Peerless Money Mentor Betterment Experiment

I decided it was time to stop being just a mindless consumer and start investing in my future self!

Peerless Money Mentor

In the past, I have been reluctant to open up a supplemental retirement account because I wanted to purchase some smart light bulbs or cool tech product instead.   However, recently I decided it was time to stop being just a mindless consumer and start investing in my future self!  Last month I decided to open up a Roth IRA account with Betterment.  Betterment is an online investment company that uses an algorithm to automatically manage your investment portfolio.

Creating an account was very simple and painless. I just answered a few questions about my investment goals and afterwards I was able to open my account.  As you can see in the picture below, Betterment recommends you pay off all of your high-interest debt first and I highly suggest you follow their advice.  Knock that high-interest debt out of your financial life because it is dangerous to your financial health! 



Why I Chose Betterment

The main reason I decided to start with Betterment is because there was no minimum deposit required and the management fee (.25% per year) was waived for the first year.  Since there was no minimum deposit required I set up a monthly auto-deposit of $54.17 per month to start.  As you can see in the picture below, my contribution of $54.17 a month does not allow me to reach my current goal of $100,000 invested by the age of 55.  I will increase my monthly auto-deposit  after I finish paying my car note off ($3,000 left!).

What is a Roth IRA and Why I Chose It?

Roth IRAs give you the advantage of not paying taxes on your assets’ growth. For obvious reasons, the younger you are, the more beneficial this tax advantage will be. Not only will you have more time to recover the taxes on the money that you put in, but your nest egg will have plenty of time to build and grow tax-free.
-Charlie Munger, Vice chairman of Berkshire Hathaway, Why You Can’t Invest Like Warren Buffet

A Roth IRA is a retirement account that is funded with after-tax dollars so your money grows tax free!  As of 2017. the maximum amount you can contribute to a Roth IRA is $5,500, if you are under 50.  For the 50 and over crowd the contribution limit is increased by a thousand bucks to $6500.

I decided to open a Roth IRA account after using Nerd Wallet’s Roth Ira vs. Traditional IRA calculator.  After playing around with the numbers, it told me I would be better off investing in a Roth IRA, instead of a traditional IRA.  To me, the main difference between the two accounts is when you pay taxes.

With the traditional IRA you pay taxes on the back end but the money you put in still grows tax-free.  Also, the Roth IRA allows for more flexibility in that you can withdraw your contributions (not earnings) tax free in case of an emergency.  However, I only recommend that as a last resort because you should have an emergency fund for emergencies!  Another angle to consider is that the Roth IRA allows you to make contributions as long as you want to, unlike the traditional IRA, where you have to start withdrawing by the time you reach 70.5.


Nerd Wallet Roth vs. Traditional IRA Calculator

Run the numbers for yourself by clicking here to see whether investing in a Roth IRA versus a traditional IRA makes sense for you!

I’ll update you annually on how my experiment with Betterment goes.  Since this is a long-term investment, a lot of research suggest you only look at your account once per year but I have been breaking that rule of thumb by checking my account once per week.  Let me know what type of account you use for retirement savings in the comments sections!  If you have used Betterment or any other robo-advisors, how has your experience been so far?

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Author: jobrown2787

My name is Jerry, and I am just a personal finance nerd who writes from a bottom to top perspective. I believe anyone can improve their finances by adopting certain habits/strategies taught by the financial independence community.

In my popular post From Broke Phi Broke to Financially Woke I wrote, “While I am not 100% debt free yet, I hope the financial independence community welcomes me with open arms.”

Since writing that article, the financial independence community has embraced me as one of their own. I have even gotten a chance to do some amazing things like write for Business Insider.

Well, enough about me. I want to hear from you. Feel free to reach out to tell me your million dollar secrets 🙂

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