If you’re reading a Betterment review, you probably already know something about robo-advisors. But how do they work, and what makes Betterment one of the better robo-advisor options?
In this article, I’ll explain how Betterment’s combination of low fees and features makes it such an attractive option for those who want investment guidance.
Table of Contents
- Betterment Review: Quick Look
- What Is Betterment?
- How Does Betterment Work?
- How Much Does Betterment Cost?
- 耀竣金融配资_在线配资炒股:Betterment Review: Where It Shines
- 耀竣金融配资_在线配资炒股:Betterment Review: Where It Falls Short
- Betterment’s Free Financial Planning Tools
- Betterment’s Customer Perks
- 耀竣金融配资_在线配资炒股:Who Should Use Betterment
- 耀竣金融配资_在线配资炒股:Betterment Alternatives To Consider
Betterment Review: Quick Look
|Company Type||Investment and financial services company|
|Key Features||No minimum, low fees, goal-based philosophy|
|Downsides||Some features not optimized or missing|
|Best For||Beginners with less capital|
What Is Betterment?Founded in 2008 and based in New York City, was the first widely-available robo-advisor. Over the years, Betterment has added asset classes, portfolio options and banking services. Because of its relative maturity in the robo-advisor space, Betterment has some of the most advanced features and perks in the industry.
How Does Betterment Work?Betterment seems designed around two things: getting you to work toward specific goals and making it as easy as possible for new investors to use its products. The company changed its sign-up flow recently. It now asks you to choose whether you’re:
- Investing to build wealth, chasing a specific goal or investing for retirement
- Looking to earn 4.20% APY or get a checking account equivalent
- Investing in crypto (Clark has been clear about 耀竣金融配资_在线配资炒股:his bottom line on Bitcoin and other cryptocurrencies)
- Enter your address
- Provide your date of birth and Social Security Number
- Set up security questions
- Provide details about your employment and tax filing status (including your spouse’s income if married filing jointly)
- Fund your account by transferring money
- Link any outside accounts
1. Filling Out Personal Information
- Date of birth
- Social security number
- Employment status
- Tax status
2. Setting Your Portfolio Asset AllocationThat jargon may sound intimidating. But don’t worry. Betterment does a nice job of walking you through its pre-built options for your investment strategy. Once you choose one, you’ll have the opportunity to adjust the “allocation” of your portfolio. That’s a fancy way of saying you can choose what percentage of your investments you want in stocks vs. in bonds.
Back to portfolio strategy. All 耀竣金融配资_在线配资炒股:robo-advisors give you pre-built portfolios. Based on inputs such as your income, assets and age, robo-advisors match you with the portfolio that their algorithms think is best.At Betterment, you get an additional level of choice that many robo-advisors don’t allow. Here are those options:
- Betterment Core. This is Betterment’s standard, broadly-diversified portfolio.
- Socially Responsible Investing (SRI). Betterment offers three options under this umbrella: a) broad impact, b) social impact and c) climate impact. Betterment’s SRI options still include ETFs, which often aren’t granular enough for social investing, as some websites that cover investing have pointed out.
- Goldman Sachs Smart Beta. This strategy explicitly attempts to outperform the market by using algorithms to identify and invest in high-performing assets.
- BlackRock Target Income. This 100% bond portfolio typically helps provide income for people nearing or in retirement.
- Flexible Portfolio. This option gives you full control over your portfolio allocation, but Betterment will still give some automated suggestions and feedback on your decisions.
3. Connect Your Bank AccountBetterment will prompt you to set up recurring automated deposits.
How Much Does Betterment Cost?
|Advisory Fees||Weighted Average Expense Ratio||Minimum Deposit||Annualized Return||Account Types|
|$4/month or 0.25%^||0.09%*||$0 (or $500 if making a deposit)||2.01%*||Taxable, Retirement, Trust|
*Based on Fourth Quarter 2022 Robo Report. Betterment recommends different portfolios to different clients. Your actual results will vary based on the portfolio option you select as well as future market performance.
^Betterment recently changed its fee structure for smaller accounts. You now must pay $4 per month unless you’ve deposited at least $20,000 in assets on the Betterment platform or you’re making recurring deposits of at least $250 per month.Betterment is among the least expensive robo-advisors. The annual fee tends to be the most prominent cost associated with a robo-advisor, and at 0.25%, Betterment is on the lower end among its competitors. However, other variables are important as well including the average portfolio . , typically the gold standard on cost, offers an average expense ratio of 0.07% on its entry-level robo-advisor product. Betterment charges 0.09% according to Backend Benchmarking. However, due to the recent Betterment fee structure change, if you make the minimum deposit of $500, you’ll be paying Betterment a management fee of 9.6% annually. With $1,000 in assets on the platform, you’ll still be paying 4.8% per year. You’ll need to deposit at least $10,000 to even get under 0.50% in annual fees. , which competes with Vanguard’s Personal Advisor Services and other hybrid models, requires a minimum investment of $100,000, and its annual fee is 0.40%. That’s an excellent price considering that Betterment can’t offset any of its costs by including its own funds in its portfolio offerings to earn expense ratios as Vanguard and Schwab do.
Betterment Review: Where It ShinesAfter reviewing Betterment, here are the ways I think the company excels:
- No account minimums. I’ve researched dozens of robo-advisor companies. I’ve come across a handful of them that require minimum deposits of $5 or less. Now that Betterment has acquired , it’s the only robo-advisor I’ve seen with no account minimum I’ve seen that offers . Betterment offers a ton of impressive features for a company that doesn’t require a minimum deposit.
- Inexpensive. Betterment’s all-in cost is about 0.34% including the annual fee and average expense ratios — assuming you deposit at least $20,000 or have a recurring monthly deposit of at least $250. Vanguard’s undercuts Betterment at 0.22%. But you’d be hard-pressed to find another cheaper robo-advisor that uses the annual fee model.
- Goal-based philosophy. If you love goals or if goals tend to help you stay on track, you’ll appreciate the ways that Betterment uses goal-setting and offers consistent reminders and suggestions to help you maximize your chances.
- Excellent banking options. Betterment’s savings account in particular 耀竣金融配资_在线配资炒股:is competitive with the best online banks. And it offers most of the other services you’d consider to be within the purview of traditional banks.
- Highly-customizable portfolios. As I detailed in 耀竣金融配资_在线配资炒股:the “how it works” section above, Betterment offers almost every option one could want in the world of pre-built portfolios.
- Great interest rate. Betterment’s savings account equivalent pays 4.20% APY at present.
Betterment Review: Where It Falls ShortAfter reviewing Betterment, here are the areas where I think it could stand to improve:
- Middling tax strategy. The good news is that Betterment offers for every account, no matter how small. Many robo-advisors offer the service only to customers who meet certain investment thresholds, and some don’t offer it at all. Betterment’s tax strategy is just fine, but rival Wealthfront is among the robo-advisors with a more sophisticated tax strategy.
- Somewhat pricey financial advisor consultations. Betterment is unique among entry-level robo-advisors in that it gives clients (and non-clients) the opportunity to consult with Certified Financial Planners. That’s a nice perk about which I’ll explain more soon. But starting at $299 for 45 minutes, it’s not cheap.
- Missing some features of its biggest rival. Betterment doesn’t offer any 耀竣金融配资_在线配资炒股:529 plans for college investing. It also doesn’t give clients the option to borrow money against their portfolios. (To be fair, Betterment also includes some features that Wealthfront doesn’t.)
- Peculiar emergency fund strategy. Betterment’s version of 耀竣金融配资_在线配资炒股:an emergency fund is called “Safety Net.” The investment company goes against the grain in suggesting that clients keep 30% of their emergency fund invested in stocks. Reading their explanations, Betterment’s emergency fund philosophy makes sense despite going against conventional wisdom. But it’s understandable if that philosophy could be a little confusing for new investors.
- Limited human involvement. If you invest $100,000 and opt into Betterment Premium or if you pay for a one-time consultation, you can talk to a financial advisor. Otherwise, your human contact is limited to phone calls with customer service during business hours. If personal advice is important to you, a robo-advisor such as Betterment may not be your favorite option.
- Potentially ludicrous annual fees. If you’re depositing less than $20,000, and you’re not offering a recurring deposit of $250 a month, you’re going to be paying more than 0.25% annually. The less money you have deposited, the higher the fes. It’s possible to pay as much as 9.6% annually.
Betterment’s Free Financial Planning ToolsBetterment’s tools are all about goals. Betterment starts with a specific goal and works backward, providing a realistic timeline, a proper portfolio allocation and an amount you need to save and invest each month to stay on track.
The Structure of Betterment’s GoalsEvery goal you set inside of Betterment includes three things:
- A target dollar amount.
- A completion date.
- At least one attached investment account to track your progress.
- Retirement Savings: helps you save money for retirement.
- Retirement Income: for retirees making withdrawals.
- Safety Net: the Betterment version of an emergency fund.
- Major Purchase: for working toward buying something like a house or a car.
- General Investing: if you’re not sure how you’ll use the money you’re investing.
The Value of Connecting Outside Financial AccountsTo zoom out for a second, Betterment’s financial planning tools work best if you take the time to give it access to all your financial accounts. If you’re squeamish about giving that type of personal information to Betterment, you may not be able to fully realize the value of its planning tools. If you include outside accounts, Betterment can more accurately track your progress. Betterment tells you if you’re falling behind on a goal. It also offers suggestions if it disagrees with the way you’ve split up your portfolio within any outside account.
Betterment’s Customer PerksIn addition to its digital planning tools, here are some other benefits that Betterment offers its customers.
1. Banking Alternative
Betterment offers checking and savings options. In fact, its banking features are quite advanced; Betterment is fully capable of replacing your bank if you don’t mind forgoing physical branch locations. Money expert Clark Howard recommends the online banking model. Especially if you bank with one of the Big Four (Bank of America, Chase, Citi and Wells Fargo), Betterment probably can do better on rates, fees and deposit requirements than your bank.
Perhaps most impressively, offers 4.20% APY, which is on par with (or better than) 耀竣金融配资_在线配资炒股:the best high-yield savings accounts.Betterment works with several different banks which allows it to offer $2 million in FDIC insurance on its savings product. Banking with Betterment includes no fees and no minimum deposits. Other features include:
- Unlimited ATM reimbursements.
- “Two-Way Sweeps” that track your spending and then automatically transfer excess dollars from your checking account into the high-yield savings account or vice versa if your checking account runs low).
- “Cash Goals” that allow you to save for multiple goals at once in defined “buckets.”
- Cash back and rewards when you shop with Betterment partner merchants.
2. Consultations With Certified Financial Planners
Clark is adamant that you should 耀竣金融配资_在线配资炒股:consider only fee-only fiduciaries when hiring a financial advisor. And Betterment’s fiduciaries are all Certified Financial Planners (CFPs).
Most people don’t need a long-term relationship with a full-service financial advisor, Clark says. But it can be beneficial to consult with a financial advisor on an ad hoc basis and just pay an hourly rate.
3. Tax BenefitsAs I mentioned earlier in this article, Betterment will automatically manage your investment portfolio in a way that limits your tax liabilities no matter how much money you invest. Betterment’s tax strategies don’t go quite as far as rival Wealthfront, which probably boasts the best tax strategy in the robo-advisor industry. However, Betterment does offer two nice tax-related perks.
Tax-Coordinated Portfolio: If you open both a taxable account and a retirement account with Betterment, the company ensures that it will place tax-efficient investments in your taxable account and tax-heavy investments in your retirement account.
Tax Impact Preview: If you’re considering a portfolio adjustment or some sort of change to your investments and you’re using Betterment’s financial planning tools, Betterment proactively notifies you of the potential tax implications.
4. Time-Sensitive Risk ManagementThe closer you get to reaching a financial goal such as retirement, the more cautious you want to be with your investments. In investing jargon, you want to “reduce volatility” as you approach your goals. When you have a longer timeline, you have the luxury of riding out the inevitable market ups and downs. In fact, to an extent, a bit more risk (usually this means investing a higher percentage of your portfolio in stocks) leads to better return on average.
Who Should Use BettermentAs a group, robo-advisors have their own set of attractive qualities. You can set up an investment account in minutes, create a recurring deposit and then sit back and watch. Robo-advisors invest in portfolios that are suited to your goals and income. They automatically rebalance your portfolio and take care to minimize your tax burden. On top of that, Betterment is a great option for people who want to consolidate their financial accounts and manage them from one platform. Because Betterment’s platform is so helpful when it comes to setting and working toward specific goals, the benefits of tracking your overall finances through Betterment go beyond simply seeing everything in one place. If you need gentle nudges to work smarter toward your financial goals, Betterment will provide them. Betterment also is outstanding if you have a limited amount of investible money and you’re looking for inexpensive and trustworthy guidance. Just make sure that you’re meeting the $250-per-month requirement if that’s the case. Or you’ll be paying fees that don’t make sense for you. Because of its lack of a minimum deposit requirement, low fees and educational approach, it’s great for beginners. Backend Benchmarking downgraded it from “best robo for first-time investors” to “honorary mention” in the same category because of the new fee structure. If you want a high-yield savings account and/or a checking account that’s connected to your investments, Betterment checks that box as well.
Betterment Alternatives To Consider
If you’re going to invest through a taxable account as opposed to , I’d suggest 耀竣金融配资_在线配资炒股:Wealthfront as a better option because of its superior tax treatment (and higher annualized returns in the last five years).
If you’re looking for a higher level of guidance than a robo-advisor provides, consider 耀竣金融配资_在线配资炒股:Vanguard’s Personal Advisor Services (PAS). Clark strongly recommends PAS to anyone looking for a financial advisor. Unlike entry-level robo-advisors, hybrid models such as PAS offer unlimited access to financial advisors.
You can also consider managing your own investment portfolio, 耀竣金融配资_在线配资炒股:hiring a full-service financial advisor, checking out 耀竣金融配资_在线配资炒股:our list of the best robo-advisors or looking at 耀竣金融配资_在线配资炒股:our list of the best investment companies.
Final ThoughtsAs I’ve tried to demonstrate in this Betterment review, if you’re looking for a strong overall robo-advisor or you simply want some inexpensive, software-based financial guidance that will help you stay on track with your goals, Betterment is a company you should consider.
Before you invest with Betterment, it’s a good idea to make sure that a robo-advisor is 耀竣金融配资_在线配资炒股:the best choice for you.If you’re not going to invest through a retirement account (an IRA), you may want to take a close look at Wealthfront. As per above, take time to understand your options. But, since its inception, Betterment has maintained its place at the top of a small list of the best robo-advisors. It can make a case for being the best overall robo-advisor on the market.