If you are just tuning in, I am investing $500 into three different ways to see which one grows. You might have some money and want to grow your wealth, but don’t know how. For Millennials and those new to investing, it can be overwhelming. This is a how I set up my Betterment Investment Account. Convenience is king, and with robo advisors new to the scene, I will be testing out their investment strategy versus another low cost way, with index funds.
I will be setting up an account with Vanguard to invest in their S&P500 index fund. I will have $500 with Betterment, a robo advisor as well as with Wealthfront, one of their competitors.
With Betterment, you can give your goals some purpose. This will help them assess their algorithms, but it is also good for you to better define what you want your money to be doing.
The key to accountability: defining your goals. Betterment lets you name your goal.
There are some options that you can choose from that your account can automatically do for you. The first is having a diverse portfolio – what percentage or asset allocation will your portfolio have? In other words, what slice of the pie is what? For me, it recommends that I have 90% stocks and 10% bonds.
Additionally, the company offers a service where you can automatically rebalance your portfolio and apply your dividends to it. What does that mean? Basically, if you get to heavy owning one type of fund (i.e oil) then it will rebalance itself to take away some of the risk of investing. The dividends that you earn from the stocks (what they pay the shareholders), the company will reinvest them in your account. So say you earn $.02 for the month, they will add that back into your money and invest that for you as well.
So based on my age and other information, Betterment believes that I should have a “Moderate” risk level.
However, since I am young (20s), I want to invest aggressively because if I lose some money, I will have more years to make that money back up versus if I was 40, for example. So, I have set my allocation to aggressive risk, meaning that I am okay regardless if the market is up or down and I wont pull my money out based on emotion.
Lastly, here is the final overview of what my Betterment account set up looks like. They show the stock holdings and how they have my money invested.
Thinking about trying out Betterment? Click here for more information.
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