I want to make the smartest decisions possible when it comes to my investments. Undoubtedly, you’ve seen all the different offers from brokers like TD Ameritrade, Schwab, Fidelity, eTrade, and probably dozens more.
I’ve been through that, and I’ve used and continue to use many of them. Then I learned about Robo-advisors and decided I needed to learn more.
It turns out, at the time, they were becoming quite the popular thing. The one I settled on using was Betterment. In this article, I’m reviewing Betterment based on my own experiences, not some quick Google searches and YouTube videos.
What is Betterment?
While the term “Robo-advisor” conjures funny thoughts like Johnny #5 shouting “BUY!” into a corded phone, they’re much more elegant than that.
Betterment is both a financial advisor and a brokerage. Through their clean interface, a few questions, and a bunch of lines of code, they can suggest investment plans to you.
What I love about Betterment is that it isn’t a pushy financial advisor like you might have experienced in the past. You don’t deal with anyone directly, and I love the low-pressure feeling.
Additionally, they give you exposure to a beautiful set of diversified ETFs, from big names like Vanguard and Schwab and iShares.
What is a Betterment Account?
Betterment allows you to create many different “accounts” under your Betterment login. They call these accounts “goals.” That’s because Betterment takes a goal-based approach to investment.
For example, retirement is a goal for many people. In that case, you would set up a “retirement goal” in Betterment. What are some other purposes for which you might need to save?
- An emergency fund
- College funds
- New car
- A house
- A vacation
- Starting a business
These are all goals you can set up inside of Betterment. When setting up each goal, Betterment will walk you through a short, simple questionnaire to determine:
- What the timeline is to reach your goals.
- How risky the portfolio should be.
- How much should be contributed each period to reach the goal.
Once all of that is understood, you just set up the deposits and wait for Betterment to work its magic!
Is Betterment a Good Investment?
As you’ve probably learned already, Betterment isn’t an “investment.” It’s just a newer way to invest. It gives you access to wise advice 24/7 that you can use to reach all of your goals. Additionally, it gives you access to tools that you might not know about, such as automatic-rebalancing and tax-loss harvesting.
Automatic Rebalancing
Portfolio rebalancing is a way to ensure that your portfolio doesn’t become too risky accidentally over time. As an example: suppose you decide that your portfolio is perfect at 60% stocks and 40% bonds.
If the stock market experiences a great run as it has for the last few years, then your stock/bond balance might end up at 75%/25%, which leaves you overexposed to stocks and underexposed to bonds.
Betterment will automatically rebalance your portfolio, so the bonds and stocks stay at a stead 60/40 split. It does this a few ways. My favorite way is that every deposit into your account is first used to rebalance. Next, it’ll use the dividends from your stocks and bonds to balance things out. As a last resort, they may sell off some of your stock ETF shares to buy bonds.
But wait a minute! Won’t that create a tax liability?
Yes and no. Betterment is very smart about taxes. They sell in the most tax-efficient way. And, if you’re especially concerned about taxes, you’ll love this next part.
Tax-Loss Harvesting
Tax-loss harvesting is a smart way to reduce tax liability. When something happens in Betterment that creates a tax liability, they attempt to offset that liability by selling something in your portfolio that is at a loss.
Afterward, Betterment purchases a security of similar makeup, so it doesn’t throw your portfolio diversification off. Additionally, Betterment can use tax-loss harvesting to rebalance your portfolio automatically. Not bad!
Can Betterment Be Trusted?
Jon Stein founded Betterment in 2008 in the wake of the 2008 financial crisis. Betterment is registered with the Securities and Exchange Commission and a member of FINRA (Financial Industry Regulatory Authority). Betterment is also a registered investment advisor.
As such, they are subject to all of the rules and regulations that any other investment advisor and brokerage firm are.
They currently have 16.4 billion worth of assets under management (AUM). That makes it about half the size of TD Ameritrade, and a quarter the size of eTrade, which makes Betterment a fairly sizeable organization.
Anecdotally, I’ve been with Betterment since 2017 and haven’t had any issues with them. I’ve always had access to my funds, and withdrawals (the few I’ve made) worked effortlessly. In fact, in 2019, I moved both my Roth 401(k) and traditional 401(k) over to them. If you want to learn more about how that went, then make sure you read my Betterment 401(k) rollover review!
What are the Betterment Fees?
Betterment, as of this writing, has two “fee tiers.” Betterment Digital has an annual fee of 0.25%. Betterment Premium has a yearly fee of 0.40% for those who want more human interaction. They have a few other optional fees. To learn more about their fees and how they’re charged, then read our Betterment pricing review.
Betterment Digital gives you access to all of the features of the Betterment platform, including automatic rebalancing, tax-loss harvesting, access to globally-diversified ETFs, and personalized financial advice (from their Robo-advisor). The Betterment Digital plan has no balance minimum.
Betterment Premium gives access to all of the Betterment Digital plan features. It also includes access to people who can help you manage investments outside of Betterment including 401(k)s, real estate, and individual stocks.
Additionally, you get unlimited access to their Certified Financial Planners (CFP). They can help you with life events such as marriage, children, retirement, and other situations that can affect your financial situation.
The Betterment Premium plan has a balance minimum of $100,000.
I’ve used the Betterment Digital plan since 2017 and have loved it. Although, a few times, I’ve considered joining the Betterment Premium plan. I’ve had a few different scenarios where it would’ve been nice to bounce ideas off of CFP.
Is Betterment a Good Choice for Me?
You’ve read a whole bunch of good things about Betterment, but it can’t be for everyone. That’s true. Betterment, on its own, is not meant for everyone. Betterment is perfect for people who want a more hands-free style of investment. It’s for people who like to come up with a plan and stick to it.
Active investors will likely now appreciate Betterment, and it really wouldn’t appeal to someone who likes to select their stocks. Betterment also wouldn’t appeal to someone obsessed with beating the market or even keeping up with it.
My Betterment account has not beaten the S&P 500. So, why am I invested with them? When this fantastic bull market inevitably comes to an end, I won’t experience the same amount of volatility. Additionally, I love having global diversification. Don’t get me wrong! I wholeheartedly believe in America’s future, but I won’t mind capturing the growth in emerging markets too!
I love picking stocks, and that’s why I use Schwab and Robinhood as well. But, for my hands-free investing, Betterment gets every penny of it. Maybe, one day, I’ll decide to turn it all over into a Vanguard fund, but for now, Betterment works just fine for me. I’ve considered numerous options, but Betterment won over everyone else. If you’re considering other options, then make sure you read Robinhood vs. Wealthfront.
Conclusion
Betterment is a marvelous, easy-to-use platform. They give me access to more advanced investment strategies that I don’t have the time to execute on my own.
Their fees are very reasonable for their offerings, and I love how effortless investing is with them. With the amount of time I save each month, versus managing my portfolio, the fees pay for themselves. Yes, I could go the bogle-head route and shove everything into an index fund, and maybe I’ll do that one day, but for now, I like what I have with Betterment.
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