Betterment was one of the first robo-advisors on the scene, but that doesn’t mean it hasn’t kept up with the competition. In fact, Betterment has continued to improve its product and harness the latest technology to maintain its position at the head of the pack.
For nearly 12 years, Betterment has been the gold standard for robo-investing. It’s a dynamic service that goes beyond just plugging your portfolio into an algorithm. Betterment can help you monitor your financial health across external accounts, save for retirement, and track your spending. And the company is even branching out into banking services.
But is Betterment the perfect fit for your portfolio? In this review, we’ll take an in-depth look at this robo-advisor pioneer to help you find out.
Product Name: Betterment
Product Description: Betterment was a pioneer in the robo-advisor sphere, and it's remained popular for good reason. It's easy to get started investing and saving for your goals, there's no minimum required, and fees are reasonable. Whether you're a beginner or have experience and want to "set it and forget it," chances are you'll be pleased with Betterment's holistic approach to money management.
- Commissions & Fees
- Account Options
- Investment Options & Asset Allocation
- Tools & Resources
- Website / App / Ease of Use
- Customer Service
When it comes to Commissions & Fees, Betterment is certainly affordable. The cheapest level of service costs 0.25%, which is about the average for robo-advisors. And given the many Account Options at Betterment, the fee is definitely reasonable. However, in the Investment Options & Asset Allocation department, you might be able to find a wider array of options (including direct indexing) with another robo-advisor. Betterment definitely shines when it comes to its Tools & Resources, and in a similar vein, its Website / App / Ease of Use makes investing easy for beginners. Customer Service can be reached five days a week by phone.
|Commissions & Fees||0.25-0.40%; Additional Packages|
|Types of Investments||Stock and Bond Funds|
|Types of Accounts||Individual, Joint, Traditional IRA, Roth IRA, Rollover IRA, SEP IRA, Trusts|
|Asset Allocation||Customizable Portfolios|
|Automatic Portfolio Rebalancing||Yes, Daily|
|Human Advisor Availability||With Package Purchase|
|Banking Services||Savings Account; Checking Account|
|App Availability||iOS, Android, Mobile Optimized Website|
|Customer Service||Email, Phone|
|FINRA CRD Number||#47788|
|SEC Registration Number||#8-51906|
- Tax Tools. Betterment offers several features to help minimize the impact of taxes on your portfolio. In addition to tax-loss harvesting, which comes standard with many robo-advisor accounts, you can take advantage of Betterment’s Tax-Coordinated Portfolio tool, which creates an ideal asset allocation with tax impact in mind. There’s also the Tax Impact Preview feature, which notifies you if a change to your portfolio might have an effect on your tax situation.
- Socially Responsible Investing. We all want to make a difference in the world. Betterment’s SRI portfolio was created with an emphasis on companies that make responsible decisions when it comes to human rights and the environment. Betterment also offers a Charitable Giving tool to make asset donations a no-brainer.
- Advice Packages. Although Betterment primarily uses computer algorithms to design your portfolio, for an extra fee, you can purchase a personalized advice “package” that includes a consultation with a human advisor.
- Saving and Budgeting Tools. Betterment offers plenty of tools and calculators to help you with all of your personal finance needs.
- Betterment Cash Reserve & Betterment Checking. Betterment has been unrolling a complete checking and savings platform. Currently, you can earn interest with its Cash Reserve savings account. A checking account with a debit card is also available.
What Is Betterment?
Betterment is an investing service designed to simplify the investing process and remove the guesswork. At the core of its investing model is a way for investors to match the market with low-cost investments and a hands-off portfolio.
That sounds a little like investing in index funds, and it is similar. But Betterment also offers investors more customization and automation than you can get just by buying index funds.
Betterment is really an asset management company, rather than a means for day trading. In fact, you won’t find streaming stock quotes, in-depth technical analysis tools, options tutorials, or a variety of other tools frequently used by day traders.
Betterment’s purpose is to help you set and achieve investment goals, not entice you to make as many commission-based trades as possible. And this is evident from the moment you open an account and are greeted with questions about your investment goals and timeline. Why are you investing? When do you want to achieve your goals? How many investment goals do you have?
Betterment creates a portfolio suggestion based on your investment goals. Popular Betterment investing goals include retirement, buying a house, saving for college, or any other major purchase.
Betterment offers a low-cost way to invest in a wide variety of market-based investments at a low cost, hands-off approach. In layman’s terms, that means offering investors a simple, automated investment process so the investor can spend less time worrying about his investments and keep more money in his pocket.
How Does Betterment Work?
Once you open your Betterment account, you first get to answer some questions about your financial goals and your risk tolerance. Then you transfer funds to your account. It’s easy to link an online savings account to your Betterment account to transfer funds. Once the funds hit your account, you can invest them. Betterment will automatically allocate your funds for you and automatically balance your Betterment portfolio based on market changes.
This includes automatic tax-loss harvesting based on market changes. Tax-loss harvesting is selling an investment at a loss, which gives you, the investor, a tax benefit. You can deduct your losses against your capital gains. You can also deduct $3,000 per year of losses against your ordinary income in any given tax year. Any additional losses can be carried forward to future years. This can be a very valuable tax benefit.
However, there are certain associated rules called the wash-sale rule, which states you can’t sell a security at a loss and repurchase it within 30 days and still receive the benefit. Thankfully, Betterment handles all of this for you.
When you open a new account with Betterment, the service will use its computer algorithms to determine a portfolio allocation matched to your goals, risks, and investing time horizon. Like most robo-advisors, Betterment uses Modern Portfolio Theory in its portfolio design. This theory maintains that you can avoid risk by diversifying your portfolio. In essence, it’s not putting all your eggs in one basket.
Betterment portfolios use stock and bond exchange-traded funds (ETFs). These are chosen for their low expense ratios, tax efficiency, and diversified risk. In addition to a basic portfolio, you can also choose a Socially Responsible Investing portfolio, which will focus on companies that meet certain social and environmental criteria. Or you could choose a Goldman Sachs Smart Beta portfolio, which is designed to seek higher returns. Or you could go with the BlackRock Target Income portfolio, which is 100% comprised of bonds with a focus on income, rather than capital appreciation.
In addition, if you’d prefer more control over your portfolio, you can choose a Betterment Flexible Portfolio. This will allow you to adjust the individual asset class weights in your Betterment portfolio. This will allow you to customize your portfolio, to an extent.
Betterment automatically rebalances your portfolio whenever you make a contribution or withdrawal or there is a dividend payout. It will also rebalance when one particular asset class allocation increases by at least 2% from the originally set target. The algorithmic system checks daily if a rebalance is needed. And if you opt for a Betterment Premium account, a human advisor will also keep an eye on your allocation.
Betterment Financial Advice Packages
One way Betterment helps its customers invest with confidence is with financial advice packages. These personalized plans give you access to advice from a licensed financial expert to ensure you’re on track to meet your investment goals.
Here’s a quick breakdown of what you get with each of the packages, which are built to help you at various monumental stages of life:
- Getting Started package: With this package, Betterment customers get confirmation that they’ve set up their account and investments properly.
- Financial Checkup package: This package goes below the surface, providing you with a checkup on your investment allocations in conjunction with your financial goals.
- College Planning package: If your goal is to send your kids to college in the next two decades, this package can help you get them there successfully.
- Marriage Planning package: With marriage comes the integration of multiple accounts and finances. This package helps you wade through the process and strategize together.
- Retirement Planning package: Betterment’s retirement planning package helps you to assess and meet your investment goals and strategies to retire with ease.
These packages come at an affordable flat-rate and give you an individualized plan and educational resources.
Betterment Checking & Savings Accounts
Recently, Betterment has made a foray into banking services. Under its Cash Reserve banner, the company currently offers an interest-paying savings account along with a checking account with a debit card.
When it was first unveiled, the Cash Reserve savings account APY was pretty impressive. However, as with many interest rates across the board, it’s taken a bit of a nosedive. You can likely find a better rate from an online-only high-yield savings account.
There are no fees associated with a Cash Reserve account, as well as no required minimum balance. Accounts are insured by the FDIC up to $1 million (your cash is split among multiple banks, so you’ll be covered for more than the typical $250,000).
Betterment charges a portfolio-based fee based on your total assets in your Betterment account. This is the same concept as paying an annual maintenance fee for using a mutual fund or index fund, or paying a financial planner a fee based on assets under management.
Betterment offers two plans with different price tiers.
Betterment Digital Plan – No Minimum Balance
The Betterment Digital Plan charges account holders a flat fee of 0.25%, based on your account balance. There is no minimum balance requirement to open a Betterment Digital Plan account.
Here are some of the benefits you will find with this account:
- Personalized financial advice
- Low-cost, globally diversified investment portfolios
- Automatic rebalancing
- Advanced tax-saving strategies
- View everything in one place (sync external accounts to Betterment to view balances)
Betterment Premium Plan – Get Individual Professional Advice
The Betterment Premium Plan charges account holders a flat fee of 0.40%, based on the account balance. There is a $100,000 minimum balance requirement to open a Betterment Premium Plan.
That said, you do get access to additional services that may be valuable, based on your situation. For example, the Premium Plan includes everything found in the Digital Plan, as well as access to a team of CFP® professionals and licensed financial experts who can provide advice on your investments throughout the year.
This Betterment Premium Plan includes the following benefits:
- Everything in the Digital Plan, plus
- In-depth advice on investments outside of Betterment
- Unlimited access to Betterment’s CFP® professionals for guidance on life events
Betterment Pros & Cons
- No Minimum Deposit. For its basic level of service, there’s no required minimum. Many other robo-advisors require one.
- Fractional Share Investing. When Betterment rebalances your portfolio on a daily basis, it will buy fractional shares of stock so there are no uninvested dollars in your account.
- Goal-Based Investing. Betterment makes it easy to keep track of your saving and investing for retirement, a new home, or any other major expense.
- Low Management Fees. Betterment’s 0.25% rate for its Digital service is reasonable.
- Tax Features. Betterment’s tax tools can help you soften the blow of tax time.
- Plenty of Tools. Betterment offers a number of tools to help investing, saving, and even budgeting easy.
- Interest-Paying Savings Accounts. With the Cash Reserve savings account and the checking account with a debit card, Betterment gives you a one-stop-shop for your money.
- Holistic Financial Picture. Betterment will analyze all of your financial accounts, not just the ones with the robo-advisor.
- No Direct Indexing Option. The biggest missing piece to the Betterment puzzle is direct indexing. Direct indexing is an investing strategy in which you buy the individual stocks held by an index, rather than an ETF that parallels that index. This can make a big difference at tax time. Competitor Wealthfront offers this feature.
Betterment is a fast and easy way to start saving and investing for retirement and other life events.
Overall, I am impressed with Betterment and like what it has to offer. I believe Betterment can be a good fit for a variety of investors, especially those who are just starting or are looking for a hands-off investment approach.
Anyone with $10 can open a Betterment account and begin investing with no previous investing experience. You don’t need to be an expert, you don’t already need to be rich or have a lot of extra cash to invest, and you don’t need to constantly monitor the markets.
If any of these concerns are preventing you from investing, consider Betterment as an option to get started. And if you are a seasoned investor, you may also find that Betterment can help you simplify your investment portfolio and make asset allocation a breeze.