Betterment For Non-U.S. Residents
Betterment does NOT accept account applications from non-U.S. citizens or legal residents.
Fortunately, there is a U.S. brokerage firm that welcomes international investors -
Zackstrade. The company has some
of the lowest margin rates in the industry, offers a professional trading platform, and access to
91 exchanges around the world. Learn more about the company in the
Zackstrade Review.
Open Zackstrade Account
Visit ZacksTrade Website
Another great U.S. company for European investors is called
Firstrade.
It offers $0-commissions, but it is available in fewer countries than Zackstrade.
Learn more Firstrade Review.
Open Firstrade Account
Visit Firstrade Website
Robo-Advisors Versus a Regular Brokerage Account
Most investors today still use a regular brokerage account instead of the newer robo-advisory service. Let's take a detailed look at the account options currently available and try to determine what the advantages and disadvantages are of each.
Similarities
Whether a securities account is managed by a computer program or a human advisor, the funds in the account will be protected by the SIPC. This is the brokerage world's version of the FDIC. While the SIPC is funded by its member brokerage firms, it is Congressionally mandated. The program provides a maximum of $500,000 of insurance for a trading account. Of this amount, up to $250,000 can be cash balances.
Many robo-advisory accounts are now offered by the same companies that also offer retirement and non-retirement brokerage accounts. These firms include Fidelity, TD Ameritrade, Schwab, and E*Trade. The customer service for both types of accounts will generally come from the same people, although robo-account holders occasionally have access to a specialized investment team.
Both the managed brokerage account and the robo-account obviously provide investment decisions, which removes the burden from the account owner. Nevertheless, there are significant differences between these two.
Robo-Advisors vs Brokerage Account: Differences
A regular managed brokerage account is monitored by an actual human being who makes trading decisions on behalf of the investor. A robo-account, on the other hand, is managed by a computer program that buys and sells based on a questionnaire that the investor fills out. Many investors, of course, are a little bit suspicious of the new computerized system because a piece of software is making important trading decisions, involving what may be someone's life savings.
And the non-managed account obviously has no guidance at all. Investors must make their own financial decisions based on their individual research and knowledge. This is probably where the robo-account and non-managed brokerage account differ the most.
Many computerized investment services charge nothing when the software program decides to buy or sell a security. This is a significant advantage over the self-directed and managed brokerage options. Self-directed accounts of course charge for each trade, and most managed accounts also charge commissions. The difference in trading fees could make the robo account cheaper by hundreds or maybe thousands of dollars over the long term.
Furthermore, the computer-managed account usually has a lower investment advisory fee compared to the human-managed brokerage account. Most robo accounts cost less than 50 basis points per year, while the old fashioned method might be two or even five times as expensive.
Computerized Management vs Self-directed Accounts
The majority of automated-advisory services trade only low-cost index ETFs. Other securities, including stocks and mutual funds, aren't available in most robo accounts. Other financial instruments, such as fixed-income, forex, and futures certainly won't be found in a computerized account, at least not anytime in the near future.
One of the advantages of a regular brokerage account is that many of these products are available. Even the non-security financial products such as forex and futures can be traded with certain brokers, such as E*Trade and Ally Invest.
Of course, taking the robot out of the equation leaves just the account owner, who often is an amateur investor. This scenario seems to take on more risk, as the home gamer has to make more financial decisions with a minimal amount of training and research.
The software program, on the other hand, has been written to analyze customer responses to a variety of questions in order to determine the appropriate amount of risk that should be in a portfolio. The software knows beforehand how much risk is in the exchange-traded funds that appear in its arsenal. It then simply needs to gauge the level of risk that a particular investor can handle, and assign the right ETFs to the client.
Despite the theoretical simplicity, robo-advisors are new, and there hasn't been a lot of time to fully evaluate their effectiveness. While they have the ability to take a lot of the effort and time needed to manage an account from the individual investor, there could also be unknown hazards of software programs in the years ahead.
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Betterment Index Fund Portfolio
Betterment’s investment portfolio consists of 12 index tracking exchange traded funds (ETFs). The goal is to maximize diversification while keeping fund costs low and investor assets highly liquid.
This basic set of 12 funds can seem quite limited compared to a traditional brokerage that offers hundreds of investment vehicles to choose from. Certainly this can be a con for those investors who want to be more hands-on. But Betterment is able to combine these 12 funds to provide the appropriate asset allocation for an investor’s calculated risk and potential return.
Again Betterment makes it easy to visualize this. Take the example of John P. again. As shown in the next figure, the Betterment advice tab is showing 90/10, stock/bond portfolio mix, set at a moderate risk level, giving John a decent shot at making his goal of $1.5M by age 75. In seconds John can see his portfolio allocation.
Even though there are only 12 funds, this portfolio is highly diversified. Additionally, each fund is highly-liquid, and the fees are very competitive. Though not for everyone perhaps, sometimes simple is better.
External Account Linking
Continuing on the theme of advice, another Betterment feature that investors may find helpful is the ability to link with existing external investment accounts. Once the linking process is complete, Betterment can provide some insight into two important factors:
1. Total fees per year, and whether a move to Betterment could improve the investment
2. Amount of idle cash in the account and how this is affecting account performance
Once linked, at the top of the external account web page Betterment will summarize any improvements that can be made, and provides a streamlined process to start the transfer or rollover process.
Updated on 7/2/2024.
Chad Morris is a financial writer with more than 20 years experience
as both an English teacher and an avid trader. When he isn’t writing
expert content for Brokerage-Review.com, Chad can usually be found
managing his portfolio or building a new home computer.
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