12 High Paying Jobs That Don’t Require A College Degree!

You aren’t interested in college, but you are looking for a high paying job that does not require a college degree. The reasons for coming to this decision can be different. Maybe you just aren’t interested in going into debt or you honestly have no idea what you want to do with your life! Personally, I am indifferent about a college education. If you end up using your degree, it can be one of the most valuable investments you ever make. Unfortunately, these days a lot of young people are getting a college degree to impress other people. It is often an expectation to go to college and your family might imply that they will be disappointed if you do not attend.

So, if you are on the fence about going to college this is what I would recommend. If you have the means to go and you have a general idea about what interests you, go for it. If you are simply going to college to party with your friends, you are better off just going to bars even though both are a waste of money! If you are going to college to impress your friends or meet up to the expectations of your family members, you are doing it for the wrong reason!

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JOHN AUCHTER / MICHIGAN RADIO

Remember, the decision to take a break between high school and college does not mean that you will never attend in the future. Most people graduate high school at the age of 18 and they are expected to make a decision that will impact the next 50 years of their life. This is just not realistic! Some people know exactly what they want to do in life from a young age, while it may take other people a lot longer.

Personally, I was clueless about what I wanted to do with my life after high school. I ended up deciding to go to community college to get an associates degree in electrical construction. This was more of a trade certification than a degree, but the job market for this skill was very strong. I was hired a month before graduating to my local power utility at an hourly rate of $27.20 an hour as a 20 year old. If you have the means to invest in some form of college or education, skilled trades are the way to go. You will work hard, but you will be compensated well.

After working for the power utility for a little over two years, I decided I wanted to do something else. I was far more interested in teaching others and learning about personal finance than I was drawing blueprints for power line construction. I ended up quitting that job, earning $31.62 an hour at the time.

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Was my college education a waste? Yeah. I spent two years in school only to come out and work for just over two years. Had I taken time to learn about myself and my interests, I likely would have gotten involved with finance, business or education. Nonetheless, it was an important step in the process of my own self discovery.

Anyways, on to the topic of this article. Assuming you have absolutely no interest in pursuing a college education and you don’t want to flip burgers at a fast food restaurant, what options do you have?

1. Postal Service Mail Carrier (Salary: $51,390)

If you are interested in pursing a career in the postal office, law enforcement, air traffic control and other government jobs you will have to take the civil service exam. Most of these public sector jobs do not require any formal education, but applicants with an education will likely take priority. The average salary of a mail carrier was $51,390 in 2011, meaning this has likely increased over the recent years! One perk to working as a mail carrier is that you will stay in excellent shape, as you will likely be walking miles each day!

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Wikimedia Commons

2. Correctional Officer (Salary: $43,555)

While this is not a glamorous job, it is an essential part of our civilized lives. A correctional officer is responsible for the safety, supervision and security of prisons and prisoners. There are over 400,000 correctional officers serving in prisons all over the United States. This is typically another public sector job, however there are some privately owned prisons out there. Most correctional officers working in the municipal, county or state level have just a high school diploma. If you are interested in working at a federal penitentiary, you will most likely need a college degree. Any correctional officer with a college education will likely start out in a better position at a higher rate of pay. The median salary of a correctional officer in 2012 was $43,555.

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Correctional Officer, Flickr

3. Transportation Security Officer (Salary: $40,160)

Another high paying public sector is working for the TSA. As a TSA employee, you will be making sure the airways are safe for passengers flying. A lot of the jobs working for the TSA require a college education, but some require just a high school diploma. Applicants with a high school diploma will likely take priority and end up starting at a higher rate of pay. Nonetheless, this could be a great option for someone that has a high school diploma looking to make good money. The average TSA agent made $40,160 in 2016, which is probably close to what this job pays today.

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Wikimedia Commons

4. Digital Marketing Agency (Salary: $100,000)

Investing Simple is affiliated with Kevin David.

One of the most interesting ways to make money these days is through a digital marketing agency. While this will require you to learn skills above and beyond what you learned in high school, this does not require a college degree. In fact, most marketing courses taught in college are outdated! Digital marketing changes so quickly that by the time something is written in a book, it is likely outdated. With a digital marketing agency, you will be helping small businesses in establishing a presence online and advertising their businesses on sites like Facebook, Google and Instagram. There are a number of courses out there where you can learn about this.

Here is an interview I did with Kevin David. He teaches his students how to run Facebook ads and create a digital marketing agency from scratch!

Most successful marketing agencies are making over $100,000 a year. The typical starting package for a business is $1,000 a month. If you are able to bring on 10 clients, you would be making $120,000 per year.

If you are interested in learning more about digital marketing, Kevin offers a completely free course on Facebook ads. Click here to enroll!

5. Skilled Trade Union (Salary: $54,110)

There are a number of different skilled trades out there, so we are going to lump them all in together. A few examples of skilled trades are electricians, plumbers, pipe fitters, welders and boilermakers. Most of these skilled trades have labor unions and those interested in joining have the option to complete an apprenticeship. Take being an electrician for example. Many high schools now offer trade classes, and those with these certifications will be at an advantage when applying for an apprenticeship. These programs typically consist of three to five years of paid, on the job training combined with classroom instruction. You typically work during the day and attend classes at night. As an apprentice, you will typically make just above minimum wage. The good news is your pay significantly increases after your apprenticeship is over. The average pay for an electrician in 2017 was $54,110! Most skilled trade positions will earn you a salary of over $45,000. Keep in mind, these jobs often come with the benefits associated with being in a labor union. This is something that you might not be considering now, but benefits can be a very important factor to consider.

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Wikimedia Commons

6. Real Estate Agent (Salary: Varies)

If you are a self motivated individual with a large network of friends and family, being a real estate agent might be a great option. You will have to go through a training and licensing process in order to become a real estate agent, and this will likely cost you a few thousand dollars. For some, being a real estate agent has been the best decision they have made. For others, it has been a complete waste of time and money. The main reason for this is because as an agent you work for yourself. You are paid based on commission when you sell or lease a property. If you aren’t working very hard, you won’t be making much of anything. As a beginner getting started with real estate, you should expect to make nothing in your first year. If you make any money at all, be very thankful. The reason why most real estate agents fail is because they have unrealistic expectations of making money out of the gate.

Consider Graham Stephan. He is a real estate agent as well as a real estate investor. Graham is a friend of mine, and he has been very successful when it comes to being a real estate agent. He is just about to turn 30, and he has earned over $3,000,000 working as a real estate agent.

While this result is not typical, this just goes to show you what is possible when you work hard and dedicate yourself to something. Unfortunately, most real estate agents never even manage to recoup the money invested in the training and licensing!

7. Utility Worker (Salary: $56,576)

As a former utility worker, I will tell you that the work is not glamorous but the pay is great. I originally worked as a past due bill collector earning $27.20 an hour or a salary of $56,576 as a 20 year old. Eventually, I moved on to the planning department where I earned $31.62 an hour or a salary of $65,769. The first job I had did not require a college degree, however the second one did. While most utility jobs do not require a college education, it is extremely difficult to get a job without having the educational background. Typically, it is those with an education or those with family members working there that get a job. It is possible to get a job without a college education as a utility worker. A friend of mine was able to get a job at the power utility I worked for, but he had military experience. Even so, it took him over a year of applying for jobs to actually find employment. Find out what your local power utility is and check back often for job postings!

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Wikimedia Commons

8. Subway Operator (Salary: $62,360)

This job may be referred to as a subway, transit or light rail operator. The job of an operator is to make sure passengers get on and off these transportation vehicles safely. As a subway operator, you may be driving underground in tunnels or above ground. In this day and age, most of the subway trains are operated by computerized equipment, but it is up to the subway operator to monitor this equipment and keep an eye out for any potential hazards. Subway operators will receive on the job training and the educational requirement is typically just a high school diploma. In 2015, the average pay for a subway operator was $62,360! This salary is likely pushing $65,000 today.

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Wikipedia

9. Casino Slot Attendant (Salary: $69,408)

I live next to a casino. As someone who has little interest in gambling, this is not a problem for me. Many of the people that live in the same building as me work at this casino, and these jobs pay surprisingly well. One of the most common jobs at a casino is a slot attendant. You are in charge of operations on the casino floor. These jobs typically do not require any formal education, but past work experience might be a deciding factor of employment. At the casino I live nearby, the average pay for a slot attendant is $69,408! There is one major drawback to this job however. Most casinos are a 24 hour operation, meaning that this will not be your cushy 9 to 5 job! As a new employee at a casino, you will probably end up getting the graveyard shift. If you don’t mind working at odd times, this could be the perfect job for you!

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Card Dealer, Flickr

10. Massage Therapist (Salary: $49,748)

Are you good with your hands? No, literally! Have you been told that you are good at giving massages? Massage therapists are often mobile, as they meet clients at their homes or offices. If you are interested in a job that does not tie you down to a desk, this might be an interesting opportunity. As a massage therapist, you are required to be licensed and to complete a certification process. Massage therapy does not require any kind of formal education. In 2018, the average pay for a massage therapist was $49,748. If you own your business, you can foreseeably charge whatever your customers are willing to pay!

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Massage Therapist, Flickr

11. Wind Turbine Technician (Salary: $53,880)

If you are afraid of heights, this is not the job for you. You know those massive wind turbines that are popping up all over the country? Well, someone has to climb up to the top to monitor and maintain the equipment. That somebody could be you! Most wind turbine technicians receive on the job training after completing a technical program. This is typically not as involved as a traditional college education. According to the Bureau of Labor Statistics, employment of wind turbine service technicians is projected to grow 96 percent from 2016 to 2026, much faster than the average for all occupations. Since this is a brand new field, the job market is very strong. As a wind turbine technician, you need to be okay with a lot of travel, heights and confined spaces. The average pay for a wind turbine technician in 2017 was $53,880 per year.

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Wind Turbine, pxhere

12. Air Traffic Controller (Salary: $122,950)

There are primarily two different ways to become an air traffic controller. The first option is to gain experience through the military. The second option is to complete training through the FAA’s Air Traffic Collegiate Training Initiative program. As an air traffic controller, you will be regulating air traffic as well as keeping track of weather conditions. Air traffic controllers are supervising all of the traffic in and out of the airports. While this job pays extremely well, it is known to be one of the most stressful occupations out there. In 2015, the average salary of an air traffic controller was an astounding $122,950!

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Wikimedia Commons

The Verdict

In summary, there are a lot of high paying jobs out there that do not require a formal education. What you will find is that a lot of these high paying jobs require a lot of very hard work! Typically, there is a reason why these jobs pay so well. Before you settle for a job working in retail or fast food, consider these jobs mentioned. While it may take longer to find employment, the difference in pay can be staggering. While most of these jobs mentioned do not require a college education, having this qualification could help and even result in a better starting position and pay!

Do you know of any high paying jobs that don’t require a college education? If so, comment below! We will add them to the list.

Betterment VS Vanguard: Best Investing Platform 2018

Investing Simple is affiliated with Betterment. This relationship does not influence our opinion of this platform.

Betterment is a new online investing platform designed with the primary aim to save the investor time and money. The modern day retail investor has dozens of options of brokerages, advisors and as of recently roboadvisors to choose from. Vanguard is one of the most well known fund companies and Vanguard also offers advisory services to certain customers. You can invest in Vanguard products through both Vanguard and Betterment. So, which one is better? In this article we’re going to compare the Betterment and Vanguard investing platforms.

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Betterment VS Vanguard Review

What Is Betterment?

Betterment is a roboadvisor that was started in 2008. By leveraging technology and custom built algorithms, Betterment invests money in a fee sensitive and tax efficient manner. Betterment is a completely virtual online platform that differs in many ways from other roboadvisors. Betterment offers unlimited access to securities professionals no matter what plan you are in. If you are using Betterment’s Premium Plan, you will have unlimited access to CFP® professionals. These are some of the most educated and experienced advisors in the investing community.

You can read our full Betterment Premium review here.

Betterment invests using mostly passive long term strategies. By asking a series of questions Betterment will get an understanding of your time horizon, risk, and investment objectives. Once they have gathered this information, Betterment will offer you a series of portfolios that fit your investment goals. Betterment’s portfolios are built using low cost ETFs, which provides diversification and saves the investor money in fees over the long term. Most often, Betterment is using ETFs from Vanguard as they have some of the lowest fees and best products in the industry.

Click here to open a Betterment account.

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Betterment Questionnaire

Betterment offers the investor a variety of different features. Two of the most popular are tax loss harvesting and smart rebalancing.

Tax loss harvesting is a feature which aims to minimize your taxes on capital gains. Betterment does this by selling securities that have underperformed in your portfolio and realizing a capital loss. This loss can be used to offset capital gains or ordinary income up to $3,000 per year. Once the loss is realized, Betterment then purchases a similar security to replace the one you just sold in your portfolio. This way you avoid any wash sales which occur when you realize a loss on a security and purchase it back within 30 days. The government identifies wash sales in order to prevent tax loss harvesting. This tax loss harvesting is something that separates these automated platforms like Betterment from the traditional investment options.

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Betterment Tax Loss Harvesting

Betterment also offers smart rebalancing of your portfolio. This is offered to both premium and digital investors. Rebalancing of a portfolio should happen when your target weights of assets gets skewed. For example, if you have a portfolio of 60% stocks and 40% bonds and the stocks increase in value. Now, you may be weighted at 70% stocks and 30% bonds. To tone down risk and return to your target allocation, you should rebalance and sell stocks and buy bonds to return to your 60/40 stock bond allocation. Betterment’s version of smart rebalancing makes sure your positions are in their right allocation at all times.

Click here to open a Betterment account.

Betterment offers many features above and beyond these two. You can read about them here in our full review of Betterment.

What Is Vanguard?

Vanguard is one of the largest fund companies in the world, with assets under management of approximately $5.1 trillion. They offer a variety of mutual funds and ETFs available on most investment platforms and brokerages. To directly invest in most of Vanguard’s mutual funds you must have a minimum account balance of $3,000.

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Vanguard VTSMX Fund, $3,000 Minimum Investment

Vanguard Retirement funds and STAR funds have a minimum of $1,000. Vanguard also offers a variety of exchange traded funds which have no minimum investment, and you can buy shares through brokerages and platforms like M1 Finance and Betterment. Vanguard is a mutual fund company, and it is owned by the funds that it offers. In essence, all of the Vanguard investors own shares of the funds and they own Vanguard itself.

If you are interested in buying individual shares of Vanguard funds, check out our review of the M1 Finance investing platform here.

Now, don’t let the word mutual fund scare you! What Vanguard offers is low fee index mutual funds. They offer some of the lowest fee investment products on the market.

Vanguard was started by a famous investor named John Bogle, known as the man who created the first index fund. Bogle created Vanguard to be a company devoted to its people and its underlying shareholders. Vanguard is based on the premise of Bogle’s own thesis of low fee index fund investing over the long term. That is why Vanguard has some of the lowest fees in the fund industry.

Betterment and Vanguard are both highly valued platforms by its users. Now, we are going to compare the features and benefits of each platform..

Betterment VS Vanguard

1. Account/Fund Minimums

Betterment has no account minimum for its digital plan. You can get started with Betterment with just $1. Betterment’s Premium plan has an account minimum of $100,000 offering additional tools such as access to CFP® professionals.

Click here to open a Betterment account.

Vanguard has fund minimums ranging from $1,000 to $100,000 to invest on their platform. The minimums vary based on the specific share and fund type. To invest with Vanguard advisory services you must have an account minimum of $50,000.

Vanguard Investor Shares Fund Minimums

  • $1,000 for Vanguard Target Date Retirement funds and STAR® fund
  • $3,000 for most other Vanguard funds

Vanguard Admiral Shares Fund Minimums

  • $10,000 for index funds and tax managed funds
  • $50,000 for most actively managed funds
  • $100,000 for certain sector specific index funds

In summary, an investor looking to get started with Vanguard would have to invest a minimum of $1,000 to enter a Target Date Retirement fund or a $3,000 minimum to enter most of the other funds offered. Betterment has significantly lowered the barriers to entry for investors by offering a $0 minimum account balance to get started.

2. Account Types

Both Betterment and Vanguard offer a variety of investment accounts. Vanguard has the functionality where you can open up 529 college savings accounts as well as additional IRA options if you are self employed. But for most investors, the account types are very similar on both platforms.

Click here to open a Betterment account.

3. Investment Fees

Betterment and Vanguard both have a similar approach to fees. They are both devoted to offering their services with some of the lowest fees in the industry. Betterment has a straightforward fee structure, while Vanguard has a more complex structure with additional transaction and servicing fees. Here is how the fees compare…

Vanguard Investment Fees

Taxable individual, joint, traditional IRAs, Roth IRAs, UGMA accounts, and college savings accounts have a $20 management fee per year if the account has less than $10,000. You can get this fee waived if you sign up for electronic statement delivery. Mutual fund only accounts will have a $20 fee per fund with balances less than $10,000.

Vanguard also has relatively high transaction fees to discourage active trading in and out of their funds. This fee varies between 0.25% and 1.00% of the transaction amount.

Vanguard also offers advisory services if your account balance is at a minimum of $50,000. They charge a 0.30% annual fee per year for this service. You will have access to a team of financial professionals that will help you make financial decisions. Once your account balance is above $500,000 Vanguard will give you access to a devoted CFP® professional who will help you analyze your financial plan.

Betterment Investment Fees

Betterment charges fees based on the two plans it offers. Betterment charges the fee based on the assets under management. This is the only fee charged by Betterment. The Betterment Digital plan has a 0.25% annual management fee. The Betterment Premium plan has a 0.40% annual management fee. Management fees decrease for both plans once your account balance surpasses $2 million. At this point the digital plan charges 0.15% and the premium plan charges 0.30% on assets over $2 million.

Fund Expense Ratios

Both Betterment and Vanguard have expense ratios for each specific fund you are invested in. The good thing is they offer some of the lowest cost funds on the market today. The Vanguard average expense ratio is around 0.12% per year. Betterment’s average fund expense ratio is 0.15% which is far below the industry average of 0.62%.

4. Investment Portfolios

Betterment offers its professionally built portfolios to any investor, regardless of account size. Betterment will ask the investor a series of questions upon opening an account. They will use these questions to develop a investing profile to understand your risk, time horizon, and investment objective.

Betterment will then offer you a series of portfolios that fit your investment profile. This way you are investing in diversified, low cost funds that fit your specific investment objectives.

Betterment builds its portfolios using a variety of ETFs, many of them being from the Vanguard family. The ETFs they use are some of the lowest cost ETFs offered today.

Vanguard will build your portfolio if you have an account minimum of $50,000. Once your account has reached this threshold you will have the option to work with Vanguard advisory services for a 0.30% annual fee. You will work with professional investment advisors to develop a portfolio that meets your investment objective.

If you do not have $50,000 to invest with Vanguard, you will not be able to have professional guidance in building your portfolio. Betterment offers a professionally built portfolio tailored to your specific needs to anyone.

5. Tax Efficient Investing

One of the biggest differences between Betterment and Vanguard is the additional features offered by Betterment. Betterment offers a feature known as tax loss harvesting and this is a big part of the Betterment platform. As mentioned above, tax loss harvesting cuts down on your capital gains and lowers your investment taxes. This feature is available to any Betterment investor. Vanguard only offers this service on a client by client basis if you have $500,000 and are working one on one with an advisor.

Betterment also offers a tax coordinated portfolio feature that you can turn on at any time. This will allocate assets across your different account types, putting your highest taxed assets in retirement accounts first then into traditional accounts. This will help reduce taxable gains, saving you more in taxes. You also have the option to turn on tax coordinated portfolios across your accounts as well as your spouses to ensure maximum tax savings.

Click here to open a Betterment account.

6. Portfolio Rebalancing

Vanguard typically has quarterly rebalancing of their portfolios, but it can vary as stated in their advisor agreement. This can be a disadvantage as portfolios may drift away from their target allocations and develop more risk as well as possibly harmful return characteristics.

Betterment on the other hand is always rebalancing in a tax efficient manner. Through the use of technology and algorithms, Betterment can make sure every portfolio is always balanced and maintaining its proper allocation. Tax minimization techniques are used in their rebalancing algorithms to make sure assets are bought and sold in the most tax efficient manner.

7. CFP® Professional Advice

At Vanguard, if you have assets under management between $50,000 and $500,000 you have access to a team of securities professionals. They will aid you in making investment decisions. Once your account balance exceeds $500,000 you will get your own dedicated CFP® financial advisor who will analyze your specific financial situation and make suggestions and recommendations about your financial landscape.

Betterment’s platform gives all of its users access to securities professionals regardless of account size. They will assist you in making investment decisions. Betterment also offers a premium plan which requires a $100,000 minimum account balance and gives you unlimited access to CFP® professionals. This service allows investors to have very low cost investment management while still having the ability to speak with a financial planner about other aspects of their financial life such as retirement planning, estate planning, insurance, and much more. This service can be extremely valuable to an investor who may want a financial advisor to work with to get recommendations and questions answered about their financial life outside of Betterment.

The Verdict

Both Betterment and Vanguard have excellent low fee investing platforms. When compared to actively managed funds and traditional financial advisors, these platforms typically have significantly lower fees.

In most cases, an investor who is concerned with lowering the taxable income from investments would find the tax loss harvesting feature Betterment offers extremely helpful. Betterment will also automatically rebalance your portfolio, while Vanguard only offers this service on a quarterly basis to a limited number of investors.

Keep in mind, in order to get portfolio guidance from Vanguard you need to have a minimum investment of $50,000 and pay an annual asset management fee of 0.30%. Betterment on the other hand does not have any minimum investment to receive portfolio guidance, however this guidance is algorithm based. Betterment charges just 0.25% as an asset management fee for the digital plan.

Click here to open a Betterment account.

How Does Betterment Work?

Investing Simple is affiliated with Betterment. This relationship does not influence our opinion of this platform.

Betterment is a new online investing platform that has taken a modern approach to investing. Through the use of cutting edge technology, Betterment has become one of the most well known robo advisors on the market today. In this article we’re going to explain how the Betterment platform works and what they offer.

Read our full review of Betterment here.

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Betterment Logo

What Is Betterment?

Betterment is an online platform that will build a personalized portfolio for you based on your risk tolerance, investment objective and time horizon. Betterment also provides many additional features and tools to investors such as tax minimization strategies, and access to CFP® professionals through the Betterment Premium plan. This passive approach to investing allows investors to focus on other things knowing their money is in a professionally built and managed portfolio tailored to their specific needs.

Betterment aims to offer low fee financial guidance to all investors. They have accomplished this by offering the Betterment Digital plan to investors with a $0 minimum account balance and an asset management fee of just 0.25%!

We have all had that uneasy feeling when investing in the stock market; is my portfolio diversified? Am I taking on the right amount of risk? What would happen to my portfolio if the market were to turn? Is my portfolio aligned with my personal time horizon and risk objective?”

Most informed investors have asked these nerve racking questions. On top of that, the answers to most of these questions change over time. If you are interested in answering these questions yourself and doing an assessment of your portfolio every 6 months, Betterment is not for you. If this does not interest you, continue reading!

Betterment is a passive investing platform. If you are interested in being active with your investments and picking individual stocks, check out M1 Finance.

You can read our full M1 Finance review here.

How Does Betterment work?

Betterment starts off by asking you a series of questions. This will allow Betterment to learn more about your personal investment objective, time horizon, and risk tolerance.

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Betterment Questionnaire

Investors may have shorter time horizons for certain sums of money. The good new is, Betterment has a solution to that! For example, Betterment offers an alternative to a savings account called Smart Saver, currently offering significantly higher interest rates than most banks. Instead of leaving your money in a bank account, Betterment allows you to invest it in a highly liquid, low risk method. You would not want to invest money you need in the short term in a higher risk investment like stocks or long term bonds.

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Betterment Smart Saver

Once Betterment has gathered information about your investment profile, they will offer you a series a portfolios based on your individual objectives. Betterment will be investing your money into ETFs, many of which are Vanguard products. Vanguard is one of the most well known fund companies due to their low fees and long term objective. Betterment focuses on using some of the lowest cost funds available to pass that cost savings along to the individual investor. By investing in funds with low expense ratios, Betterment saves the investor significant amounts of money. This allows you to keep more of your hard earned money invested and earning you a return!

Here is a full list of the ETFs Betterment uses.

Professional Betterment Portfolios

Betterment also offers a professionally built portfolio from Goldman Sachs called the Smart Beta Portfolio. Smart Beta aims to allocate funds based on a split between a passive and active approach. The Smart Beta portfolio allocates the holdings based on a number of different variables. These measures include good value, high quality, strong momentum, and low volatility characteristics. By using this rules based approach, the Smart Beta portfolio aims to beat the market over the long term without tacking on the cost of active money management.

Betterment also offers a professionally a built bond portfolio from Blackrock investment company. The Blackrock Income Portfolio invests 100% of the portfolio in bonds with the goal of generating income for the investor. This portfolio has no exposure to the stock market and may be less risky than an equity portfolio. However, there is still risk in investing in bond portfolios especially in a rising interest rate environment. Rather than generating return based on growth, the Blackrock bond portfolio aims for capital preservation and recurring income from interest payments.

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Blackrock Target Income Portfolio

Once you have selected your Betterment portfolio, you can begin investing. Betterment will make sure your portfolio stays at the right risk and allocation using Smart Rebalancing. This means if you ever need to withdraw money or deposit more money to invest, Betterment will make sure your portfolio is balanced in the targeted allocations for each ETF in your portfolio. This is a step most self managed investors fail to remember, and this results in a portfolio that is too risky or too conservative.

Click here to get started with Betterment!

Betterment Features

Betterment also offers Tax Loss Harvesting included with either plan. Tax loss harvesting will make sure your investments are sold in the most tax efficient way possible. Betterment will help you offset any capital gains by selling a losing ETF that is currently at a loss in your portfolio. Once Betterment has sold this fund off, they will purchase a nearly identical fund to make sure the portfolio stays invested in its target allocations. When you sell a stock or fund for a loss, the wash sale rule does not allow you to repurchase it for 30 days. If it is repurchased within 30 days, it is considered a wash sale and the loss is disallowed by the government (to deter people from generating artificial losses for tax purposes). This is why Betterment purchases a fund similar to the one you sold to incur the loss.

You are allowed to offset any amount of capital gains with capital losses. The current tax law allows you to take up to $3,000 in capital losses to offset ordinary income in a single tax year. Losses over this amount can be carried over and used to offset income in future tax years.

Betterment Premium

If you are investing using the Betterment Premium plan, you have unlimited access to CFP® professionals. These are professional financial planners that will help you make financial decisions and make sure these decisions align with your goals. This is a good resource to have if you have any life changing events or come across financial decisions that you may want a second opinion on. CFP® professionals adhere to a fiduciary standard meaning they are legally obligated to act in the clients best interest at all times. These financial professionals are not earning any kind of commission based on their recommendations to you.

You can read our full review of Betterment Premium here.

Betterment Investment Plans

Betterment offers a wide variety of features and may be one of the most dynamic roboadvisors on the market today. If you are interested in trying out an automated platform, but would like control over your investments while maintaining tax efficiency then Betterment may be a good platform for you.

Click here to get started with Betterment!

Betterment Fees & Features

 Betterment PremiumBetterment Digital
Management Fee0.40% 0.25%
Minimim Balance$100,000$0
Automated RebalancingYesYes
Tax Loss HarvestingYesYes
Unlimited Access CFP ProfessionalsYesNo
Account TypesTaxable, Traditional IRA, Roth IRA, TrustTaxable, Traditional IRA, Roth IRA, Trust
Pricing as of 9/18/2018Balances up to $2,000,000Balances over $2,000,000
Digital0.25%0.15%
Premium0.40%0.30%

 

Betterment Premium Review 2018: Time To Fire Your Financial Advisor?

Investing Simple is affiliated with Betterment. This relationship does not influence our opinion of this platform.

 

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Betterment Logo

Betterment is a revolutionary investing platform that leverages technology and algorithms to manage money for clients. Betterment has been extremely disruptive to the financial advisory industry, but in the most recent blow they are now offering Betterment Premium users unlimited access to a team of CFP® professionals. Betterment charges an annual management fee of 0.25% for the basic or Digital plan and 0.40% for the Premium plan mentioned above. While Betterment has no minimum account balance requirement, you do need to have a minimum of $100,000 invested with Betterment in order to be eligible for the Betterment Premium plan.

You can read our full review of Betterment here.

If you invest $100,000 with Betterment and opt in to the Premium plan, you would be paying just $400 a year for management of your money and unlimited access to CFP® professionals. For high net worth investors, it gets even better. The annual fee for Betterment Premium is 0.40% per year on the first $2 million. Any funds above $2 million have a 0.30% annual fee. Betterment has ballooned in popularity by offering some seriously inexpensive financial advisement. So, is it time to fire your financial advisor?

Betterment Premium Overview

As a Betterment Premium user, you will be able to take advantage of all of the features offered to Betterment Digital users. On top of that, you will have unlimited access to a team of CFP® professionals. These are financial advisors who have experience and education in the fields of investments, taxes, retirement planning, estate planning, and insurance. Each CFP® professional has a fiduciary duty to legally act in the clients best interest at all times.

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Betterment Premium Plan

To explain this simply, these financial professionals are not earning any kind of commission from your investments or their recommendations to you. A fiduciary offers unbiased advice. Not all financial advisors carry this fiduciary duty as it is not always required. Typically, a traditional financial advisor is earning a commission off the financial products they are recommending to you. The question being, are they acting in your best interest or theirs?

Investors using the Betterment Premium plan can also get in depth advice about any investments held outside of Betterment. You may have other investment accounts or retirement accounts with your employer for example. Betterment advisors will guide you through any questions you have on these outside investments. This is a helpful feature for users looking to get holistic advice from professionals that encompasses your entire financial landscape.

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Betterment Premium Personalized Advice

Betterment Premium Fees & Features

 Betterment PremiumBetterment Digital
Management Fee0.40% 0.25%
Minimim Balance$100,000$0
Automated RebalancingYesYes
Tax Loss HarvestingYesYes
Unlimited Access CFP ProfessionalsYesNo
Account TypesTaxable, Traditional IRA, Roth IRA, TrustTaxable, Traditional IRA, Roth IRA, Trust
Pricing as of 9/18/2018Balances up to $2,000,000Balances over $2,000,000
Digital0.25%0.15%
Premium0.40%0.30%

Click here to get started with Betterment!

What is the difference Between Betterment Premium and a Traditional Financial Advisor?

Most investors thinking about using the Betterment Premium plan will naturally compare the level of service against a traditional investment advisor or financial planner. There are a few key differences and similarities between what Betterment has to offer and the service you receive with most traditional financial advisors. Let’s discuss some of those differences and similarities now.

1. Minimum account balance. The Betterment Premium plan has a minimum account balance of $100,000 to invest. For some investors, this may seem like a large amount of money. The truth is for many financial advisors out there this may not be enough money to do business with them.

There are financial advisors that will only work with clients with assets of $500,000 to $1 million or even tens of millions of dollars. This may seem excessive, but to get “top quality” personalized investment advice and financial planning it will often cost thousands of dollars. Keep in mind, most advisors won’t even begin discussions until they know you have a large chunk of change to invest. For this reason, Betterment’s $100,000 minimum is actually very reasonable compared to traditional minimums for financial advisors.

For example, Vanguard Fund company gives you access to CFP® professionals once your account balance hits $500,000.

Vanguard
Vanguard Logo

We encourage you to compare Betterment Premium with a traditional financial advisor. Compare the asset management fee to what Betterment charges, assuming they will take you on as a client. Keep in mind, unless this financial advisor has a fiduciary responsibility they are likely earning a commission on what they are having you invest in. If you are looking for truly unbiased financial advice, look for a fee only financial advisor.

2. Portfolios and investment strategy. Similar to most traditional investment advisors, Betterment builds and offers model portfolios for its users. This means they prebuild portfolios of stock and bond ETFs, then they match these prebuilt portfolios with a user based on time horizon, risk tolerance, and investment objective. By doing this, they avoid having to create completely new portfolios for each new client they get. They can build templates of portfolios and match them with a client based on the above factors. This is one of the primary reasons why Betterment fees are among the lowest in the industry.

Here is a full list of the investments used by Betterment.

Betterment’s investment style is mostly passive and long term oriented. They do offer options such as the Goldman Sachs Smart Beta portfolio where the goal is to beat the market over the long term. But for the most part, Betterment has a buy and hold thesis for most of the portfolios. This is where a traditional investment advisor may have a completely different approach.

There are many different types of advisors and investment styles out there. If you are looking for active management with the goal of beating the market, there are many traditional investment advisors that offer this type of service.

It is important to remember that an active investing approach, like a mutual fund or hedge fund, will result in higher fees and commission costs. Each time a trade is made, commission is typically paid. It is also significantly more expensive to pay for professional stock pickers. Keep in mind, most of these professional stock pickers fail to beat the market. In a recent report from Standard & Poor’s, they found that roughly 1 in 20 actively managed domestic funds beat index funds.

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Mutual Fund, 3.19% Expense Ratio!

Betterment does not try to beat the market. Betterment follows a passive investing approach where you are owning the market instead. Betterment will invest your money in low fee index funds, many of which are from Vanguard. Based on the information they collect from you, they create a portfolio of different ETFs that best suit your needs. Based on the report mentioned above, this strategy beats about 95% of the professionally managed funds.

3. Investment fees. Betterment has very low fees compared to the industry average. As mentioned above, Betterment Digital has an annual asset management fee of 0.25%. Betterment Premium has an annual asset management fee of 0.40% and this fee drops down to 0.30% after $2 million invested. Let’s see how these fees compare to traditional investment options.

The industry average for most investment advisors is 1%. All investment advisors can charge different fees and offer different types of service for the fees they charge. There are a wide variety of services offered by investment advisors. Based on the industry average, Betterment charges less than half as an annual asset management fee.

InvestmentBetterment Premium FeeIndustry Average FeeSavings
$100,000$400$1,000+$600
$250,000$1,000$2,500+$1,500
$500,000$2,000$5,000+$3,000
$1,000,000$4,000$10,000+$6,000

4. Investment account types. Betterment offers a variety of different account types. For more advanced investors, you may want specific or additional account types outside of what is offered by Betterment. You may need to work with an investment advisor to invest using other types of funds for example the SEP IRA, Simple IRA, or college savings plans. Here are the different account types offered by Betterment:

  • Taxable and Joint Accounts
  • Traditional IRA
  • Roth IRA
  • Trust Accounts
  • Inherited IRA

5. Financial planning versus investment advisement. One key aspect to consider when comparing a traditional advisor to the Betterment Premium service is the type of service offered by the advisor. The term financial advisor has many different meanings and encompasses a wide variety of services. A financial advisor may be a CFP® professional who does much more than provide investment advice. They may do your taxes or help you plan for your estate or help you analyze your insurance needs as well. There are also financial advisors who strictly manage your investments and will not advise you on any other financial decisions.

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Betterment Licensed Financial Experts

The Betterment Premium plan gives you unlimited access to CFP® professionals who will help you make decisions involving your financial landscape. Pair this with investment management and Betterment has a very powerful and competitive service. This may be a higher level of service than a traditional investment advisor who strictly manages your investments may offer.

It is important to know the services offered when you are looking at working with a financial advisor. Do they offer tax preparation or planning? Will they help you plan for your retirement? This is where the key difference between investment management and wealth management comes into play. Wealth management involves holistic financial planning taking every variable of your financial landscape into account rather than just your investment portfolio.

The Case For Betterment Premium

In most cases, Betterment will work best for cost sensitive investors. Betterment Premium is offered for a 0.40% annual asset management fee, compared to the industry average of 1%. This allows you to keep more of your money invested. While these fees do not sound like a lot, the compounded fee is often staggering. Over time the savings on fees could add up over many years. Their service also comes with the advantage of saving on taxes due to Betterment’s tax loss harvesting feature.

Betterment is designed for investors looking for a moderate level of advice from CFP® professionals, but not a very detailed and personalized financial plan. This service is designed for people who have questions here and there regarding their finances.

The Case For A Traditional Financial Advisor

In most cases, a traditional financial advisor will work best for someone looking for more comprehensive services and a customized financial plan. Traditional financial advisors may also offer a variety of investment strategies such as active portfolio management or alternative investments. Betterment offers passive portfolio management using a long term investment approach.

Click here to get started with Betterment!

 

A Beginner’s Guide To Betterment Robo Advisor

Investing Simple is affiliated with Betterment. This relationship does not influence our opinion of this platform.

 

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Betterment Logo

What Is Betterment?

Betterment is an online robo advisor that creates customized investment portfolios, provides financial advice, and helps reduce fees and taxes by using cutting edge technology. Betterment operates entirely online and is available to US investors 18 or older. Betterment has revolutionized the financial advisory industry by offering low fee financial guidance with no minimum account balance.

Here is our full review of Betterment.

How Does Betterment Work?

Betterment builds your portfolio of stocks and bonds by using Exchange Traded Funds (ETFs). These portfolios are built and assigned to investors based on your risk tolerance, time horizon and personal preferences.

Betterment offers a number of additional features and tools. After researching multiple investment platforms, we believe Betterment has some of the best features among options available to investors.

Here are some of the additional features they offer:

Tax Loss Harvesting: Betterment will aim to reduce your taxes by offsetting capital gains in your account by selling any positions that are at a loss in your portfolio. Once they have generated this artificial loss, Betterment will then buy a similar security to the one you have sold in order to get a similar position in your portfolio and avoid a wash sale.

Smart Saver: Betterment offers a portfolio built to replace your savings account. Smart saver is a portfolio currently yielding 1.83% annually according to Betterment. Keep in mind, the average bank account in the US pays about 0.05% in interest annually!

Tax Coordinated Portfolio: As a Betterment investor, you have the option to utilize a feature called the tax coordinated portfolio. This will allocate your assets across your accounts in order to minimize taxes. Your highly taxed assets will go into your IRA first then the next portion of assets into your regular brokerage account. You can also implement this strategy combining your accounts as well as your spouses, creating even more opportunity for tax savings.

Retire Guide: Betterment offers a retirement planner within their platform. By inputting your savings, budget, and time frame Betterment’s retire guide will analyze if you are on track to meet your goal. The planner will then make any suggestions or recommendations for how you may need to change your plan to meet your goal.

Fractional Investing: Betterment allows you to buy fractional shares of the assets in your portfolios. For example, say there is an ETF that is trading at $150 per share. If you only have $50 in your account, Betterment will allow you to buy 1/3 of a share of that ETF. This feature allows better portfolio diversification and reduces idle cash.

Financial Planning: Betterment offers a team of financial planners and security professionals available to work with it’s investors. Security professionals are available to any investor regardless of the plan they are in. In Betterment’s premium package, investors have unlimited access to CFP® professionals. These are financial planners that have a legal fiduciary standard to act in the client’s best interest at all times. These financial professionals are not making any kind of commission from your investments.

Professionally Built Portfolios: Betterment offers a series of portfolios constructed by it’s own security professionals as well as outside firms such as Blackrock and Goldman Sachs. Blackrock offers an income producing portfolio consisting of different types of bonds. Goldman Sachs offers a smart beta portfolio within Betterment that aims to outperform the stock market over the long term.

How To Get Started With Betterment

1. Start by opening an account here. 

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Betterment Sign Up Process

2. Betterment will learn more about you.

By asking a series of questions, Betterment will determine where you currently stand in terms of your finances. Betterment will also learn what your goals are as well as the objective of your investment.

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Betterment Questionnaire

3. Betterment will build your custom portfolio. 

Based on your risk tolerance and time horizon, Betterment will build a portfolio tailored to your specific needs. One of the key features of Betterment is the emphasis on low fees. Betterment primarily uses ETFs offered by Vanguard, known for having some of the lowest expense ratios in the industry. Betterment also offers professionally built portfolios constructed by Goldman Sachs and Blackrock.

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Betterment Custom Portfolio

4. Betterment goes to work for you. 

Once your account is set up and funded you can sit back and allow Betterment to manage your account for you. Betterment will take care of investment management and rebalancing your portfolio to make sure you are making the most of your money as well as managing your risk. Betterment is a 100% passive investing strategy. You can even automate your contributions to your Betterment account!

What Are The Betterment Fees?

Betterment charges its fees based on the amount of assets under management. Betterment will assess their fee quarterly based on your account balance. Their digital platform begins at 0.25% annual fee and their premium package starts at 0.40%. These are minimal fees compared to traditional investment advising fees. Here is a breakdown of Betterment’s fee structure.

 Betterment PremiumBetterment Digital
Management Fee0.40% 0.25%
Minimim Balance$100,000$0
Automated RebalancingYesYes
Tax Loss HarvestingYesYes
Unlimited Access CFP ProfessionalsYesNo
Account TypesTaxable, Traditional IRA, Roth IRA, TrustTaxable, Traditional IRA, Roth IRA, Trust

Is Betterment For You?

If you are relatively comfortable with technology, sensitive to high fees and understand the variety of features offered by Betterment, this may be an ideal platform for you. Betterment aims its service at long term and passive investors that are not looking to make frequent trades in and out of the market. Investors who would like to build their own portfolios may be more interested in a customizable platform such as M1 Finance. M1 Finance gives you the power to create your own diversified portfolio.

Check out our M1 Finance review here.

Betterment offers a unique service that does not compare to many other platforms out there. If you are looking for a service that will assist you in building a portfolio and provide a moderate amount of financial guidance, Betterment may be an ideal platform for you.

Click here to get started with Betterment!

Betterment Review 2018: Best Robo Advisor?

Investing Simple is affiliated with Betterment. This relationship does not influence our opinion of this platform.

As the internet grows and evolves, new industries emerge and challenge the traditional status quo. Not many industries have been as impacted by technology as the brokerage industry. A perfect example of this disruption is the new innovative service being offered by Betterment and other robo advisors. Betterment is a new investment platform that offers many unique advantages to investors that we will be discussing in this review.

What is Betterment?

Betterment is an online robo advisor geared towards everyday investors who want automation of their investments paired with personalized financial advice. Through the use of technology, Betterment is able to offer management fees that are extremely competitive. Refined investing strategies such as tax loss harvesting and smart rebalancing are some of the many features offered by Betterment.

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Betterment Home Page

Betterment also offers ongoing financial guidance. Depending on the plan, investors can have unlimited access to professional financial advice from CFP® professionals. Since Betterment and its professionals are fiduciary advisors, they must act in the clients best interest at all times. Betterment advisors have no incentive to sell products or funds hoping to make a commission off your purchase. A fiduciary duty is the legal obligation to act in the clients best interest at all times and is the highest level of customer care in the investment advisor community.

What is a Robo Advisor?

A robo advisor is a new technology based financial advisor that advises clients and manages accounts with minimal human interaction. This is capable through the use of algorithms and technology. Financial advice is provided based on mathematical rules and programs. This results in a lower management fee and a significant cost savings for the investor.

How does Betterment work?

Each Betterment account is tailored to the needs of the individual investor. When you open an account with Betterment, you will be guided through a questionnaire where Betterment will learn more about your goals and objectives.

Here is the process for every new investor using Betterment:

  1. Learn about the investor. Using a series of questions, Betterment determines your current financial landscape. By understanding your goals, time horizon, and personality Betterment gets an overall picture of where you currently stand and what you are trying to accomplish financially.

  2. Make recommendations. Once Betterment has an understanding of your overall financial picture, they will guide you through a path customized to your specific situation. Betterment will suggest portfolios geared towards your risk tolerance, time horizon, and investment objectives.

  3. Invest using cutting edge technology. Using personalized portfolios of stock and bond ETFs, investing is streamlined so you don’t need to worry about management of your investments. Betterment’s portfolios are focused around minimization of both investment fees and taxes.

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Betterment Questionnaire

What are the Betterment investments?

Betterment uses exchange traded funds (ETFs) to build the portfolios. ETFs are investment vehicles similar to mutual funds, but they trade on a major exchange like a stock. ETFs have grown tremendously in popularity over the last 20 years in the investment community due to the low fees and high liquidity. ETFs provide diverse positions where one fund could be trading at $50 per share yet it can have hundreds of underlying holdings. ETFs allow you to invest in many different asset classes such as stocks, bonds, real estate, and commodities. By using ETFs, Betterment can construct cost effective and diversified portfolios with ease.

Here is a full list of the ETFs Betterment uses. 

Betterment’s portfolio strategy is to use ETFs to construct portfolios based on modern portfolio theory and global asset allocation. Modern portfolio theory is a hypothesis that investors can construct diversified portfolios along an “efficient frontier” that maximize their return for a given level of risk. Created in the 1950’s, modern portfolio theory is generally accepted throughout the investing community today. Betterment also uses Nobel Prize winning research by Fama and French as the basis for their investing strategy and asset allocation. In their research, Fama and French found that equity returns are heavily correlated to the market, value, and size of the company. Betterment uses their own modeling to determine the tilt of their portfolios which is specifically towards value companies and small cap stocks aiming for higher expected returns.

Most of the ETFs in Betterment’s professionally built portfolios are from the Vanguard fund company. Vanguard is one of the most well known mutual fund and ETF companies. Known for very low fees and the invention of the index fund, Vanguard has dominated the fund industry with over $5 trillion in assets throughout its funds. Betterment uses Vanguard funds mostly because of their low expense ratios and excellent reputation.

Vanguard
Vanguard Logo

Here are some of the Vanguard funds included throughout Betterment’s portfolios:

  • VTI – US Total Stock Market
  • VTV – US Large Cap Value
  • VOE – US Mid Cap Value
  • VBR – US Small Cap Value
  • VEA – Developed International
  • VWO – Emerging Market Stocks

Betterment also includes a number of bond funds offered by Vanguard. Each Betterment portfolio will consist of a collection of stocks and bonds.

Betterment Custom Portfolios

Betterment offers custom portfolios constructed by Goldman Sachs. The Goldman Sachs Smart Beta portfolio aims to provide a diversified portfolio strategy using a balance of actively and passively managed investments. Active portfolio management typically has the goal of beating the market, often associated with hedge funds and mutual funds. Passive management has the goal of generating market returns over the long term. Index investing and buy and hold strategies are associated with passive management.

Goldman’s smart beta uses a variety of factors to determine investment allocations across it’s portfolio. Some of these factors include equities consisting of good value, high quality, strong momentum, and low volatility characteristics. Contrary to traditional portfolio allocations that are based on market cap weighted indices, smart beta uses a variety of rules based factors that determine allocations across the portfolio. The smart beta portfolio using a rules based methodology, has a goal of beating the market over the long term.

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Gooldman Sachs Smart Beta Portfolio

Betterment also offers a professionally built portfolio created by BlackRock. The BlackRock Target Income portfolio is a 100% bond portfolio with the goal of capital preservation. This may be an ideal portfolio for someone who is looking for an income producing investment strategy vs a growth oriented strategy. This portfolio has no exposure to the stock market, but can fluctuate in value as interest rates change. Blackrock strategically looks to provide higher yields by investing in long term bonds as well as higher risk bonds in this portfolio.

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BlackRock Target Income Portfolio

What are the Betterment fees?

Betterment has a strong focus on minimizing fees and expenses to investors. Betterment specifically chooses ETFs that have some of the lowest expense ratios. Betterment has no trading fees and no mark ups on prices. The only fees Betterment charges is a management fee of 0.25% to 0.40% depending on the investment plan. This fee structure is extremely low compared to traditional advisors and stock brokers.

 Betterment PremiumBetterment Digital
Management Fee0.40% 0.25%
Minimim Balance$100,000$0
Automated RebalancingYesYes
Tax Loss HarvestingYesYes
Unlimited Access CFP ProfessionalsYesNo
Account TypesTaxable, Traditional IRA, Roth IRA, TrustTaxable, Traditional IRA, Roth IRA, Trust

Betterment has recently made changes to its pricing structure. All account balances greater than $2M will be given a 0.10% marginal discount for the portion of their balance above $2M. Previously accounts with balances over $2 million had their fee cap out at $2 million , so any assets above that amount would not be charged a fee. Betterment will continue to honor the $2 million fee cap for all existing Betterment customers, even if their current balance is less than $2 million.

  • For Betterment Digital, customers will pay 0.15% for the portion of the balance above $2,000,000.
  • For Betterment Premium, customers will pay 0.30% for the portion of the balance above $2,000,000.

Here’s a visual breakdown of Betterment’s new pricing structure:

Pricing as of 9/18/2018Balances up to $2,000,000Balances over $2,000,000
Digital0.25%0.15%
Premium0.40%0.30%

What are the features of Betterment?

Financial Planning: Betterment Premium offers unlimited access to financial professionals. These professionals will assist you by making recommendations on how much to invest and provide guidance on asset allocation within your portfolio. The premium plan also includes detailed advice on investments held outside of Betterment. Betterment Digital offers algorithm based financial planning with no human involvement. All Betterment plans offer some level of portfolio guidance.

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Betterment Financial Professionals

Smart Rebalancing: Betterment offers smart rebalancing of your portfolio. This is offered to both premium and digital investors. Rebalancing of a portfolio should happen when your target weights of assets gets skewed. For example, if you have a portfolio of 60% stocks and 40% bonds and the stocks increase in value. Now, you may be weighted at 70% stocks and 30% bonds. To tone down risk and return to your target allocation, you should rebalance and sell stocks and buy bonds to return to your 60/40 stock bond allocation. Betterment’s version of smart rebalancing makes sure your positions are in their right allocation at all times.

Tax Loss Harvesting: Betterment offers a feature called tax loss harvesting which aims to minimize your taxes on capital gains. Betterment does this by selling securities that have underperformed in your portfolio and realizing a capital loss. This loss can be used to offset capital gains or ordinary income up to $3,000 per year. Once the loss is realized, Betterment then purchases a similar security to replace the one you just sold in your portfolio. This way you avoid any wash sales which occur when you realize a loss on a security and purchase it back within 30 days. The government identifies wash sales in order to prevent tax loss harvesting. This tax loss harvesting is something that separates these automated platforms like Betterment from the traditional investment options.

Betterment also has the functionality of implementing tax loss harvesting across your accounts as well as your spouses accounts. Spousal tax loss harvesting will allow you to optimize your tax minimization strategies on one tax return.

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Betterment Tax Loss Harvesting

Tax Coordinated Portfolio: Betterment uses a method of asset location to construct tax coordinated portfolios. This is accomplished by putting your highest taxed assets in your IRA first (where you have a tax shelter) then putting your lower taxed assets in your taxable brokerage account. Betterment claims this strategy could boost your return by 0.48% each year. You can set up a tax coordinated portfolio at any time on Betterment for no additional fee outside of the asset management fee.

Smart Saver: As interest rates remain extremely low in the current economic environment, interest rates on savings accounts are virtually non existent. Betterment offers a solution to this issue by offering an alternative to a savings account. The Betterment smart saver account yields 1.83% annually. This is significantly higher than most savings accounts. Betterment offers this feature while still providing liquidity. According to Betterment, you will have access to your funds in 4 to 5 business days.

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Betterment Smart Saver

Smart Deposit: Betterment offers a feature called smart deposit that will allow you to set a minimum amount of cash you would like in your bank account. Once your minimum is set, any amount above your minimum will be sent to Betterment and invested. Say you set your bank account minimum at $5,000. Once your bank account balance is over $5,000 smart deposit will transfer any funds over this threshold to Betterment. Smart deposit in Betterment will allow you to maximize your invested capital while retaining a safety net in your bank account.

Retire Guide: This is a retirement planning tool offered by Betterment. You will input your current savings, projected budget, and retirement date to get a picture of where you stand in reaching your retirement goal. Retire Guide will show you how to save, what accounts to utilize, and recommend any changes you need to make to reach your goal. This allows you to have an understanding of your projected financial position and budget when you retire.

The Retire Guide is completely free! Click here to try it out.

Fractional Investing: Betterment also offers a unique feature called fractional investing. Fractional investing allows an investor to buy fractional shares of an ETF. For example, if you want to buy VTI which is trading at $150 per share and you only have $100 you could buy .67% of a share using Betterment’s fractional share investing. The advantage of using fractional shares allows an investor to be fully invested at all times. Fractional shares also provide for greater diversification as you will have more precise allocations across your portfolio at all times.

Is Betterment safe?

Betterment is a member of the Securities Investor Protection Corporation (SIPC). SIPC insures all Betterment accounts up to $500,000 in securities or $250,000 in cash (per account) in the case of a catastrophic financial failure. This is different insurance compared to FDIC insurance on bank accounts. Traditional banks will take the majority of your bank account balance and lend out your money in order to make a profit. This is much more risky than holding securities. In the case of Betterment, all your assets are held in the account at all times. Betterment is not lending out your account balance. For SIPC insurance to be triggered your securities must have to go unaccounted for during a broker dealer going out of business. Betterment does not hold custody of your assets along with broker dealer assets, which limits the chance that your assets go unaccounted for in the case they go out of business.

What are the Pros of Betterment?

  1. Passive investing. Betterment is a set it and forget it investing platform. You do not need to worry about account maintenance. Betterment takes care of everything.
  2. Automation. The entire investment process can be automated. You can automate contributions to your account that will automatically rebalance your portfolio upon contribution. Your investments are on autopilot!
  3. See the big picture. Betterment allows you to link up all of your investment accounts and get an idea of what all of your investments are doing in one place.
  4. Fiduciary responsibility. Betterment advisors are held under the fiduciary duty standard. This is the highest standard in the investment advisor community. This means the advisor is legally required to act in the client’s best interest at all times. Remember, this in person advisement is only offered through Betterment Premium.
  5. Low fees. Betterment focuses on minimizing fees for investors. They do this by selecting low cost ETFs that have low expense ratios and leveraging technology.
  6. No minimum. You can open a Betterment Digital account with any amount of money. Betterment Premium requires a balance of $100,000 or more.

What are the Cons of Betterment?

  1. No direct indexing. Some other investment accounts offer direct indexing or stock level tax loss harvesting. This is typically reserved for accounts with $500,000 invested or more. This allows direct ownership of individual stocks, not funds, which allows for more tax loss harvesting opportunities. Betterment does not offer this feature.
  2. Too passive for some. If you are interested in being active in your selection of stocks or ETFs, Betterment is not for you. Betterment is for passive investors.
  3. Limited to stocks and bonds. Your asset allocation is limited to stocks and bonds. You cannot invest in other assets like real estate or commodities through Betterment. It is important to note however that Betterment has stated that these assets added no value to portfolios that they tested.

The Verdict

Betterment has revolutionized the brokerage industry through the use of technology. This has significantly lowered the barriers to entry to receiving high quality financial advisement. Traditionally, you would need thousands if not tens of thousands of dollars to invest with an in person financial advisor. Now, you can get started with a robo advisor like Betterment with any amount that you have. Betterment is a long term investing platform for passive investors. If you are interested in short term trading, individual stock ownership or DIY investing Betterment is not for you.

Click here to get started with Betterment!

What To Do Before, During And After A Stock Market Crash

Before we go any further with this, we need to set some ground rules when it comes to discussing a stock market crash.

First of all, nobody knows when the next stock market crash will occur. While many will try to convince you otherwise, predicting the next crash is impossible. Warren Buffett explained this best when he said that market forecasters are out there to make fortune tellers look good.

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Crystal Ball Fortune Teller, Wikimedia

Second of all, timing the market is impossible. A lot of people come up with this idea that they will be able to exit and reenter the market at the perfect time. While this idea looks good on paper, it probably won’t turn out like this. The reason behind this is because of what we already mentioned. You have no idea when the market has reached a top or a bottom.

Third and finally, no action is necessary on your part. If you want to take steps to prepare for a market crash, you can. However, this is not required. When it comes to investing, activity is often times the enemy. Emotions get involved when stocks are making drastic price moves, up or down and this often results in poor decision making. When it comes to the stock market, one of the best things you can do is often to do nothing at all.

What Is A Stock Market Crash?

The words crash, correction and bear market are often used interchangeably. It is important to understand the difference between these. While there is no official definition, here is what most people agree on.

A correction is a very frequent occurrence. This is a drop of around 10%. Stocks will correct all the time, and occasionally a broad market correction will take place as well. Recently, we saw this take place with the S&P 500. In 2017, the stock market virtually went up in a straight line. This trend continued into 2018 until a correction took place at the end of January. The S&P 500 corrected from close to $2,900 to $2,580 in February. This was a correction of 11%, which indicated that the market was blowing off steam after an unsustainable run.

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Stock Market Correction, S&P 500

A bear market is a less frequent occurrence. Over the last 100 years, we have seen a bear market on average every 3.5 years. A bear market is a drop of around 20%, and a full recovery typically takes place within 15 months. The last bear market we saw was from October 2007 to March of 2009, but this was actually what I and most would call a stock market crash.

A stock market crash is a very infrequent occurrence, happening about every 10 years. This is a massive correction taking place that far exceeds the 20% that marks a bear market. A crash is a drop of 40% or more. For example, the bear market of 2007 to 2009 resulted in a 54% drop in the Dow Jones Industrial Average. Before that, the last stock market crash took place in the early 2000s during the dot com bubble. A stock market crash is the result of unusual circumstances when a bubble has formed.

What Is A Bubble?

A bubble forms when herds of people begin to invest in a particular asset. As more people invest, the market value, or what people are willing to pay, drifts further and further away from the intrinsic value, or the actual underlying value of the asset. Eventually, the price gets so out of control that people are no longer wiling to pay it, and the buying pressure tapers off. As the price tapers off, people begin to sell and the price starts falling. This is far more common with individual assets, but entire markets can become a bubble. For example, the dot com bubble in the early 2000’s and the housing bubble a few years later.

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Stages Of A Bubble, Forbes

The most recent example of this is the cryptocurrency bubble that formed in 2017. Bitcoin, the most popular cryptocurrency, went mainstream. In January of 2017, each Bitcoin was worth around $1,000. As the year continued, the price climbed higher and higher. At the end of this Bitcoin mania, each digital coin was trading for just over $19,000 in December of 2017. This massive run up indicated a speculative bubble had formed, as this level of appreciation is not common with any assets. People were excited over this new currency, but this excitement led to hysteria. The bubble burst at the end of 2017, and by February of 2018 each Bitcoin was worth just under $7,000. This was a drop of over 60%, which indicates that this was a crash. A market crash occurs as a result of unusual circumstances. In this case, it was millions of people herding into a digital currency.

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Bitcoin Bubble 2017, coindesk

From this point forward, we will be referring to both a crash and a bear market as a crash, but do remember the difference. As we have discussed, corrections and bear markets are regular occurrences resulting from normal circumstances. Crashes on the other hand, are irregular occurrences resulting from irregular circumstances or the formation of bubbles.

What To Do Before A Crash

If you believe that a market is becoming overvalued and you want to take some precautionary steps, here are a few that you could follow:

  1. Simplify your portfolio. If you are holding individual stocks, consider what stocks you are investing in. Are you holding durable consumer staples stocks? Or volatile biotechnology stocks? If there is ever a time to invest in these high risk stocks, it is not when markets are at or nearing all time highs.
  2. Increase your cash reserve. One of the best things you can do before a crash is to increase your cash on the sidelines. Stock market crashes result in one in a lifetime opportunities, and those with cash are able to jump on them. If you are fully invested in the market, you are completely immobilized in the event of a crash. Your only option is to ride it out.
  3. Write down why you own what you own. You will want to have a clear idea of what you have in your portfolio and why you have it there. During a crash, emotions get involved and people will often make compulsive decisions. You should hold on to this written reminder in case you are tempted to take some kind of action.
  4. Diversify. One of the best ways you can minimize risk is through adequate diversification. A good rule of thumb to follow is to never have more than 20% of your money in any one thing. If you do, you are probably too heavily invested in that asset.
  5. Allocate more money into bonds or precious metals. During times of uncertainty, many investors will flee to other investments like bonds and precious metals. Gold has proven to be a suitable investment for outpacing inflation. On top of that, gold tends to hold up well in the event of a stock market crash as more money is being directed toward this asset.
  6. Go for a walk. Seriously! It is easy to drive yourself crazy worrying about your money and your investment portfolio. You want to make sure that you are keeping your emotions under control as to not make an impulsive decision. You can take steps to prepare for a crash, but beyond that you cannot control it. If you cannot control it, there is no reason to worry about it!

What To Do During A Crash

If you believe you are currently invested in a market that is experiencing a crash, here are a few things you could consider doing:

  1. Nothing. As mentioned already, one of the best things you can do during a market crash is to do nothing. Others around you will be generating a flurry of activity, and many will be making the fatal mistake of selling. Remember, it is not a loss until you recognize it! If you took steps to prepare for the crash and you are diversified across different assets, there is nothing for you to do.
  2. Be patient. If you are planning on taking advantage of the sale and scooping up stocks, do not rush! During a bear market, there are often a number of false bottoms that will continue to be breached as the market falls. At this point, the market is a falling knife! Wait for clear signs of a bottom or follow some of the bear market investing strategies we will discuss shortly.
  3. Write out a plan. Do not just randomly start buying stocks left and right. If you are planning on buying, consider what stocks you are looking to buy. Are you going to look for battered blue chips? Small cap stocks? You need to write out a clear action plan outlining what stocks you are looking to buy and at what price you are willing to pay. Failing to plan is planning to fail!
  4. Educate yourself. This can be a perfect opportunity to educate yourself on the stock market and what is going on around you. Before you make any decision, do your due diligence. You might want to consider having a discussion with a financial expert before taking any action in a bear market.
  5. Study the charts. While it is impossible to time the markets and identify the bottom, you can make an educated guess. By studying candlestick charts and learning about support and resistance areas, you can identify when a stock is testing a support. If it breaks down below the support, you know the stock is likely still in free fall.

What To Do After A Crash

If you believe the stock market has crashed and you are ready to take advantage of the opportunities, here are a few steps you could follow:

  1. Dollar cost average. This is one of the best ways to enter the stock market, especially in a bear market. As we mentioned earlier, a number of false bottoms often appear during a bear market. If you drop all of your money in at one, and the bottom is yanked out from under you, you are in a free fall. By dollar cost averaging, you are accumulating shares over time and paying the market average for these shares. In a bear market, this is likely going to be averaging down or lowering your average cost basis. Let’s say you wanted to invest $10,000 in a S&P 500 index fund at the bottom of the market. Instead of dumping $10,000 in at once, you could invest $1,000 per month over 10 months to dollar cost average.
  2. Blue chip and AAA rated. Another strategy you could follow is to only invest in durable companies with an excellent debt rating. Companies often raise capital by issuing debt obligations known as corporate bonds. These bonds are rated by agencies like Moody’s and Standard & Poor’s for credit worthiness. The highest rating a company can receive is a AAA rating. This company has a high degree of credit worthiness and the lowest risk of defaulting on these obligations. The problem is, increased corporate borrowing has significantly reduced the number of companies with this prestigious AAA rating. In fact, there are only two. First, Johnson & Johnson. Second, Microsoft. You might need to lower your standards to a AA+ or AA for a broader selection. Another option is to invest in what is referred to as blue chip stocks. These are durable companies that have stood the test of time. While there is no official list of blue chip stocks, most people refer to the Dow Jones Industrial Average.
  3. Hunt for dividends. During a bear market, it is not uncommon to find a great company paying out a 10% dividend yield. It is important to understand that you should not simply look for stocks with high dividends! A dividend is never guaranteed, and a company could cut or cancel a dividend at any time. What you want to look at instead is the dividend growth streak. This is an indication of how long this company has been increasing the dividend payment. If a company has a 20+ year growth streak, they will do anything they can to continue paying that dividend. One of my favorite resources for researching dividends is Simply Safe Dividends. In this article, over 20 high dividend stocks are analyzed. For example, consider AT&T. This company has a dividend growth streak of over 30 years! It is possible that they could cut the dividend, but based on the growth streak and consistent operating history it is highly unlikely.

While you may be tempted to simply invest in the companies that have been hit the hardest, this might not be the best strategy. During each bear market, massive companies that were once considered institutions have gone bankrupt. This includes:

  • Lehman Brothers in 2008
  • Washington Mutual in 2008
  • General Motors in 2009
  • Pacific Gas & Electric 2001
  • Texaco 1987

These were massive companies that appeared to be safe, but this was not the case. If a company ends up going bankrupt, you are one of the last people to get paid as a shareholder. You will likely see nothing. Keep in mind, one of the best things you can do during a stock market crash is to do nothing at all. While you can take some precautionary steps to plan for a correction, you can never know for sure when it will take place.

 

 

What is a Fundrise eFund? (Fundrise eREIT VS eFund)

Investing Simple is affiliated with Fundrise. This relationship does not influence our opinion of this platform.

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Fundrise Logo

Fundrise is a new investing platform that allows everyday investors to invest in private commercial and residential real estate projects. By combining technology and the release of new regulations, Fundrise has been able to establish a platform that differs in many ways compared to traditional real estate investments.

Check out our full review of the Fundrise platform here.

Through Fundrise, you can invest in two different investments known as eREITs and eFunds. To learn more about eREITs read our article here.

Fundrise eREITs are designed to provide income to the investor, while eFunds are designed for growth. More details on that later!

What Is The Fundrise eFund?

Fundrise eFunds consist of investments with the objective of providing a growth opportunity to the investor. This is possible by buying existing real estate, renovating and later selling the property for a higher price and recognizing a capital gain.

Fundrise currently offers 3 types of eFunds based on their geographic location: Los Angeles eFund, Washington DC eFund, and the National eFund. The focus is primarily on single family homes along with townhomes and condominiums located in growing and developing metropolitan areas.

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Fundrise eFund Explained

Fundrise eFund VS eREIT

Fundrise builds the eFunds using a slightly different structure compared to eREITs. In an eFund there is no minimum requirement for return of earnings to shareholders every year in the form of dividends. A REIT is required to pay out 90% of the taxable earnings to the investors in the form of dividends. It is important to understand the goal of the Fundrise eFund is to recognize capital gains over time, so this traditional REIT model does not make sense for this application. Fundrise is not investing in properties with the goal of cash flow through the eFunds. If you are interested in that, check out the Fundrise eREITs.

Since eFunds are designed for growth rather than income, they are set up as partnerships which are slightly more flexible to manage than REITs. In a partnership, your share of the net income that is generated by the eFund will be reported to you on a K-1. At the end of the year, you will report earnings from the K-1 on your tax return.

Partnership earnings are generally taxed as ordinary income to the taxpayer. Any capital gains in the partnership will be taxed at capital gain tax rates to individuals. Consult your tax advisor for questions about your specific tax situation.

Fundrise eFunds offer diversified investments in residential real estate. These investments are difficult for individuals to construct on their own and would require millions of dollars of start up capital. By setting up partnerships, Fundrise can leverage investor capital and participate in growing real estate markets throughout the US.

One of the main goals of Fundrise eFund investments is to participate in growing real estate markets. They do this by identifying specific areas that are showing a high demand for affordable housing. Most of the cities Fundrise focuses on are metro areas with high affordability gaps. This is the gap between rental housing costs and the average monthly income of residents. Fundrise sets the goal to provide more housing options in these high demand areas.

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Areas with the Largest Affordability Gap

Fundrise eFund Investment Strategy

Fundrise has a strategic investment approach to their eFunds. They aim to buy residential real estate or land in areas of high growth; specifically areas with high likelihood of first time home buyers and growth in younger demographics. They then renovate or develop entirely new projects to increase the value of their land or real estate acquisition. Once they have completed redevelopment of the area, Fundrise will sell the property realizing any profits or losses. Investors earn a return through asset appreciation, not rental income or cash flow.

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Fundrise eFund Investment Strategy

Currently, Fundrise offers 3 different eFunds:

  1. National eFund
  2. Washington DC eFund
  3. Los Angeles eFund

National eFund

The National eFund plans to invest in residential housing in major metropolitan areas throughout the US. This fund strategizes in targeting first time home buyers and areas with high potential for development. The National eFund plans for construction of single family homes, townhomes, and condos. This eFund plans to acquire land and other real estate in areas of the US that are not being sponsored by another eFund. In LA for example, this eFund aims for single family renovations and rentals where the LA eFund targets new housing development.

Washington DC eFund

The Washington DC eFund looks to purchase land for development in the metropolitan areas of Washington DC. Like the other eFunds, this fund aims to develop single family homes, townhomes, and condominiums in high growth areas. This fund has a main focus on first time home buyers and areas of DC with high affordability gaps.

Los Angeles eFund

The Los Angeles eFund aims to purchase land in the metropolitan areas of LA for the development of residential housing. The main focus is on the construction of single family homes, townhomes, and condominiums in high growth neighborhoods. The LA eFUND targets areas with high potential for first time home buyers and younger demographics.

Click here to get started with Fundrise!

What Is A Fundrise eREIT? (Fundrise VS Traditional REIT)

Investing Simple is affiliated with Fundrise. This relationship does not influence our opinion of this platform.

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Fundrise Logo

Fundrise is a new investing platform that allows everyday investors to invest in private commercial and residential real estate projects. People have been investing in traditional publicly traded and private REITs since their invention in the 1960’s. Today, over 70 million people in the US alone invest in REITs. Fundrise has taken a new approach to the traditional REIT structure with the introduction of the eREIT. In this article, we will be outlining the differences between the Fundrise eREITs and the traditional public and non traded REITs.

Read our full review of Fundrise here.

What Is A REIT?

A Real Estate Investment Trust (REIT) is a company that purchases real estate assets and then issues thousands or millions of shares of the company to investors. This gives retail investors the ability to invest in real estate investments they may not have been able to before often due to high costs or exclusivity of the investment. REITs can give you exposure to real estate that you would not typically be able to buy directly. For example, consider American Tower Corporation. This is a REIT that owns cell towers. Your average investor would not be able to go out and buy a cell tower, but it is possible through a REIT.

REITs are attractive investments because of the relatively high dividend yields along with the ability to provide passive exposure to real estate. In order to be classified as a REIT, at least 90% of the taxable income needs to be passed along to shareholders in the form of dividends. REITs allow investors to gain diversified exposure to thousands of real estate assets throughout the world. Before the invention of the REIT, investors would have to purchase real estate themselves or in syndicates, which were limited to wealthy and accredited investors. REITs have opened up real estate markets to common everyday investors, providing more liquidity and an explosion of investment into real estate.

There are two core types of real estate investment trusts, publicly traded REITs and non traded REITs. Most of us are familiar with publicly traded REITs, these are investments that trade on public security exchanges and offered to everyday investors.

Non traded REITs are investments that are bought and sold privately. This means you must have a buyer or seller willing to conduct a transaction to provide liquidity as there is no secondary market.

Non traded REITs are less common because of their exclusivity, liquidity, and often high front end load fees. Front end load fees are commissions paid to brokers on the purchase of your investment. Non traded REITs have an advantage of gaining exposure to private real estate and offering higher distributions, on average, than publicly traded REITs. Another advantage is that non traded REITs are less correlated to the overall stock market, as they are not traded on an exchange. Publicly traded REITs also hold liquidity premiums, making them more expensive compared to non traded REITs.

What Is A Fundrise eREIT?

Fundrise has created a new investment called the eREIT, which is a non traded REIT offered on the platform. eREITs are unique to Fundrise and offer a number of benefits that are not typically offered by a traditional non traded REIT or publicly traded REIT.

Fundrise released many of its eREITs over the last few years under a new provision of Regulation A. This new provision in the Securities Act allows unaccredited investors to purchase up to $5 million worth of a security over a 12 month period. This new provision has allowed platforms like Fundrise to emerge, creating more investment opportunities and a new concept to the non traded REIT structure.

In the United States, to be an accredited investor you need to have a net worth of $1,000,000 or more excluding your primary residence or an income of at least $200,000 for the last two years. In the past, these accredited investors were the only ones that had the ability to invest in these private real estate investments.

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Fundrise eREIT

Fundrise eREIT VS Publicly Traded REIT

Publicly traded REITs trade on a major exchange like the NYSE or the NASDAQ. These investments change hands just like stocks, and as a result the performance of the asset is heavily correlated with the overall stock market. Publicly traded REITs are very similar to a dividend stock.

If you have done your research, you have come across the Vanguard Real Estate Index Fund. This is a low fee publicly traded REIT that gives you exposure to a diversified collection of real estate. This REIT has an expense ratio of 0.26% compared to the 1% fee associated with Fundrise. Is this Vanguard REIT a better investment? Let’s take a look at the performance of these investments over the last four years.

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Fundrise Historical Performance
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Vanguard Real Estate Index Fund Historical Performance

In 2014, the Vanguard REIT significantly outperformed Fundrise. However, each year thereafter Fundrise has had significantly better performance than the Vanguard REIT.

One con with investing with Fundrise mentioned in our full review is the limited operating history. We only have four years of returns to go off of, and that is not a large sample size. It is certainly possible that Fundrise will continue to outperform the Vanguard REIT, but returns are never guaranteed.

It is important to understand the difference between Fundrise and other publicly traded real estate investments like this Vanguard REIT. Fundrise is a unique real estate investment, where most traditional REITs contain real estate that has already been purchased. Fundrise takes a venture capital approach where they are constantly purchasing and selling real estate assets and debt. This unique approach could give Fundrise an edge.

Fundrise eREIT VS Traditional Non Traded REIT

Fundrise eREITs offer a variety of features not typically seen in traditional non traded REITs. These features are:

  1. Quarterly Liquidity – Though Fundrise does not guarantee liquidity, they offer quarterly redemption periods following a 60 day notice for withdrawing funds. This is not typically offered by traditional non traded REITs. If you are looking for a highly liquid investment, this would be a publicly traded REIT.
  2. Direct Distribution – Fundrise offers eREITs directly to investors, without going through an investment bank or middle man. This saves a considerable amount of money for the investor as you are not paying any fees or mark ups.
  3. Low Investment Minimums – The starter portfolio has a minimum investment of $500 and the advanced plans have a minimum investment of $1,000. This is significantly lower than most other non traded REITs which often have minimum investment requirements of $10,000 or more.
  4. Low Fee Structure – One of the greatest strengths of the eREITs offered on the Fundrise platform is the low fee structure. Fundrise charges a 1% annual fee to manage your investment. This is considerably lower than most traditional REITs.

Click here to get started with Fundrise!

What Are The Different Fundrise eREITs?

East Coast eREIT – This eREIT focuses on purchasing commercial real estate equity and debt along the East Coast of the US. This is primarily in Massachusetts, New York, New Jersey, North Carolina, South Carolina, Georgia, Florida, as well as Washington D.C. and Philadelphia, PA. Investments in this eREIT focus on fixed rates of return and assets that have a high potential for value creation. This includes assets that have high potential for redevelopment, brand new ground up projects, and income producing debt.

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Growth of a $10,000 investment in the East Coast eREIT

Heartland eREIT – This eREIT focuses on acquisition of real estate in the Midwest of the US. Specifically, Houston, Dallas, Chicago, and Denver metro areas. This eREIT invests primarily in real estate debt and equity investments, that will provide fixed rates of return as well as aiming for long term value creation.

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Growth of a $10,000 investment in the Heartland eREIT

West Coast eREIT – This eREIT focuses on debt and equity commercial real estate investments in the West Coast region of the US with a focus on certain cities and metro areas. Specific cities include Los Angeles, San Francisco, San Diego, Seattle, and Portland. This strategy focuses on renovation and value adding opportunities for redevelopment, as well as investing in completely new development projects.

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Growth of a $10,000 investment in the West Coast eREIT

Income eREIT – The primary objective of this eREIT is cash flow generation from purchasing real estate debt on commercial properties. This eREIT focuses on real estate in urban areas where there is limited supply and high demand. The income eREIT follows the strategy of acquiring smaller assets that fall out of the scope of larger investment banks.

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Growth of a $10,000 investment in the Income eREIT

Income eREIT II – The objective of this eREIT is cash flow generation. Most of the investments in this eREIT are commercial real estate assets along with commercial real estate debt. This eREIT purchases senior to mezzanine level debt, which can be converted into equity in the asset or company at a later date.

Growth eREIT – This eREIT focuses on acquisition of commercial real estate assets with a goal of value appreciation over time. The growth eREIT looks for opportunities in affordable housing complexes. This eREIT also aims to buy properties below their replacement cost. The growth eREIT is also taking advantage of historic low interest rates by financing it’s acquisitions using long term fixed rate loans.

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Growth of a $10,000 investment in the Growth eREIT

Growth eREIT II – This eREIT is geared toward asset appreciation and long term growth. Primarily investing in commercial real estate properties, this growth eREIT attempts to purchase assets that fall outside the scope of larger institutional investors. Growth eREITs look for long term asset growth over time.

With so many different eREIT options offered by Fundrise, investors can gain diversified exposure to different types and locations of real estate. By leveraging technology, Fundrise has taken a new approach to the non traded REIT. Fundrise gives people an opportunity to participate in private real estate at a fraction of the historic cost along with providing investment portfolios that fit the specific time horizon and investment objectives of the investor.

Click here to get started with Fundrise!

How Does Fundrise Work? (Crowdfunded Real Estate Investing!)

Investing Simple is affiliated with Fundrise. This relationship does not influence our opinion of this platform.

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Fundrise Logo

Recently, a number of crowdfunded real estate investing platforms have emerged. One of the most well known and established examples is Fundrise. This is a new investing platform that allows everyday investors to invest in private real estate projects traditionally limited to high net worth individuals or accredited investors. The reason this is possible is because people from all over are pooling money together to invest in these real estate projects.

Crowdfunding allows projects to be funded by collecting small amounts of money from a large number of people. The internet has made this incredibly easy! Traditionally, to invest in real estate you would need thousands if not tens of thousands of dollars for a down payment on a piece of real estate. With Fundrise, you are able to chip in towards these real estate projects with an investment of $500 or more. This has significantly lowered the barriers for real estate investment!

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Fundrise Real Estate Projects

How Does Fundrise Work

Fundrise works like many other crowdfunding platforms out there. First, investors pool money together by investing via the online platform. Then, Fundrise will invest that money in real estate projects. This could be new construction or a renovation project. Fundrise makes money for investors through income producing properties and flipping real estate in hot markets. As a Fundrise investor, you can choose whether you want to be in a growth oriented portfolio or income oriented portfolio. Income from rental payments and proceeds from flips are passed along to Fundrise investors in the form of dividend payments or distributions. In exchange for facilitating this, Fundrise collects an annual fee of 1% from investors.

It is important to understand that Fundrise is a private real estate investment. The Fundrise eREITs and eFunds can only be bought and sold through this platform. They are not publicly traded on a stock exchange like a publicly traded REIT.

Fundrise allows you to choose from four professionally built real estate portfolios based on your risk and investment preferences. Some portfolios are geared towards cash flow and others focused around growth of the underlying assets. If you invest the minimum of $500, you will be placed in the starter portfolio. The other three advanced plans require a minimum investment of $1,000.

Fundrise Investment Portfolios

Starter Portfolio: This portfolio is designed for new investors who would like to give Fundrise a shot. The minimum account requirement is only $500 to begin investing. This portfolio consists of 50% growth and 50% income oriented holdings. If you want to upgrade to an advanced plan down the road, it is completely free!

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Fundrise Starter Portfolio

Supplemental Income: This portfolio is geared towards income producing real estate. Investors will earn returns primarily through dividends from cash flow producing real estate. Dividends are generated through rental and interest payments in proportion to your share of of the fund.

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Fundrise Supplemental Income Portfolio

Balanced Investing: This portfolio offers a blend of 50% growth and 50% income oriented investments. The balanced investing portfolio invests in a blend of eREITs and eFunds offered by Fundrise. The goal for this portfolio is for a balance of income generating real estate and real estate that is appreciating in value.

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Fundrise Balanced Investing Portfolio

Long Term Growth: The goal of this portfolio is to generate returns primarily from asset appreciation. This portfolio aims to purchase high growth potential real estate and generate returns mostly from the sale of the underlying properties. This includes buying property and performing renovations in order to sell the asset for a gain later.

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Fundrise Long Term Growth Portfolio

Fundrise eREIT and eFund

Each portfolio consists of eREITs and eFunds designed by Fundrise. These investments are set up as real estate investment trusts or partnerships and they are managed by Fundrise.

eREITs will produce income for your portfolio in the form of dividends. Here is how you earn dividends with Fundrise:

  1. Rent payments from underlying apartment and commercial leases owned within the eREIT.

  2. Interest payments from underlying real estate debt investments owned by Fundrise.

An eFund is a partnership created by Fundrise to be treated differently for tax reasons. Partnerships avoid the double taxation of normal C-Corps. eFunds are designed in a similar way to eREITs where there is a pool of real estate investments split into shares and sold to investors. Where eREITs are designed to generate income, eFunds are geared towards growth.

How To Invest In Fundrise

When you are ready to begin investing, you can set up an account with Fundrise in a few short steps. Anyone who is 18 years old or older and a US resident can invest with Fundrise. Currently there is a $500 account minimum to begin investing in the Fundrise starter portfolio and $1,000 minimum for the Fundrise advanced portfolios.

Step 1: Create an account with Fundrise here.

Step 2: Decide on an investment plan.

Step 3: Link your bank account and deposit the desired amount.

Step 4: Sit back and watch your money grow!

All distributions or dividends from Fundrise will automatically be deposited into your bank account on file unless you opt in to the dividend reinvestment program. If you want to maximize your returns with Fundrise and allow your dividends to compound, you need to opt in to the dividend reinvestment program or DRIP. Fundrise provides this dividend reinvestment program free of charge as a courtesy for investors.

Compound interest is the effect of earning interest on top of your interest. By reinvesting dividends you are able to earn more dividends because you have a larger investment. Over time, the compounding of these dividends will result in exponential growth of your portfolio.

Here is our comprehensive article on compound interest.

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Fundrise Investment Performance, 2014 To 2017

Fundrise Investment Liquidity

Fundrise uses the funds you invest to purchase real estate. For this reason there is a 60 day waiting period for withdrawing funds. There are also quarterly redemption periods. This is why it is important to understand what you are investing in when you invest with Fundrise. Investors should aim for a long term investment of at least 5 years in duration when investing with Fundrise. Real estate is not an investment with high liquidity and it is not for everyone! Understand that liquidity and distributions are never guaranteed.

Fundrise Investment Taxes

At the end of the year Fundrise will send you any tax documents associated with your account. Investors may receive 1099-DIV for any dividends received throughout the year. Investors may also receive a K-1 for any income generated in an eFund. You may also receive a 1099-B from any other transactions within Fundrise. Your tax situation will depend on which portfolio you are invested in Fundrise. Consult a tax professional for guidance on how any income generated in Fundrise will affect your specific tax situation.

If you are looking to learn more about Fundrise, read our full review here!

Fundrise is a great platform for passive investors who are looking to gain access to private real estate markets. Fundrise is also great for investors who are looking to diversify asset classes and have less correlation to the overall stock market.

Since you can only liquidate your positions quarterly, you may be less tempted to actively trade in and out of positions. You can also automate your dividend reinvestment plan, allowing compound interest to build up in your account.

Fundrise is best for investors with a 5 year time horizon. Real estate is not a highly liquid investment and inexperienced investors need to take this into consideration. While Fundrise does offer a 90 day satisfaction guarantee, you should not invest if you have a short term investing mentality.

Click here to get started with Fundrise!