I love making things automatic. Whether it is bill-paying, direct deposit, prescription renewals, or investing, making things automatic makes life easier, and that is where our Betterment investing review comes in.
When it comes to retirement planning, an overwhelming number of online tools and websites promise to help you create a dynamic and profitable portfolio while minimizing fees.
This growing list of services includes robo-advisors, a class of financial websites that offer to manage your portfolio with minimal in-person interaction and a heavy reliance on the latest investing tools and software.
One of the most popular robo-advisors by far is Betterment. Conceptualized by its founders in 2010, Betterment has since grown to help its customers invest billions of dollars of their hard-earned dollars.
It hasn’t been easy. With other competitors like Wealthfront and Personal Capital always a few steps behind them, Betterment has struggled to find a way to stand out. Even with the competition, Betterment has emerged as one of the top online brokerage accounts and continues to grow its market share.
- Quick Look
- 0.25% to 0.50% annual management fee, depending on the plan
- No trade, transfer or rebalancing fees
- No minimum balance
- Hands-off investing tailored to your goals and risk preference
What is Betterment?
Betterment is an online financial advisor that uses advanced algorithms and software to find the perfect investment strategy for your portfolio and individual needs.
The main difference between investing your money with a traditional financial advisor and Betterment is that there is minimal human interaction. Unless you email or call in, your communication with an individual advisor will be very minimal.
But, there is some good news to counteract the lack of individual service. Because of lower operating costs, Betterment is able to charge lower fees than traditional financial advisors. This can be huge for individuals who want to take a hands-off approach to their retirement accounts, yet don’t want to pay top dollar for access to a top-tier financial advisor in their area.
Using complex tax software, Betterment allocates your investment portfolio based on your individual circumstances, investment time horizon, and thirst for risk.
In the meantime, they keep fees at a minimum by using ETFs (exchange-traded fund) that let you have a diversified portfolio, like mutual funds, but are tradeable much like stocks.
Since ETFs come with very low expense ratios, Betterment is able to pass those savings along to the consumer. Although the program already manages over $3 billion dollars for their clients, they are still growing at a rapid pace.
Because the service is able and willing to deal with investors at all stages of wealth accumulation, it has become a go-to for both experienced and novice investors with various investing goals.
Further, Betterment’s portfolio strategy isn’t geared just for retirement savings; the service can also improve your returns on dollars you invest for short-term and medium-term goals like saving for college, taking an annual vacation, or building up a cash reserve.
What are Betterment’s Key Features?
When you invest with Betterment, you’re hiring a robo-advisor who will balance your portfolio, help you invest in a smart and efficient way, and maximize your returns for minimal cost. This kind of scenario is perfect for investors who want to maximize their earnings, yet don’t want to deal with the day-to-day hassle of managing their own accounts.
With that in mind, here are some of the basic features that Betterment currently offers:
- Automated portfolio rebalancing – Automatically rebalances your portfolio for you based on your specifications.
- Fractional share investing – Fractional share stock market investing ensures that every penny you have invested is working for you.
- Goal setting – With a handy online interface to figure out what you need to meet your goals – or create new ones.
- Portfolio customization – Advanced software will create a portfolio that has been customized just for you.
- Tax loss harvesting – Automatic tax loss harvesting will help reduce your tax burden and improve your returns over time.
- Tools and calculators – The online tools can help you learn advanced investing strategies and truly understand how your money is being invested and why.
- RetireGuide – Input your financial information into Betterment’s RetireGuide to get a glimpse at what you need you to achieve your retirement goals, and potential investment strategies that could get you there.
How Betterment’s Financial Advice Packages Can Help You
One of Betterment’s most recent tools for customers comes in the form of its financial advice packages, tailor-made to help you at every stage of life. These packages are built around the financial decisions that accompany major milestones in life.
Each financial advice package you purchase comes with an individualized action plan and educational information geared towards helping you succeed financially, all crafted by CFPs and financial experts.
Below are each of Betterment’s packages and their benefits:
- Getting Started package: This package gives new users the professional vote of confidence they need as a professional will assess their account setup.
- Financial Checkup package: This package takes it a step further, providing the customer with a professional opinion on their portfolio and financial circumstances.
- College Planning package: As its name implies, this package helps parents who are investing with the goal of paying for their children’s college education in the next 5-18 years.
- Marriage Planning package: Merging finances can be tricky, so Betterment created this plan to help engaged couples and newlyweds to succeed as they unite their lives and assets.
- Retirement Planning package: Your investment goals and strategies change as you near retirement. This particular package helps keep you on target to meet them.
If you are a Betterment or Betterment Business client, you can take advantage of these helpful tools to maximize your investments and move forward with confidence.
These packages are affordable and could benefit you immensely, especially if you are less experience in investing.
How Betterment Can Automate Your Cash Management
With the Betterment Everyday™ Cash Reserve account, you can optimize your investments using the platform’s Cash Analysis and Two-Way Sweep.
Betterment is a robo advisor, meaning the whole process of managing your accounts is automated. With the Cash Analysis tool, Betterment pinpoints the extra cash in your checking account. With Two-Way Sweep, it is able to then sweep that surplus of cash to your Betterment Everyday™ Cash Reserve, which is offering 1.84%APY as of 3/3/2020.
Like many of Betterment’s options, their cash management suite has flexibility, giving you the option to turn off Cash Analysis or disable the Two-Way Sweep if you prefer to move your funds manually.
How Betterment’s Portfolio Mix Works
With most brokerage accounts, it’s easy to put together a simple model portfolio to show people an example of what to expect. The problem in trying to do this with Betterment, however, is that they tailor your portfolio to your responses from the questionnaire.
What we do know, however, is that to avoid fees and lower your costs, Betterment does not invest directly in individual stocks. Instead, they rely on a mix of Bond and Stock ETFs.
If you are young, looking to retire 40 years from now and have a high tolerance for risk, you are probably looking at a mix of 90% stock ETFs and 10% bond ETFs. Someone who is getting closer to retirement and needs to protect their nest egg will see a much higher mix of bonds in their investment portfolio.
No matter how the mix comes out, know that the algorithm is going to optimize your investments based on the choices you made in the initial risk tolerance questionnaire. You can always go back and make adjustments to your answers and risk tolerance as your circumstances change.
Types of Accounts Supported
When you invest with Betterment, your individual portfolio will be individualized for your needs. When you open a Betterment account, the service asks you a series of questions to determine your investment timeline, your appetite for risk, and what you hope to achieve throughout the process.
The information they collect during this interview helps them create a perfect blend of ETFs that can help you reach your goals. If you’re fairly young, that will likely mean your portfolio will hold a stronger allocation of stocks than bonds. As you age, however, your portfolio will automatically rebalance to reflect your changing needs and desired level of risk.
The main benefit that Betterment offers is that they take care of all of these details for you. Once you set your account up and enter all of the information they ask for, Betterment will take it from there.
Signing Up with Betterment
The Betterment sign up process is one of the most user-friendly out there for any brokerage. It comes with easy-to-follow instructions and as streamlined registration process which users can navigate through in a matter of minutes.
After the initial sign up process, users can expect a simple transaction as they transfer funds into the account, much like moving money from a checking to savings account.
How Much Does Betterment Cost?
Because Betterment leverages the use of technology instead of relying heavily on individual financial advisors, it is able to cut down on the costs associated with managing these accounts.
- No minimum balance
- Cancel at any time
- Fees calculated based on account balance
Betterment charges an annual fee of 0.25% for its automated digital portfolio management. There are no additional trade, transfer or rebalancing fees for this type of plan. This is a great option for beginner investors or those who want to be hands-off.
However, if you have a larger amount to invest and want more account monitoring and interaction with financial advisors, Betterment offers additional plans.
Their premium plan is 0.40% per year and makes you eligible for an annual phone consultation as well as proactive account monitoring by Betterment’s team of experts. This plan requires a minimum balance of $100,000.
Starting at $149, you can purchase financial advice packages that give you access to a customized financial action plan based on where you are in life.
While Betterment’s investment services are far from free, they are extremely affordable when you compare what it would cost to hire a top-tier personal financial advisor. Further, the fact that they have no trade fees, no transaction fees, and no rebalancing fees lets you rest assured that you won’t be gouged by “extras” while your money is stashed away in your account.
Who Should Use Betterment?
While nearly anyone who invests could benefit from the online portfolio management and advising, this service is definitely geared to certain types of investors. In most cases, Betterment will work best for:
- Hands-off investors who have some investing knowledge – Since it takes care of the heavy lifting for you, it works best for investors who want to take a hands-off approach to their investment portfolio. Passive investors can let Betterment handle the logistics while using online account management to keep a close eye on their accounts.
- Novice investors who need help – Beginning investors who are just learning the ropes can turn to Betterment for online portfolio management with low fees. The many online tools and user-friendly interface make it easy for beginners to get a grasp on basic financial concepts and investing strategies.
Who Shouldn’t Use Betterment?
While Betterment is perfect for certain types of investors, robo-advisors, in general, may turn out to be a raw deal for other types. In most cases, it will not work well for:
- Investors who love to trade stocks frequently – If you’re not a buy-and-hold investor, Betterment will be more of a drag than a benefit. The company’s focus on ETFs hampers the process of individual trading. If short-term stock trades are your game, you’ll be much better off with a service like TD Ameritrade.
How Betterment Grew to $500 Million in Under 4 Years
“There has to be a simpler way to invest.”
That’s what the Jon Stein, the CEO of Betterment thought to himself not too long ago when he was beginning his investing journey.
Well that thought turned into a $500 million dollar investment company in just under 4 years, which has since exploded to a $15 billion dollar company.
Their growth has been amazing and exciting to watch. I was able to get Jon on the GF¢ podcast to share how he created his dream company and what his big plans are.
How Betterment was founded
- Jon Stein and the Betterment Investment team are committed to an extremely forthright company who are completely transparent about their processes.
- Before Betterment was created, Jon Stein was using Vanguard, which was very low cost, but had a poor interface and little guidance.
- He was also using ING Direct (Now Capital One 360) for a savings account and found that it was extremely easy to set up and fund.
- Jon Stein combined the low-cost of Vanguard with the ease-of-use of ING Direct to create Betterment.
- Started in May 2009 with huge goals on an unrealistic timeline – what was assumed to take approximately 5 months, in fact, took 14 months to launch and grow.
- Betterment has grown exponentially since their launch, with 380,000 customers and $15 billion in assets under management.
- If you give them 5 minutes of your time, they will have your future financially secure.
- Provide the best possible return for the lowest price in the least amount of time.
- Betterment allows each investor to set a goal — for example, saving for retirement, saving for kids’ college, etc. – and Betterment Investment will then automatically tailor each portfolio according to that goal.
- Once you have input your goals, Betterment will automate how much you need to save each month, and will even allow you to have those funds automatically deposited into Betterment.
- Jon Stein believes that ETFs (Exchange Traded Funds) are the most efficient way to build a diversified portfolio.
- ETFs are like mutual funds.
- They’re cheaper to trade, and competition drives the cost of the funds down.
- Because of ETFs, portfolios through Betterment are globally diversified, and can be very diverse with a small investment, even as little as $1,000.
- Heavily invested in the latest, best technology.
- 50% of the company’s staff is dedicated to the service’s technology.
- One of the very few, if not the only company to offer next-day deposits.
- Believe that advice should be freely accessible, so advice is readily available and accessible on the site, with tailor made advice packages also available.
- Have added integrations with third parties such as Mint, as well as a mobile app.
- Continue to innovate and add new features, with an emphasis on maintaining the easy-to-use experience.
- Betterment takes the long view on investments.
- Jon Stein believes that the markets represent the success of the global economy, and that though individual years may be down, the global economy will continue to improve and strengthen over an extended period of time, which will be reflected in the markets.
- Betterment has plans to:
- further tailor their portfolios
- enhance portfolio optimization
- give more individualized advice for goals
- give greater accessibility (mobile app)
- enhance the user experience even more
- partner with RIAs through their practices
Robo-advisors are growing in popularity and could easily replace in-person advisors in the near future. With lower fees and advanced software that can maximize results, online investing is certainly gaining an edge.
Whether Betterment is right for you depends on your individual needs and investing goals. If you’re a hands-off investor who wants to grow your retirement funds without paying a lot of fees, then Betterment might be ideal. Additionally, beginning investors can benefit handsomely from the online tools and investing education offered through the Betterment website.
If you think Betterment investing might be exactly what your portfolio needs, sign up for a new account today.
However, if you determine that you would be better served by a more hands-on approach, check out the other online brokerage account options. Being a certified financial planner, I have had a chance to work with several of these platforms and have done the following reviews:
I want everyone to feel comfortable with any investment before they dive in, whether it be a short term investment or long term.