, yet don’t count against your long-term assets. You can simultaneously save for retirement and pay down your debt.
Things to Try in the Retirement Savings Goal Calculator
Here are some cool ideas I recommend you try with the calculator. Keep two things in mind as you play around. The first is to investigate how changes in your life today can affect your long-term goals. The second is to realize that certain things—like market performance—are out of your hands, yet can still affect you.
1) Play With the Optimism/Pessimism Slider
Market performance plays a huge role in the retirement savings goal calculator. It controls both how your nest egg with grow leading up to retirement and how your nest egg will shrink as you withdraw in retirement.
If you’re too optimistic, you might not save enough. If you’re too pessimistic, you might end up saving more than you’ll ever need—and thus work longer than you need to.
I recommend you play around with the slider to understand the range of recommended savings goals. If you can, set the bar high and aim for a conservatively large savings goal in 2021. As the years go by, you can always reevaluate.
Remember—saving more money in your younger years is vital.
2) Give Yourself Some Extra Years
We don’t often get to play God, so take this chance to tack on extra years at the end of your life. Running out of money in retirement is not ideal, so this exercise will give you some buffer years at the end of your life—and will increase your 2021 retirement savings goal accordingly.
3) Go Fat, Go Lean
Take your 2021 savings goal—let’s say it’s $10,000.
Now we’re going to try to re-create that $10,000 result in two separate ways.
First, try to decrease your Annual Spending by 50% while also decreasing your retirement age. Tweak your retirement age until your recommended 2021 retirement savings goal ends up around $10K again. This gives you a rough idea of how quickly you could achieve a “lean” retirement. You’d be leading a spartan lifestyle, but retirement could be closer than you think.
Second, try to increase your Annual Spending by 50% while also increasing your retirement age. Again, tweak your retirement age until the calculator recommends saving $10,000 in 2021. This gives you an idea of how much more time you’d need to work in order to eventually live a “fatter” retirement. You could afford a lot more—-but at what cost? It’ll likely lead to many more years of work.
When I try this exercise, I get the following:
- My normal input –> retire at 55
- Lean = 50% less retirement income –> retire at 43
- Fat = 50% more retirement income –> retire at 63
I’m not sure when I want to retire. But the spectrum of potential retirement lifestyles necessitate a spectrum of career lengths and savings.
The entire “FIRE” movement is based on these spectra of retirement lifestyles and career lengths.
Assumptions in the Calculator
An analysis is only as good as its assumptions. If I assume that I can run at 60mph, then my path to become a world-record holder is paved with gold. Usain Bolt, I’m coming. Bad assumptions = bad answers.
So here are some of the most important assumptions from today’s retirement savings goal calculator.
I assumed 2.5% inflation per year. That applies to every year in the calculator. It affects how your current 2020 spending gets multiplied to reach a future nest egg goal. This is as good an assumption as one can make based on historical inflation rates.
Portfolio Makeup and Performance
Like the original Trinity Study, I assumed that your portfolio would comprise a 50/50 mix of stocks and bonds. Important note! Many portfolios—especially if you’re young—will leaning much heavier into stocks than bonds. This makes your portfolio riskier, but also is more likely to lead to better long-term returns. This is why I recommend you toggle to Optimism/Pessimism slider.
But let’s go back to the 50/50 portfolio. The Optimism/Pessimism slider affects the stocks’ simulated performance, varying between 1.9% growth per year and 11.1% growth per year. These numbers represent the worst 30-year annual return and best 30-year annual return in S&P 500 history, respectively. The bonds were assumed to return a steady 5% per year.
If you’re interested in the market’s past (and potential future) performance, this decade-by-decade comparison is a good starting place.
So when the slider is set at 0, the stock portion returns 1.9% and the bond portion returns 5%. The net result is a 3.45% return. When the slider is set at 10, the stock portion returns 11.1% and the bond portion still returns 5%, leading to a net 8.05% return.
Each increase of 1 on the slider will increase your annual portfolio return by about 0.5%.
This is way too coarse for some people. For a future iteration, I’d like to add functionality where you can choose your own stock/bond allocation. If you’d be interested in something more, let me know.
“The 4% Rule”
The 4% Rule is a brief nickname for the outcome of the famous Trinity Study. The rule states that…
- if you’re planning a 30-year retirement
- and if your portfolio is 50/50 stocks and bonds
- and you want to be 95% confident in your retirement planning
Then you can withdraw 4% of your nest egg in Year 1 of your retirement, and then increase that withdrawal in each subsequent year to account for inflation. This makes your nest egg target easy to calculate—it’s your annual spending divided by 4%, which is equivalent to your annual spending multiplied by 25.
If you want more conservativism or if your retirement will last longer than 30 years, then you’ll want a “lower” rule (e.g. 3.5%). This increases what your target nest egg would
If you want to be more optimistic about your investments, or if your planned retirement is shorter than 30 years, then you’ll want a “higher” rule (e.g. 5%).
For this calculator, I used your input of “optimism or pessimism” to scale this “rule” between 3.5% (pessimistic) and 4.5% (optimistic). Then I scaled that number using your planned retirement length. Longer retirements scale the number down, shorter retirements scale the number up.
Clear the Memory
Thanks for giving the calculator a try. It’s my first attempt. If you didn’t get the memo earlier, I’d love to get feedback.
I hope you find it helpful. A retirement savings goal is something to think about every year. So why not start in 2021?
If you enjoyed this article and want to read more, Iâd suggest checking out my Archive or Subscribing to get future articles emailed to your inbox.
This articleâjust like every otherâis supported by readers like you.
This page may include affiliate links. Please see theÂ disclosure pageÂ for more information. Which trading timeframe is best? As a new forex trader in the Foreign exchange market, thereâs a bit of a learning curve on which is best. A new Forex trader can become frustrated and try different timeframes until they eventually lose a significant…
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When it comes to saving for retirement, you have a lot of options to choose from. But one that you may not have considered is investing in gold â namely, a gold IRA. A gold…
The post What is a Gold IRA? appeared first on Crediful.
6-month CD rates can be a smart strategy for your short-term saving goals.
If you’re saving for a house, you may be wondering where you can park your hard-earned cash safely and earn interest at the same time.
If so, you should consider a 6-month CD, because the rates can still be very competitive.
In fact, 6-month CD rates can range from 0.50% APY to 1.00% APY, which produce higher yields than bank savings accounts.
Also, a six-month CD comes with FDIC insurance that protects your money up to $250,000.
Why shouldn’t you take advantage of a higher yield and safety?
Of note, if you are looking for higher yields, consider investing in Vanguard index funds.
In the meantime, here’s a table listing the best 6-month CD rates.
|6-Month CD Rate||APY||Minimum Balance|
|Limelight Bank CD||0.95%||$1,000|
|Sallie Mae Bank CD||0.90%||$2,500|
|BMO Harris Bank CD||0.80%||$5,000|
|Live Oak Bank CD||0.80%||$2,500|
|Bank5 Connect CD||0.75%||$500|
|TIAA Bank CD||0.75%||$5,000|
|Ally Bank CD||0.65%||$0|
|PurePoint Financial CD||0.50%||$10,000|
|*TOP CIT BANK PROMOTIONS*|
|CIT Bank Money Market||1.00% APY||Review|
|CIT Bank Savings Builder||0.95% APY||Review|
|CIT Bank CDs||0.75% APY 1 Year CD Term||Review|
|CIT Bank No Penalty CD||0.75% APY||Review|
What is a CD?
A certificate of deposit or CD is a type of short-term investment where you agree to keep your money for a certain period of time, usually for three months to several years.
You usually open a CD with a traditional bank, credit union or even an investment company. For example, investment company such as Vanguard offers brokered CDs.
Once the CD “matures” or becomes “due,” you receive the principal money invested, plus interest.
If you withdraw your money before the stated period of time, an early withdrawal penalty will apply.
However, there are some banks that offer CDs with no penalty. Banks such as CIT Bank has an 11-month, no penalty CDs. However, those CDs usually have lower APY.
CDs are very safe. That’s because they are insured by the federal government for up to $250,000.
So, if you’re looking for safety, a CD is a good choice.
Is a six-month CD right for you?
Before you start shopping for the best 6-month CD rates, you need to ask yourself these questions:
- How much interest will you earn?
- Are 6-month CD rates better than interests from a savings account, money market funds, etc?
With a 6-month CD, you can expect to earn good money. But not a lot when comparing to longer CD terms. It is because the longer the length of the CD, the more money you will make.
But one thing for sure is that you will earn more money on a 6-month CD than on a savings account (more on this later).
Here’s how much you can earn with a 6-month CD rate.
Overview of the best 6-Month CD Rates: how much should you expect to earn.
The minimum balance requirement and the rates for these 6-month CDs vary depending on the bank. The rates range from 0.50% to 1.00%.
EmigrantDirect 6-month CD rate
The applicable rate for a six-month CD from Emigrant Direct is 1.00% . This six-month CD has a $1000 minimum deposit requirement. This is one of the highest interest rates out there.
MySavingsDirect 6-month CD rate
This 6-month CD also has a 1.00% APY and requires a $1000 minimum deposit.
Limelight Bank 6-month CD rate
The applicable yield for a six-month CD from Limelight Bank is 0.95%. It also has a $1000 minimum balance requirement.
BMO Harris 6-month CD rate
For a BMO Harris six-month CD, it is 0.80% APY and $5,000 minimum deposit.
Live Oak Bank 6-month CD rate
You can expect a 0.80% APY, But the minimum deposit can be high, $2,500.
Sallie Mae Bank 6-month CD rate
Sallie Mae’s 6-month CD offers a 0.90% APY and requires a $2,500 minimum deposit.
TIAA Bank 6-month CD rate
The minimum deposit can be steep for a six-month CD from TIAA Bank, which is $5,000. But a rate of 0.75% is still competitive.
Ally Bank 6-month CD rate
For an Ally Bank six-month CD, the rate is 0.65%. And there is no minimum deposit.
Bank5 Connect 6-month CD rate
The Bank5 Connect 6-month CD has the lowest minimum deposit requirement ($500) with a rate of 0.75%.
HSBC Direct 6-month CD rate
For a 6-month CD from HSBC, the yield is 0.75% and the minimum deposit requirement is $1,000.
PurePoint 6-month CD rate
The yield for this six-month CD is 0.50%Â and the minimum deposit is $10,000. This deposit requirement can be too much for most people.
Why should you invest in a 6-month CD?
Given that these banks’ 6-month CD offer competitive rates, they may be a good option for you.
So, you may want to consider them for the following reasons:
Emergency fund. A 6-month CD is a good place for your emergency fund. However, if an emergency occurs before the CD matures and you withdraw the money, a penalty will apply.
Saving for a down payment. A 6-month CD is a good option if you’re thinking of buying a house in the next six months.
It’s a good place to accumulate and grow the down payment. You certainly don’t want to risk your money investing it in the stock market, because the market can plunge in a relatively short of time.
Wedding. If you have an upcoming wedding, a six-month CD is a good place to keep your cash.
Vacation. If you’re planning of taking a vacation in 6 months or so, a 6-month CD makes the most sense. Your money is safe and you’ll earn interest at the same time.
CDs vs. savings accounts vs. money market funds
While a 6-month CD can be a good option for your money, it may not be the best options in all situations.
If you need your money before the stated period and withdraw it, you will get hit with a penalty.
So, it makes sense to see what other options are available to you. And the best way to do so is to compare a 6-month CD rate with other saving vehicles.
6-month CD vs. savings account
There is no doubt you’ll receive a higher return on your money with a CD than with a savings account.
However, a savings account is more liquid than a CD. You can withdraw money in your savings account with no fear that you’ll get hit with a penalty.
With a CD, however, an early withdrawal penalty will apply if you need access to your money before the CD becomes “due.”
6-month CD vs. money market fund
It’s likely that you will earn more interest on your money with a CD than with a money market fund.
However, just like a savings account, you can easily access your funds in your money market fund at any time without the early withdrawal penalty that comes with taking money out of your 6-month CD before it matures.
You can write a check or you can call the fund company and ask them to transfer your money to your bank.
The bottom line
6-month CD rates are competitive. A six-month CD can be a good choice if you’re saving for a short-term goals. You’ll earn a higher rate on a 6-month CD than on a savings account.
Speak with the Right Financial Advisor
- If you have questions about your finances, you can talk to aÂ financial advisorÂ who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc).
- Find one who meets your needs withÂ SmartAssetâs free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals,Â get started now.
|*TOP CIT BANK PROMOTIONS*|
|CIT Bank Money Market||1.00% APY||Review|
|CIT Bank Savings Builder||0.95% APY||Review|
|CIT Bank CDs||0.75% APY 1 Year CD Term||Review|
|CIT Bank No Penalty CD||0.75% APY||Review|
The post 6-Month CD Rates: Earn More Money appeared first on GrowthRapidly.
There are quite a few ways to get free stock. This article will look at 8 companies that are offering free shares and cash bonuses to new investors.
The post How To Get Free Stock: 10 Companies That Will Give You Free Shares appeared first on Bible Money Matters and was written by Lorraine Smithills. Copyright Â© Bible Money Matters – please visit biblemoneymatters.com for more great content.
I love making things automatic. Whether it is bill-paying, direct deposit, prescription renewals, or investing, making things automatic makes life easier, and that is where our Betterment investing review comes in.
When it comes to retirement planning, an overwhelming number of online tools and websites promise to help you create a dynamic and profitable portfolio while minimizing fees.
This growing list of services includes robo-advisors, a class of financial websites that offer to manage your portfolio with minimal in-person interaction and a heavy reliance on the latest investing tools and software.
One of the most popular robo-advisors by far is Betterment. Conceptualized by its founders in 2008, Betterment has since grown to help its customers invest billions of dollars of their hard-earned dollars. This is an investment platform that puts your investing on cruise control, and even allows you to make money watching TV! You can open an account with no money at all, and get the benefit of professional, low-cost investment management that enables you to invest in thousands of securities with as little as a few hundred dollars.
It hasnât been easy. With other competitors like Wealthfront and Personal Capital always a few steps behind them, Betterment has struggled to find a way to stand out. Even with the competition, Betterment has emerged as one of the top online brokerage accounts and continues to grow its market share.
Open an account
- 0.25% to 0.40% annual management fee, depending on the plan
- No trade, transfer or rebalancing fees
- No minimum balance
- Hands-off investing tailored to your goals and risk preference
Betterment is an online, automated investment manager that uses advanced algorithms and software to find the perfect investment strategy for your portfolio and individual needs.
The main difference between investing your money with a traditional financial advisor and Betterment is that there is minimal human interaction. Unless you email or call in, your communication with an individual advisor will be very minimal.
But, there is some good news to counteract the lack of individual service. Because of lower operating costs, Betterment is able to charge lower fees than traditional financial advisors. This can be huge for individuals who want to take a hands-off approach to their retirement accounts, yet donât want to pay top dollar for access to a top-tier financial advisor in their area.
Using complex investment software, Betterment allocates your investment portfolio based on your individual circumstances, investment time horizon, and thirst for risk.
In the meantime, they keep fees at a minimum by using ETFs (exchange-traded fund) that let you have a diversified portfolio, like mutual funds, but are tradeable much like stocks.
Since ETFs come with very low expense ratios, Betterment is able to pass those savings along to the consumer. Although the program already manages over $16 billion for their clients, they are still growing at a rapid pace.
Because the service is able and willing to deal with investors at all stages of wealth accumulation, it has become a go-to for both experienced and novice investors with various investing goals.
Further, Bettermentâs portfolio strategy isnât geared just for retirement savings; the service can also improve your returns on dollars you invest for short-term and medium-term goals like saving for college, taking an annual vacation, or building up a cash reserve.
How Betterment Works
Like post other robo-advisors, Betterment provides complete, automated investment management of your portfolio. When you sign up for the service, youâll complete a questionnaire that will determine your risk tolerance, investment goals, and time horizon. From that information, Betterment determines your portfolio will be designed as conservatives, aggressive, or some level in between.
Over time however, Betterment may adjust your portfolio to become gradually more conservative. For example, as you move closer to retirement, your asset allocation will be gradually shifted more heavily in favor of safe investments, like bonds.
Your portfolio will be constructed of exchange traded funds (ETFs), which are low-cost investment funds designed to track the performance of an underlying index. In this way, Betterment attempts to match the performance of the underlying indexes, rather than to outperform them. For this reason, investing with Betterment â and most other robo-advisors â is considered to be passive investing. (Active investing involves frequent trading of stocks and other securities in an attempt to outperform the market.)
Betterment also uses allocations based on broad investment categories. There are three in total:
- Safety Net â These are funds allocated for near-term needs, such as an emergency fund.
- Retirement â This will naturally be your long-term investment account and held in tax-sheltered IRAs.
- General Investing â This allocation is dedicated to intermediate goals, maybe saving for the down payment on a house or even for your childrenâs education.
Given that each of the three broad goals has a different time horizon, the specific portfolio allocation in each will be a little bit different. For example, the Safety Net will be invested in cash type accounts for safety and liquidity.
Betterment Advantages And Disadvantages
- Thereâs no minimum investment required.
- The low annual fee of 0.25% on the Digital plan can allow you to have a $20,000 account managed for just $50 per year, or a $100,000 account for just $250.
- Tax-loss harvesting is available at all taxable accounts.
- Betterment Premium provides unlimited access to certified financial planners, providing a service similar to traditional investment advisors, but at a fraction of the cost.
- The No-fee Checking and Cash Reserve give you cash management options to go with your investing activities.
- Betterment offers several portfolio options, including Smart Beta, Socially Responsible Investing, and the BlackRock Targeted Income Portfolio.
- The use of value funds also adds the potential for your investment accounts to outperform the general market, since value stocks tend to be underpriced relative to their competitors.
- Flexible Portfolio will give you some control over your investment allocations, which is a feature absent from most robo-advisors.
- Bettermentâs annual advisory fee is on the low end of the robo-advisor range. But there are some robo-advisors charging no fees at all.
- Betterment doesnât offer alternative investments. These include natural resources and real estate, which are offered by some of their competitors.
- External account syncing is available only with Betterment Premium.
The Betterment Investment Methodology
Like most other robo-advisors, Betterment manages your investment account using Modern Portfolio Theory, or MPT. The theory emphasizes proper allocations into various asset classes over individual security selection.
Your portfolio is divided between six stock asset allocations and eight bond asset allocations. Each allocation is represented by a single ETF thatâs tied to an index specific to that asset class. The single ETF will provide exposure to scores or even hundreds of securities in each asset class. That means collectively your investment will be spread across thousands of securities in the US and internationally.
The six stock asset allocations are as follows:
- US Total Stock Market
- US Value Stocks â Large Cap
- US Value Stocks â Mid Cap
- US Value Stocks â Small Cap
- International Developed Market Stocks
- International Emerging Markets Stocks
The eight bond asset allocations are as follows:
- US High Quality Bonds
- US Municipal Bonds (will be held in taxable investment accounts only)
- US Inflation-Protected Bonds
- US High-Yield Corporate Bonds
- US Short-Term Treasury Bonds
- US Short-Term Investment Grade Bonds
- International Developed Market Bonds
- International Emerging Markets Bonds
Since Betterment offers tax-loss harvesting with taxable investment accounts, most asset classes will have two or three very similar ETFs. This will enable Betterment to sell a losing position in one ETF to reduce capital gains in winning asset classes. Alternative ETFs are then purchased to replace the sold funds to maintain the target asset allocations in your account.
Tax-loss harvesting is becoming an increasingly popular investment strategy because it effectively defers capital gains taxes into future years. Itâs available only for taxable accounts, since tax-sheltered accounts have no immediate tax consequences.
How Betterment Compares
Here’s how Betterment compares to the previously mentioned companies, Wealthfront and Personal Capital.
|Minimum Initial Investment||$0||$500||$100,000|
|Advisor Fee||0.25% on Digital; 0.40% on Premium (account balance over $100k)||0.25% on all account balances||0.89% on most account balances; reduced fee on balances > $1 million|
|Live Advice||On Premium Plan only||No||Yes|
|Tax-Loss Harvesting||Yes, on all taxable accounts||Yes, on all taxable accounts||Yes, on all taxable accounts|
|401(k) Assistance||Yes, on Premium Plan only||No||Yes|
Betterment Accounts and Options
For the first few years of Bettermentâs existence they offered a single investment account serving as a one-size-fits-all plan. But thatâs all changed. They still offer basic investment accounts, but they now give you a choice of multiple investment options.
This is Bettermentâs basic investment plan. There is no minimum initial investment required, nor is there a minimum ongoing balance requirement. Betterment charges a single fee of 0.25% on all account balances.
You can also add any other portfolio variations, except the Goldman Sachs Smart Beta portfolio, which has a $100,000 minimum account balance requirement.
Betterment Premium works similar to the Digital plan, but it delivers a higher level of service. The plan provides external account synching, giving Betterment a high altitude view of you your entire financial situation. External investment accounts can help in enabling Betterment to better coordinate your portfolio allocations with assets held in outside accounts. They can also make recommendations out to better manage those external accounts.
And perhaps the biggest advantage of the Premium plan is that it comes with unlimited access to Bettermentâs certified financial planners. In this way, Betterment is competing more directly with traditional investment advisors, but doing it with a robo-advisor component.
Youâll need a minimum of $100,000 to invest in the Premium plan, and the annual advisory fee is 0.40%. Thatâs just a fraction of the usual 1% to 2% typically charged by traditional investment advisory services.
Betterment Cash Reserve
The account pays a variable interest rate, currently set at 0.40% APY. Betterment doesnât actually hold these funds directly, but rather invest them through participating program banks.
Thereâs no fee for this account, and you can move money as often as you want. And for those with very high cash balances, the account is FDIC insured for up to $1 million through the program banks.
Betterment Socially Responsible Investing (SRI)
SRI portfolios are becoming increasingly popular in the robo-advisor space. It involves investing in companies that meet certain standards for social, environmental, and governance guidelines. Betterment indicates that the ETFs they use in their SRI portfolio have produced a 42% increase in their social responsibility scores.
SRI portfolios work with both the Digital and Premium plans, using a similar investment methodology. But they make certain modifications, holding ETFs based on SRI in place of the ETFs used in non-SRI portfolios.
SRI portfolios do not require a minimum balance and charge no additional fees. And like their Digital and Premium plans, taxable SRI investment accounts take advantage of tax-loss harvesting.
Betterment Flexible Portfolios
The key word in the name is âflexibleâ because the main feature is adding personal options to your portfolio allocations.
This is done by adjusting the individual asset class weights in your portfolio. For example, if you have a 7% allocation in emerging markets, you may choose to increase it to 10% if you believe that sector is likely to outperform others. But you can also decrease the allocation if it makes you feel uncomfortable.
Betterment Tax-Coordinated Portfolio
This is less of a formal portfolio and more of an investment strategy. It must be used in combination with a taxable investment account and a tax-sheltered retirement account. Betterment will then allocate investments based on their tax impact.
For example, income generating assets â that produce high dividend and interest income â are held in a tax-sheltered account. Investments likely to generate long-term capital gains are held in a taxable investment account, since you will be able to take advantage of lower long-term capital gains tax rates.
Goldman Sachs Smart Beta
This option is for more sophisticated investors, and requires a minimum account balance of $100,000. And since it is a high risk/high reward type of investing, it also requires a higher risk tolerance.
Betterment uses the same basic investment strategy as they do in other portfolios. But itâs an actively managed portfolio that will be adjusted in an attempt to outperform the general market. Securities will be bought and sold within the portfolio and can include either individual securities or Smart Beta ETFs.
The portfolio has many variations, including a wide range of allocations. Stocks are chosen based on four qualities: good value, strong momentum, high quality, and low volatility.
And like other portfolio variations Betterment offers, there is no additional fee for this option.
BlackRock Target Income Portfolio
Betterment recognizes that some investors are more interested in income than growth. This will particularly apply to retirees. The BlackRock Target Income Portfolio invests in portfolios based on your risk tolerance. This can mean low, moderate, high, or even aggressive.
Those categories may seem unusual for an income generating portfolio. But while the portfolio attempts to minimize risk of principal, it also recognizes that some investors are willing to add risk to their portfolio in exchange for higher returns.
A low-risk portfolio may have a higher allocation in US Treasury securities. An aggressive portfolio may center primarily on high-yield corporate bonds or even emerging-market bonds that have higher interest rates due to greater risk.
Betterment No-fee Checking
Provided by Betterment Financial LLC in partnership with NBKC Bank, this is a true no-fee checking account. Not only are there no monthly maintenance fees, but there are also no overdraft or other fees. Theyâll even reimburse all ATM fees and foreign transaction fees you incur. And thereâs not even a minimum balance requirement.
Youâll be provided with a Betterment Visa Debit Card with tap-to-pay technology, that you can use anywhere Visa is accepted. All account balances are FDIC insured for up to $250,000. And as you might expect from a company on the technological cutting edge, you can deposit checks into the account using your smartphone.
Check out our full Betterment checking review.
Betterment Key Features
Minimum initial investment: Betterment requires no funds to open an account. But you can begin funding your account with monthly deposits, like $100 per month. This method will make it easier to use dollar-cost averaging to gradually move into your portfolio positions.
Available account types: Joint and individual taxable investment accounts, as well as traditional, Roth, rollover and SEP IRAs. Betterment can also accommodate trusts and nonprofit accounts.
Portfolio rebalancing: Comes with all account types. Your portfolio will be rebalanced when your asset allocations significantly depart from their targets.
Automatic dividend reinvestment: Betterment will reinvest dividends received in your portfolio according to your target asset allocations.
Betterment Mobile App: You can access your Betterment account on your smartphone. The app is available for both iOS and Android devices.
Customer contact: Available by phone and email, Monday through Friday, from 9:00 am to 8:00 pm, Eastern time.
Account protection: All Betterment accounts are protected by SIPC insurance for up to $500,000 in cash and securities, including up to $250,000 in cash. SIPC covers losses due to broker failure, not those caused by market value declines.
Financial Advice packages: Betterment offers one-hour phone conferences with live financial advisors on various personal financial topics. Five topics are covered:
- Getting Started package: This package gives new users the professional vote of confidence they need as a professional will assess their account setup. $199
- Financial Checkup package: This package takes it a step further, providing the customer with a professional opinion on their portfolio and financial circumstances. $299
- College Planning package: As its name implies, this package helps parents who are investing with the goal of paying for their childrenâs college education in the next 5-18 years. $299
- Marriage Planning package: Merging finances can be tricky, so Betterment created this plan to help engaged couples and newlyweds to succeed as they unite their lives and assets. $299
- Retirement Planning package: Your investment goals and strategies change as you near retirement. This particular package helps keep you on target to meet them. $299
Retirement Savings Calculator: Robo-advisors are popular choices for retirement accounts. For this reason, Betterment offers the Calculator to help you project your retirement needs. By entering basic information in the calculator (it will sync external accounts if you have a Premium account â including employer-sponsored retirement plans) it will let you know if you are on track to meet your goals or if you need to make adjustments.
How To Sign Up For A Betterment Account
The Betterment sign up process is one of the most user-friendly out there for any brokerage. It comes with easy-to-follow instructions and as streamlined registration process which users can navigate through in a matter of minutes.
First get the process started by clicking the button below.
Sign up for a Betterment Account
After the initial sign up process, users can expect a simple transaction as they transfer funds into the account, much like moving money from a checking to savings account.
When you begin the sign-up process, youâll be given a choice of four different investment goals:
I chose âInvest for retirementâ. It will ask your current age, your annual income, then give you a choice of accounts to use. That includes a traditional, Roth, or SEP IRA, or even an individual taxable account. I selected a traditional IRA.
Based on a 30-year-old with a $100,000 income, Betterment return the following recommendation:
You even have the option to have the specific asset allocations listed. After clicking âContinueâ, youâll be asked to provide your email address and create a password. Youâll then be taken to the application, which will ask for general information, including your name, address, phone number, and how you heard about Betterment.
Once your account has been set up, you can fund it immediately, by connecting your bank account, or by setting up recurring deposits.
You can also set up other accounts, such as âManage spending with Checkingâ or âInvest for a long-term goalâ.
Why You Should Open An Account With Betterment
While nearly anyone who invests could benefit from the online portfolio management and advising, this service is definitely geared to certain types of investors. In most cases, Betterment will work best for:
- Hands-off investors who have some investing knowledge â Since it takes care of the heavy lifting for you, it works best for investors who want to take a hands-off approach to their investment portfolio. Passive investors can let Betterment handle the logistics while using online account management to keep a close eye on their accounts.
- Novice investors who need help â Beginning investors who are just learning the ropes can turn to Betterment for online portfolio management with low fees. The many online tools and user-friendly interface make it easy for beginners to get a grasp on basic financial concepts and investing strategies.
Robo-advisors are growing in popularity and could easily replace in-person advisors in the near future. With lower fees and advanced software that can maximize results, online investing is certainly gaining an edge.
Whether Betterment is right for you depends on your individual needs and investing goals. If youâre a hands-off investor who wants to grow your retirement funds without paying a lot of fees, then Betterment might be ideal. Additionally, beginning investors can benefit handsomely from the online tools and investing education offered through the Betterment website.
If you think Betterment investing might be exactly what your portfolio needs, sign up for a new account today.
However, if you determine that you would be better served by a more hands-on approach, check out the other online brokerage account options. Being a certified financial planner, I have had a chance to work with several of these platforms and have done the following reviews:
- Motif Investing Review
- Lending Club Review
- Ally Invest Review
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