Betterment Review: Is it a Good Investment Option?

Investing is an integral part of saving for retirement, and earning passive income with savings account interest rates at historic lows.

However, many people are hesitant to invest because researching investments and managing a portfolio can be stressful and time-consuming.

Betterment offers managed investment portfolios and other financial products to help new and experienced investors improve their finances with minimal effort.

What is Betterment?

Betterment is one of the first robo-advisors that fully manages your investments. The service uses the Modern Portfolio Theory to build a diversified stock and bond index fund portfolio.

You might prefer this platform if you don’t have the time or desire to pick your own investments and rebalance your portfolio. This investing app makes these decisions once you share your investing goals and risk tolerance.

In addition to being one of the best robo-advisors, several additional services are available.

Additional features include:

• Online checking account
• Cash management account
• Rewards debit card
• Retirement planning tools
• Financial advisor access

While the investment products can be the best reason to use Betterment, you can also use the platform exclusively for its banking accounts.

Fees

Fees apply for the investment services, but the banking accounts are free.

Investing Fees

An investment account requires an annual advisory fee, which the service withholds monthly.

There are two different investing pricing plans:

• Digital investing: 0.25% annual fee ($0 minimum balance)
• Premium investing: 0.40% annual fee ($100,000 minimum balance)

The annual advisory fee covers all expenses, including automatic portfolio rebalancing to buy or sell ETFs.

ETF expense ratios that the fund manager collects are an additional charge. However, the fees are the same as buying the same funds in a self-managed account.

One optional fee is for financial advisor advice packages, which can cost between $299 and $399.

With the Premium plan, you can get unlimited financial advisor access. However, the minimum account balance is $100,00, and the annual advisory fee is 0.40%.

Banking Fees

There are no service fees for the Checking or Cash Reserve accounts.

Betterment can also offer these banking perks:

• Worldwide ATM fee reimbursements
• Bill pay
• Paper checks

While it’s not a fee, you will need to make a minimum $10 deposit to open a Cash Reserve account.

Who Can Join Betterment?

The minimum age for investment accounts is 18 years. Due to state laws, you may need to be 19 or 21 to open a banking account. Unfortunately, the platform currently doesn’t offer custodial accounts for minors under 18.

Betterment Investing Features

Here is a look at how investing with Betterment works and some of the core benefits each member enjoys.

Account Options

You can open the following investment accounts:

• Individual taxable accounts
• Joint taxable accounts
• Traditional IRA
• Roth IRA
• SEP IRA
• Inherited IRA
• Trust accounts

You can open any taxable or retirement account with a $0 initial balance. Opening an account lets you develop your investing goals and asset allocation.

However, your account balance must be at least $10 to make your first investment, and the investment minimum is $10 for all future trades.

Digital and Premium Accounts

Betterment offers two types of investment accounts:

• Digital
• Premium

The investment options are the same. However, the Digital plan provides more advisory options.

Betterment Digital

You will most likely start with Betterment Digital as it doesn’t have a minimum balance requirement.

Account benefits include:

• Automatic rebalancing
• Tax-loss harvesting
• Passive index fund investing
• Advanced investment strategies
• Dividend reinvesting
• Add-on financial advice packages

The annual advisory is only 0.25% (instead of 0.40% for Premium). If your account balance exceeds $100,000, you can keep this account plan if you don’t need the additional Premium features.

Betterment Premium

You will need an investment account balance of at least $100,000 to qualify for the Premium pricing plan.

Additional plan perks include:

• Unlimited calls and emails with a CFP
• In-depth advice for non-Betterment investments

You will need to decide if these benefits are worth the 0.40% annual advisory fee.

Core Portfolio

The Core Portfolio is the standard investment strategy, as it can have the lowest fund fees and base your asset allocation on the Modern Portfolio Theory.

Betterment recommends a mixture of stock and bond index ETFs with low fund fees that align with your risk tolerance and age.

As you age, the platform automatically rebalances you to hold more bond funds, which are inherently more risk-averse and less volatile than stocks.

Advanced Portfolios

You can also add an advanced portfolio strategy to focus on a specific strategy. These portfolios are optional.

The platform lets you invest in these strategies and a Core Portfolio. You can invest exclusively in one or several advanced strategies if you don’t want a Core Portfolio.

Your advanced portfolio options include:

• Socially responsible investing (SRI)
• Climate impact
• Social impact
• BlackRock Target Income (100% bonds)
• Goldman Sachs Smart Beta (Tries to outperform a traditional index fund strategy)

These portfolios take a more active investing approach and don’t try to track the overall market performance as closely as a Core Portfolio.

Depending on which strategy you try, you may sell assets more often. Each sale is a taxable event in a non-retirement account.

Flexible Portfolios

Users can also modify the asset classes and geographic weights of their portfolio. This feature is optional, but it can benefit experienced investors who still prefer automated investing but want to control some investment options.

Automatic Portfolio Rebalancing

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 allocation.

Betterment rebalances your portfolio as necessary when positions “drift” from their target percentage. With each new investment, the first portion of your cash buys funds with the highest underallocation.

The service may sell overallocated positions and reinvest your profits into underallocated positions. You can create customized rules for how often the service rebalances your portfolio.

Tax Loss Harvesting

Tax loss harvesting occurs when you sell a security that has experienced a loss and then purchase a similar one to replace it.

This selling and replacing allows the investor to claim a capital loss on their taxes while still maintaining “exposure to the asset class.” These losses can minimize your taxable gains in non-retirement accounts.

This feature is free, and Betterment suggests that if your portfolio balance is large enough, you can benefit from this rebalancing tool. Other robo-advisors may charge an additional fee for this convenience.

Tax Coordination

When you have taxable and tax-advantaged retirement accounts at Betterment, the platform uses a tax coordination feature to optimize your tax situation.

The service will primarily invest in assets with more taxable income in a tax-advantaged account. Therefore, your taxable account will hold funds that generate less taxable income.

Charitable Giving

Along with offering socially responsible market assets to invest in, Betterment has Charitable Giving.

You can donate shares directly from your account to charities, which is tax-deductible. You’ll avoid capital gains taxes on whatever you decide to donate.

SmartDeposit

Once you link your checking account to Betterment, you can automatically transfer money directly into the account.

If you want to automate your savings even further, Betterment has a feature called SmartDeposit that takes 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 so it knows not to take too much out of your account.

Goal Forecaster

The Goal Forecaster tool allows you to project your potential portfolio value in future years. To adjust the prediction, simply enter your initial investment and recurring contribution amount.

This tool estimates your average, favorable, and unfavorable outcomes depending on how the market performs and your portfolio rebalances.

Investment Options

Here are some stock and bond ETFs your portfolio can invest in. Your portfolio will primarily invest in Vanguard, iShares, and Schwab ETFs.

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)
These stocks give you broad exposure to the entire U.S. stock market.

US Large-Cap Value Stocks – Vanguard US Large-Cap Value Index ETF (VTV)
It’s similar to the US Total Stock Market. But it’s geared to focus the portfolio on large companies with low price-to-earnings ratios.

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

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

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

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

Which Bond ETFs are Used in Betterment’s Portfolio?

These are the Bond ETFs that are available:

Short-Term Treasuries – iShares Short-Term Treasury Bond Index ETF (SHV)
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)
Part of your portfolio assets are protected from the depreciating effects of inflation.

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

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

US Corporate Bonds – iShares Corporate Bond Index ETF (LQD)
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)
These bonds are issued by governments and organizations outside the US and can offer interest rate diversification.

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

Betterment Banking Features

You can open two different fee-free banking accounts. An investment account isn’t necessary to have either of these accounts.

Checking

The Betterment Checking account is a fee-free checking account with several exciting. Individual and joint accounts are available.

Some of the best perks include:

• Unlimited ATM fee reimbursement worldwide
• Foreign transaction fee reimbursements
• Rewards debit card
• No overdraft fees
• Online bill pay
• Can mail paper checks
• Up to $250,000 in FDIC insurance ($500,000 for joint accounts)
• Up to $600 in cell phone protection

This account doesn’t earn interest, but you can earn cash rewards on participating purchases. Most offers give you up to 5% back at stores and restaurants. You may also consider these other free checking accounts to find the best option.

Cash Reserve

The interest-bearing Cash Reserve account is fee-free but requires a $10 minimum opening deposit.

You might use this account to store your uninvested cash for short-term savings goals. It can also be a competitive alternative to high-yield savings accounts, but you can make unlimited monthly withdrawals.

Account benefits include:

• Entire balance earns interest (1.60% to 2.25% APY, as of September 26, 2022)
• Unlimited account withdrawals and transfers
• Up to $1 million in FDIC insurance ($2 million for joint accounts)

This account can provide above-average FDIC insurance as Betterment has four partner banks. Each partner bank offers up to $250,000 in FDIC insurance.

Betterment Planning Tools

The platform offers several free and paid financial planning tools.

Financial Advice Packages

All users can request advice sessions with CFP® professionals. These sessions last 45-60 minutes and cost approximately $299. Each session is free for Premium Plan members and can last more than 60 minutes.

The advice package topics can include:

• Financial checkup
• Retirement planning
• Marriage
• College

Retirement Planner

The free retirement planning tool is an interactive retirement calculator.

Some of the best planning features include:

• Create a retirement savings plan
• Connect and track external bank accounts
• Plan multiple savings goals
• Prioritize savings goals
• Schedule auto-deposits and one-time contributions

This tool can be an effective planning tool, but you may appreciate Boldin’s ability to run multiple scenarios to simulate your retirement savings.

Track Savings Goals

You can also create non-retirement savings goals on your online dashboard. This feature is similar to what many online banks offer. It allows you to calculate your monthly savings amount to achieve your goal.

Some of the goals you may track include:

• Buying a new car
• Wedding
• Gifts
• Education
• Vacation

The service can recommend an investing or banking account to help you earn the most passive income and manage risk.

Is Betterment a Good Match For You?

Betterment can be worth using if you want a fully automated investing account only investing in index funds. The platform offers several features that can make investing easy.

Having a taxable and retirement investment account on the same platform makes tax-loss harvesting and tax-coordinated investing easy to use. If you desire these features, the banking products and planning tools are also worth a look.

However, you may decide to avoid Betterment if you’re comfortable managing your own investments. The investment account advisory fee is reasonable for robo-advisors, but it can still be a nuisance when there are many free investing apps.

Betterment Pros and Cons

Here are the positives and negatives of using this platform.

FAQ’s About Betterment

Here are some lingering questions you may have about how Betterment works.

Summary

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

Invest early, and you’ll be free to retire early, travel, work (or not), and do whatever you want.

Betterment can help you invest, create an investment portfolio, and save for your short-term and long-term goals. It’s one of the best robo-advisors because of its many features and competitive fees.

Recommended Reading

• How to Invest $100 (8 Easy Ways to Get Started)
• Investing for Beginners: A Step-by-Step Guide
• How to Invest Small Amounts of Money – 10 Easy Ways
• 14 Best Ways to Invest in Yourself
• 5 Ways to Get More Interest on Your Money

Betterment Disclosures:

†Betterment Cash Reserve (“Cash Reserve”) is offered by Betterment LLC. Clients of Betterment LLC participate in Cash Reserve through their brokerage account held at Betterment Securities. Neither Betterment LLC nor any of its affiliates is a bank. Through Cash Reserve, clients’ funds are deposited into one or more banks (“Program Banks”) where the funds earn a variable interest rate and are eligible for FDIC insurance. Cash Reserve provides Betterment clients with the opportunity to earn interest on cash intended to purchase securities through Betterment LLC and Betterment Securities. Cash Reserve should not be viewed as a long-term investment option.

Funds held in your brokerage accounts are not FDIC‐insured but are protected by SIPC. Funds in transit to or from Program Banks are generally not FDIC‐insured but are protected by SIPC, except when those funds are held in a sweep account following a deposit or prior to a withdrawal, at which time funds are eligible for FDIC insurance but are not protected by SIPC. See Betterment Client Agreements for further details. Funds deposited into Cash Reserve are eligible for up to $1,000,000.00 (or $2,000,000.00 for joint accounts) of FDIC insurance once the funds reach one or more Program Banks (up to $250,000 for each insurable capacity—e.g., individual or joint—at up to four Program Banks). Even if there are more than four Program Banks, clients will not necessarily have deposits allocated in a manner that will provide FDIC insurance above $1,000,000.00 (or $2,000,000.00 for joint accounts). The FDIC calculates the insurance limits based on all accounts held in the same insurable capacity at a bank, not just cash in Cash Reserve. If clients elect to exclude one or more Program Banks from receiving deposits the amount of FDIC insurance available through Cash Reserve may be lower. Clients are responsible for monitoring their total assets at each Program Bank, including existing deposits held at Program Banks outside of Cash Reserve, to ensure FDIC insurance limits are not exceeded, which could result in some funds being uninsured. For more information on FDIC insurance please visit www.FDIC.gov. Deposits held in Program Banks are not protected by SIPC. For more information see the full terms and conditions and Betterment LLC’s Form ADV Part II.