Betterment, MarketRiders Leave Financial Advisers In The Dust

03/23/2012 03:39 pm ET

Investment advisers are like the 350-pound bouncers standing between you and the bar: They want you to believe you have to get past them to get to the good stuff. Many financial firms have played that to their advantage with promises that their "bouncers," or advisers, can outperform the market. But any extra gains--which are unlikely--can be quickly consumed by the fees and commissions that firms charge.

Meanwhile, investment research points to a simpler strategy: Get into a straight-forward index fund, stay there and don't play with it too much.

A slew of recent web-based investing platforms have sprung up to help investors find a way to do just that--get into a long-term investing plan, avoid middle men and pay lower fees.

Slate's Farhad Manjoo took three of the do-it-yourself investing sites for a test drive, including MarketRiders, Betterment and Personal Capital.

According to Manjoo's article, MarketRiders and Personal Capital are aimed at investors who have a real chunk of change to play with--like $50,000 to $100,000. MarketRiders charges $179 plus trading fees, while Personal Capital charges .95 percent with a $100,000 minimum investment (that's at least $950.)

But for beginner investors or young people who are working with investment capital as small as $100 a month, Betterment is the better choice, says Manjoo. The website offers a "set it and forget it" tool for personal investors who only have to answer two questions: What percentage of bonds versus stocks do you want? and How long are you planning to invest? The annual fees are around .35 percent of user's yearly balance.

Manjoo adds that even though Personal Capital only offers investment services for the $100k club, it has a nifty free tool that allows anyone to get an eagle's eye view of their investments.

If you’ve got your money in various places--a company 401(k), your spouse’s government pension plan, an IRA you never look at anymore, a 529 college savings plan, and on and on--it can be impossible to manually deduce your asset allocation across all your accounts. Personal Capital produces a slate of useful and stylish graphs to track these allocations. In this regard, it’s kind of like Mint, but with a greater emphasis on investments than banking.

For investors for whom even $100 a month seems steep, GoalMine is another DIY site that lets you start with amounts as small as $25. It's aimed at people who want to make or save money with specific goals in mind. Depending on how long you are willing to keep your money in the account, you are slotted into one of three buckets: a savings account, a bond fund or stocks. The expense ratios for using a GoalMine account for bond or stock mutual funds are between 1.1 and 1.4 percent.

The trepidation newbies feel about investing can be analogous to the fear of getting into a swimming pool--it's easy to be afraid, but it won't feel good until you just jump in and get wet. The secret sauce is the power of compounded interest. Take this quick example: A 25-year-old investing $500 per year until retirement at age 68 would earn $142,375 at a constant return rate of 7 percent.

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