5 Ways to Save for Retirement Without Going Broke
Whatever your need, these five businesses can help you get your finances in order.
Not so long ago, investment management was a field dominated by large financial institutions that catered primarily to wealthy clients.
Entrepreneurs have pounced over the past five years on the formerly impervious sector, starting businesses that directly compete with multinational banking giants. Officially launched in 2010, Betterment was among the startups that helped trigger this industry-altering wave of innovation. Four years later, it remains one of the most successful companies to have emerged from this period of upheaval. Though unquestionably impressive, Betterment’s success shouldn’t come as a surprise to anyone who has ever met its founder and chief executive, Jon Stein.
Stein, who started working on the idea behind Betterment in 2008, has been at the company’s helm from its infancy. A lot has changed over the course of his tenure, as Betterment has brought on more than 50 new employees and gained notoriety. All the while, Stein and his team have managed to successfully steer the company amid volatile market conditions. They’ve done this so well, in fact, that they’ve thus far managed to raise more than $45 million in funding—including a recent round that netted more than $32 million.
What’s different about Betterment? Pretty much everything, explains Stein, who studied economics and human behavior as an undergrad before beginning a career in financial services. His background informs Betterment’s mission, its corporate ethos, and even the name itself, he says, adding that “I had the name Betterment before I knew exactly what we would be doing— it was about making it better.”
While working in finance, Stein realized that demand existed for a company like Betterment. His rationale? Though he knew a lot about finance—indeed, much more than the average person—he, too, was having difficulty investing his own money. “What I spotted was a need that I had,” he says.
“I had been investing on my own and I had lost money. I was an economics major, I had a CFA, and I went to business school—I was supposed to know better and I was still doing stupid things with my money.”
These days, Stein does a lot more than invest his own money, as Betterment now has more than $650 million in assets under management. It also boasts 30,000 customers, who have an average age of approximately 36, Steins say—much younger than that of its established competitors.
Stein recently sat down for an interview with Free Enterprise at Betterment’s headquarters in Manhattan’s Flatiron district.
FE: Can you talk about your background and what led you to start Betterment?
“I studied economics and human behavior in college. And I learned that making rational decisions is very important and valuable to us—that’s what economics teaches us—and also that we’re incredibly irrational. I sought to reconcile that.
When I graduated I thought I might go into medicine, but I realized I wasn’t going to have the impact that I wanted to, which was bigger than helping individual patients. I ended up in business, in financial services, which was an industry that was making profits hand over fist and growing like crazy. I saw a lot of practices that I thought were unsavory … and I knew there had to be a better way.”
FE: How has Betterment evolved since you founded it?
“The original idea was to take the simplicity and the simple value proposition of ING Direct and the investing efficiency of Vanguard and combine those into a nice, easy-to-use investment account.
Over the years our product has become a lot more sophisticated. We do very elegant and amazing—better than anybody else—tax management. We rebalance for you automatically. We’re reinvesting your dividends in very intelligent ways to make you more money, to get you to your goals faster, and so on. But that core idea of making investing accessible to everyone still drives us and that accessibility remains important to us.”
FE: What’s your investment strategy?
“We operate on ETFs and we hold ETFs just for you. We can replicate any sort of fund and we personalize the funds that we choose based on your goals so it’s made perfectly for you. If you want to make a change, we don’t have to sell the whole thing—we can just sell a little bit at the margin and we do that in a very tax efficient way. The result for you is that personalization actually makes you more money and gets you to your goals faster than if you were to use one of the old school mutual fund options.”
FE: What advantages does Betterment have over traditional banks?
“There are a lot of advantages. I think the simplest way to say it is that we’ll get you a better return, in less time, at a lower cost than those competitors. We have built a full-stacked, vertically integrated platform. That means that we’ve cut out a lot of the inefficiencies of those older technology players. We can deliver you at lower cost a better and more personalized portfolio in less time, one that will you get—in the end—higher returns because it’s more personalized and managed specifically for you.”
FE: What’s the most common investment mistake you see?
“By far the most significant financial mistake that people make is under-saving. There is nothing more important than saving enough money. You can spend all the time in the world optimizing but fundamentally you just have to save more.”