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Betterment Review 2020: The Modern Robo-Advisor Investor

  • Betterment Review 2020: The Modern Robo-Advisor Investor

Up until 2008, There were two main investing methods: hiring a financial advisor or opening a brokerage account and DIY. All of that changed when Betterment opened their doors.

Betterment was one of the first investment companies to adopt Robo-advisors. Robo-advisors are “financial consultants” that provide financial advice with little human interference.

These robots are based on algorithms that manage and optimize investor’s assets. 

Betterment was one of the first pioneers in the Robo-advisory field and today they are one of the best in the industry! 

In our review, we are going to dive deep into Betterment. We will show you their advantages, their disadvantages and if Betterment is the right investment company for you.

Whether you’re thinking about investing for the first time or you’re looking for a new broker, our team will show what Betterment has to offer!

Quick Look at Betterment

Betterment has become one of the foremost Robo-advisors. They provide low-cost investment management services with the best planning tools available. 

As was addressed in the Motif Investing Review, there are many discount brokerages to choose from. Betterment is at the forefront leading the Robo-advisor model.

Their goal is simple, to offer the best online investment management services to investors that might not have been able to afford them. The secret is their advanced Robo- advisors. 

Account Minimum: $0 USD

Fees: 0.25% management fee 

Pros:

  • Super easy account set up
  • Betterment allows you to synchronize external accounts
  • You can easily change your risk tolerance 

Cons:

  • You cannot open a line of credit against your portfolio
  • There is no direct indexing

Wealthfront is best for:

  • Those who don’t have a lot of money and want to invest
  • Investors looking for a “hands-off” approach
  • Investors who want to minimize taxes and advantage of tax-loss harvesting 

What is Betterment all About (Full Review)

Betterment is a Robo-advisor that automates and simplifies investing. Since opening in 2008, Betterment has changed the way investing is done with their advanced Robo-advisory services.

They have helped thousands of clients reach their goals and are now managing over $1 billion in investor assets.

Betterment is not a traditional online broker. They help investors with their Robo-advisor services. 

Similar to Wealthfront, you do not trade individual stocks. Rather, you invest in a bucket of Exchange Traded Funds (ETFs) that are formulated around your personal risk tolerance, age, goals, timeline and so forth.

This setup is geared to maximizing your return through managed risk. 

Betterment has a strong team of CFA charterholders, CFPs and numerous other PhDs in Finance. You can take advantage of all this through the standard brokerage accounts, IRAs, and Trusts Betterment offers.

Betterment Overview
Account minimum
  • $0 for Betterment Digital
  • $100,000 for Betterment Premium
Management fee
  • 0.25%for Betterment Digital
  • 0.40% for Betterment Premium
Accounts 
  • Roth IRA
  • Traditional IRA SEP IRA 
  • Inherited IRA
  • Individual taxable accounts
  • Joint taxable accounts
  • Trust accounts
Tax strategy/planning 
  • Tax harvesting on all taxable accounts
  • Tax impact “tools”
  • Tax coordinated portfolio tools
Portfolio rebalancing Available for all accounts 
Helpful tools
  • Numerous financial planning tools
Customer service Phone assistance 

  • Monday-Friday 9 AM- 6 PM eastern

Email

  • everydaysupport@betterment.com

Now that we understand the basics of what Betterment has to offer, let’s really see what they’re made of!

Signup & Portfolio Management 

One of the great things about Betterment is that they know how to keep things simple. Signing up online is a breeze and shouldn’t take more than a couple of minutes.

Betterment starts off the process by asking questions. These questions were formed to better understand the investor. Betterment puts an emphasis on evaluating risk tolerance.

Once you fill in all the required information and answer their questions you will be ready to invest. Based on your profile, Betterment will create a personalized portfolio with the help of their Robo-advisors. 

If you are not sound with your personalized investment portfolio, you can adjust just about anything. All you have to do is input your bank information and transfer money into your account. Betterment will automatically purchase the ETFs and you’ll be on your way!  

If you’re a tax conscious investor, Betterment is the place for you. Betterment applies tax-loss harvesting to all taxable accounts. Investing with Betterment exposes you to many features!

Commissions & Fees

Fees and commissions are an investment killer. Over a lifetime you can pay hundreds of thousands of dollars in commissions and fees.

Betterment is aware of that and their goal is to provide low-cost investment management services to all investors interested. As of today, they are one of the best low-cost online brokers out there.

Let’s understand the general fees and commissions that investment management companies charge.

At the end of the day, investment management companies are a business and their goal is to make money while making money for you. 

For the most part, we can categorize commissions and fees into two main categories, Management fees, and Investment fees:

  1. Management fees-
    • An expense to the investment firm, in our case Betterment for their investment platform and service.
  2. Investment fees-
    • These costs are for the purchased securities ( stocks, ETF, options, etc) and go to the investment funds themselves. 

Okay, let’s jump back to Betterment.

Betterment has two investing plans: Digital and Premium. They both differ from one another, so let’s compare them.

Digital

Account minimum: $0

Annual fee: 0.25% on accounts up to $2 million, 0.15% over $2 million

Premium

Account minimum: $100,000

Annual fee:  0.40% on accounts up to $2 million, 0.30% over $2 million

Digital Premium
Account minimum $0 $100,000
Management fee 0.25% 0.40% 
Investment fee Between 0.03%-0.25% Between 0.03%-0.25%
Total fee Between 0.28%-0.50% Between 0.43%-0.65%

To pull things together, the management fee is 0.25%-0.40% (whether you choose Betterment digital or Betterment Premium). This fee is annual and goes to Betterment. The management fee is a percentage of the assets invested with the broker. 

The investment funds Betterment chooses for your portfolio all have fees. Those fees are called investment fees, aka expenses ratio. These fees are annual just like management fees.

Portfolio Strategy

Betterment portfolio strategy is built using two main steps, asset allocation, and fund section.

Betterment carefully chooses the right investments for their clients. They base their decisions on the investor’s risk tolerance and overall financial goals.

The portfolio is a mix of stocks and bonds composed of ETFs. Betterment focus on low-cost ETFs that cover the asset classes below:

Stocks/Equities

  • U.S total stock market
  • U.S large-cap stocks
  • U.S mid-cap stocks
  • U.S small-cap stocks
  • International developed market stocks
  • International emerging market stocks

Bonds/ Fixed Income

  • U.S high-quality bonds
  • U.S municipal bonds
  • U.S inflation-protected bonds
  • U.S high yield corporate bonds
  • U.S short term treasury bonds
  • U.S short term investment-grade bonds
  • International developed market bonds
  • International emerging market bonds

Bottom line, Betterment builds a personalized portfolio for investors to maximize yields. They base portfolios on risk tolerance and investment goals. 

Betterment Features & Tools

Betterment offers so much more than your average online Rob-advisor brokerage. Our team pulled together the main features that Betterment offers to maximize investing.

Check it out!

Tax-loss Harvesting 

Tax-loss harvesting is the practice of selling a security that experiences a loss, then buying a similar security in its place.

Betterment does this to obtain a loss which will offset your taxable income. This will result in bigger tax savings when paying the IRS for capital gains.

Tax-loss harvesting is tricky, but Betterment takes care of it automatically. They buy and sell at the best times maximizing your financial gains

Automatic Rebalancing 

A balanced portfolio is crucial when investing in the stock market. The main idea is to “scatter around your eggs”. Never put them all in the same basket.

Betterment constantly balances and maintains your personal asset allocation. All you have to do is establish your goals. From that, they calculate your risk tolerance and create a portfolio based on you.

Betterment regularly rebalances your portfolio when cash flows into your account or leaves. 

RetireGuide

Betterment has a cutting edge retirement planning section! They let you link external accounts (401(K)s) to their retirement planning tools.

Simply add in all the information you see fit to get a full picture. RetireGuide offers in-depth retirement planning advice on how to save and whether you are saving enough to reach your goal. 

Although it can’t be 100% accurate, Betterment RetireGuide is based on algorithms and math. For the most part, they offer great insight into reaching your retirement goals.

Additional Portfolio Options 

Betterment is constantly advancing and improving their services. They just recently added a variety of investment portfolios. 

These portfolios are optional. If you’re interested go for it!

  • Goldman Sachs Smart Beta Portfolio
    • A portfolio that uses smart beta to choose investments 
  • Socially Responsible Investment Portfolio
    • A portfolio that invests in socially and environmentally responsible companies
  • BlackRock Target Income Portfolio
    • This portfolio is a low-risk investment vehicle that only invests in bonds 

Betterment Everyday Cash Reserve 

Betterment created a Cash Reserve checking account that offers 0.30% APY. If you have money lying around that you’re not interested in investing, Betterments Cash Reserve is a great place to leave it.

There is no minimum balance so it doesn’t take much to open up an account. With Betterment, you are FDIC insured up to $1 million. 

Charitable Giving

This is a feature that shows Betterment’s true colors. Betterment gives you the option to donate directly from your account.

They take care of the transfer and the charitable benefits that you receive from the IRS. We recommend checking with your tax consultant/accountant prior. 

Customer Service & Educational Tools

Betterment has a good amount of educational information in their resource center. Their articles cover topics about retirement planning, tax minimization, and general saving tips. They also have a few videos explaining how to use the platform.

Whether you are looking for something educational to read or you’re having issues with your account, Betterment will help you out. These services are available whenever you need them. Simply log onto your Betterment account.

If you need assistance, you can call or send an email to Betterment. Their support team is available from 9 AM- 6 PM Eastern time. Unfortunately, Betterment doesn’t have an online chat. 

Is It Safe to Invest With Betterment?

Yes, Since 2008 Betterment has had a very positive track record. Betterment strongly believes in security. They take many steps to protect investors from external dangers and hackers.

The Securities Investor Protection Corporation (SIPC) protects Betterment accounts up to $500,000 (per account). This is insurance that protects the investor if there were any losses due to broker error.  

FDIC provides protection for cash in Betterments Everyday Saving accounts up to $1 million and any cash in Everyday Checking up to $250,000. 

Advantages of Betterment

Betterment has grown in popularity since their launch in 2008. Since then, they have become bigger and better. 

Betterment is an investment management company that is always looking to get better. Below are some of the pros to consider when looking at opening a Betterment account:

  • No minimum balance: This is often overlooked, but a zero minimum balance is a big perk. Betterment lowers the barriers of entry so anyone can start investing. This is a huge win for those who want access to professional guidance but don’t have the funds to get it.
  • Wise rebalancing: You never know how a portfolio will react to the stock market. That’s why rebalancing is so important. Betterment keeps this in mind as they rebalance portfolios every time funds enter or exit.
  • Price: It’s easy to see that Betterment offers a ton of value for their platform. That is not terribly common in the online brokerage space.
  • Tax-loss harvesting: This was covered above. Tax-loss harvesting helps maximize returns and lower taxable responsibility.
  • Retirement income: If you’re approaching or in retirement then you know how important it is to make a plan. Betterment offers a great retirement income feature. They allow you to create a system of sustainable cash flow to help you plan your golden years correctly.
  • Personalized service: This is the real beauty of Betterment or most Robo-advisors for that matter. Betterment is set up to help you reach your goals. Your emotions are removed and they do the heavy lifting of investing for you. This is great for beginners and seasoned investors who just don’t  ́t have time to manage their portfolios.

Drawbacks to Betterment

Nothing in life is perfect. We are going to go over some of the cons that we noticed with Betterment. Here are some of the drawbacks:

  • No customization: Yes, your portfolio is customized based on your given situation, however, your portfolio is made up of ETFs. You cannot choose exact stocks or bonds. This will be the case at any Robo-advisor and is not unique to Betterment.
  • Not for the DIY investor: If you like to manage your own portfolio then a Robo-advisor like Betterment is not for you. This isn’t necessarily a bad thing, but important to know.
  • No pure cash option:  Just as with other Robo-advisors, there is no pure cash option with Betterment. They keep enough funds in your account to fund your quarterly fees but little beyond that. They do this to ensure you’re fully invested.

Is Betterment Right For You?

If you’re looking for a low-cost investment management company, there is no doubt that Betterment is a great option.

Whether you’re new to investing, or you simply don’t have the time, Betterment can help. They have a great Robo-advisory investment system that can assist you with your financial goals.

You don’t need a whole lot of money to start investing. Betterment gives everyone the ability to invest with their $0 minimum. All you have to do is create an account.

If you’re looking for an online broker that takes your risk tolerance into consideration while taking care of the day to day work, Betterment is the best bet!