Betterment Review 2017: Updated Features List

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Betterment is one of several automated portfolio managers that will manage a diversified mix of low-cost index funds and help you decide how much you’ll need to save for retirement. We’re still in the early stages of this “robo-advisor” evolution, with new features announced every few months. Here is an updated feature list for Betterment along with my commentary.

Diversified portfolio of high-quality, low-cost ETFs. Their portfolios are a diversified mix of several asset classes including: US Total, US Large Value, US Mid Value, US Small Value, International Developed, Emerging Markets, US Corporate Bonds, US Total Bond, Inflation-Protected Treasuries, Muni Bonds, International Bonds, and Emerging Market Bonds. Primarily low-cost Vanguard and iShares ETFs are used.

Betterment has a more pronounced tilt towards the size premium and value premium than portfolio that tracks the traditional cap-weighted market. You could argue the finer points of whether this will really create higher risk-adjusted returns, but overall it is backed by academic research. As long as you can stick with it during bear markets, I think it will work out fine.

Retirement planning software with external account balances. RetireGuide is Betterment’s retirement planning software, launched in April 2015. This service links your external accounts from other banks, brokerages, and 401k plans (similar to Mint and Personal Capital) in order to see your balances without having to manually input them. According to their methodology guide, they don’t analyze your transactions to estimate savings rate, they are just pulling in balances.

How much do I have invested elsewhere? Am I saving enough money? How much estimated income will I have in retirement? Your future Social Security income is estimated for your based on your chosen retirement age and birthdate. You can change many of the variables as you like. Screenshots below:

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Account types. Betterment now supports taxable joint accounts, trust accounts, 401k rollovers, Traditional IRAs, Roth IRAs, SEP IRAs, and Inherited IRAs.

Tax-efficent asset location. They will place different asset classes in your taxable accounts vs. tax-deferred accounts (IRAs, 401ks) for a higher after-tax return. In addition, if you have multiple types of accounts at Betterment (i.e. both IRA and taxable), it will manage multiple accounts as a single portfolio, placing assets that are taxed more into more favorably taxed accounts (like IRAs). Note that this only works across accounts that are held at Betterment. It does not adjust for non-Betterment accounts. This is called their Tax-Coordinated Portfolio.

Use dividends and new contributions to rebalance. They will use your dividends and new contributions to rebalance your asset classes in order to minimize sells and thus minimize capital gains.

Daily tax-loss harvesting. Betterment’s “Tax-loss Harvesting+” software monitors your holdings daily and attempts to find opportunities to harvest tax losses by switching between “similar but not substantially identical” ETFs. If you can delay paying taxes and reinvest them, this can result in a greater after-tax return. The exact “tax alpha” of this practice depends on multiple factors like portfolio size and tax brackets. You can read the Betterment side of things in their whitepaper. Here is an outside viewpoint arguing for more conservative estimates.

In the end, I do believe there is long-term value in tax-loss harvesting (and I do think daily monitoring can capture more losses) but it’s probably wise to use a conservative assumption as to the size of that value. (Now, you can perform your own tax-loss harvesting as well on a less-frequent basis. I do it myself as there is value, but it’s rather tedious and I’m definitely not doing it more often than once a year. I would gladly leave it to the bots if it were free.)

Invest your excess cash automatically. Automatic contributions are good, but perhaps you don’t want to commit to a set amount each month. (Ideally, you do commit to a set amount, and this service invests more money on top of that.) Called SmartDeposit, you link your checking account and choose your Checking Account Ceiling and Max Deposit amount. If your checking account balance goes above the ceiling, Betterment will automatically sweep over money and invest it for you. Betterment will account for future scheduled deposits so you don’t over-contribute.

Fee schedule, including tiers with human financial planning advice. In January 2017, Betterment announced a fee structure change that included premium tiers with access a pool of human advisors. Here is a summary of the new plans:

  • Betterment Digital. Their original product with digital portfolio management and guidance. Now at a flat 0.25% annually (no more tiers). No minimum balance. There is no longer be a $3/month fee if you don’t make monthly auto-deposits. The management fee on any assets over $2 million is waived.
  • Betterment Plus. Digital features above + unlimited e-mail access + an annual planning call from a “team of CFP® professionals and licensed financial experts who monitor accounts throughout the year.” The plan is a flat 0.40% annually. $100,000 minimum balance required.
  • Betterment Premium. Digital features above + unlimited e-mail access + unlimited phone access to a “team of CFP® professionals and licensed financial experts who monitor accounts throughout the year.” The plan is a flat 0.50% annually. $250,000 minimum balance required.

(Betterment’s previous fee structure for Digital was 0.35% for balances under $10,000 with $100/mo auto-deposit (or a flat $3 a month without), 0.25% for balances of $10,000 to $100,000, and 0.15% for balances above $100,000. This means that with the new flat 0.25% fee structure, people with balances under $10k will end up paying less while those with $100k+ will be paying more after this change. Those customers with $100k+ were understandably upset at receiving a price hike. Existing customers on the 0.15% tier will stay on that fee structure until June 1st, 2017.)

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Summary. As a DIY investor willing to do most things myself, my thoughts on robo-advisors have often focused on weighing their feature set vs. the additional advisory fee. I don’t like the idea of giving up control, but I find myself keeping track of each improvement in their software capabilities.

In terms of comparing with other robo-advisors, Betterment has recently added the following features: Retirement planning software that syncs account balances from external accounts, tax-coordinated portfolio (when you have both IRA/401k and taxable at Betterment), access to human financial advisors at additional cost, and SmartDeposit which automatically invests excess cash from your checking account.

Current new customer promotions. From March 1st to April 18th, new customers who deposit at least $100,000 into a taxable Betterment account will receive a free Canary home security device ($199 retail). Offer excludes tax advantaged accounts such as IRAs and 401ks.

Wealthfront Review 2017: Updated Features List

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There are now several automated portfolio managers that will manage a diversified mix of low-cost index funds at portfolio sizes previously ignored by human advisors. As a result, these “robo-advisors” have been rolling out additional features to differentiate themselves from the competition.

Wealthfront is one of the largest independent robo-advisors (i.e. not tied to a specific brand of funds like Vanguard or Schwab). With a younger target audience (20s to 40s), their offering is for folks that are comfortable having nearly all interactions via smartphone or website. Here’s their updated feature list along with my commentary:

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Diversified portfolio of high-quality, low-cost ETFs. Their portfolios are a diversified mix of several asset classes including: US Total, US Dividend, International Developed, US Corporate Bonds, Muni Bonds, Emerging Market Bonds, REITs, and Natural Resources. Primarily low-cost Vanguard and iShares ETFs are used. You could argue the finer points of a specific portfolio, but overall it is backed by academic research (Chief Investment Officer is Burton Malkiel).

Financial planning software with outside account integration. Path is Wealthfront’s new financial planning software, launched in February 2017. This service links your external accounts from other banks, brokerages, and 401k plans (similar to Mint and Personal Capital) in order to see your entire picture without having to manually input your balances and transactions. How much do I have invested elsewhere? How much am I spending? How much am I saving? How much can I spend in retirement?

Path can forecast your saving rate using the last 12 months of transactions. Investment returns are estimated using Monte Carlo analysis. It also accounts for your household income, birthdate, and chosen retirement age to estimate how Social Security will affect your retirement income needs. You can change up the variables and see how it will affect your retirement outlook. See Path intro video here, screenshots above and below:

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Account types. Wealthfront now supports taxable joint accounts, trust accounts, 401k rollovers, Traditional IRAs, Roth IRAs, and SEP IRAs. They also offer a 529 College Savings account.

Tax-sensitive account transfers. This is good news if you already have an existing portfolio with unrealized capital gains. Other robo-advisors may have a “switch calculator” to help you decide whether to move over or not, but Wealthfront will actually accept your existing investments and manage it for you alongside your new investments.

If you want to switch advisors or move your brokerage holdings into a diversified portfolio, you typically have to sell all your holdings and move in cash. This means you will more than likely have a large tax bill. Instead of selling your holdings, Wealthfront will directly transfer them into a diversified portfolio tax efficiently, saving you that tax bill.

Tax-efficent asset location. They will place different asset classes in your taxable accounts vs. tax-deferred accounts (IRAs, 401ks) for a higher after-tax return. However, they do not treat them holistically (i.e. putting all one of one asset in IRA and none in taxable). Non-Wealthfront accounts are also not taken into consideration.

Use dividends and new contributions to rebalance. They will use your dividends and new contributions to rebalance your asset classes in order to minimize sells and thus minimize capital gains.

Concentrated holding of a single stock? Wealthfront caters to the tech start-up crowd with a unique Selling Plan service for people with much of their net worth tied up in a single stock. They’ll help you sell your positions gradually in a tax-efficent manner. Currently available to shareholders of: Alphabet, Amazon, Apple, Arista Networks, Box, Facebook, Pure Storage, Square, Twilio, Twitter, Yelp, Zillow.

All of the above are good things to do. If you are willing to read and learn, you can do many of the things listed above on your own. Build a portfolio of high-quality, low-cost ETFs. Track your income and expenses using aggregation software. Tax-efficient asset location. Rebalance regularly, using dividends where possible. Don’t sell your existing positions all at once if they have large capital gains. However, something that I wouldn’t want to do is monitor a hundred of little tax lots. Some things are just better left to software.

Daily tax-loss harvesting. Wealthfront software monitors your holdings daily and attempts to find opportunities to harvest tax losses by switching between “similar but not substantially identical” ETFs. If you can delay paying taxes and reinvest them, this can result in a greater after-tax return. The exact “tax alpha” of this practice depends on multiple factors like portfolio size and tax brackets. You can read the Wealthfront side of things in this whitepaper and Schwab comparison. Here is an outside viewpoint arguing for more conservative estimates.

In the end, I do believe there is long-term value in tax-loss harvesting (and I do think daily monitoring can capture more losses) but it’s probably wise to use a conservative assumption as to the size of that value. (Now, you can perform your own tax-loss harvesting as well on a less-frequent basis. I do it myself as there is value, but it’s rather tedious and I’m definitely not doing it more often than once a year. I would gladly leave it to the bots if it were free.)

Direct indexing. If your account is over $100,000, Wealthfront will buy all the stocks in the S&P 500 individually and commission-free. ETF expense ratios are pretty low now, so this is mostly used as an opportunity for more tax-loss harvesting. No other robo-advisor offers this feature. Here is whitepaper that details their position. The net benefit mostly weighs the potential index tracking error against the tax-loss benefits.

Portfolio Line of Credit. If your taxable balance is over $100,000, Wealthfront will automatically give you a line of credit of up to 30% of your balance. There is no application, no fees, low interest rates, and you can get cash in as little as 1 business day. Manage it wisely though, as this is a margin lending product and they may force you to sell your investments if a margin call occurs.

Fee schedule. The fee schedule for Wealthfront is pretty simple. The first $10,000 is managed for free. Assets above that are charged a flat 0.25% advisory fee annually. All of the features listed above are included.

If you sign up via a special invite link, you can get your first $15,000 managed for free, forever (an additional $5k). You can then invite your own friends for more savings (each also gets $15k managed for free, and you get another $5k managed for free for each referred friend.)

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Summary. As a DIY investor willing to do most things myself, my thoughts on robo-advisors have often focused on weighing their feature set vs. the additional advisory fee. I don’t like the idea of giving up control, but I find myself keeping track of each improvement in their software capabilities.

In terms of comparing with other robo-advisors, Wealthfront currently differentiates themselves in the following ways: Financial planning software that incorporates external accounts, account transfers that accepts your existing investments and then sells them tax-efficiently, direct S&P 500 indexing, 529 college saving plan option, portfolio line-of-credit, and assistance with selling single company stock. You may or may not find any of these useful to your specific situation, but notice that many of these used to be reasons to pick a (usually more expensive) human advisor.

RealtyShares Review 2017: Wisconsin Apartment Loan One-Year Update

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Here’s a one-year update on my $2,000 investment through RealtyShares, a partial interest in a loan backed by a 6-unit apartment complex in Milwaukee, Wisconsin. RealtyShares is restricted to accredited investors only. Here are the highlights:

  • Property: 6-unit, 6,490 sf multifamily in Milwaukee, WI.
  • Interest rate: 9% APR, paid monthly.
  • Amount invested: $2,000.
  • Term: 12 months, with 6-month extension option.
  • Total loan amount is $168,000. Purchase price is $220,000 (LTC 76%). Estimated after-repair value is $260,000. Broker Opinion of Value is $238,000.
  • Loan is secured by the property, in the first position. Also have personal guarantee from borrower.
  • Stated goal is to rehab, stabilize, and then either sell or refinance.

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Property details. I chose this property because it is different from my other past “experiments”. I have never lived in or visited Milwaukee, Wisconsin. I have never invested in an apartment complex. Where I live, parking spaces have sold for more than $200,000. All units are 2 bed/1 bath, currently fully rented for ~$600 a month each. I don’t know all the numbers, but this place earns roughly $43,000 in gross annual rents with a purchase price of $220,000. Annual property taxes are $3,000 a year. Even if half of the rent is spent on expenses, that is still a cap rate of 10%. To be honest, I have had some second thoughts about this borrower (after a few late payments) that s/he is juggling too many investment properties using crowdfunding websites.

Initial experience. This specific investment was not “pre-funded” by RealtyShares. That meant that I had to wait until they secured enough committed money before the deal can go forward. I committed to this loan on 12/21/15 and $2,000 was debited from my Ally bank account on 12/29/15. However, the funding goal was not reached until 1/13/16 (before which I earned no interest) and I didn’t receive my first interest payment until 3/4/16 (for interest accrued 1/13-2/10). There was essentially a 3 month period between the time where they first took my money and I received my first interest check. I did receive my second month of interest shortly thereafter on 3/17/16.

Since my initial investment, RealtyShares has started offering investments on a pre-funded basis. You should also know that you don’t have to deposit any money into your account first before investing in any deal. You should link an account, but you can sign the papers and they will debit the funds when the investment closes.

What if RealtyShares goes bankrupt? RealtyShares investments have a bankruptcy-remote design. RealtyShares, Inc. is the platform. Your investment is held within a separate special-purpose LLC with a designated trustee which would continue to operate even if RealtyShares, Inc. goes bankrupt.

Payment history. I’ve been earning my 9% APR interest on my $2,000 initial investment, which works out to $15 a month. Below is a screenshot of my interest payments, which I have elected to by deposited directly into my bank account. You can see that I have received 12 payments over the last 12 months (March 2016 to March 2017). The borrower has had a few late payments, but always seems to catch up eventually. There was a mention of late charges potentially being charged, but none appear to have been paid out to my account. I need to follow-up on that (I assume it was within the allowed grace period).

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Recap and next steps? My real-estate-backed loan through RealtyShares is now a year old, designated my Real Estate Crowdfunding Experiment #3. I have received my 9% interest as promised, and the loan is current although some past payments have been late before becoming current again. The borrower has exercised the 6-month extension option and the loan now has an expected maturity of 5/20/17, so it remains a continuing experiment to see how/if/when the borrower pays off the loan in full. I definitely like that my loans are backed by hard assets, and a small part of me is still curious as to what would happen if the borrower just walked away.

Please don’t take any of my experiments as recommendations as the entire point is that I don’t know all the angles. I am sharing and learning. Also, I don’t know your situation. If you are interested and are an accredited investor, you can sign-up for free and browse investments at RealtyShares before depositing any funds or making any investments.

Experiment #1 was with Patch of Land (accredited only) and single-family residential property in California, which was paid back in full with a 12.5% annualized return. Experiment #2 is ongoing with the Fundrise Income eREIT (open to public), which holds a basket of commercial property investments and has been paying quarterly distributions on a timely basis.

Lemonade: Homeowners & Rental Insurance With No Incentive To Deny Your Claim?

lemon_logoRight or wrong, many people view insurance companies with suspicion. Even though you pay them money every month for protection, you’re not really sure if they are truly on your side (despite what the commercial says). The problem is that with most insurance companies, any money they don’t pay you ends up in their pocket. The incentives are not aligned. Will they find a reason to deny your claim? Recall the Insuricare scene from the movie The Incredibles.

Lemonade is a new insurance company that takes a flat cut upfront, and the rest is put aside to payout claims. They are starting out with homeowner’s and renter’s insurance. The specific breakdown is below.

  • 20% to Lemonade.
  • 40% into a pool to pay out for claims (or charity).
  • 40% to reinsurance in case that pool is exhausted (catastrophic cases).

Reinsurance is basically what is sounds like – insurance for insurance companies. This provides additional safety that there will be money to pay out your claim in cases of catastrophic losses (i.e. certain natural disasters). Examples of reinsurance companies are Lloyd’s of London and Berkshire Hathaway.

If there are fewer claims than expected, Lemonade will donate the money to a charity of your choice. Therefore, they have no direct incentive to deny a valid claim. In turn, hopefully their customers will also not make false claims because they will only be taking money away from charities and not the big bad insurance company. When signing up, you even take a “honesty pledge”.

Here’s how behavioral economist Dan Ariely, who is their “Chief Behavioral Officer”, puts it:

Knowing that every dollar denied to you in claims is a dollar more to your insurer, brings out the worst in us all… Since we don’t pocket unclaimed money, we can be trusted to pay claims fast and hassle-free. As for our customers, knowing fraud harms a cause they believe in, rather than an insurance company they don’t, brings out their better nature too. Everyone wins.

Lemonade is also structured as a Public Benefit Corporation (B-Corp), which makes it the “World’s Only Public Benefit Insurance Company”.

Lemonade also saves money with the usual tech start-up tricks. No human salespeople. No brokers. No physical branches. Apply online. File your claim online. Use the website or slick smartphone app (iOS and Android). The app has a chat-based AI interface, just like all the current cool kids. If you have to file a claim, you can take a video of the damage using your smartphone explaining the situation.

As of right now, Lemonade is only available in the states of New York and Illinois. However, they have filed for insurance licenses in 45 additional states (the remaining 3 states have statutory wait times). If you live in the state of New York or Illinois, get a free quote from Lemonade for homeowner’s insurance for as little as $35 a month and renter’s insurance starting at $5 a month.

Fundrise Income eREIT Review 2017: One Year Update

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Here’s an update on my $2,000 investment into the Fundrise Income eREIT. Fundrise is taking advantage of recent legislation allowing certain crowdfunding investments to be offered to the general public (they were previously limited only to accredited investors). REIT = Real Estate Investment Trust. This specific eREIT has sold out of its $50 million offering, but Fundrise has since opened regional eREITs called the West Coast, Heartland, and East Coast eREITs. The highlights:

  • $1,000 investment minimum.
  • Quarterly cash distributions.
  • Quarterly liquidity window. You can request to sell shares quarterly, but liquidity is not always guaranteed.
  • Fees are claimed to be roughly 1/10th the fees of similar non-traded REITs. Until Dec 31, 2017, you pay $0 in asset management fees unless you earn a 15% annualized return.
  • Transparency. They give you the details on the properties held, along with updates whenever a new property is added or sold.

Why not just invest in a low-cost REIT index fund? I happen to think most everyone should invest in a low-cost REIT index fund like the Vanguard REIT ETF (VNQ) if they want commercial real estate exposure. I have many times more money in VNQ than I have in Fundrise. VNQ invests in publicly-traded REITs, huge companies worth up to tens of billions of dollars. VNQ also has wide diversification and daily liquidity. But as publicly-traded REITs have grown in popularity (and price), their income yields have gone down.

Fundrise makes direct investments into smaller properties with the goal of obtaining higher risk-adjusted returns. They do a mix of equity, preferred equity, and debt. Examples of real-life holdings are a luxury rental townhome complex and a $2 million boutique hotel. From their FAQ:

Specifically, we believe the market for smaller real estate transactions (“small balance commercial market or SBC”) is underserved by conventional capital sources and that lending in the market is fragmented, reducing the availability and overall efficiency for real estate owners raising funds. This inefficiency and fragmentation of the SBC market has resulted in a relatively favorable pricing dynamic which the eREIT intends to capitalize on using efficiencies created through our technology platform.

Here’s a comparison chart taken from the Fundrise site:

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Quarterly liquidity. As noted, the investment offers the ability to request liquidity on a quarterly basis, but it is not guaranteed that you can withdraw all that you request. In addition, you may not receive back your full initial investment based on the current calculation of the net asset value (NAV).

Dividend reinvestment. I chose to have my dividends paid directly into my checking account. However, you can now choose to have your dividend automatically reinvested across currently available offerings.

Tax time paperwork? All you get at tax time is a single 1099-DIV form with your ordinary dividends listed in Box 1a. That’s it; every other box is empty. This is much easier than dealing with the 10-page list of tax lots from LendingClub or Prosper.

Dividend income updates.

  • Q1 2016. 4.5% annualized dividend was announced. This was the first complete quarter of activity, so the dividend was not as large as when funds became fully invested. The portfolio had 13 commercial real estate assets from 8 different metropolitan areas, with approximately $31.5 million committed.
  • Q2 2016. 10% annualized dividend announced, paid mid-July. Portfolio now includes 15 assets totaling roughly $47.25M in committed capital.
  • Q3 2016. 11% annualized dividend announced, paid mid-October.
  • Q4 2016. 11.25% annualized dividend announced, paid mid-January. Portfolio now includes 17 assets and all of the $50 million has been invested.

Screenshot from my account:

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Recap and next steps? It has now been over a year since my initial investment in the Fundrise Income eREIT, designated my Real Estate Crowdfunding Experiment #2. I’ve earned $183.01 in dividends on my initial $2,000 investment. The quarterly dividends have arrived on time, I get regular e-mail updates, and it has been nearly zero-maintenance. There is still considerable risk to principal, as with any real estate investment.

I should probably just sit back and collect more distributions but I want to do more “experimenting”. My choices are to either move these funds into another investment or to invest a more significant amount into Fundrise. Therefore, although it is not a wise move for a long-term investor, I have chosen to test out their quarterly liquidity window after only 15 months. I want to see how easy (or hard) it is to take advantage of this advertised quarterly liquidity. I made a request to sell my shares before their 3/15 deadline for Q1 2017, and they will start processing that request at the end of March. I will provide further updates on this process in the future.

Personal Capital Review 2017: Automatically Track Net Worth and Portfolio Asset Allocation

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Personal Capital is free financial website and app that links all of your accounts to track your spending, investments, and net worth. You provide your login information, and they pull in the information for you automatically so you don’t have to type in your passwords every day on 7 different websites (similar to Mint). Investment-specific features include tracking portfolio performance, benchmarking, and asset allocation analysis.

Net worth. You can add your home value, mortgage, checking/savings accounts, CDs, credit cards, brokerage, 401(k), and even stock options to build your customized Net Worth chart. You can also add investments manually if you’d prefer. I have a habit of accumulating bank and credit union accounts, so I find account aggregation quite helpful.

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Cash flow. The Cash Flow section tracks your income and expenses by pulling in data from your bank accounts and credit cards. This chart compares where you are this month against the same time last month. If you hate budgeting, you may find it easier to view a real-time snapshot of your spending behavior. Their expense categorization tool is not as advanced as Mint.com, as you can’t for example tell them to always classify “Time Warner Cable” as “Utilities” and not “Online Services” or whatever they do by default. The default is usually pretty accurate, but if it isn’t you have to change it manually.

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Portfolio. This is where Personal Capital is better than many competing services, by analyzing my overall asset allocation, holdings, and performance relative to benchmarks. They also analyze your investment fees to see if you can get them reduced. I first signed up for Personal Capital four years ago, and since then my investments have gotten spread out even further. I now have investments at Vanguard, Fidelity, Schwab, TransAmerica (401k), and Merrill Edge. It’s nice to be able to see everything together in one picture.

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For comparison, Mint does not allow manual input of investments and it did not break down my asset allocation correctly based on my linked accounts. In fact, all it shows is a big orange pie chart with “99.9% Not Sure” and “0.00 Other”. Not exactly helpful.

Personal Capital considers the major asset classes to be US stocks, International stocks, US Bonds, International Bonds, and Cash. The “Alternatives” classification includes Real Estate, Gold, Energy, and Commodities.

If you have one bank account, one credit card, and a 401(k), you may not need this type of account aggregation service. Life tends to get messy though, and this helps me maintain a high-level “big picture” view of things.

Security. As with most similar services, Personal Capital claims bank-level, military-grade security like AES 256-bit encryption. The background account data retrieval is run by Envestnet/Yodlee, which partners with other major financial institutions like Bank of America, Vanguard, and Morgan Stanley. Before you can access your account on any new device, you’ll receive an automated phone call, email, or SMS asking to confirm your identity.

How is this free? How does Personal Capital make money? Notice the lack of ads. Personal Capital makes money via a optional paid financial advisory service, and they are using this as a way to introduce themselves. (People who sign up for portfolio trackers have money…) Their management fees are 0.89% annually for the first $1 million, which is rather expensive to my DIY sensibilities. They are a legit, SEC-registered RIA fiduciary and currently manage over $3.6 billion. In my opinion, this status improves their credibility as an entity with access to my sensitive information.

Note that if you give them your phone number, they will call you to offer a free financial consultation. If you answer the phone or e-mail them that you don’t want to be contacted anymore, they will honor that request. However, if you simply ignore the phone calls, they will keep calling. Know that you can keep using the portfolio software for free no matter what happens. Therefore, if you aren’t interested, I would recommend simply being upfront with them. A simple “no thank you” and you’re good.

Bottom line. It’s not what you make, it’s what you keep that counts. The free financial dashboard software by Personal Capital helps you track your net worth, cash flow, and investments. I recommend it for tracking stock and mutual fund investments spread across different accounts. I’d link your accounts on the desktop site, but interact daily through their Android/iPhone/iPad apps for optimal convenience (log in with Touch ID or mobile-only PIN).

Betterment Now Offers Human Advice + Flat Fee Structure

betterment_logoThe robo-advisor evolution continues. Betterment just announced some significant changes that include the option to upgrade to a Certified Financial Planner (CFP®) and a more simplified flat fee structure. Here are highlights from the new plans:

  • Betterment Digital. Their original product with digital portfolio management and guidance. Now at a flat 0.25% annually (no more tiers). No minimum balance. There is no longer be a $3/month fee if you don’t make monthly auto-deposits. The management fee on any assets over $2 million is waived.
  • Betterment Plus. Digital features above + an annual planning call from a “team of CFP® professionals and licensed financial experts who monitor accounts throughout the year.” You will also have unlimited e-mail access. The plan is a flat 0.40% annually. $100,000 minimum balance required.
  • Betterment Premium. Digital features above + unlimited phone access to a “team of CFP® professionals and licensed financial experts who monitor accounts throughout the year.” You will also have unlimited e-mail access. The plan is a flat 0.50% annually. $250,000 minimum balance required.

Betterment’s previous fee structure for Digital was 0.35% for balances under $10,000 with $100/mo auto-deposit (or a flat $3 a month without), 0.25% for balances of $10,000 to $100,000, and 0.15% for balances above $100,000. This means that with the new flat 0.25% fee structure, people with balances under $10k will end up paying less while those with $100k+ will be paying more. If I had a big balance at Betterment, I’d be quite unhappy with the price hike. Existing customers on the 0.15% tier will stay on that fee structure until June 1st, 2017.

Here’s how this breaks down in terms of your account size:

  • $10,000 account balance. Digital would cost just $25 a year ($2.08 a month). There is no longer any requirement for auto-deposit to avoid a $3 a month fee. Plus or Premium not available.
  • $50,000 account balance. Digital would cost $125 a year ($10.41 a month. There is no longer any requirement for auto-deposit to avoid a $3 a month fee. Plus or Premium not available.
  • $100,000 account balance. Digital would cost $250 a year ($20.83 a month). Plus would cost $400 a year ($33.33 a month) and include an annual planning call with a human advisor. Premium not available.
  • $250,000 account balance. Digital would cost $625 a year ($52.08 a month). Plus would cost $1,000 a year ($83.33 a month) and include an annual planning call with a human advisor. Premium would cost $1,250 a year ($104.17 a month) and include unlimited calls to a human advisor.

Commentary. I don’t write about robo-advisors all that often, but Betterment adding human advisors as an upgrade option signals a big change in the industry. For the investors with modest balances, the flat fee is cheaper but it has always been pretty cheap; at $50k in assets it costs the same as a Netflix subscription. Perhaps more important is knowing that as you continue to grow assets, a human advisor will become available without having to move your money elsewhere.

For those with at least $100k in assets, the upgrade cost to talk to a human advisor annually appears reasonable ($150 a year more at $100k asset level). You also get unlimited e-mail interaction for quick questions. If you go to an independent CFP and request a one-time consultation, that will usually cost a $400 to $500 flat fee. Potential concerns include that you don’t get a dedicated person but a team. However, in my experience even if you get assigned a dedicated person, they’ve often moved onto another job within a year. The wording also suggests that the pool of advisors are not all CFPs.

This move signifies both the good and bad about the current robo-advisor environment. The good is that they keep evolving and looking for ways to improve (i.e. index replication, tax-sensitive asset location, tax loss harvesting). The bad is that these can involve big changes with little notice (i.e. portfolio tweaks, fee changes). This time, the good is now you have the option to pay more for human advice. The bad is that if you already had a lot of money with Betterment, your fees got hiked by 10 basis points. This is why I prefer to DIY, because I enjoy being in control.

That said, if I had to switch I would prefer human access for estate-planning purposes (Mrs. MMB doesn’t want to manage our portfolio). Betterment says they have an advantage because they are independent. For comparison, I would look into Vanguard Personal Advisor Services (VPAS) which costs 0.30% annually and includes a team of human advisors. Possible drawbacks of VPAS include no automated tax-loss harvesting and you’ll be confined to Vanguard products.

Ally Bank 1-Day ACH Funds Transfer Review

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Considering all of the things that can be done instantaneously nowadays, I’m rather disappointed that it still takes 3 business days to move money between most financial institutions. NACHA has been gradually working on same-day ACH transfers – apparently credits are live (like direct deposit), but not debits. Even then, banks may treat this as a “premium” service and charge a fee.

Ally Bank announced in October 2016 that they would support free 1-day ACH transfers for eligible transfers on 12/3/2016. They later announced a delay until 1/7/17. I finally got around to testing out this new feature in mid-January. Here are their own words:

We can now complete qualified transfers between your Ally Bank and non-Ally Bank accounts in 1 business day – free of charge. If 1-day delivery is unavailable, we’ll deliver your transfer in 3 business days.

Here’s their updated timing chart (note the cut-off times):

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Here are the reasons why a transfer would be ineligible for 1-day delivery:

  • Your one-time transfer is ineligible due to account inactivity, overdrafts or transfer returns.
  • Your transfer is part of a recurring transfer plan.

In my experience playing around with the website, there may be other additional factors. Here are the results of various combinations of to/from between Ally Savings/Checking and a sample External Bank B. This is what Ally is telling me upfront, before initiating the transfer.

  • Ally Savings to External Bank B = 1-day Transfer
  • External Bank B to Ally Savings = 1-day Transfer
  • Ally Checking to External Bank B = 3-day Transfer
  • External Bank B to Ally Checking = 1-day Transfer

I’ve never had an overdraft transfer or overdraft, and I’ve done a transfer from Ally Checking to External Bank B in the last 30 days so there should be no issue with inactivity. I’ve used a few different External Banks and came up with same results; transferring from Ally Checking to External Bank consistently takes 3 business days while the other combinations only take 1 business day.

This usually isn’t a problem since I can make an instant transfer between Ally Checking to Ally Savings and then do a 1-day transfer from there, but savings accounts are only allowed six withdrawals per month. If I have a lot of transfers in any given month, I will eventually run into delays.

Ally has redesigned and improved the user interface of their funds transfer page. They now provide a a nice illustration of when your funds will be debited and when they will be deposited at the target location. It is also explicitly states whether it is a 1-day or 3-day transfer. Here’s an Expedited 1-day transfer:

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Here’s a Standard 3-day transfer (in this case technically it will take only two days):

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In terms of competition, I don’t know of another bank that advertises a consistent 1-day transfer speed. For example, this is what Capital One 360 has to say on their transfer times:

Capital One 360 is unable to guarantee the date a transfer to your linked account will be completed. However, depending on the date and time of your request, it should be completed in 2 business days.

Bottom line. Ally Bank now offers 1 business day transfers in eligible cases with an improved user experience. Overall, I’m happy with this development as it applies most of the time (see above for details). I use Ally Bank as my central hub for cash transfers with Ally Bank Savings Account (higher interest, 6 withdrawals per month) as my default location for liquid cash savings and as a free overdraft source from Ally Checking (unlimited withdrawals per month). If I find a high-interest CD that looks good, I move money to/from my Ally account to where it needs to go, so speed can matter.

Amazon Prime Rewards Visa Signature Card Review: 5% Back at Amazon

primecreditChase and Amazon have rolled out the Amazon Prime Rewards Visa Signature Card, a new credit card (not store card) available only to Amazon Prime members. I’m surprised how much mainstream press coverage this card received. Highlights:

  • 5% back at Amazon.com for Amazon Prime members. If you stop your Prime membership, you’ll be downgraded to 3% back.
  • 2% Back at restaurants, gas stations, and drugstores.
  • 1% Back on all other purchases.
  • Sign-up bonus of variable amount based on each person’s account. I was offered a $70 Amazon Gift Certificate. Click on the “Apply Now” link to see your personalized offer, you’ll have time to stop the application.
  • No foreign transaction fees.
  • No annual fee.
  • Extended warranty protection. Extends the time period for the U.S. manufacturer’s warranty by an additional year, on eligible warranties of three years or less.
  • Purchase Protection. Covers your new purchases for 120 days against damage or theft up to $500 per claim and $50,000 per account.

Existing Amazon Rewards Visa Signature cardholder? If you have the original card and are an Amazon Prime subscriber, you should be “upgraded” to this new card automatically. You may see the change online first (your linked purchases will start earning 5% back instead of just 3% back) before you actually receive a new physical card.

Commentary. I recently did a Amazon Store Card review, about a retail card issued by Synchrony Bank that was only valid at Amazon.com. My overall opinion of this credit card is similar, except for the extended warranty protection. If you use gift cards to buy things at Amazon, you will forgo the extended warranty protection and purchase protection that many other credit cards offer. With this card, you will get the extended warranty protection and 5% cash back. How much is an extra year’s warranty worth? Depends on how many big-ticket items you buy at Amazon and how likely you’ll actually remember to use this benefit.

My rough rule of thumb is that a “hard” credit check can reliably net me at least $500 in value, usually from “try me! try me!” credit card incentives but also potentially from bank bonuses and higher interest. It is very rare that I shop at any specific retailer enough to get $500 in savings. For example, it would take $10,000 of Amazon purchases at 5% back to net me $500 in cash back. If the sign-up bonus gets high enough, then I may take another look.

(2% back at restaurants, gas stations, and drugstores only draws a yawn when I can get that much cash back on everything. 1% cash back on everything else… zzzz.)

For the casual Amazon shopper, 5% rotating category credit cards often have Amazon or a place that sells Amazon gift cards as an eligible category. Other cards like the American Express Blue Cash Preferred offer 6% back at grocery stores (that sell Amazon gift cards) or Chase Ink Business cards offer 5% back at office supply stores (that sell Amazon gift cards). Basically, there are other ways that I can stock up on Amazon gift cards at 5% off without having this card.

In the end, if you are a loyal Prime member that spends a lot of money at Amazon and prefer simplicity, then this card can make sense. Link it to your Amazon account, and don’t use it for anything else. You’ll then track all your Amazon spending on one card, and also get extended warranty protection and purchase protection. As with any rewards credit card, you should always pay off your bill in full as the annual interest rate on balances is significantly higher than 5%.

Spare5 App Review: Earn Less Than Minimum Wage In Your Spare Time

sp5app0Find yourself bored on this holiday break? Spare5 is a new entrant in the world of “earn money in your spare time”. You sign up and do short tasks on either their smartphone app or desktop web browser. They pay cash via PayPal weekly or donate to a charity of your choice.

What kind of tasks? The problem they are solving is that certain things are very hard for machines to do, but are easy for humans to do. Examples are assessing the tone of a conversation or separating elements of a photos. You’re basically creating an “answer sheet” to help compare against and train machine learning algorithms. (Help train the robots that will take over the world!) Some tasks were mildly amusing, while others were quite tedious.

How much money do they pay per task? As far as I can tell, very little. The tasks that I was offered ranged from zero to $0.10 per task. Most were around a penny each. It took me roughly an hour to reach the minimum payout of $1. I know that they want you to prove yourself before offering higher-value tasks, but from my experience it will take a while to even reach $5 an hour on average.

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Is Spare5 legit and do they actually pay out? Yes, they paid me via PayPal. Here’s a screenshot:

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Bottom line. Like most “earn money in your spare time” options like paid surveys or mystery shopping, the per-hour wage is low. I doubt the average user makes even close to minimum wage. Honestly, if you are a motivated person I would invest your time into improving your skill set so you can eventually make $25, $50, or $100 a hour.

That said, I think this app is going to be successful. Machine learning is growing, and they’ll need to test it against real human intelligence. While I won’t be a regular user, there will be more than enough people who are willing to do the work. Of course, I also fail to see why people spend hours playing games on their phones. If you just want something to cure boredom, I suppose getting paid $1 an hour is better than paying someone else $1 for a virtual axe or something.

This is far from a glowing recommendation, but if you do sign up there is a referral bonus that offers new users a 10% bonus on up to $100 in earnings in your first 180 days with a my referral link. That’s an extra $1 for every $10 in earnings. Thanks if you use my link, I will get $2 for every $10 you earn with Spare5 (up to $20).

Andrews Federal Credit Union Application and Account Opening Review

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I keep a portion of my cash reserves in certificates of deposit. As I had some Ally Bank CDs maturing this month, I decided to open a share certificate from Andrews Federal Credit Union during their 2016 Holiday Promotion. Please see my separate post on their 84-month 3% APY CD for details on the specific offer (there is still time!). The review information below should apply to anyone trying to open any deposit account at Andrews FCU.

Joining an eligible group for membership. Here is their page on membership eligibility:

Our field of membership includes Washington, DC, civilian and military personnel of Joint Base Andrews, Joint Base McGuire-Dix-Lakehurst, and military installations in central Germany, Belgium, and The Netherlands; as well as over 200 employer groups throughout Maryland, Virginia and New Jersey. We also have nationwide membership eligibility through the American Consumer Council.

As I do not live the in DC area and do not qualify otherwise, I joined the American Consumer Council (ACC), a non-profit organization dedicated to consumer education, advocacy and financial literacy. Sounds like something worth supporting! You can join through the website. I believe the cost is a one-time $8, although there is a promo code “consumer” that has worked to get the membership fee waived. You can make additional donations as you wish. They will send you an e-mail shortly with your ACC membership number.

Application process. You can then proceed to the Andrews FCU website and start the application. You will need your ACC number to satisfy the eligibility question “I am a member of the American Consumer Council (ACC), and my ACC membership number is ___”.

Note: Applying for an account will result in a hard credit inquiry. At least for me, they checked my TransUnion credit report. If you have TrueIdentity and have your TransUnion report secured using their free lock feature, you will want to unlock it before submitting this application. (This delayed my application because they are pretty busy right now and did not notify me immediately.) You can lock it back up again after account approval.

You will need to provide the usual personal information – name, address, SSN, driver’s license, etc. You will also need to provide them with a bank account routing and account number to fund the initial share account. The minimum amount is $5. You will need to keep $5 in your Share account for as long as you are an Andrews FCU member. I just started with $5.

Account approval. Once your account is approved, you should get the following message:

Congratulations, your account with Andrews Federal Credit Union has been opened. Your member number is XXXXXXXX. The signature card has been sent to your email address via DocuSign for you to sign electronically.

Your new account funding is being processed and will be posted to your new account once received by us from your other institution. If you requested an ATM or VISA Debit Card as part of your application, your card order has been placed. The routing number for Andrews Federal is 255074111.

You may now enroll for SmartConnect, our online banking system, by visiting our web site www.andrewsfcu.org and selecting Online Banking Enrollment. If you require further assistance, please call us at 800.487.5500.

Thank you for choosing Andrews Federal Credit Union.

It’s nice that you can do the signature card via DocuSign. That meant my entire application process was completed online. I did try to call them a few times, but had some trouble navigating their phone tree without a member number. However, if I didn’t have my TransUnion report locked, I wouldn’t have had any reason to call them at all. Other than that delay, I would say the application took only one or two days to process.

Funding your checking, savings, or certificate account. I found the easiest way to open my share certificate was to move money into my share savings account, and then fund the certificate from the share savings. I use Ally Bank as my banking hub, so I added Andrews FCU as an external account in my Ally account using my share account number and routing number (255074111). For some reason, the direct login verification didn’t work for me, so I completed the verification using two small test deposits. It took 2 business days for the test deposits, and 2 business days for the transfer from Ally to Andrews FCU.

Opening the share certificate. Once the funds arrived, I opened the share certificate online by clicking on “Open an Additional Account”. Despite the promotion stating you had to call in, the special certificates were available online. Here’s a screenshot (click to enlarge):

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You will need to chose your dividend reinvestment and maturity options. That’s it. The share certificate now shows up on my online banking page, right next to the share savings account. The process was pretty straightforward, just be sure to remove any credit locks or freezes on your TransUnion credit report. Remember that you’ll need to fund your special certificate by any stated deadline.

$50 Refer a Friend Bonus. As part of the holiday promotion, new members can also get a $50 cash bonus if referred by an existing member. The referrer also gets $50. However, the referred person must open a checking account and set up direct deposit of $500 or more. Here are the exact terms:

Refer a friend offer available to existing Andrews Federal members who refer a new member to the credit union. New member must open a new Free or Advantage Checking account with a direct deposit of $500 or more. Direct deposit must be initiated within 30 days of opening new Free or Advantage checking account, and must be received for at least two consecutive monthly statement cycles for both members to be eligible for reward. Account must remain open and in good standing for at least 90 days; accounts closed prior to 90 days will be ineligible. $50.00 will be credited to the referring member’s and the new member’s credit union accounts within 4 weeks after the 90- day period has ended. New member must qualify for credit union membership, which includes the opening of a Base Share Savings account with a minimum balance of $5.00.

In practical terms, I believe that during the application process there is a question “Where Did You Hear About Us?” and you can pick “Family/Friend Referral” and you can leave your friend’s name and Andrews FCU membership number in the comments field. If you are looking to open up a checking account and set up direct deposit, I am a member now so if you want a referral please contact me.

Ally Bank CD Maturity Review: Phone and Online Redemptions

allyreview_logoUpdated with online maturity information and screenshots. If you have money in a bank certificate of deposit (CD), you should be aware that most of them will renew automatically for the same term length upon maturity. That means if you don’t specifically tell them otherwise, your 5-year CD will roll over for another 5 years if you’re caught snoozing during the grace period. Different banks set different grace period lengths and renewal instructions; the best ones in my opinion let you set the decision ahead of time (i.e. Pentagon Federal Credit Union).

I bring this up again because I have a few Ally Bank CDs coming up for renewal. Here’s a quick review of the process for other Ally Bank account holders. First, here is the official policy taken from their website:

What happens to my CD at maturity?
You’ll have a 10-day grace period starting on your maturity date to:

Change the term
Make additional deposits or withdraw funds
Close the CD

If you don’t make changes to your CD by phone or in online banking by the end of the 10-day grace period, it will automatically renew into the same term. To provide renewal instructions in online banking:

Log in to your account
Go to the Main Menu , then Manage CDs
Select Make Changes

Here’s the timeline.

Roughly 30 days before maturity. If you have chosen paperless documents, you’ll receive a somewhat vague e-mail from Ally Bank with the subject line “You have new correspondence in online banking.” This is actually your official “Certificate of Deposit Maturity Notice”, so don’t overlook it! If you have paper statements, you’ll get a separate letter from Ally via snail mail.

Between 30 days before maturity to 10 days after maturity. If you want anything besides an auto-renewal of the same term at current market rates, then you must notify the either by phone at 1-877-247-ALLY (2559) or online. (Less than 2 years ago, there was no online option.) Here’s a screenshot of where I clicked after reaching my CD page (click to enlarge).

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If you call them, they’ll ask you a bunch of identity verification questions, much more than other phone calls. You can also ask if they still offer a Loyalty Bonus where you’ll get an extra 0.05% APY if you renew your CD. I was not shown any such offer when renewing online. (The Ally Ten Day Best Rate Guarantee also applies.) If you want to make a withdrawal or other changes, they’ll ask you why. Nothing high pressure, but they’ll softly encourage you to renew.

I decided to withdraw my funds this time. If you have multiple CDs like I do (for minimizing penalties in case of early redemption), they will have to read you the details and disclosures for each one. You can just skip over it if you do it online. I do my daily banking at Ally so I just swept it into one of my online savings accounts while I decide what to do with it. Here’s a screenshot:

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Remember that the phone wait time is shown live on the top of their main website (I only call if it is around a minute). Closing two CDs over the phone took about 15 minutes. Closing three CDs online took under 5 minutes. I’m glad they added the online option, it was much faster.

Also see: Ally Bank Savings Account Review.