Betterment.com Stock Asset Allocation Updated 2011

(Update: Betterment has a new promo for a $100 bonus with $10,000 investment held for at least 60 days. This is a bigger bonus with bigger requirement than the previous $25 bonus for a $250 investment. In case you wanted to know, my $1,000 experimental Betterment portfolio has been fully converted to the new asset allocation already, and is currently worth $964.)

Betterment.com is an investment service that started up last year, where simplicity and ease of use is the focus. Back in May, I opened an account for myself and wrote a review of Betterment. Right now if you open an account with at least $250, you will get a $25 bonus.

My primary gripe at the time was their asset allocation for stocks. (I actually liked the simply bond allocation.) However, I recently received an e-mail that they are making some changes in September. Before:

  • 20% Vanguard Total Stock Market ETF (VTI)
  • 20% iShares S&P 500 Value Index ETF (IVE)
  • 20% iShares S&P 1000 Value Index ETF (IWD)
  • 15% iShares Russell 2000 Value Index ETF (IWN)
  • 15% iShares Russell Midcap Value Index ETF (IWS)
  • 10% SPDR Dow Jones Industrial Average ETF (DIA)

After:

  • 25% Vanguard Total Stock Market (VTI)
  • 25% iShares S&P 500 Value (IVE)
  • 25% Vanguard Europe Pacific (VEA)
  • 10% Vanguard Emerging Markets (VWO)
  • 8% iShares Russell Midcap Value (IWS)
  • 7% iShares Russell 2000 Value (IWN)

The major change is that they are adding international stock exposure, which is nice since about 55% of the world’s publicly traded market value is outside the US. They have landed on a conservative 35%/65% international/US split. You may also notice that they got rid of the Dow Jones ETF, which I complained about as well since the Dow Jones is simply not a very good index. The iShares S&P 1000 Value Index ETF is gone as well, most likely because it had so many overlapping holdings with the S&P 500 Value index.

How will the change occur? From the same e-mail:

Starting in September, your account will automatically begin transitioning to the new portfolio, and will be phased in over a period of two months to take advantage of average pricing over time.

Such a change to their portfolio and the subsequent buying/selling will unfortunately mean some extra tax bills for investors, but this is how it goes with internet startups. In the long-term, I feel the changes make Betterment a better product.

Comments

  1. How do you feel this compares to LOYAL3 which you reviewed earlier? Are they complimentary? Or is one better to try than the other if you were going to pick one? Thanks.

  2. Loyal3 allows easy purchase of individual stocks. Betterment invests in basically index funds (ETFs) of stocks and bonds. So they are rather different in that regard.

    I think Betterment has a more interesting idea, and they seem to be listening to criticism and improving. I’m still primarily in my 401k and Vanguard IRAs, however, with only a small investment in Betterment and none in Loyal3.

  3. Since Betterment uses Vanguard’s Europe Pacific index rather than their Total International Stock or FTSE Indexes, they don’t allow any exposure to the Canadian stock market, which I think is a big mark against them. They also don’t offer any real exposure to the international and emerging small cap sector.

  4. @Stefan – True, which is why I still DIY as well. But I don’t think anyone who wants “emerging small cap” or even knows what that means is their target audience. I just played with their new iPhone app, and definitely see how people would like the raw simplicity. I still like Target retirement funds as a competitor, though.

  5. Jonathan, question (and maybe an idea for a future post?): when/what sort of considerations would make it compelling to roll a 401(k)->IRA->Roth?

    I’m currently in grad school but have a few K in an old work 401(k). I figure now is the time to roll the 401(k) over into a TD Roth IRA, as I wouldn’t have to pay much, if anything, in taxes on it due to my near zero bracket as a student. My only real hesitations are the tax amounts as well as losing my Vanguard 401k account…

  6. I might not have opened my account through the link in this post so I did not receive the bonus after 10 weeks. Called customer service today. They asked how I heard about Betterment. I told them via mymoneyblog.com and they promised to credit $25 bonus within 7 business days. Just a heads up for others waiting for their bonuses for too long.

  7. I just got a letter from these guys. They will give you $100 with a $10,000 investment. That works out to about a 1% return or put another way, your first year of Betterment.com is free (They charge .9% on $10K to use their service.)

    http://www.Betterment.com/100

    Not to poach on the $25 offer above which still appears to be good.

  8. Very cool, I got a similar offer to my existing account that was probably just targeted to existing customers with little or no additional deposits. Every so often I log in and look at my account just to see all the little behind-the-scenes trades they keep doing in my account.

  9. Maury, when i click on the link, it says $1K deposit, not $10K

  10. Hmmm, I clicked on the link and the picture in the upper right says $10K. For $1K I’d do it for sure.. That would be a free 9% return after fees.

  11. xmasy+Maury,
    They had a promotion where you only needed 1K, but that went away quite quickly. It lasted about a day. I did get in on that. Unless they brought the promotion back (I doubt it), you are looking at an old copy of the page. I’m not sure why anybody would want to open up an account if it wasn’t for the free money… you could get the same thing cheaper with vanguard.

  12. Fred Bateman says:

    Hi:

    I opened my Betterment account at the end of June and counting the $25 bonus thanks to you have made 5 deposits. So I can track and compare, I enter everything into quicken. With two quarterly statements, I now have 162 transactions and a very long list of capital transactions, which I shudder to think of in the upcoming tax return. Like you I think the portfolio changes were generally an improvement.

    However the statements have one big shortcoming in that they don’t show what etfs, shares and balances one holds at the end of the quarter. Rather two numbers are shown, one for stocks and one for bonds. I thought I would come up with a fix and get a screen shot of the holdings on 12-31, however to account for dividends declared in Dec, but paid in Jan, the statement went to Jan 3. Foiled again…

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