At A Glance
Pros & Cons
- Invests in index funds
- Can invest as little as $10 at once with fractional investing
- Supports taxable and retirement accounts
- High-yield cash management account
- Human advisor packages for personal advice
- Advanced investing plans may invest in ETFs with higher fees
- No college savings plan accounts
- Unlimited human advisor access limited to accounts with at least $100,000 balance
Betterment is best for:
- New investors
- Index fund investors
- Taxable and retirement accounts
- Investors with low balances
Betterment Key Details
- Betterment Digital: 0.25% management fee
- Betterment Premium: 0.40% management fee
- Most ETFs have expense ratios between 0.07% and 0.17%
- Stock and bond index ETFs are available for 14 asset classes
- Portfolio mix is well-diversified but lacks exposure to non-market correlated assets
- Individual or joint taxable accounts
- Traditional, Roth, Rollover, and SEP IRAs
- High yield cash account (no management fee)
- Tax-loss harvesting
- Tax-coordinated investing
- Charitable giving tool
- Tax impact tool
- Available for all accounts
- Monitored daily
- Rebalancing is triggered when target allocation increase by 3%
Available with Betterment Premium
Online, Android or iOS mobile app
Phone and email
Up to 1 year of free manaement with qualifying deposit:
- Between $15,000 and $99,999: 1 month
- Between $100,000 and $249,999: 6 months
- $250,000+: 12 months
Betterment ReviewOur Experts Take
Betterment is a fully-automated robo-advisor investing your cash in stock and bond index ETFs. There is no account minimum to open taxable or retirement accounts. You can buy fractional shares of funds when your current cash balance can’t buy a whole share.
Tax-loss harvesting and tax-coordinated investing are available with all investment accounts and can minimize your tax bill.
In addition to managed investment accounts, Betterment offers high-yield cash management accounts as a savings account alternative and access to human advisors for personal advice.
How Betterment Manages Your Money
Betterment uses a passive investment strategy of trying to match the overall market performance using index fund ETFs (exchange-traded funds). Vanguard and Blackrock manage most of the index ETFs that Betterment offers. Most robo-advisors use the same stock and bond ETFs because of their low fees and high liquidity to keep investing costs low.
You will answer several investing questions when creating your investment account to determine your risk tolerance, investment goals, and time horizon. Betterment uses your responses to develop your stock-to-bond asset mix by utilizing asset allocation and diversification.
A proprietary computer algorithm decides which funds to buy to maintain a diversified portfolio. Betterment automatically adjusts your portfolio to a more conservative asset mix to reduce your downside risk and avoid stock market volatility.
When necessary, Betterment’s algorithm will sell positions to rebalance your portfolio when cash is added or withdrawn or when a particular asset class moves above or below its targeted allocation by 2% to 3%. As selling positions is a taxable event, Betterment tries to sell shares that have the best tax benefits. Tax-loss harvesting is free with all taxable accounts.
If you have multiple accounts at Betterment, you can benefit from the tax-coordinated investing tool. Betterment analyzes your other accounts to minimize duplicate holdings and optimize your tax situation. This feature is standard for all members.
It’s free to join Betterment, and you can create an investment portfolio without a cash balance. However, you will pay an annual advisory fee once you fund your account.
Betterment offers two different pricing plans:
- Digital: 0.25% annual management fee
- Premium: 40% annual management fee
The Digital plan is the standard option for all accounts. You have access to all Betterment automated investment portfolios and the high-yield Betterment Everyday cash management account. For an additional fee, you can schedule one-time advice calls with a financial advisor to review your finances and plan for life events like retirement.
With a minimum $100,000 portfolio balance, you can upgrade to the Premium plan. Additional benefits include unlimited access to a Certified Financial Planner (CFP) for financial advice.
Whether you choose the Digital or Premium plan, Betterment offers several automated portfolio strategies. All portfolios invest in index ETFs but not individual stocks. You can open multiple portfolios based on your financial goals, and the minimum investment is $10 per portfolio.
The standard investment portfolio is similar to other Robo-advisors and bases its investment philosophy on the modern portfolio theory, which focuses on the value of diversification. This strategy buys and holds index ETFs in up to 14 different asset classes, including:
- US stocks
- International developed market stocks
- Emerging market stocks
- Government bonds
- Investment-grade corporate bonds
You will likely get exposure to the total US and global stock and bond market. The precise asset mix depends on how soon you plan on withdrawing your investments and risk tolerance. The average fund expense ratio is between 0.07% and 0.16%.
Socially Responsible Investing
With the socially responsible investing portfolio, Betterment favors companies that meet specific environment, social or governance (ESG) factors.
When possible, Betterment replaces standard index funds with ESG-friendly index ETFs. This strategy can help you invest in companies that align with your values. As you avoid select companies, your results may trail the broad index fund.
Also, your annual fund expense fees are higher. Average fund fees are between 0.17% and 0.22%, which are slightly higher than the standard index ETF fees.
Goldman Sachs Smart Beta
The Goldman Sachs Smart Beta portfolio uses different market fundamentals to limit downside risk and produce better than average returns. This portfolio strategy calculates how much to invest in companies with these factors:
- Company value
- Strong fundamentals
- Strong momentum
- Low volatility
Standard index funds invest in companies in proportion to their market size in their index. Smart Beta funds try to give equal exposure to each company. The average fund expense ratio is between 0.11% and 0.24%.
BlackRock Target Income
The BlackRock Target Income fund only invests in bond funds and aims to generate a more sustainable income stream. If you want to generate current cash flow for retirement or other income needs, this portfolio is more suitable. However, it’s not a good fit if you have several decades until retirement.
Betterment may invest in these bond asset classes:
- US and international bonds
- US treasuries
- Mortgage-backed securities
- Emerging markets
Most investors consider Betterment for the hands-off investing approach. However, if you want some control over how your portfolio is invested, you utilize Betterment’s flexible portfolio tool to manually adjust your portfolio allocation and limit how much as is invested in a specific ETF.
This option is available with the standard Betterment portfolio, and it is free. However, your portfolio performance may trail Betterment’s recommended mix for your investing goals.
Advantages of Betterment
Goals-based investing: You can create a savings goal for each investment account you open. Some of your options include retirement, education, a major purchase, and general investing to build wealth. Your goal can help Betterment choose the best asset allocation for your planned withdrawal date.
Fractional investing: Betterment lets you invest as little as $10 at a time even though whole shares of index ETFs cost more. You will buy partial shares of ETFs to maintain a balanced portfolio without having idle cash in your investment account.
Sync external investment accounts: You can link your non-Betterment investment and bank accounts. Syncing makes it easy to track your net worth and investing progress. Betterments RetireGuide tools can also use these external accounts to more accurately provide curated retirement advice.
Financial planning packages: Digital plan members can buy one-time financial planning packages with a Certified Financial Planner. A “getting starting” 45-minute session costs $199. Each one-hour session costs $299 to plan for college, marriage, retirement, or perform a financial checkup.
Unlimited CFP access is available to Betterment Premium members. Other robo-advisors do not offer financial advisor access at all.
Cash management account: Betterment Cash Reserce is a high-yield cash management account. The current yield is 0.40% APY and has FDIC insurance up to $1 million. You can make unlimited transfers in or out of your account. A checking and debit card account is coming soon and will include ATM reimbursements.
Disadvantages of Betterment
Human advisor access isn’t free: Although having access to a financial advisor is excellent, the cost for one-time advice packages or upgrading to the Premium plan may not be worth it. But it’s nice to have this access and pay related platform fees as the barebones robo-advisors.
No custodial accounts: Betterment currently doesn’t offer custodial accounts or 529 college savings plans for children to invest. Only adults can invest with Betterment.
Is Betterment Safe?
Betterment investment accounts are SIPC-insured up to $500,000 if Betterment was ever to default. This insurance doesn’t protect against normal market losses. As Betterment invests in index funds, these funds are well-diversified and less volatile than individual stocks and sector ETFs.
The Betterment Cash Reserce cash management account is FDIC-insured up to $1 million. When the checking account launches, it will be FDIC-insured up to $250,000.
Is Betterment Right For You?
Betterment is an excellent robo-advisor if you want a fully automated investment service with minimal fees. The advanced portfolios, including socially responsible investing, make it easy to customize your investment strategy without being too risky. Access to a human advisor is also helpful when you need help planning for retirement or a life event.
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