Intro: WiseBanyan vs. Betterment
Traditionally, investment advice was only available to high-net-worth individuals. This was to make it worthwhile for investment advisors whose income was largely based on a commission of the money they handled. It was hard to justify a lot of work for a percentage of only a few thousand dollars.
However, a lack of investment advice for middle-income and lower-income individuals has left a significant gap in the market. There are people with modest but substantial sums of money looking for ways to grow it for retirement, a vacation or to buy a house.
Services like WiseBanyan and Betterment investing gives users access to financial advice and the ability to work towards a financial goal.
Is Betterment Investing the Way to Go? (Features, Fees, and Review)
The Betterment investing tool has become a popular service for people hoping to learn about investing and growing their money. Using asset allocation as an investment strategy is hard for most novice investors to wrap their heads around. Asset allocation is a strategy that structures an investment portfolio by balancing out assets in a way that takes into consideration a person’s investment horizon and risk tolerance.
While it may sound as simple as buying a few stocks, adding some bonds, and stirring, asset allocation is not so simple. In fact, investors pay hefty fees for a professional to monitor their investments and carry out a strategy that will get them nice returns. Betterment investing provides an automated alternative to those who aren’t interested in sitting around and monitoring their investments.
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Betterment investing is goal-oriented. Your investments don’t determine your earnings. Your desired earnings determine your investments. If you’re interested in investing, you’re interested in making your money work for you, and chances are, there is a specific purpose you have in mind for that money. It could be for retirement, to take an extended trip or to eventually go back to school.
When you first go to sign up for Betterment investing advice online, it asks you a couple of simple questions: your age, your retirement status, and your annual income. It then provides you with options for your goal: retirement, general investing or a safety net, which is a rainy day fund with a couple months of expenses.
If you choose the safety net goal, for instance, Betterment investing recommends the amount you should save up based on your annual income. It then provides you with a recommended allocation.
For example, if you enter that you are a 22-year-old who makes $20,000 a year, Betterment’s investing advice is to save up roughly $5000 for a rainy day fund, and the allocation they recommend for your portfolio to get there is 60% bonds and 40% stocks.
The important thing to know about Betterment investments is that they are automated. This is not a platform where investors can use a do-it-yourself approach by picking and choosing which stocks and bonds they would like to invest in. Instead, you decide on a goal, and Betterment uses algorithms to make picks and decisions that will get you to that goal.
If you couldn’t care less about the principles of investing but want to be proactive about growing your money, Betterment investing may be the strategy for you.
How Does the Betterment Investment Tool Work Without the Investor?
The only input that is required from an investor is details about your income and your goals. That’s it. The Betterment investment tool takes care of the rest. Its method is automated to increase your returns while minimizing your exposure to risk. Simply speaking, this is done through its application of modern portfolio theory, also known as MPT.
While there are fair criticisms of modern portfolio theory, if you are a novice investor just looking for a safe place to grow your money, then there is not much room for concern. The Betterment investment platform is designed to let you forget about it once you’ve provided the necessary details, and using this theory, which informs the service’s algorithm, is how Betterment makes that happen.
As mentioned, investors do not own individual stocks or bonds. Instead, Betterment investments are in the form of ETFs, or exchange-traded funds. An exchange-traded fund is similar to a mutual fund, but they are traded like securities, tied to a bond or stock market, and do not carry the hefty management fees.
Exchange-traded funds are a safer bet, so, naturally, they do not carry exceptionally high returns. However, their primary role in the Betterment investment strategy means that a user’s risk is spread out across various sectors and countries, contributing to a much more diversified portfolio.
The Betterment investment tool also allows users to benefit from the variety of accounts they can open at their regular banks. Individual accounts, joint accounts, and Roth IRAs are among the options available to Betterment users. Users can also open and manage trust accounts on Betterment.
One of the most attractive features of the Betterment investment advisor is how functional it is for people who are goal-oriented but not investments-obsessed. This accessibility is what gives it its appeal. It is an additionally attractive option because users are not required to have a minimum deposit.
That’s right. Whereas some Betterment competitors that are tailored to lower-income investors will require users to have a couple of thousands of dollars ready to commit, Betterment requires no such thing. Users can start with whatever they feel comfortable with and add to their accounts through direct deposits and automatic withdrawals.
Betterment has also paid attention to what consumers are looking for by incorporating some of the useful features from other fintech apps into their service. One Betterment competitor, Acorns, allows users to enter the investing world through microsavings. Instead of investing predetermined amounts, this Betterment alternative links to a user’s bank accounts and credit cards. Each time the user makes a purchase, Acorns rounds up the amount he/she spends and deposits the spare change into an account where the money is invested in ETFs.
Betterment took the appeal of this microsavings strategy and molded it to fit its mandate. The limitation of Betterment’s competitor, Acorns, is that its strategy only allows people to save for smaller goals, like an emergency fund, but it doesn’t allow for larger, short-term goal setting, like going on vacation in the next 12 months. It is also not the most structured way of saving for retirement.
To compete with this app and similar Betterment alternatives, Betterment launched SmartDeposit. If activated, anytime your bank account goes over a certain amount, a predetermined amount will go into your Betterment investing account. This way, the amounts you save are larger.
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How Much Does Betterment Investing Cost?
The fee to use Betterment’s investing services is 0.35%. The more money you hold with Betterment, the lower the fee goes. If you exceed $10,000, the fee goes to 0.25%, and if you surpass $100,000, the fee descends even further, to 0.15%.
Unlike some of Betterment’s competitors, Betterment does not require people who join to have an initial amount. You can start with zero dollars. However, if you have less than $10,000 invested with Betterment and do not deposit at least $100 a month, you are charged a monthly fee of $3.
Is Betterment Safe and How Secure Is My Money?
While Betterment is registered with the Securities and Exchange Commission, the Federal Deposit Insurance Corporation does not insure it. This means that your returns are not protected, and it is up to you to take whatever cards you are dealt by the market. Then again, Betterment’s investment strategy takes a very safe approach to the market. Any investment carries some level of risk, and the risk carried by Betterment investments is not particularly high.
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For additional comfort, Betterment’s investing tool automatically rebalances your portfolio if it goes outside the allocation that was originally targeted.
A Look at Betterment Competitors: WiseBanyan vs. Betterment
Betterment has become one of the most popular discount online investment advisors. It has even been called the “Apple of Finance,” but such accolades means there are bound to be Betterment competitors.
One emerging competitor is WiseBanyan, which makes the bold claim of being “the world’s first free financial advisor.” When comparing WiseBanyan vs. Betterment, you quickly realize that a lot of the features are similar. WiseBanyan will invest your money in exchange-traded funds, the same way that Betterment does, as well as other similar features.
While the Federal Deposit Insurance Corporation (FDIC) does not insure WiseBanyan, it is insured by the Securities Investor Protection Corporation (SIPC) and is registered with the SEC and FINRA. Fractional shares are supported on WiseBanyan, which means any leftover money in your investment account is put to good use.
Personal accounts, along with IRA accounts, are available on WiseBanyan. Comparing WiseBanyan vs. Betterment, in terms of services, WiseBanyan offers the same automated features when it comes to investments, asset allocation, and rebalancing.
At present, WiseBanyan’s service is invite-only. The sign-up minimum is a deposit of only $1, which is simply to fund a client’s account so their investing journey can begin, and they no longer have a waitlist. Clients can sign-up immediately by entering their email into the “reserve my spot” bar. Soon after they sign-up, they will receive an invitation via email shortly afterward.
After selecting the kind of account you would like to open (i.e., personal, IRA) you are prompted to link up your bank accounts, and once your account has been funded, you are set to start using WiseBanyan.
WiseBanyan Introduces Milestones
WiseBanyan now helps clients achieve specific financial targets within a timeframe through Milestones, their completely free financial planning service. Clients simply state what they want to achieve, and WiseBanyan guides them every step of the way, from recommending a plan, to recurring deposits, to rebalancing. Clients can choose a Retirement or Rainy Day milestone, or can create a Custom milestone of their own. They also have the option of a Build Wealth milestone, which lets them invest without a specific financial target or end date in mind.
This free financial planning service will help you figure out what to do with the money you already have, or will have when you start to see the results of your investments. As WiseBanyan states on their website, “Money becomes much more fulfilling when it has meaning.” Check out this free service to see what milestones you can set for yourself and your family!
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WiseBanyan vs. Betterment: Which Is the Safest Bet?
Currently, the biggest concern regarding WiseBanyan is its sustainability. WiseBanyan is relatively newer, and its lack of fees makes its business model curious. WiseBanyan does offer customized portfolio creation for a price, but it is questionable how much that can supplement its lack of annual fees, especially considering it has relatively little assets under management (AUM).
In a WiseBanyan vs. Betterment match-up, Betterment comes out as the winner – at least for now. Its reputation precedes it, and it has quickly become the model other start-ups are looking to emulate. While WiseBanyan may prove to be a worthy Betterment competitor, in the meantime, new investors will feel more comfortable flocking to Betterment.
Ultimately, when choosing robo-advisors such as these, the crucial factor is establishing what your investment goals are. While the Betterment investing platform may seem too good to be true, one of its potential flaws is its defining characteristic: its quick-and-easy approach. This is great for novices but may not be the kind of customized approach individuals with more money are looking for.
Then again, while the company would certainly welcome high-income investors, this is not the audience Betterment is targeting. Instead, people who are considering using something like Betterment or WiseBanyan should think about how much they are willing to commit to saving, how much risk they are comfortable with, and what their ultimate financial goals are.
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