Betterment.com Profile: How My Enron Fail Helped Me Reinvent The Investment Industry

Advisors, Investing

By Jon Stein, CEO and co-founder of Betterment.com

When I was in college studying economics, my professors drilled into me one important lesson about investing: The best portfolio is one that has a little piece of every investment — sometimes called a market portfolio.

So what did I do after graduating? Exactly the opposite. I was working in financial services and thought I knew enough to buy stocks on my own. So I picked Enron, which seemed to be on sale. That was a fail!

It was my first investing loss in the market but it taught me two lessons: We as humans are prone to making bad decisions when it comes to investing (we think we are smarter than we are) and we can’t beat the market.

I started looking for a better way to invest that would keep me from doing dumb things.

Reinventing The Investment Management Industry

I also saw another problem: The investing industry is largely not setup to help individual investors like myself and others who wanted an easy way to invest in a market-based portfolio. Instead, it’s set up to help itself — brokerages profit by encouraging people to play the market and charging customers high fees.

So I started Betterment to make investing more simple: Our mission is to take the emotional haphazardness out of investing so that you get the best possible result. We do that by being an entirely online platform and we use the smartest software to help make investing decisions, like the right asset allocation. Our portfolio is made up of index funds — proven to have better long-term returns than active management.

What Betterment Does Best

When you arrive at Betterment, first we help you set financial savings goals — like $1,000,000 for retirement — and then we show you how much you need to invest on regular basis to get there. More than 70 percent of our customers also use automatic deposits from their checking accounts so they can save without having to think about it.

Our proprietary software automatically takes care of the time-consuming (and stress-inducing) tasks like proper asset allocation, rebalancing and keeping your capital gains tax exposure to a minimum. We learn from your behavior – if your account veers off-track, we provide advice about how you can get back on target. We do all this for some of the lowest fees in the entire industry.

There has never been a more important time to be invested — it’s a fundamental way to build wealth and beat inflation. We know that overall Americans are not saving enough for retirement. As we look ahead to the next 30 years, I think we will see that people who started investing early — and stayed the course over the long term — will be those with the most financial security.

At Betterment we let software do what it is best at – number crunching without emotions – so that we can do what humans are best at – the pursuit of happiness. As a growing company, every person who works here also takes customer service and help phone calls and that includes me too.

Now, three years after we launched, we have become a community of thousands of like-minded investors and have more than $200 million in asset under management. We are growing and adding more features to our investment portfolio to bring the best possible returns to you so you can enjoy your life better.