The million  $5 billion dollar question of the week,

“How do I buy shares of Facebook’s IPO?”

I’ve literally have had a dozen people ask me how they can get in on the action. Ironically, none of the questions came from Facebook (random thought).

For those that want to know how to buy Facebook IPO, this video is for you:

Spoiler alert: The answer is probably not what you want to hear.

You’ve been investing in your 401k for quite some time and are probably still clueless in where your money is going.  (Don’t worry…you’re not alone)

But you’re thankful that they offer these “target date” or “life cycle” funds that make investing in your 401k so easy.

What are target date funds? You know… the funds where all you have to do is choose the year you plan on retiring and voila – you’re all set.

Winner, winner, chicken dinner…..how easy is that?

Here’s the BIG problem.  Target date funds, although easy, can sometimes eat away at your returns.

Or stated just a bit more bluntly– They suck!

*You know I hate Target Date Mutual Funds when I take the time to record a video.

Target date funds were created to take away the hassle of having to research the mutual funds in your 401k and build and construct your own portfolio. But in my experience, taking the time to do the research and, essentially, build your own target date funds in your 401k, is a much better option.  It’s this “a la carte” approach that can potentially give you much higher returns over your working life.

 What Makes Target Date Funds so Bad?

First, let’s understand how they work.   Most often these funds are created by a specific mutual fund company.   Then that mutual fund company will take 12-18 of their mutual funds and create this diversified portfolio on your behalf.  As you age towards your “target date” of retirement, the 12-18 funds will start shifting to something more conservative (movi.ng from less stocks to more bonds)

Sounds like win-win, right? You would think.  Here’s the problem….

When you start breaking down the individual mutual fund options inside these target date funds, you start to uncover that there are some or several of these funds that are just plum horrible.

 What I’ve Seen With Target Date Funds

Over the years, I’ve seen countless target date mutual funds that my clients have brought in and thus far, I haven’t seen one that I’ve been impressed with.

Recently, I had three different clients bring in their 401(k)’s, all of which having target date funds.

The common theme was…..you guessed it…. they suck.

Show Me Some Examples

Here’s some examples of three clients’ 401(k)’s where we compared the target date portfolio and looked at their ten-year returns, we adjusted that for inflation, and see how that compared with the new portfolio.

Now, keep in mind, the new portfolio consisted of the mutual fund options that were available to them in their 401k.

See, whenever you have a 401k, the target date fund is usually the easiest option, and sometimes your default option, but you typically have the ability to go in and create your own portfolio.  Most people don’t because they simply just don’t know and don’t feel comfortable doing it.

I can’t blame people for not feeling comfortable or qualified to do so.  I’m hoping by showing you some numbers below that you’ll at least consider it.   Let’s take a look…..

Sample Client One

With each client we kept the ratio of stocks and bonds relatively the same.   As you can see,  the first portfolio netted a 3.61% more return over a 10 year period.  3.61%!  Remember, we are just using other mutual funds that are already in the 401k.

For the super analytical people, I had to include other factors as beta, standard deviation and alpha.  If you don’t know that means, it’s OK.   You don’t need to.   What you may be more interested in dollars.

What does 3.61% really mean over the long term? Well, let’s just say… A LOT. As you can see below, in 5 years on a $100,000 portfolio, it’s over $22,000. Wow! And as you can see it only gets bigger and BIGGER….

Those numbers don’t really reflect what happens in a 401k. If you have a 401k, then most likely you’re adding to it on per paycheck basis.

Using the same returns, I wanted to demonstrate if you were adding $5,000 per year into it. As you can see the 20 year number is a $295,000 difference. Okay, that deserves a special call out……

Still think you’re target date fund is good enough for your retirement?

Sample Client Two

You can go through the rest of the examples and see more of the same. What’s the recurring theme? You guessed it. Target date funds suck.

Sample Client Three

Different Client. Different 401k. Different target date mutual funds. Same sucky results….

Portfolio	10Yr Return	Adjusted for Inflation Assumed(3.4%)	10Yr Beta
Target Date Portfolio	5.55%	2.08%	.98
New Portfolio	7.78%	4.26%	.89
Difference	+2.23%	+2.18%	-.09

Managing Your Own 401k

Now, I understand that most people don’t know what the heck they’re looking at in their 401k, so it’s hard for them to do their own research, but that’s where a financial planner comes into play.

Find an advisor that knows that they’re doing and have them construct you an optimized 401k  portfolio.  Even if you have to pay that person $1000 to help with your 401k, that $1000 is nothing, especially when you look at the numbers above.

401k Review Service

Since I realize people need help with their 401k, it only made sense to include that as a part of my practice.   Don’t worry, it’s not $1000.  If you need help with your 401k, check out my 401k review service.

Scottrade is one of the most solidified discount brokers in the industry.

They offer competitive trading costs as well as great customer service. Scottrade has a standard fee for every transaction of $7 dollars. It also doesn’t hurt that they are headquartered in my favorite baseball town of St. Louis – Go Cardinals!

They also offer the ability to trade options for $7 per trade, plus $1.25 per contract.

Opening an Online Account with Scottrade

Scottrade offers several different platforms for their customers which offer a variety of options depending upon what you the investor feels comfortable with. They offer their Web Platform which gives you access to strictly their online site, you will not be required to download anything on to your computer.

They also have the option for a Mobile plan which allows their customers to make transactions from a cellular device in case you are often travelling. Finally they have their elite option which is more leaned towards day traders. It offers you real time news as well as customizable sessions that you can save.

Benefits of Scottrade

Scottrade has also taken on the task of teaching its clients how to improve their investment strategies. With thousands of articles and interactive tools accessible online, you the investor have some similar tools at your hands as professionals. Scottrade also offers hundreds of free informative sessions across the United States. The sessions are run by professionals in the field of investments and teach a variety of topics that an investor may be interested in.

There are also 474 actual Scottrade locations spanning across the United States that can help with questions not only on how to use Scottrade, but can inform you on some more advanced trading techniques. Beyond their seminars as well as thousands of articles and branch locations, they offer 24 hour customer service via phone. Their representatives are very friendly as well as helpful. They can take you step by step through the trading process and make you feel safe about how you are investing your funds

What You Need to Open an Account with Scottrade

Opening an account is painlessly simple. According to their site, here is what you need to get an account open today:

• 10 minutes of your time (yes, that’s it)
• Social Security Number or Individual Taxpayer ID Number
• Employer’s name, address, phone number
• Beneficiary’s social security number, date or birth, and address

$7 Online Trades with Scottrade

Scottrade may not be the lowest per trade cost on the market, but with their excellent customer service, as well as numerous trading tools offered they are definitely a good choice if you’re in search of a broker, or considering switching brokers. You will need a minimum of $500 to open an account.

There is no limit to the number of trades you can make, and you will not be charged any fees for inactivity. You will also have the safety of $25,000,000 worth of protection from the Securities investor protection corporation (SIPC).

Many people own mutual funds and still have no real clue what a mutual fund really is.

And since more than 80 million people invest into mutual funds, wouldn’t you think people would want to have some idea of where there money is going?

Since all people like to eat, I thought I would try to explain what a mutual fund is using my favorite steak chili recipe as the analogy.

That’s right! Food and investing. I promise you it doesn’t get better than this!

Big shout out to Jeremy from GenX Finance for sharing this awesome steak chili recipe. You can see a recap of what changes I made to the recipe to make it my own. Enjoy!

Asset Protection

Have you ever wondered if what your investing in is the right thing for you? If you have you are asking about investment management.

Investment management is the professional management of various securities and assets used to meet specific investment goals for the benefit of the investor (Wikipedia).

How would an advisor invest your money?

Every person has their own unique set of needs and goals for their future. Saying this, the same old cookie cutter” approach will not work for everyone. With this in mind you need to take some time to figure out exactly what you are saving for.

• Saving for a child’s college expenses
• Buying a home/or paying off a mortgage
• Saving for a new car/truck
• Family vacation
• Retirement

Having your goals lined out will help give you and your advisor a good idea of which direction your investments should be heading in, as well as a proper time horizon. Having an appropriate time horizon also helps when determining what type of investment products are right for you. You don’t want to be investing in a 10 year security if you need the money 1 year form now.

Risky Business

The next thing you would need to consider is your risk tolerance. How risky are you when it comes to investing? How much are you comfortable with loosing in the market? These are important things to consider, as it determines what type of investment product is right for you. This also varies person to person, although the closer you are to retirement age, usually the less risky you become. This is for good reason. It is harder for a someone who is getting ready to retire to make up for a 30% decline in their portfolio than it is for someone that has 15-20 years of work ahead of them.

Allocating your investments

The next step is determining what type of security product is right for you. This can seem like a daunting task with the seemingly endless choices out there. Common stock, bonds, mutual funds, ETFs, and commodities to name a few. How will you ever decide what to choose? This is when you and your advisor need to sit down and discuss the objectives of your portfolio, and choose the proper asset allocation that is right for you. Whether you want something that is protected from large market swings or something that moves in-step with or above the market.

Asset allocation is a very important step in building your portfolio. Having a variety of different products helps to diversify your portfolio and reduce risk. You can diversify with equity, fixed income, and cash. Having more in an equity portfolio will expose you to more risk, but also a possibility of a greater return. A portfolio that is invested more in fixed income is more protected form the market swings.

A good rule for investing is the 100 minus (your age) rule. This rule is used for what percentage of your portfolio should be in the market, and what percentage should be in fixed income or bonds.

For example: if you are 45 , take 100 – (45) = 55. This means 55% of your portfolio should be in the market  and 45% should be protected in fixed income and bonds. However, some experts now say that we should use the 120 minus your age rule since people are living longer, and the age for retirement is going up. With this rule, someone in their 20’s should be entirely invested in the market, allowing them to ride the waves of the stock market to increase their portfolio. Although this strategy is not right for everyone,depending on your risk tolerance, it is a good place to start for a novice investor.

Take your time to decide what is right for you.

Before you make a final decision, make sure you are comfortable and happy with the investments you are leaning towards. Do your homework before you commit to something that you are ultimately not happy with, and consider these facts:

• Carefully weigh the risk involved.
• Make sure that you are cost efficient in your choices, as the fees and expenses vary greatly within the financial services industry.
• Be aware that just because investment has done well in the past, it doesn’t mean it will do well in the future.

Investing With Prosper

Are you looking for higher rates of return than you can earn on certificates of deposit, online savings accounts, and bonds?

If you are willing to accept a bit more risk and want to mix up your portfolio to not rely solely on stocks then peer-to-peer lending can be a great option.

Prosper was the first successful company in the peer-to-peer space, and remains a great place for you to invest money in P2P lending.

What Problem Does Prosper Solve?

If you find yourself in a financial bind and in need of cash, you have several options. You can borrow from family or friends, use your credit card, a personal loan from your bank, or as a last resort use payday lending. These were your options up until about 4 or 5 years ago when peer-to-peer lending arrived on the scene.

With peer-to-peer lending you have a new option. Instead of having to go to a financing company to solve your money needs, you can turn to other individuals. These individual lenders pool their money together and lend it to borrowers they deem worthy of their funds. Investors get better rates of return than other investments, albeit at some risk, and borrowers get much more competitive rates than the other options available.

The first company to successfully establish itself in this market was Prosper. The company has grown to have over 1 million individuals involved in lending funds through the website. Those lenders have sent out over $272 million in loans. Millions in interest has been saved by borrowers, and healthy returns have been earned by investors.

How Does Prosper Work?

Prosper connects borrowers who want cheaper loans to individual investors seeking higher investment returns. Your state’s laws determine whether or not you can borrow or lend on Prosper. A borrower can borrow up to $25,000 over a 3 or 5 year loan at an interest rate that is determined by their credit worthiness.

How to Invest in Loans on Prosper

QuickInvest with Prosper

As an investor/lender there is no cap as to how much money you can put into the lending system. Getting set up for investing is simple. First you must sign up for an account and attach a bank account to your Prosper account so you can transfer money in and out of the system.

Setting up a bank account takes a few days because Prosper will make 1 deposit and 1 withdrawal of less than a dollar in that bank account. You must then go on and verify the amounts that were deposited and withdrawn. After your account is set up, you simply decide how much money you want to deposit into your Prosper account to invest in loans.

After you have money in your Prosper account you can invest in two different methods: by reviewing specific loans to put your money in or let an automated investing system pick loans for you based on criteria you set. Once you have invested money into either specific loans or a portfolio of loans the interest you earn will be deposited back into your account for either further investment or withdrawal.

Compare Prosper and Lending Club

As Prosper continued to grow a new competitor emerged in the peer-to-peer lending market: Lending Club. The two companies are very similar and offer the same ability to borrow and lend between individuals.

Note: read our post where we discuss investing with Lending Club to learn more about them.

However, there a few differences between the two for investors:

Know the Risk of Default

When you agree to lend money to a stranger over the internet, you have to ask yourself why they can’t get access to funds elsewhere. They don’t have family that could help? They don’t have a bank or credit card company willing to give them money? Financing companies – banks, credit card companies, payday loan companies – make money by lending money to people who need it. If a person can’t turn to them for help, why should you let them turn to you? Many times a peer-to-peer loan is the loan of last resort because it takes the longest to come through the origination process. If a borrower has made it to the point of needing a peer-to-peer loan they are many times getting funds at increased risk.

Prosper Loans

Peer-to-peer lending isn’t “easy” like setting up a certificate of deposit. You can’t set it and forget it while raking in interest payments. Knowing default rates for different types of loans is critical to having positive returns from your P2P lending. However, if you can accept greater risk and spend a little bit of time doing research on a loan, you can earn much higher returns than are possible on CDs and savings accounts.

How Much Can I Make with Peer-to-Peer Lending?

Exactly how high your rate of return will be with P2P lending is dependent upon many factors:

• how much you invest
• which loans you invest in
• what your portfolio’s rate of default in

The better your personal screening process is to invest in a specific loan, the better your returns will be. You can earn astronomical returns – at least in theory – by moving further down the credit quality ratings. However, just because you can lend money at 18% doesn’t mean that loan will be kept current through the payoff date. You must balance risk and reward to avoid losses that take a chunk out of your returns.

Does My State Let Me Participate in P2P Lending?

Unfortunately not every state lets its citizens participate in P2P lending. Direct investment in Prosper loans is currently available in 26 states. Direct investment in Lending Club notes is available in 28 states. Both firms are actively trying to expand to all 50 states.

*Before investing with Prosper, be sure to read their prospectus.
** Please be advised that I am an affiliate of Prosper and will make a small amount of money if you open an account with them. You can learn more about their affiliate program here.

I have a secret...

I have a little secret for you.

Your broker might not have your best interest in mind when they make recommendations to you.

In fact, brokers can legally put their interests ahead of yours. 

Did you catch that?  

Translated that means that your broker can get a speeding ticket for going 75 mph on the interstate, but won’t get punished for selling you a crap investment that makes them a bunch of money.

This is because most brokers operate under what’s called the suitability standard, which simply means the securities they recommend must be appropriate for you given your financial profile; however, many of the securities that can be considered suitable may be far from the best investment options available at a particular time.

How do you like them apples?

You may be surprised to learn that brokers working under the suitability standard are not legally obligated to find the best prices or the best investment options available at a particular time. As a result, your broker may offer you securities that provide lower returns and carry more significant risks than other alternatives as this may be more profitable for the broker. The suitability standard can apply to brokers that sell insurance, stocks, annuities, or other investment types.

1. Brokers Make Money Even if You Don’t.

This is because of the commissions-based compensation model presently used by many brokerage firms. Let’s say your broker convinces you to buy into XYZ stock at $50 per share. If the price subsequently increases to $60, than your broker may call you and advise you to buy more of the same security because of the 20% appreciation in price. This transaction would then generate a commission for your broker.

On the other hand, let’s say that the same investment in XYZ stock instead dropped to $40 per share. In this case the same broker might call you and still tell you to buy more of the same security because it is now less expensive than it once was and should therefore be considered a bargain. This transaction would also generate a commission for your broker.

Great for them.  Not so much for you.

As you can see your broker’s success can have little relation to your own. This represents a misalignment of interests that may cause your broker to benefit at your expense.

2. High commissions are a good thing right?

Brokers may choose to offer you only those investments which pay the highest commissions. To illustrate this point let’s consider another example. Let’s say that investment 1 is the best investment for you, but it offers no commissions to your broker.

On the other hand investment 2 is a worse investment, which pays 5% commission. Under the suitability standard your broker is not obligated to offer you investment 1 and may instead sell you investment 2 in order to collect the commission on the transaction. This conflict of interest is currently permitted under the suitability standard, which is applicable to many brokerage firms.

Isn’t that special?

3. Looks good on paper.

Your broker may sell you an investments that is illiquid or highly risky. This is due to the fact that brokers are often associated with particular issuers of securities or certain investment companies.

As a result they may be limited to offering only the proprietary products sold by their affiliates even though other more attractive investment options may be available in the market. They may also be restricted to particular list of securities and may be compensated to offer one investment over another at any time.

One of the worst examples that I witnessed this was with a portfolio of a friends mom.  Her broker had sold her what he called a “safe investment” which was a limited partnership.  While some limited partnerships could be considered good investments, this particular one was Medical Capital Holdings.

What’s the big deal about that?  Well, this particular limited partnership ended up being a fraud and most investors lost everything that they invested into it.   What makes the story even worse, is that this particular broker thought it was “suitable” to put over 1/3 of her portfolio into it.

4. Their commissions can eat away your returns.

If you’re paying commissions on a per-trade basis, you may be spending more than you might expect.

For example, if you’re charged 2% per trade, then making just three trades per year could result in you paying 6% of your overall portfolio in commissions annually.

5. Alphabet jumbo soup.

Brokers may be using deceptive titles to give you the wrong impression about their compensation model and qualifications. Currently, the shear abundance of professional designations being used within the financial services industry is confusing even to the most experienced investors. However, understanding the differences between these titles could have a dramatic effect on your long-term investment results and overall satisfaction.

As an example, the term financial advisor is one of the most used terms in the industry; however, many of the individuals using this title are sales people looking to meet quotas by selling financial products. They may in some cases sell non-marketable securities, which include long-term commitments, excessive fees, and a high level of risk.

Titles with the word “senior” — Certified Senior Advisor (CSA) and Certified Senior Consultant (CSC), for instance — have come under a great deal of scrutiny.   I get offers in the mail all the time to buy designations.   Don’t let the alphabet soup impress you.  The only one that should in the financial planning profession is the CFP® designation. Other notables are the CFA and CPA designation.

6. I have a sales quota.

I love when I get a statement from a competitor that is sponsored by a mutual fund or insurance company.  The broker claims to them that they have their clients best interest at heart and  can utilize all types of investment choices, except that they only investments I see are from that companies proprietary products.

Hmmm……now whose best interest is first?  I assure you not the client.

7. My records clean….kind of

Your broker is not obligated to tell you if there’s anything on his or her record.  And why they should they?  It’s reported that 70% of prospective clients do not do a background check on the broker before hiring them.

Want to make sure that your broker doesn’t have a record like Bernie Madoff?  Head over to FINRA BrokerCheck to see what’s on your brokers record.

8. It could be better somewhere else.

With a broker you’re dealing with a sales person who may or may not have your best interest in mind. On the other hand, registered investment advisors, also known as RIAs are firms which operate under the fiduciary standard, which means that they are legally obligated to put their client’s interests first at all times.

As an independent registered investment advisor, Alliance Wealth Management, LLC was founded as a welcome alternative to the traditional brokerage model so many investors have become accustom to. We are compensated only by management fees paid directly by our clients.

How do you pay you broker?  If you don’t know, maybe it’s time to find out.

I‘ve had several readers email requesting that I talk more about ETF investing. While I have used ETF’s in my clients portfolio and in my own investment portfolio, they still do not represent a large amount of my investment strategy. Nothing wrong with ETF’s; I’ve just been more comfortable with mutual funds.

At the Financial Blogger Conference that I attended, I got a chance to meet with Jon Stein, CEO of Betterment.com.  Betterment has been on my radar for a bit, but I never took the chance to research them that much.   After speaking with John and doing my own research, I see Betterment as a good option for those that agree with passive investing and prefer to outsource the investment selection to a third party.

Betterment is an easy ETF investment strategy primed for the “lazy investor” and it’s really simple to get started.

Let’s be clear: You could mimic their strategy with an online broker and potentially save on their annual advisory fee (for accounts less than $25k that’s 0.9% per year.  On a $25k account that would equal $225 per year).    But if you prefer to let them do their research on the investments and also automatically re-balance your portfolios for you, then they would be a great fit for you.

Here’s Jon sharing his most hated money tip at the Financial Conference Blogger conference:

Jon was gracious enough to answer some hard-nosed questions about his company and their investment strategy with ETF’s.

Enter Jon……

++++++++++++++++

1. What was the inspiration behind forming Betterment?

I’m an engineer. I’ve always been passionate about fixing things, making them better.

I spent years working as a consultant for big banks, and found that typical financial products were optimized for corporate profits, not for real people’s goals. Friends would ask me, “What should I do with my money?” Seeing no good answers, and knowing that Wall Street was not looking out for the average individual investor, I felt I had to create a better way.

2.  Why ETFs vs. mutual funds?

Betterment uses ETFs in both our stock and bond portfolios because of the liquidity, low management fees, and tax advantages they provide. An exchange-traded fund (ETF) is a security that tracks an index, a commodity or a basket of assets, like an index mutual fund, but trades like a stock on an exchange. ETFs are bought and sold like stocks throughout the day, which, for investors, means there’s flexibility (called liquidity).  Compared to mutual funds – which have many hidden costs and penalties for early withdrawal – ETFs are relatively transparent and easy on the wallet.

3. What screening process does Betterment use to pick its ETFs? What would constitute a change to the portfolios?

We’ve selected a basket of ETFs designed to represent the broad US and international market. We took a multi-step approach to this selection process. First, we set a target international exposure of 35%, based on global equity allocations and industry best practices.

Second, we defined our target with a slight tilt towards two factors: value and small cap. Value and small cap ETFs are appealing because these two factors have been shown to outperform other stocks over the very long term.

Third, we screened for low fees (excluding any ETFs with fees above 50 basis points) and high liquidity. Liquidity is essential because non-liquid ETFs trade with big spreads, and investors pay the price when buying and selling them.

Finally, we selected the right proportions of the screened funds to match our target.

Betterment Portfolio

We think of Betterment’s portfolio as smarter indexing – not actively managed, but actively monitored indexes. We review our ETF selections at least quarterly, and expect we might update the composition as much as annually. We’re not chasing hot sectors or fads, rather we’re consistently looking for the best representation of the broad market. So a change will typically mean a minor adjustment – swapping one small-cap value fund for another new one that offers lower fees or more liquidity. Before making any changes, we consult our team of advisors, who are top economists, professors and practitioners of finance, and market experts.

4.  What would be defined as the perfect Betterment client?

The beauty of Betterment is that it makes investing accessible to everyone.

You can be a beginner with little knowledge of investing and still earn market returns on a diversified portfolio aimed toward your particular goals, whether they are retirement, education, vacations…anything.

At the same time, many of our customers are experienced, active investors who want to put some money in a smart account where they can enjoy benefits like automatic rebalancing and fractional share trading.

Perhaps the most common customer is a young professional – 33, doctor, lawyer, ex-military, or engineer – savvy about saving and investing, and too smart to waste time with Wall Street brokers or mutual fund warehouses.

All in all, Betterment is a great platform for anyone who wants a simpler, smarter, and more cost efficient way to invest for the long term.

5. What does Betterment feel about the role of the Financial Advisor with consumers vs. using an online company like themselves?

Betterment believes that sound financial advice should be accessible to everyone. And we hold ourselves to a fiduciary standard as investment advisors.

That’s one of the reasons that Betterment is both a registered investment advisor and a broker/dealer – so we can do the investment research and pass on our findings and recommendations to our customers.

Advice can only get an investor so far. You can tell someone to re-balance his portfolio over and over, but he may never “get around to it.” That’s why we also found it important to be a broker/dealer. In this way, we can provide our customers with both actionable advice AND the tools to implement that advice, all in one simple platform.

Monitor Your Portfolio From Your Phone

We actually think Financial Advisors should be using Betterment as a tool for their clients. Betterment is a great way for advisors to help their clients execute their investment plans, stay on track with their goals, and earn market returns all at the same time. Our automatic deposit and re-balancing features also help to automate the good practices advisors promote, so their clients never have to worry about managing these tasks manually.

6.  Why wouldn’t someone go directly through an online broker and avoid the annual advisory fee?

Betterment Advisory Fee Schedule

There are a lot of benefits of using Betterment that distinguish it from a typical online brokerage. One must keep in mind that online brokerages charge costly trading fees, while transactions at Betterment are free. Other benefits Betterment offers include:

All of this means that you can start today in five minutes and never have to worry about your goals again. You can get back to everything else you have to do in life, knowing that you’re earning more and saving more, ‘cause you’re getting the best returns for the lowest cost.

7. Tell us more about your new goals feature.

That is so exciting.  It’s a no-brainer – but of course, it’s never been done before because Wall Street is brain-dead. We all invest for goals. So why not make that explicit, with advice for each?

We launched goal-based investing at FinovateFall this year in New York. Now customers can set up multiple investing goals in their Betterment accounts, and each goal can have its own timeline and asset allocation. The best part is that based on your timeline and goal amount, we will provide you with a recommended asset allocation, and also tell you how much to invest each month to reach your goal. You can even set up automatic deposits to ensure you are always investing the right amount for your goals (and taking advantage of dollar-cost averaging!)

8.  How easy is it to get started?  

Signing up for Betterment takes less than 5 minutes. All you do is link your checking account, choose your asset allocation using a slider, and relax. There is no minimum balance and no paperwork to fill out.

9.  Anything else you want to add?

Thanks for the interview. We’re big fans of Good Financial Cents here at Betterment, and we’re proud to be bringing better investing to people like you and your readers.

You’ve probably noticed that the stock market has been a little bit volatile lately. Dropping by hundreds of points one day, and then gaining hundreds of points a day or two later. There is a great deal of uncertainty right now, and that usually means market volatility as investors try to figure out what to do next.

While there is no way to completely protect your investment portfolio from the dips in the market, and there is no way to predict what could happen next with any sort of accuracy, there are some things you can do to keep from letting market volatility ruin your financial futures. Here are a few things to try:

Think Long-Term

In the short-term, the market is quite volatile. Your trend line is going to be all over the place. However, over the long haul, things tend to smooth out — and trend higher. When you look at stock performances over the course of decades, things look much less scary. If you have looked at the fundamentals, and you buy stocks that are fundamentally sound, and have good value and staying power, in the long term you are more likely to come out ahead (although there is no guarantee that something horrible won’t happen at the last minute).

Taking a step back, and looking at the long-term, rather than letting panic over the short-term rule you, can be a good move. Create a long-term investing plan, and then stick with it. Only make tweaks when something changes fundamentally; realize that panic selling will only lock in your losses.

Consider Dollar Cost Averaging

Another strategy is to employ dollar cost averaging. If you have a regular amount of money that you invest, you can actually benefit from dips in the market. At times when the market is lower, your dollar will buy more. This means that, when the market heads higher, you will have more shares at a higher price. Even though this means that you will have to pay more for shares at times when the market is higher, over time, it usually evens out. The key is to consistently invest, even when the market is lower.

You can also use this strategy to invest in dividend stocks. Many dividend stocks offer solid value. Plus, even when the economy and market tank, you can receive payouts. Dollar cost averaging can help you build a solid dividend portfolio that can help you through volatile times.

Index Funds

Others prefer to avoid the volatility and unpredictability that comes with individual stocks. You can invest in funds that follow specific indexes. These funds are usually low cost, and they prevent you from the worry that can sometimes come with investing in individual stocks. Over time, stock indexes tend to rise, so investing in them now, and keeping with your plan, can likely help you in the future. You don’t have to worry about stock picking when you use index funds. That can be a real advantage when it comes to beating market volatility in the long term.

A lot of times if you’ve been doing something for a while, you tend to take things for granted.

I got a call from a prospective client, someone I’ve known for several years. They called me to ask me a question that I just thought everybody knew.

It was such a basic question when it comes to my profession that, like I said, I just took for granted and thought that everybody knew how to do it. The question was,

“How do I buy stock or how do I invest into stocks?“

I thought really, you don’t know the answer? I thought I would take a minute and address some of the different ways, if you are interested in buying stocks.

To give you some background on the person that called, they were in a 401K so they were investing for their retirement, but they never actually had gone out to invest into individual stocks. There was a certain stock that they were hot on and thought that they could make some money on so they wanted to go buy it. I gave her a few different places that she could go to do her own research and buy the stock.

Poor Your Foundation

First, if you’re looking to buy stocks, make sure that you’ve got a foundation set. I always hate it when people call me and they want to start investing in individual stocks and yet they don’t have anything saved in retirement.

• They don’t have a 401K.
• They don’t have an IRA.
• They don’t have anything.
• They don’t have an emergency fund, yet they want to start investing and playing in the stock market.

That’s one of my biggest pet peeves. It’s like a house, right? With a house you have to build a foundation first. You don’t start putting on the roof or start doing the inner accessories like the big screen TV and the couches before you have the frame work or foundation down.

Make sure you have those in place first before you go out and start buying stocks. That’s my entry disclaimer, but I just wanted to get that out there first.

Buying Stocks Online

Now if you’re ready to start buying stocks and you feel comfortable doing this, you have a couple different areas online you can go to. The first place you can go is any discount broker. Think eTrade, ShareBuilder, Zecco, TradeKing, and I’m sure there are countless others, but these places are good. One, they’re very, very inexpensive.

Sometimes you can open accounts for free. Then to execute the trade, to actually buy the stock you may pay as little as $7.95 on up to 15 bucks per trade. That’s pretty reasonable, especially if you’re only going to be doing a few trades here and there. Some of them, and I’m not familiar with all the rules, but they may charge you an annual fee if you don’t do a lot of trading.

Definitely read all the fine print and rules before you engage on this. If it’s something, that you’re going to buying a few stocks here or there, that could be a viable option.

Buying Stocks Direct

Another option if you’re comfortable making the purchases online is to actually buy it through the company itself. One website that has a lot of arrangements with a lot of different companies is Computershare.

A lot of times when I have clients that have a share of stock that they either inherited or it was given to them, a lot of times computershare.com is the custodian. They will have to call them to liquidate it or to find out how many shares they own. Computershare just seems to be a common hub for a lot of these different companies.

How I’ve recently had some more relationship with Computershare was I wanted to buy stock for my kids, not so much as an investment, but more of a keepsake. I wanted to buy a share, put my son’s name on it as in the form of a custodial account. They had the actual certificate, something we could frame and put it on the wall and have a keepsake. I was having difficulty trying to find a certain stock that I wanted to buy. Sure enough I went through Computershare and they had an arrangement with that company so I’ll be doing that soon.

Computershare has a relationship with a lot of those companies. You can go to computershare.com and follow their links. I think you go to investor’s center and from there you can see some of the companies that they have an arrangement for. I think it’s over 500 companies. I’d have to check the website just to double check, but that’s another venue that you can go. I think it’s maybe a $15 transaction charge, so once again very minimal cost to do it. It’s another good, do-it-yourself, online arena where you can go to buy individual stocks.

Buying Stocks With a Broker

Okay, if you still want to buy stocks and you’re not completely comfortable going online to do it, I don’t blame you. That can be intimidating for a lot of people. You have to open up an account online, send some money to some faceless operation.

The other option you have is you could go to a local investment house, local stock broker and buy stock through them. Just so you know, by going that direction you’re probably going to pay more, considerably more, but at least you have a face of someone you can talk to. They can share their expertise of what you think is going to make you a lot of money, if it really is. Also, you have somebody that hopefully is going to educate you in having that foundation set.

All these different brokerage firms differ on their prices, but I have to think at minimum you’re going to be spending about $40 per transaction. So if you buy a certain number of shares it’s 40 bucks. If you sell again it’s another $40. That’s for a smaller amount transaction. The higher transaction you go, the more shares you buy, or the higher the share price is will then determine how much you’re commission is going to be.

Some of these firms as well, if you don’t trade frequently, they are going to hit you with either a small account fee or an inactivity fee. Be conscious of that. It’s definitely not the cheapest direction to go. Typically when I’m working with clients and if they want to do some stock trades or they have a younger relative or their kid that wants to buy shares of stock and that’s all they want to do, I usually will guide them to one of these online platforms if they are comfortable just to help save them a few bucks.

Those are some of the different options you have. If you want to buy stock, you can go online to one of the online discount brokers or go to computershare.com. If you’re not comfortable head to your local brokerage. Then, when you shop around I would maybe interview one or two different brokers just to see what would be the potential cost to do so. I would just say,

“Hey, how much would it cost to buy 100 shares of…..”

and just give them some stock, maybe the stock you’re interested in, just to see what it is and how much the fee is going to be. You want to make sure you know what you’re getting yourself into. Make sure you read the fine print before you proceed and make that initial investment.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.