- Quick Look
- 0.25% to 0.50% annual management fee, depending on 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 (exchanged-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 achieve your retirement goals, and potential investment strategies that could get you there.
Signing Up with BettermentThe Betterment sign up process is one of the most user friendly I have seen for any brokerage. If you can type at any sort of reasonable rate, the whole process should take about five minutes. The questionnaire helps them determine your risk preference and investment goals. After the initial sign up process, you're in business once you link your bank account. Moving money into your Betterment account works just like any other bank transfer. So if you are used to moving money electronically from your checking to your savings account, then you are going to have no problems with the interface.
Portfolio MixWith 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 investing 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
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
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 to 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 want to speak to a financial advisor regularly – Since most business is conducted online, you won’t have continuous access to a financial advisor unless you opt in to their Premium plan. If you want to speak with someone frequently, you might be better off paying more for a financial advisor in your area.
- 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 hamper the process of individual trading. If short-term stock trades are your game, you’ll be much better off with a service like Scottrade.
How Betterment Grew From Zero 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 has turned into a $500 million dollar investment company in just under 4 years. 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 35,000 customers and 500 million+ 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 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.
- 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, and that 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