The Bottom Line: Betterment is a clear leader among robo-advisors, with two service options: Betterment Digital has no account minimum and charges 0.25% of assets under management annually. Betterment Premium provides unlimited phone access to certified financial planners for a 0.40% fee and $100,000 account minimum
AT A GLANCE
- Start with as little as $10
- Various portfolio options
- Low annual fee of .25%
- Automated tax strategies
Pros & Cons
What’s stopping you from investing in the stock market? Are you convinced you don’t have enough money saved?
Are you confused about where to start? Are you overwhelmed by all the horror stories you’ve heard about people losing it all in a stock market crash?
Over 50% of Americans know they should invest in the stock market, but they’re too afraid to do it right now.
Instead, they’re keeping their money in a savings account earning little-to-no interest while they wait for the day when they’re no longer “afraid.”
Account Minimum: $0
Fees: .25% /year
Promotion: Up to 1 Year (of free management with a qualifying deposit)
We’ve all been there, afraid to take that first step toward investing. But lucky for you, you’re taking your first step right now!
Just by being here, reading this article.
There are tons of robo advisors out there making it easy for newbie investors to get started now. You don't have to have a ton of investing knowledge. You don't have to have a wad of cash in the bank.
In this article, we’ll review Betterment—one of the biggest names in the robo advisor game. We’ll do a deep-dive into Betterment, so you can decide if it’s the best investment solution for you.
And who knows, maybe along the way you’ll realize investing in the stock market isn’t a big, scary monster after all.
Let’s get started.
Robo Advisors: Investing Made Simple
Okay, so you read the words robo advisor and you’re thinking, “What the heck is that?!”
Robo-advising uses technology to analyze your financial goals and offer personalized investment solutions based on those goals.
Because these services are digital, investors (like you) pay a lower price than you would with a traditional advisor. A real win-win in my book.
If I had to guess, I’d say your fear of the stock market stems from the “old school” way of investing.
You see, in the old days, you had to do a lot of research if you wanted to have a shot at making good investments.
And, unless you also had a lot of money, the fees were too outrageous to hire a traditional advisor.
This means most investors sat in a dark cloud of confusion, hoping they weren’t throwing their hard-earned dollars in the trash.
With robo advisors, though, they do all the heavy lifting for you by:
- Recommending portfolio funds
- Automatically rebalancing your portfolio
- Automating deposits
- Adjusting asset allocation as needed
These are tasks that, on your own, would require a substantial amount of time—time that you just don’t have.
But as the oldest robo-advisor in the industry, is Betterment a good investment?
Let’s take a look.
What Is Betterment & How Does It Work?
Betterment is all about helping you maximize your money and reach your financial goals.
They offer a holistic approach to investing through this four-step process:
Step 1: They Start By Asking You Why You’re Saving
Through a series of simple questions, they get an idea of what you’re saving for. Is it a home? Retirement? A rock-solid emergency fund?
Whatever it is, they analyze this information and use it for Step 2.
Step 2: They Build Your Portfolio
After analyzing your financial goals, Betterment suggests different levels of risk based on your age, income, and years until retirement.
If you’d like your portfolio to be less aggressive, you can manually adjust your risk level through their software. In the end, you’ve got a portfolio mix that gives you peace of mind.
Step 3: They Tell You How Much Money To Invest In Each Goal.
Chances are you’ll have many goals. You may want to work on your emergency fund while also saving for retirement and saving for a house. (This is real life, right?)
After you create your goals, they tell you exactly how much money you need to put toward each goal every month. Cool, right?
Step 4: They Manage Your Investments, So You Don’t Have To.
Remember, the idea is to make investing less scary. With Betterment, everything is automated. To maintain your preferred level of risk, Betterment automatically rebalances your portfolio.
If you want to sell some investments, they’ll even do it in the most tax-efficient way—which saves you even more money.
Betterment is an excellent choice for beginners and those who want a more hands-off approach to investing.
With Betterment, you don’t have to spend countless hours researching the best investment strategies. You don’t have to lose sleep at night wondering if you need to rebalance your portfolio or make a new deposit.
They do it all for you.
It’s important to note that Betterment isn’t a bank, so they’re not FDIC insured. They are an SEC-registered broker-dealer and a member of FINRA/SIPC, but returns aren’t guaranteed.
The Betterment Difference
Betterment is a fiduciary, so they’re legally obligated to act in your best interest. This means you can have peace of mind knowing they’re working for you, not for themselves.
Some of the other big-named robo advising platforms aren't fiduciaries because they own the funds they recommend. This means they can make money off your investments, so they may not have your best interest at heart.
The key to reducing risk in investing is through asset allocation. Betterment does this by holding your investments in exchange-traded funds (ETFs).
Instead of investing a lot of money in a few stocks, with ETFs, you invest a little bit of money in a wide range of stocks in various industries and countries.
Sounds fancy, but it just means you’re not putting all your eggs in one basket.
Betterment Account Types
- Personal Investing Account
- Rollover IRA Account
- Betterment IRA Account
- Smart Saver
Betterment Account Fees
Betterment Account Features
Both the Digital Plan and Premium Plan offer these features:
- Personalized financial advice
- Low-cost, globally diversified investment portfolios
- Automatic rebalancing
- Advanced tax-saving strategies
- Ability to sync external accounts
Premium Plan members get two extra features. They get financial advice on investments outside of Betterment and they have unlimited access to a CERTIFIED FINANCIAL PLANNER™.
Types Of Betterment Portfolios
Betterment uses stock and bond-based exchange-traded funds (ETFs) to create your portfolio. Betterment chooses the correct mix of these stocks and bonds based on the type of portfolio you choose.
Betterment’s core portfolio (the one most people have) is based on your risk tolerance and investing goals.
More recently, Betterment introduced four curated portfolio strategies to investors
Socially Responsible Investing Portfolio
If you want a portfolio based on people, planet, and profits, this is the portfolio for you. The Socially Responsible Investing (SRI) portfolio is weighted toward companies focused on these values.
It also aims to minimize exposure to companies who have violated these values.
Goldman Sachs Smart Beta Portfolio
If you’re not risk-averse and looking for big gains, the Goldman Sachs Smart Beta Portfolio is a good choice. The goal of this portfolio is to outperform the conventional market-cap investment strategy.
The Goldman Sachs Asset Management team developed this strategy. It aims to lower risk and create above-average returns through diversification.
BlackRock Target Income Portfolio
If you’re a retiree looking for stable income, the BlackRock Target Income Portfolio may be right for you. Betterment teamed up with BlackRock—an asset management corporation—to offer customers a portfolio aimed at producing income.
BlackRock is a diversified 100% bonds portfolio. You get to choose from four different levels of risk, each one with a different average return. Choose a stock with a higher return, and you’ll be exposed to higher risk.
If you’re a seasoned investor who wants more control over your portfolio, choose this option. The Flexible Portfolio gives you control over your individual asset class weights.
Betterment recommends only using this portfolio option if your investment views differ from theirs or if you’re wanting to factor in outside investment accounts.
Unique Betterment Features & Benefits
Advice Based On Retirement Goals
Betterment offers retirement advice built right into its interface. If you’re in the market for a new account or want to roll over an existing one, Betterment will even give you account recommendations based on your investing goals.
If you do choose to roll over an existing account, they’ll give you a preview of what your new account would look like.
One-On-One Expert Advice
Whether you have a major life event on the horizon or just need help getting started, Betterment offers one-on-one financial advice packages to suit every need.
With these packages, you can make sure you’re making the right decisions with your money.
At the time of this article, Betterment has five packages available to customers:
Getting Started Package - $199
This package is ideal for those who need help setting up their Betterment account.
Financial Checkup Package - $299
Want a review of your current financial situation and investment portfolio? This package is for you.
College Planning Package - $299
Are you planning on contributing to your child’s college education? With this package, you get an easy-to-follow plan that tells you exactly what you need to do to save for your child’s education.
Marriage Planning Package - $299
Marriage is a beautiful thing, but it often involves the melding of two sets of finances. With this package, you get professional guidance on how to set goals, budget, and pay off debt as a couple.
Retirement Planning Package - $299
Are you afraid of outliving your money in retirement? Want to know if you’re still on track to meet your retirement goals? This package gives you a holistic review of your current situation.
A quick note: if you’re on the Premium Plan, you get unlimited access to a team of CERTIFIED FINANCIAL PLANNER™ professionals. Betterment will also set you up with an independent financial advisor if you want regular financial planning.
Betterment’s goal is to maximize your returns while reducing your losses. This may seem like a heavy feat, but Betterment achieves this through optimized portfolios.
Any experienced investor could research the best funds to buy, but Betterment realizes that you either can’t (or don’t want to) dedicate time to do that.
Based on the simple questions you answer when you open your account, Betterment offers 101 customizable allocations to help you reach your goals.
Betterment keeps your portfolio optimized through automatic rebalancing. Over time, your portfolio can get out of balance as the market moves up and down.
If you don’t rebalance, over time your target portfolio mix will look completely different than when you started.
Betterment rebalances your portfolio two ways: through cash flow rebalancing and allocation change rebalancing.
Tax Loss Harvesting+™
Tax loss harvesting is the act of selling securities that have lost money. This practice offsets taxes by as much as $3,000 per year.
After you harvest a security, you buy a similar one to maintain your asset allocation.
Betterment’s Tax Loss Harvesting+™ is an automatic system that works to reduce your tax exposure by looking for opportunities to regularly harvest your losses.
According to Betterment, their tax loss harvesting (TLH) software is twice as effective as other TLH software systems.
Option To Sync Existing Investment Accounts With Betterment
As part of their philosophy to offer holistic investment advice, Betterment allows you to sync your existing retirement accounts with your Betterment account.
By having all your accounts in one place, you get a clear picture of your total financial health. You can see your total net worth and discover where you may be losing money due to high fees and idle cash.
In the end, you’ll gain peace of mind and make smarter investment decisions with your money.
Smart Saver is Betterment’s version of a savings account. If you know you’re going to need money soon, it’s recommended that you keep the money in the bank—instead of investing it.
But unlike most savings accounts that earn an average return of 0.10%, Betterment boasts a healthy 2.15% annual yield. The return is higher because Betterment puts 80% of your money in treasuries and 20% in low-volatility corporate bonds.
Smart Saver also has a built-in cash analysis tool to let you know if you’re holding on to too much cash. If you have too much money in your checking account, Smart Saver’s Two-Way Sweep feature will automatically move money into your investment account.
If you happen to overdraft with your bank, Two-Way Sweep will transfer money back to your account to cover it.
Two-Way Sweep aims to keep 21 to 35 days of expenses in your checking account. Each day, it analyzes your current balance and moves any amount of money over the 35-day mark.
Betterment Cash Reserve & Checking
Not only is Betterment one of the best robo advisors, but they are now entering a new arena by providing checking and savings accounts.
This is new service is called Betterment Cash Reserve and you can earn up to 0.40% APY (variable)* with Savings and get ATM fees reimbursed worldwide with Checking.
Now that is how you redefine banking.
So say goodbye to those account, overdraft, minimum balance, or worldwide ATM fees forever and say hello to all the extra money you can have to spend or save the way you like.
Ready to start earning up to 0.40% APY (variable)?
How To Get Started
Opening an investment account with Betterment is as simple as opening a bank account. When you set up your account, you’re asked a series of simple questions about your age and annual income.
Based on your answers, you’re given a customized investment portfolio with a suggested asset allocation. Once your account is set up, you link your bank account and transfer in money.
You can continue to transfer money as you wish or you can set up automated deposits through Betterment.
As you transfer in money, Betterment purchases exchange-traded funds (ETFs) based on your asset allocation.
When and if you want to make a sell, Betterment does that for you too. They also reinvest dividends, rebalance your portfolio, and perform tax loss harvesting as needed.
With all these features, it’s easy to see why Betterment is at the forefront of the personal finance industry.
Is Betterment A Good Investment?
Unless you’re someone who wants total control over your portfolio, Betterment is a good investment. With no account minimum and some of the lowest fees in the industry, it’s a great way to get started with investing.
And if you’re someone who’s put off investing for far too long because you’re afraid of the stock market, Betterment gives you peace of mind.
You simply tell them your financial goals, and they do the rest.
A completely automated investing tools thats perfect for beginners and hands-off style investors they used advanced strategies to earn a higher investment return than you could on your own.
Do you think Betterment is the best robo advisor to-date?
If you haven’t used it yet, will you take the plunge and start investing? Let me know in the comments below.
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