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Betterment is one of the first robo-advisors to hit the investment scene, and they did it in a big way. They’ve since made quite a name for themselves, helping beginning and hands-off investors realize their financial goals.
Whether you are still learning how to start investing or are a seasoned pro, keep reading our Betterment Review to see if this broke could be of service to you.
Betterment Overview
| Features: | Details |
|---|---|
| Account Minimum: | $0 minimum balance to open an account. |
| Commissions: | $0 |
| Management Fee(s): | 0.25% for Betterment Digital, 0.40% for Betterment Premium |
| Account Types | Individual and Joint Taxable Accounts, Traditional and Roth IRA, Rollover IRAs, SEP IRAs, Trusts |
| Automatic Rebalancing: | Betterment automatically rebalances accounts that are more than 3% off from their target allocation. Betterment monitors portfolios for rebalancing needs daily. |
| Customer Support: | Email, Office Hours, Phone |
| Human Advisor(s): | Yes (but not free) |
| Mobile App: | Yes: iOS & Android |
| Tax Strategy: | Yes, Betterment utilizes tax-loss harvesting to minimize your tax liabilities. |
| Tradeable Securities: | Stocks, ETFs, & Bonds |
| SIPC Insured: | Yes |
| Socially Responsible: | Yes, they offer three socially responsible funds for investors to choose from. |
Betterment Review
Betterment took the robo-advisor industry by storm. It’s not your traditional ‘charge 0.25% of assets under management, answer a few questions, and get a portfolio’ robo-advisor. It is that plus SO much more.
Yes, you’ll answer traditional risk and goal-based questions, but Betterment doesn’t take your money and then force you to talk to a computer. You get ‘real’ advice and even help (fiduciary help) planning for your retirement.
Betterment packs quite a punch when talking about investment platforms. Here’s what to expect.
What is Betterment?
Betterment is a low-fee robo-advisor that offers tailored investment advice depending on your risk appetite and financial goals. It is designed to be a one-stop-shop, offering financial planning, goal-based investing services, and retirement advice.
Since its founding, Betterment has attracted a legion of loyal fans who champion its goal-based approach and low-fees.
Betterment is Best For:
- Beginning investors with little money to invest
- Investors who want a hands-off approach to investing (but to stay in the loop)
- Investors who worry about their portfolio falling away from its target and want automatic rebalancing
- Those looking for goals-based investing
- Investors saving for retirement (this is their bread and butter)
How Does Betterment Work?
Betterment is automation at its finest. You set up your account by answering questions (and transferring funds), and Betterment does the rest.
It’s truly a hands-off platform that makes investing a no-brainer for those who can’t handle the stress of watching their investments go up and down.
Betterment focuses on the result. They don’t get caught up in what’s going on right now in your account. They look to the future. How likely are you to reach your goal(s)? That’s their focus, which is why it’s great for goal-focused investors.
Betterment continually adjusts your portfolio to keep you on target. Whether you’re trying to save for a down payment on a house in 5 years or retirement in 30 years, they’ve got your back, always looking at your time horizon and end goal to make sure your money and goals align.
If your portfolio falls out of balance, Betterment looks to your cash reserve account to rebalance it first, before buying or selling investments. This minimizes your tax liabilities and helps offset ‘upset’ in other areas of your portfolio.
What we love is the lack of necessary research on your part (unless you love research). Betterment chooses everything for you based on your answers.
It’s like having a crystal ball in front of you telling you what to do. If investing scares you or you just don’t have an interest in learning it Betterment is a great option.
Of course, Betterment can’t predict the future, it can use its algorithms to choose the most appropriate investments given your current financial situation and financial goals.
It adjusts it often too – so you don’t have to worry about when the market crashes or one of your stocks does amazing while another plummets. Betterment’s got your back.
Betterment Standout Features (What We Love):
These features make Betterment a clear leader amongst Robo-Advisors and attractive to investors.
Low Account Minimum
If there’s one thing that holds most new investors back, it’s a lack of funds. Traditional stockbrokers required investors to have thousands of dollars before they’d even talk to them. Betterment requires $0, honestly.
While of course, you need money eventually to invest, you don’t have to stress about meeting high minimum balance requirements.
Gradually increase the amount you transfer to Betterment, and you’ll achieve your financial goals faster than you thought possible.
Financial Planning Opportunities
If you’re just starting out (and don’t have $100,000 to open a Betterment Premium account), Betterment offers incredible opportunities for financial planning at some of the lowest rates around.
Their packages start at $199, which covers a financial checkup call, to help you determine if you’re on track to meet your goals. If you want something more in-depth, like college or retirement planning, you’ll pay more than $199, but most packages top out at $399, which is still a steal.
Even if you don’t want to pay for an advisor, Betterment’s platform naturally determines what portfolio suits your needs the best.
Tax-Loss Harvesting
Tax-loss harvesting can be a nightmare if you try to do it yourself. You have to choose investments currently at a loss to sell that offset the capital gains of a large gain you’re selling. It sounds complicated because it is, but not with Betterment because they do it automatically
Say goodbye to potential tax penalties and/or high tax liabilities because of a substantial gain. Betterment handles the sale of the right investments to minimize (not eliminate) your tax liability.
Betterment Checking
Now you can have your investment and checking account in the same place. Even if you don’t use it as your ‘main’ checking account, it’s nice to have some money together. Plus, Betterment rewards you handsomely with its checking account.
There’s no minimum balance required, no account fees, and they’ll reimburse all ATM fees. Your local bank probably doesn’t do that.
If that’s not enough, there are no overdraft fees, and you get a Visa debit card. Betterment Checking Accounts are FDIC-insured and even offer mobile deposit for easy depositing.
Betterment Cash Reserve
Cash drag is well, a drag, right? It just sits there un-invested and earning nothing. That’s like throwing money out the window. Betterment doesn’t let that happen.
You’ll earn 0.4% APY on your cash balances and have FDIC insurance up to $1,000,000. Here’s where it really shines, though. You can make unlimited withdrawals.
No more 6-limit withdrawals or pay a hefty penalty. You can withdraw funds (electronic transfer) at any time, and there are no account fees.
Set Retirement Goals
Betterment shines when it comes to retirement goals. We might even say it’s one of their ‘main focuses.’ They offer what they call ‘RetireGuide.’
Here is the real benefit. Not only does it help you set up your Betterment account for a comfortable retirement, but it also considers all other retirement accounts you have.
Sync them all to your Betterment account, and it will tell you where you stand, what you need to change and keep track of your progress as you get closer to retirement.
Betterment also considers taxes, not just now but in retirement. They realize that taxes can diminish retirement income considerably if you don’t plan for it.
Betterment adjusts investments based on the projected tax bracket, helping you achieve the retirement income you intended.
Related: Roth IRAs and Traditional IRAs
Two-Way Sweep
Think of Betterment’s Two-Way Sweep program as someone looking out for your financial interests. The program doesn’t let the money sit unused and not earning anything in your checking account, but it also doesn’t let you get so low in your checking account that you overdraft.
The Two-Way Sweep program sweeps money into your cash reserve to earn the 0.4% APY and from your cash reserve to your checking account if you need it. The best part is, you have to do nothing.
Donate to Charities
Betterment allows you to donate to charities right from your Betterment account. This does two things.
One, it obviously helps those in need. Two, it helps offset your tax liabilities and can be a part of your tax-loss harvesting strategy.
How Does Betterment Invest Your Money?
Betterment employs a few different investing strategies. Ultimately, you get to choose which one aligns with your financial goals, but they will steer you in the right direction.
Modern Portfolio Theory:
Betterment minimizes your costs and maximizes returns using the Modern Portfolio Theory. They diversify your investments over 13 asset classes to diversify your risk and increase your earnings.
Betterment’s Core Portfolio:
Betterment’s Core Portfolio emphasizes globally diversified, low-cost ETFs for most investors. Betterment optimizes the allocations based on your circumstances, risk-tolerance, and goals.
Socially Responsible Investing:
Betterment offers Core Portfolio investors the option to include socially responsible investments by adding investments in three SRI ETFs.
BlackRock Target Income Portfolio:
This low-risk portfolio is 100% bond based. You choose from one of four risk levels. Its returns are lower than other portfolios, but its risk is much lower, which is great for retirees or investors who don’t have a high-risk tolerance.
Smart Beta Portfolio:
The Smart Beta Portfolio isn’t a traditional investing strategy, but rather addresses multiple factors affecting investments, not just the market performance. It’s low-risk and invests mostly in bonds but provides a chance for higher returns.
Flexible Portfolio:
Flexible Portfolio provides the best of both worlds. You get the guidance of a robo-advisor with the freedom to change allocations as you see fit. You’ll need at least $100,000 invested before you can use this feature.
Betterment Pros & Cons
Pros:
- No account minimum, you can open an account with $1 if you want
- Low fees compared to other robo-advisors and traditional brokers
- Makes it easy to learn about asset allocation and what helps you reach your financial goals
- A hands-off approach to investing, you can be 100% hands-off, or more hands-on, it’s up to you
- Tax-optimized investing to lower your tax liabilities now and in retirement, so you reach your financial goals
- Investing based on your goals and risk tolerance so you know where your portfolio is headed and its potential outcome
Cons:
- Little customization allowed which is bad for hands-on investors who want to buy and sell as they please
- It’s a simple platform that advanced investors may find boring or lacking
- You can only invest in ETFs
Fees and Pricing: How Much Does Betterment Cost?
- Betterment Digital: 0.25% of assets under management
- Betterment Premium: 0.4% of assets under management
Is Betterment SIPC Insured?
Betterment offers traditional SIPC insurance up to $500,000. They don’t carry excess SIPC insurance, but since you’re not making ‘risky’ investments with Betterment, it’s not a big deal in most cases.
Is Betterment a Good Investment?
Betterment itself isn’t an investment. It’s a platform that helps you invest in ETFs. Its guidance and programs are a great way to invest your money according to your risk tolerance and goals.
Betterment Alternatives:
#1. M1 Finance
M1 is a self-directed investment platform. While it’s classified as a robo-advisor like Betterment, it works completely opposite. You answer questions about your risk tolerance and goals, but you handle all investments. M1 just provides suggested ‘pies’ or portfolios and how to invest your money, you do the investing though.
Learn More: M1 Finance Review
#2. Wealthfront
Wealthfront and Betterment took the robo-advisor industry by storm initially. While they’re still similar today, they aren’t identical. Wealthfront offers a broader financial picture, syncing all accounts to Wealthfront for a ‘big picture’ look at your financial life. Wealthfront offers the traditional hands-off investment approach, but they offer the opportunity to borrow a portfolio line of credit if you need money.
#3. SoFi Automated Investing
SoFi offers hands-off investing like Betterment. They set up your profile and manage it for no fee. They take into consideration your goals, the need to diversify, and even automatically rebalance your portfolio. Keep in mind, you’ll pay ETF fees despite the lack of a maintenance fee.
Compare: Best Online Stock Brokers
Side-by-Side Comparison:
Research and Education
Betterment offers basic stock market research and education. Don’t expect to come out feeling like a stock trading expert, ready to handle it all yourself.
While they guide you and provide basic education, you’ll need to turn to third-parties for more in-depth research and education.
Related: Motley Fool Review
Wrapping Up: Betterment Review
If you’re looking for a completely hands-off way to invest, Betterment offers plenty of reasons to join forces.
With no minimum balance required, low fees, and incredible guidance, you can be well on your way to saving for retirement or any other financial goal. If you’re more of a hands-on investor, though, you may want to look elsewhere.
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