Betterment Investing is a great option for certain people. This Betterment review is to help you decide if it is a good option for you specifically. [This review has been updated – again – for 2017 to reflect recent changes to the platform.]

Betterment review | Robo-Investing

What is Betterment?

Betterment is a low-cost, easy-to-use, automated platform to help with your investing. This type of platform is called a robo-advisor and it’s an increasingly popular option. Robo-advisor solutions recommend investments based on computer algorithms rather than an individual person doing the research and work. This helps lower the cost while also lowering potential human errors.

Our Betterment review

Betterment has over 175,000 customers with more than $8.5 billion dollars invested through them. Its quite the proven platform with a large and growing base of happy investors.

Betterment is definitely worth considering if you:

  • are new to investing;
  • don’t want to research and build your own ideal portfolio model;
  • want to avoid losing 2%+/year to behavior gaps;
  • prefer an easy-to-use automated investing system;
  • or don’t understand tax optimization, rebalancing, and other investment practices.

If you can relate to any of the above, Betterment might be the solution for you. Read on for specific details about their service.

Their biggest benefit is how easy it is

When you sign up with an account with Betterment you will answer some questions as part of the account opening process to help determine your “risk tolerance” level. If you have a long time horizon and can emotionally ride-out market changes without concern, you are more tolerant to risk than someone with a shorter investing goal who will freak out during a market dip.

After they’ve gauged this tolerance level for you they’ll recommend a mix of stocks and bonds. It might suggest a stock/bond ratio of 50/50, 80/20, or another combination. This is about the only decision you’ll need to make – do you agree with the recommended allocation or not.

After the stock-bond ratio is accepted (which you can override initially or any time after the account is open), Betterment’s computers will work some magic and build a diversified portfolio for you automatically.

This means you don’t need to worry about: a) picking specific funds, b) deciding what percentage of your money should go into each fund, or c) any tax implications related to buying or selling the investments. Betterment does all of this for you! They’ll tell you the low-cost ETFs that they are going to use for your portfolio, and the percentages, and that’s it.

When you deposit money, whether it is $100 or $1,000, they’ll take that investment and automatically invest it across the entire group of low-cost ETFs that they picked for you, and in the percentages they decided. This automatic diversification is a great feature and it’s awesome not having to worry about these little details.

The second biggest benefit is the low cost

As mentioned above, Betterment will automatically choose the investments for your diversified portfolio (the group of funds your money will be invested in). The investments they use are low-cost ETFs (exchange-traded funds). ETFs are very similar to old-school mutual funds but with much lower annual costs. [Side note: Many people don’t even realize that mutual funds have ongoing costs – they do! The average managed mutual fund has expenses of 1.5% annually – And some of them are very expensive and will erode a lot of wealth over time.]

The weighted-average ETF cost across my Betterment portfolio runs at .08% – that’s right, eight hundredths of a percent! That’s an extremely low ongoing cost! And it helps you retain more of your investment capital to further grow your wealth.

Besides ETF fees, Betterment charges a small fee to cover the cost of their services. Even these fees are some of the lowest, if not THE lowest, in the industry.


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They have a variety of account options too

Betterment supports both taxable investment accounts and tax-favored retirement accounts like IRAs, ROTH IRAs, and even SEP IRAs (if you are self-employed).

Curious of the ETF details?

They occasionally change up the mix of their investment ETFs based on what their internal professional advisors recommend. But below is a fairly common portfolio that Betterment might recommend for someone in their 40s. With potentially 20+ years left of investing, this allocation has minimal bond exposure.

16%Total Stock Market – US
17%Large-Cap Value – US
5%Mid-Cap Value – US
4%Small-Cap Value – US
36%Developed Markets
10%Emerging Markets
4%US High-Quality Bonds
2%US Corporate Bonds
4%International Bonds
2%Emerging Market Bonds

You can adjust the portfolio allocation (the stock/bond balance) manually if you want. You can go from 100% stocks to 100% bonds or anywhere in between. Then the Betterment platform automatically handles the rebalancing for you. It’s super easy.

Some other benefits and features

No Minimums To Get Started!

Betterment has no minimum deposit requirements! Many banks and brokerages require you have a certain amount of money before they will handle the investing for you. This is not the case with Betterment! That makes this an excellent option for someone just getting started who might only have a small initial amount to get going.

Automatic Deposits

Easy automatic monthly deposits are an option if you want to take advantage of dollar-cost-averaging (DCA) – which I’m a huge fan of personally (read more about DCA and why it is awesome here). You connect a bank account to Betterment and just configure how much you want transferred over each month. They’ll automatically do the transfer and make the investments for you – fully diversified across your fund allocation!

Easy To Use!

Both the web interface and the mobile apps are super easy to use. They’re able to pull this off while still giving all the information and features that you would want. I love how users can log on to either the site or the app and quickly see balances, performance, and other key data points.

 

 

Tax-Loss Harvesting

Tax-Loss Harvesting, TLH, is the process of selling investments that have gone down in value over the year. Selling these “losers” helps lower the taxes that an investor pays at year-end. The “losses” can be used to offset other investment gains and even some personal income. Once the down fund is sold a similar fund is purchased. So the investor still has exposure to very similar investments (perhaps even some overlap in companies) but through a fund of a different name. This keeps your diversified portfolio ratios steady while still gaining the tax advantage.

Is Betterment safe?

Is Betterment safe? Yes, it definitely is. Investing with Betterment is just as safe as investing with any other investment platform or advisor. Fidelity, TD Ameritrade, Schwab, Motif, eTrade – all of these investment companies have the same levels of protection and safety.

Like all other brokerages, Betterment participates in the Securities Investor Protection Corporation (SIPC) program. The SIPC is similar to FDIC insurance for banks. If a brokerage were to fail or make a mistake, the SIPC covers up to $500k of investments, including $250k for cash. By being a part of this program, Betterment is just as safe as any other brokerage you could use for your investing.

Is Betterment worth it?

As shown in this Betterment review, there are a lot of great features and benefits to Betterment. There are going to be costs associated with any type of investing – either per-trade costs or fund costs or ongoing platform/management costs.

Since Betterment is not only a great full-featured platform, but is also one of the lowest-cost options available, I feel very comfortable saying that it is definitely worth it for most investors. This is especially true if you want a total hands-off option to help you get started with investing without having to do all your own research and work building a portfolio. In that case, yes, Betterment is certainly worth the costs and worth looking into.

Is Betterment right for you?

If you want to get started with investing but don’t want to have to research and pick individual investments; you don’t want to manage the percentage allocations in your diversified portfolio; you don’t want to pay high fees – then Betterment is definitely something you should take a look at.

Who might it NOT be best for?

To be sure this Betterment review communicates both the good and “the bad”, I want to make sure to point out that it may not be ideal for everyone. Or at least not ideal for 100% of your investment portfolio depending on your investment philosophy and personal desires. Here is what I think is the likely top Betterment review negative.

If you do want to pick your own specific investments, and manage your own allocation percentages, then Betterment isn’t for you. They don’t give you that level of control. For most people that’s a good thing because they don’t want to manage money full-time – even their own. It’s often preferred to “set it and forget it” based on professional advice.

If costs and complexity have been holding you back from getting started with investing, you should definitely check out Betterment. Investing in the stock market is one of the best ways to grow wealth over time. Don’t miss out.

Betterment vs Wealthfront

Wealthfront is another robo-advisor solution available. It is newer company than Betterment and they have quite a lot less of managed investments. I thought it would be a good idea to point out major differences though.

A nice thing about Wealthfront is that the first $10k of investments is managed free. Beyond that it is .25% annually just like Betterment. That’s about the only advantage Wealthfront has, and it turns into a negative at the higher end, because…

While Betterment charges the same .25% even on small investment amounts, they cap the fees after an account reaches $2 million. So accounts that grow large over time will ultimately save a lot of money.

Betterment also doesn’t have any minimums to get started with investing. Wealthfront has a $500 minimum before they’ll work with you.

If you want the ability to ask a question from a Certified Financial Professional, understand that Betterment is the only option. Wealthfront does not have any financial professionals available to answer questions or help out.

Lastly, Betterment supports fractional shares. What this means it that you’ll have less of your money sitting in cash here than with Wealthfront. Betterment can purchase 1/2 or even 1/4 of a share to make sure all of your money is invested. This avoids what is known as “cash drag” that can lower performance of some investment portfolios.

 

Is Betterment Good For You?

For most people the answer is yes. If you want to avoid being in the majority of investors that lag the market by 2%+ each year, using an automated solution like Betterment can help. People who want to avoid the up-front work of building a portfolio to meet their needs will also benefit from this service. Someone who doesn’t want to worry about rebalancing, tax-optimization, and related investing tasks will love this option. I wrote this honest review because I truly believe that Betterment is the best investing option for most people. Not everyone, but the majority of average investors for sure.

Hopefully you’ve found this Betterment review useful! Happy investing!