Am I Crazy Or Is This Investment Site A Bad Idea? Hot
“Deposits are invested seamlessly in a user’s chosen blend of Betterment’s two investment options—a diverse basket of stocks and a portfolio of ultra-safe bonds,” says Betterment’s marketing copy. ”Users can easily change their allocation between these two options, and all transactions are free.”
Call me crazy, but why would you want to put your savings—your emergency fund—in stocks?
Yet the site sounds like a consumer’s wet dream.
“Opening an account takes just five minutes, there’s no minimum balance, and transfers are free and easy,” says Betterment’s marketing copy.”Everything is included in an annual advisory fee of 0.9% and securities in customer accounts are protected up to $500,000.”
The site features an endorsement from Bruce Greenwald, a Professor of Finance & Asset Management at Columbia University. So maybe I am missing something because Greenwald is no slouch.
To me, however, marketing a combination stock and bond fund as a replacement for a traditional savings vehicle, while saying that the bonds are “ultra-safe” and making it sound like you’re investment will be insured against loss is asking setting up a bunch of suckers for losses.
What do you think?
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Good intentions but there will be unintended consequences!
I suppose the virtue of this site is that you can start small and open an account easily. And there are simple tools for asset allocation. BUT I don't think that the risks are at all well explained - the time frame for their hypothetical worst case/best case results covers 10 years with a "30% allocation" (I assume to bonds versus stocks). That's an investment time frame, not a savings time frame. Not all investors will want that allocation, and this assumes the investors would have stuck with the allocation (including rebalancing) for that entire period. In a down market like we are having right now, I can just envision the chaos as investors swap out of stocks to Treasuries; this site does NOT put enough emphasis on long term investing since it talks about how easy it is to make transactions. It would be a great way to dollar cost average into the market, but I doubt it will be used that way.
