Betterment Review

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Before you read this story, I want to share some background about my own investing knowledge and how Betterment comes into play.

I am by no means an expert when it comes to investing. But, I have a firm understanding of the basics and always max out my Roth IRA with Vanguard. I also have a 401(k) with a former employer that I maxed out when I was employed full-time.

Years ago, I opened a Vanguard IRA after reading “The Boglehead’s Guide to Investing,” written by index fund pioneer and founder of Vanguard, Jack Bogle. I highly recommend this book to anyone who is new to investing. But after signing up, discovered that Vanguard’s site was minimal in terms of actually offering advice.

To get my questions answered, I had to call Vanguard a number of times. Although their customer service reps were helpful, I wished it was easier and didn’t involve phone calls. Truth be told, I just wanted something easy and didn’t want to put too much thought or effort into it.

While researching for this Betterment review, I learned a great deal about robo-advisors for long-term investing. Plus, I was impressed by Betterment’s tools, low fees and ease of use from the app and website.

I’m definitely a hands-off investor. I just want an easy way to invest for my retirement, and this is what appealed to me most about Betterment. If your investing needs are similar to mine, you may find Betterment to your liking too.

Betterment Review
4.5

Summary

While researching for this Betterment review, I learned a great deal about robo-advisors for long-term investing. Plus, I was impressed by Betterment’s tools, low fees and ease of use from the app and website.

What is Betterment?

Betterment was one of the first robo-advisors to hit the FinTech scene and is also one of the largest, with 11 billion assets under management. If you invest with Betterment, your money will be invested using the Modern Portfolio Theory. This focuses on broad market sectors, rather than individual stocks.

Betterment is an online financial advisor, also known as a robo-advisor, that offers a straightforward and affordable way to invest your money.

A robo-advisor involves mostly an automated process, so interacting with human portfolio managers are minimal. Betterment has the option for you to speak with a real person if you have at least $100,000 in your account.

Using a Robo-advisor is Cheaper

Betterment uses computer algorithms to automate your investments, where traditionally these tasks were performed by a portfolio manager. Because of this, Betterment’s fees are significantly less than other investment companies, at a 0.25 percent annual fee.

While there are a lot of differing opinions on who should choose a platform like Betterment vs using a real portfolio advisor, most experts agree that Betterment is a great beginner resource for people who are new to investing and saving money.

One reason is that Betterment is easy to use and understand. There’s no research or work involved on your end when deciding which stocks you want to invest in, or what to do when it comes time to rebalance your portfolio. Betterment does it all for you, automatically.

What is Rebalancing and Why is it Necessary?

Portfolio rebalancing is necessary because it helps you maintain your target asset allocation.

You don’t want the balance between stocks and bonds to stray too far from their target distribution. As time passes and stocks and bonds go up and down, your portfolio may need adjustments.

Rebalancing from time to time can help you avoid what’s called a “drift,” which can minimize your exposure to any risk in relation to your target asset allocation.

Betterment does a great job of explaining this on their site if you’d like to understand the details.

What Kind of Funds Does Betterment Use?

Betterment uses exchange-traded funds, also known as ETFs, instead of using individual stocks. The asset allocation focus for the ETFs is broad, which means it can reduce your risk.

If investing terms like “rebalance your portfolio” make your eyes glaze over, Betterment might be a great choice for your money.

Betterment is best for people who may not know a lot about investing in stocks but want a solid long-term strategy without having to pay a lot of fees, which eat into any profits you earn.

It’s also great for:

  • Retirement investors
  • Those who want automatic rebalancing
  • Investors who have other long-term savings goals outside of retirement

What Kind of Investment Accounts Can I Open With Betterment?

You can open the following types of accounts with Betterment:

  • Roth IRA
  • Traditional IRA
  • SEP
  • Rollover IRAs
  • Trusts

What to Expect If You Sign Up For Betterment

Signing up for Betterment is really easy and takes a few minutes. When you first sign up for Betterment, it asks you about your age and current annual income and then through a series of questions and answers, calculates a recommendation for you.

It tells you how much you can invest and what you should adjust. It also asks you questions about your risk tolerance, and afterward, you can link your checking account and other retirement accounts with Betterment.

You can transfer money to your Betterment account whenever you want, or set up an automatic transfer.
Betterment lets you save for other investment goals besides retirement. You can choose other long-term goals such as saving for a house or a trip.

SmartDeposit

Once you link your checking account to Betterment, you can automatically transfer money directly into the account. If you want to take it one step further to really automate your savings, Betterment has a feature called SmartDeposit that takes out unneeded cash from your checking account and invests it for you.

This feature is similar to Acorns, except SmartDeposit allows you to set a budget for yourself so it knows not to take out too much out from your account.

You’ll Never Worry About Rebalancing Ever Again

After you open your account and move your money into Betterment, everything is then set up for autopilot mode. Automatic rebalancing is offered for free. This includes when there’s cash flow in the form of dividends, contributions or withdrawals.

This even includes rebalancing fractions of shares, so your money never sits around waiting to be invested.

If you happen to make any dividends from those trades, those will also be automatically invested by Betterment. Every quarter your portfolio will be automatically rebalanced if it’s off by more than 5 percent.

It’s super easy because Betterment will not only purchase the ETFs for you, they’ll also do the selling of shares for you as well.

Digital and Premium Accounts

Betterment offers two types of accounts, Betterment Digital and Betterment Premium.

You will most likely start with Betterment Digital, which doesn’t have a minimum require a balance and charges 0.25 percent in annual fees for providing a low-cost diversified portfolio, tax-loss harvesting, tax-advantaged rebalancing, financial planning and a number of other financial services.

Betterment Premium, on the other hand, is only available if you have a minimum balance of $100,000 in your account. The annual fee is higher, at 0.40 percent, but you have unlimited access to a financial advisor through the phone.

Also, if you opt for Betterment Premium and happen to be a more seasoned investor who wants more hands-on control over your investments, Betterment has a “flexible portfolios” tool. This tool allows you to manually adjust how much money goes into a specific ETF.

Socially Responsible Investing

If you care about where your money is going, you’re a part of the growing number of investors. People want more transparency about where their hard-earned dollars are being invested and are mindful of how their money can potentially make an impact.

The idea behind SRI is to focus on companies that care about environmental, social and governmental causes that benefit society. Betterment stays away from investing in companies that essentially don’t care about any of these causes.

Tax Loss Harvesting: What is it and why do you need to know about it?

Tax loss harvesting is when you sell a security that has experienced a loss and then replace it by purchasing a similar one. This selling and replacing gives the investor the opportunity to claim a capital loss on their taxes while still maintaining “exposure to the asset class.”

Betterment offers a way for you to increase your after-tax returns by capitalizing on investment losses and claim their method is twice as effective as other TLH strategies.

Betterment explains the details of tax loss harvesting on their site.

RetireGuide Calculator

As part of some nifty features Betterment offers, there’s something called RetireGuide. This gives you unique retirement planning advice based on your financial standing. It tells you how much income you’ll earn in retirement, how much you should be saving each year, and when you can expect to retire.

The nice thing about RetireGuide is that it aggregates all of your external savings and retirement accounts and allows you to understand where you stand in relation to your retirement needs. You can even see your 401(k) from your employer and keep track of it in Betterment.

This is a convenient feature. It’s great if you have accounts that are spread out among past employers’ 401(k), IRAs, CDs and other investments you need to keep tabs on.

Wealthfront vs Betterment

With $371,000 million in assets under management within the robo-advisor segment, there’s no denying this trend is rapidly growing. More companies are offering services that are similar to Betterment.

One company that you may have heard of is Wealthfront. It has a few minor differences compared to Betterment, such as a $500 initial investment minimum and an option to choose a 529 to help save for college.

Wealthfront’s fees are the same as Betterment — they charge an annual fee of 0.25 percent. If you want more human interaction along the way, you’re better off with Betterment. Wealthfront offers a digital-only platform.

Charitable Giving

Aligned with offering socially responsible market assets to invest in, Betterment has Charitable Giving, which allows you to donate shares directly from your account to charities, which is tax deductible. You’ll avoid capital gains taxes on whatever you decide to donate.

Which Stock ETFs are Used in Betterment’s Portfolio?

Betterment offers the following stock ETFs:

US Total Stock Market – Vanguard U.S. Total Stock Market Index ETF (VTI)
In a nutshell: These are stocks that give you broad exposure to the entire U.S. stock market.

US Large-Cap Value Stocks – Vanguard US Large-Cap Value Index ETF (VTV)
In a nutshell: It’s similar to the US Total Stock Market. But, it’s geared to focus the portfolio on large-size companies that have low price-to-earnings ratios.

US Mid-Cap Value Stocks – Vanguard US Mid-Cap Value Index ETF (VOE)
In a nutshell: It’s similar to the US Total Stock Market, except it’s geared to focus the portfolio on medium-size companies that have low price-to-earnings ratios.

US Small-Cap Value Stocks – Vanguard US Small-Cap Value Index ETF (VBR)
In a nutshell: It’s similar to the US Total Stock Market, except it’s geared to focus the portfolio on small size companies that have low price-to-earnings ratios.

International Developed Stocks – Vanguard FTSE Developed Market Index ETF (VEA)
In a nutshell: You get exposure to various international countries such as the UK, Europe, Japan, and others.

Emerging Market Stocks – Vanguard FTSE Emerging Index ETF (VWO)
In a nutshell: You have the opportunity to have your portfolio grow with developing nations as they modernize and grow, but these tend to also have higher risk.

Which Bond ETFs are Used in Betterment’s Portfolio?

These are the Bond ETFs that are offered:

Short-Term Treasuries – iShares Short-Term Treasury Bond Index ETF (SHV)
In a nutshell: These are low-risk and can mature between one month and a year.

Inflation Protected Bond – Vanguard Short-term Inflation-Protected Treasury Bond Index ETF (VTIP)
In a nutshell: Part of your portfolio assets are protected from the depreciating effects of inflation.

US High-Quality Bonds (IRA and 401(k) accounts) – Vanguard US Total Bond Market Index ETF (BND)
In a nutshell: These bonds are generally stable, have low risk and take an average of seven years to mature.

National Municipal Bonds (Taxable accounts) – iShares National AMT-Free Muni Bond Index ETF (MUB)
In a nutshell: These bonds are federally tax-exempt, which can make excellent additions to your taxable portfolios.

US Corporate Bonds – iShares Corporate Bond Index ETF (LQD)
In a nutshell: These types of bonds are made to finance business activities and help diversify fixed-income portfolios.

International Market Bonds – Vanguard Total International Bond Index ETF (BNDX)
In a nutshell: These bonds are issued by non-US based governments and organizations and can offer interest rate diversification.

Emerging Market Bond – iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB)
In a nutshell: These are issued by governments in fast-growing countries and pose a higher risk but also a higher expected return.

Is Betterment a Good Match For You?

If you’re looking for a low-fee way to invest in your retirement with some useful additional tools to help you save and keep track of your goals, Betterment is a great place to house your money.

Betterment highlights:

  • Betterment automatically rebalances dividends and your portfolio to a fraction of shares.
  • Low fees: 0.25 percent annually.
  • I can connect my external accounts (like my IRA from Vanguard) into one place. This gives me an overall view of my finances.
  • Through Betterment, I can also save for other goals besides retirement.

Full disclosure: as I was wrapping up this article, I actually opened an IRA with Betterment. I also plan to use Betterment to save for other long-term goals, such as purchasing an investment property.

In a way, you can just set it (but not forget it). You can check in whenever you like to see how your money is growing.

As I write this, I’ve already initiated a rollover with my 401(k) and 401(b) accounts. I had to contact Betterment to send me a letter of acceptance to initiate one of the rollovers. They responded with the letter that same day!

I’m looking forward to having Betterment rebalance my portfolio for me. This has been one area I haven’t been very good at doing.

I also plan on using SmartDeposit to put any extra money from my checking into retirement. So far, I’m really satisfied with how fast and easy it is to get started. This is true even if you’re rolling over external accounts.

When it comes to saving for retirement, time is both your friend and enemy. Invest too late, and you’ll probably end up working for much longer than you wanted. Or you may run out of money in your retirement years.

Invest early, and you’ll have the freedom to retire early, travel, work (or not), and do whatever you want.

I’d love to hear how you’re saving for your retirement. Does using a robo-advisor platform like Betterment appeals to you? Chime in!