Betterment Review: The Way Investing Should Be
Put simply, Betterment is an ideal way to invest for anybody who doesn’t want to worry about picking stocks or mutual funds. Rather than creating an online brokerage account and facing tens of thousands of investment choices, Betterment automatically invests your money into index funds. They’ll divide your money between baskets of stocks and bonds based upon your risk tolerance. They’re simple, cheap, and a great point of access to the investing world.
- Low annual fee
- Low min. investment
- Stock investing
Betterment can provide full investment management, from portfolio creation, to periodic rebalancing, and reinvesting of dividends.
You’ll have your choice of a taxable account or a tax-sheltered retirement account. They even have strategies to minimize your investment tax liability in taxable accounts. And they perform all these functions for a very low annual advisory fee.
Once you open an account, all you need to do is fund it – Betterment takes care of everything else.
Founded in 2008, Betterment was the first automated, online investment platform, now commonly referred to as a “robo-advisor”.
Dozens of robo-advisors have come about since, but Betterment remains on the cutting edge of the industry. It continues as one of the most innovative platforms in the robo-advisor space.
Today, nearly every major brokerage firm in America has its own robo-advisor option, and some even have several. But Betterment remains the largest independent robo-advisor, with $16.4 billion in assets under management.
The company provides full-service investment management, comparable to traditional human investment advisors, but at a fraction of the cost.
Using the service, investors can have a portfolio diversified across stocks and bonds in literally thousands of companies, with an investment of just a few hundred dollars. Betterment offers both taxable accounts and tax-sheltered retirement accounts.
How Betterment works
Betterment uses MTP
As is typical of Modern Portfolio Theory (MTP) to create and manage your investment portfolio. It’s an investment strategy that emphasizes asset allocation based on targeted risk levels.
You begin by completing a questionnaire that establishes your investment goals, time horizon, and risk tolerance. Depending on your situation, a portfolio will be designed for you in various levels ranging from conservative (more bonds, less stocks) to aggressive (more stocks, less bonds).
They invest in 14 different asset classes
Your portfolio is comprised of investments in 14 different asset classes – six stock funds and eight bond funds.
Each asset class is represented by a single exchange traded fund (ETF). Since the ETFs are index-based, they’re invested in a portfolio that matches the underlying index. With the use of index funds, Betterment can keep investment expenses to an absolute minimum, which is a major reason why they can manage your portfolio at such low fees.
Your account will be fully managed
Once your portfolio has been created, it will be fully managed for you going forward. Betterment will provide periodic rebalancing, to keep each asset class consistent with the target investment percentage. They’ll also reinvest dividends, consistent with portfolio targets.
On taxable accounts, they provide tax-loss harvesting. This is a strategy in which losing asset positions are sold off near year-end, to offset gains in other asset classes. The losing asset classes are later replaced with comparable ETFs to maintain the target asset allocation in the portfolio.
Betterment investment methodology
Betterment invests portfolios in both US and international stocks and bonds. This is typical of robo-advisors.
But Betterment offers one asset class feature that’s unusual among robo-advisors. Of the six stock asset classes included in their portfolios, three represent value stocks. They’re offered for
large-, mid-, and small-cap US stocks. Value stocks trade at a lower price than what the company’s fundamentals indicate. Those fundamentals can include dividend yield, price-to-earnings ratio, and revenue growth. The companies are sound financially, but their stocks trade at low prices relative to their competitors.
Investing in value stocks is one of the most successful investment strategies available. Value stocks tend to outperform the general stock market in the long-term.
You can get a financial advisor
Another unique feature of Betterment is that they provide financial advisors on accounts of over $100,000. This is part of Betterment’s Premium plan, and it’s available at a fee that’s just a fraction of the 1% to 2% normally charged by traditional human financial advisors.
Betterment investment mix
The Betterment investment mix applies to both the Digital and Premium plans (see descriptions of each under “Betterment Fees and Pricing” below). The tables below show the ETFs used for the six stock asset classes and eight bond asset classes.
For each stock asset class, there are three ETFs used. This is done to enable tax-loss harvesting, so that Betterment can liquidate one ETF in an asset class, and later replace it with a comparable fund.
But notice the use of alternative ETFs is much more limited with bond allocations. Four of the eight bond classes have no alternative ETFs, and two have only one each. That’s because bonds, which focus primarily on interest income, are less likely to generate significant capital gains requiring tax loss harvesting.
Betterment stock asset classes and ETFs:
|Asset Class||Primary ETF||Secondary ETF||Secondary ETF|
|US Total Stock Market||Vanguard US Total Stock Market (VTI)||Schwab US Broad Market ETF (SCHB)||iShares S&P 1500 Index Fund (ITOT)|
|US Value Stocks – Large Cap||Vanguard US Large-Cap Value (VTV)||Schwab US Large Cap Value ETF (SCHV)||iShares S&P 500 Value ETF (IVE)|
|US Value Stocks – Mid Cap||Vanguard US Mid-Cap Value (VOE)||iShares Russell Midcap Value Index (IWS)||iShares S7P Mid-Cap 400 Value Index (IJJ)|
|US Value Stocks – Small Cap||Vanguard US Small-Cap Value (VBR)||iShares Russell 2000 Value Index (IWN)||iShares S&P SmallCap 700 Value Index (IJS)|
|International Developed Market Stocks||Vanguard FTSE Developed Markets (VEA)||Schwab International Equity ETF (SCHF)||iShares Tr/Core MSCI EAFE ETF (IEFA)|
|International Emerging Market Stocks||Vanguard FTSE Emerging Markets (VWO)||iShares Inc/Core MSCI Emerging (IEMG)||Schwab Emerging Markets Equity ETF (SCHE)
|Asset Class||Primary ETF||Secondary ETF||Secondary ETF|
|US High Quality Bonds||iShares Barclays Aggregate Bond Fund (AGG)||Vanguard Total Bond Market ETF (BND)||N/A|
|US Municipal Bonds||iShares National AMT-Free Muni Bond (MUB)||SPDR Nuveen Barclays Capital Muni Bond (TFI)||N/A|
|US Inflation-Protected Bonds||Vanguard Short-term Inflation Protected Securities (VTIP)||N/A||N/A|
|US High-Yield Corporate Bonds||Xtrackers USD High Yield Corporate Bond (HYLB)||SPDR Barclays Capital High Yield Bond (JNK)||iShares iBoxx $ High Yid Corp Bond (HYG)|
|US Short-term Treasury Bonds||iShares Barclays Short Treasury Bond (SHV)||N/A||N/A|
|US Short-term Investment Grade Bonds||iShares Short Maturity Bond (NEAR)||N/A||N/A|
|International Developed Market Bonds||Vanguard Total International Bond (BNDX)||N/A||N/A|
|International Emerging Market Bonds||iShares Emerging Markets Bond (EMB)||Vanguard Emerging Markets Government Bond (VWOB)||PowerShares Emerging Markets PCY Debt (PCY)
Socially Responsible Investing (SRI)
SRI is the type of investment strategy that invests in companies that meet certain social, environmental, and governance rules.
Betterment has created a portfolio of ETFs invested in companies that generates a 42% improvement in social responsibility scores.
Each of the 14 stock and bond asset class ETFs in a regular portfolio are replaced with SRI alternatives. Where appropriate, there are two or more ETFs representing each asset class. Just as is the case with the regular portfolio, the SRI portfolio makes use of tax-loss harvesting to minimize investor tax liability.
This portfolio option is available for accounts with a minimum of $100,000. Betterment Smart Beta is managed by Goldman Sachs, and is designed to outperform conventional market strategy. Unlike typical robo-advisor portfolios – which are famous for being passively managed – smart beta involves active management.
That means the fund manager is actively buying and selling securities in an attempt to outperform the benchmark index.
BlackRock Target Income Portfolios
BlackRock Target Income portfolios are for investors looking for investment income, but also minimizing capital losses. Betterment offers four different portfolios based on your risk tolerance:
This is another unique Betterment feature. Most robo-advisors choose your portfolio for you, then you have no control over the assets it contains.
Betterment allows you to adjust individual asset class weights based on your own personal preferences and risk tolerance. This doesn’t mean you can choose the individual ETFs used in your portfolio. But your ability to adjust the allocations can increase your position in certain asset classes, while lowering others.
This is an allocation strategy, in which assets likely to generate large tax liabilities are held in tax-sheltered accounts, like IRAs. Investments with lower tax liabilities will be placed in taxable accounts.
For example, capital gains generating ETFs will typically be held in taxable accounts, since long-term capital gains have the benefit of lower tax rates. As well, tax-loss harvesting can be used to offset those gains. Proper tax coordination has been shown to increase portfolio value by an estimated 15% over 30 years.
Features and benefits
Minimum initial investment
The good news here is that Betterment has no minimum initial investment requirement. You can open an account with no money at all, then begin funding it with regular deposits.
Available accounts include:
- Taxable individual and joint brokerage accounts
- Traditional, Roth, rollover and SEP IRAs
- Trusts and non-profit accounts
Betterment Cash Reserve
Betterment Cash Reserve offers a nice interest rate of 0.40% APY. There’s no minimum balance required and no fees to worry about.
One other great feature that many savings accounts don’t offer is unlimited withdrawals from your account. Typically, you’re only allowed six withdrawals per month.
Betterment also offers a Checking account, that offers no fees, no minimum balance, and your funds will be FDIC-insured up to $250,000. Plus, your ATM fees are reimbursed worldwide.
Mobile check deposits
Mobile check deposits are now available as well which is mighty convenient because it means you can deposit your checks without even leaving the comfort of your own app德扑圈官方网址home. Moreover, can take care of all your checking accounts needs with Betterment, all in one place.
This is a tool recently added by Betterment to help investors project their retirement needs. Using a retirement savings calculator, it will ask you for the following information:
Once you complete the information requested, you’ll sync your external accounts, like your employer-sponsored retirement plan.
Betterment will track your progress, and match investment recommendations with your retirement goals.
Financial advice packages
Robo-advisors are set up as automated investment platforms with only minimal customer contact. But recognizing the need many investors have for direct financial advice, Betterment offers five different packages to help you plan for the future.
You’ll get one-on-one help from a dedicated financial expert, who will spend one planning session with you for up to one hour.
This is a premium service, and available for the following advice packages, with their respective fees:
- Getting Started Package – $199
- Financial Checkup Package – $299
- College Planning Package – $299
- Marriage Planning Package – $299
- Retirement Planning Package – $299
External account syncing
Similar to financial account aggregators, like Personal Capital, Betterment enables you to add external accounts to your Betterment account. Betterment doesn’t actually manage them, but including them helps provide a more holistic view of your entire financial situation.
For example, you can sync an employer-sponsored retirement plan, like a 401(k). Betterment can then make recommendations on how to better manage your plan, as well as other asset accounts.
This service is available only with the Premium plan, which requires a minimum initial investment of $100,000.
Betterment mobile app
Betterment offers its Mobile App with all the functions and capabilities of the web version. It’s available at the App Store for iOS devices, 11.0 and later, and is compatible with iPhone, iPad, and iPod touch.
It’s also available at Google Play for Android devices, 6.0 and up.
Deposits and withdrawals
The most convenient way to make a deposit into your account is through electronic transfers from your checking account through the ACH network.
You can also transfer assets from outside brokerage accounts, using the Automated Customer Account Transfer Service (ACATS). Transfers from retirement accounts can be completed through IRA rollovers.
Transfered funds are automatically invested within one or two business days. Betterment does not accept deposits made by check, or by credit or debit cards. Wire transfers are recommended only for large transfers, due to the fees involved.
Betterment can be contacted by either phone or email, Monday through Friday, from 9:00 am to 6:00 pm, Eastern Time.
They’re also available Saturdays and Sundays, from 11:00 am to 6:00 pm. However, Saturday and Sunday customer service is available by email only.
Betterment account protection
Your account is protected by coverage from the Securities Investors Protection Corporation (SIPC) for up to $500,000 in cash and securities, including up to $250,000 in cash.
For additional account security, you can set up two-factor authentication to access your account. This can protect your account even if a hacker were to gain access to your password.
Two-factor authentication requires the entry of a unique verification code to gain entry to your account. You can set it up such that you get the code either by text or email.
Betterment fees and pricing
Betterment offers to plans, each with its own fee schedule. The plans and pricing are as follows:
The Digital plan is the basic service, and applies to account balances under $100,000.
The Premium plan requires a minimum balance of $100,000, and is the version that offers external account syncing as well as unlimited access to certified financial planners.
Each plan also offers a discount of 0.10% on the portion of your account balance that exceeds $2 million. That means you’ll pay 0.15% for the Digital plan, and 0.30% for the Premium plan on the higher balances.
Betterment current promotions
Betterment is currently offering to waive the advisory fee for a limited amount of time based on certain deposit sizes.
Pros & Cons
- No minimum initial investment required — Open an account with $0, then fund it through regular contributions.
- Low annual fee — The annual advisor fee on the lower end of the robo-advisor range.
- Complete investment management — Your entire account is managed for just 0.25% per year.
- Tax-loss harvesting offered on taxable accounts — This strategy will minimize the tax liability generated by your investments.
- Value investing in several stock asset classes — Three stock asset classes offer this highly successful investment strategy.
- Limited investments — Investments are limited to stocks and bonds. there are no other alternatives.
- Higher advisory fee on larger portfolios — You need at least $2 million to get lower pricing. And you continue to pay the regular fee on all amounts up to $2 million. The discount will only apply on higher balances
Who is Betterment best for?
Betterment certainly won’t work for anyone who prefers self-directed investing. That’s simply not what they’re about. But there are others who may be very interested in opening a Betterment account.
There’s no minimum initial investment, which makes it perfect for new investors. You can open your account, then fund it gradually with regular contributions.
Those with no time to manage their investments
Maybe you know quite a lot about investing, but you have a demanding job and an active personal life. You may prefer low-cost professional investment management as an alternative to managing your own portfolio.
You might prefer self-directed investing for part of your portfolio, but want at least some of it professionally managed. Betterment is the perfect management option for that purpose, given its very low annual advisory fee.
Betterment is one of the best robo-advisors for new investors. With their low annual fees and their no minimum investment requirements, almost anyone can open an account.