Being mostly an index investor, I’ve lately been experimenting with robo-advisers (Betterment), versus buying index funds myself via my online brokerage account. Although I will continue to do both, I want to share one aspect of the Betterment experience that I really like: ease of investing small amounts.
Old-School: Manual Index Fund Investing
Buying index funds via an online broker is a cumbersome process, involving the following steps:
1. Put in a transfer order to move money from your checking account to the brokerage account.
2. Wait about two or three business days for the order to execute and the money to be deposited in your brokerage account and available for investing (though some brokers will make it available immediately).
3. Place the “buy” order in your brokerage account and wait for confirmation that it was executed.
If you bought a mutual fund or an exchange-traded fund (ETF) where you can buy partial shares, you can invest all the money you transferred. Otherwise, you will probably have some cash left over because the money you transferred did not exactly add up to a whole number of ETF shares. For instance, if the ETF shares were selling at $42 and you transferred $100, you can only buy two shares (for $84) and will be left with an un-invested “overage” of $16. That’s super inefficient and eats into your returns.
You can usually avoid this annoying process by buying a mutual fund and setting up automatic monthly investments (which is a great idea), but the above still applies for one-off “extra” buys.
A New Age: Robo-Advisers
I really like to do one-off extra investments, like randomly putting $23 into the markets. For some odd reason, it actually gives me a little tingle and rush. One step closer to financial freedom, one step closer to “swimming in money, swimming in liquor”!*
Anyways, Betterment makes this easy-peasy; it takes less than a minute. All I have to do is open the phone app with my fingerprint, choose the account, hit deposit, enter an amount, and hit confirm. That’s it. Compared to waiting 2-3 days just to move money from my Ally checking account to my brokerage account, it’s warp-speed investment.
I also love that Betterment will invest the entire amount, buying fractional shares as necessary. It won’t leave me hanging with some un-invested cash.
So Where Does That Leave Us?
I use both methods of investing. When I get a sizable chunk of cash (a big part of my income is bonuses and commissions), I transfer the money to my online broker and manually buy an index mutual fund. I like it because the fees are lower than Betterment (which charges .25% per year plus the fees of the individual funds it invests in), and I have complete control to choose what I want to invest in.
However, when I get a hankering to give myself a mini-rush by investing an extra $11, I just open up Betterment and put ’em in there in less than a minute.
A good addiction, I think!
*From “Me, Myself & I” by G-Eazy (Sony Music)