Betterment Review: A Goal-Based Platform for Everyday Investors
Robo-advisors have made investing accessible to everyday investors — which we find really exciting.
With an easy-to-use app, you can benefit from the stock market, even if you don’t have thousands of dollars to invest, cash to pay a certified financial planner, or a lick of knowledge about, you know, stocks… or bonds or assets or… did someone mention commodities?
Investing was a black box for a long time, and only wealthy people got to see inside. But technology can make things easier, and robo-advisor platforms are a perfect example. They make investing cheaper and simpler, so everyone can get on board.
Betterment is one of the most well-known robo-advisor platforms in the market. Since its founding more than a decade ago, it’s grown to include banking and affordable financial planning that let you manage most of your finances and see your outlook in one place.
Considering an account with Betterment? Here’s everything you need to know.
- What Is Betterment?
- Our Betterment Review: At a Glance
- Betterment Features
- How Betterment Works
- Is Betterment Right for You?
- Ready to Get Started With Betterment?
Betterment is a financial services company that provides investment, banking and financial planning online and through the Betterment app. It’s best known as a robo-advisor for its automated investment service.
Like other robo-advisor apps, Betterment offers customized investment and financial planning to people who can’t traditionally afford professional investment advisors and financial planners.
Before we dive into the details, here’s a quick overview of Betterment.
|Investment account minimum||Digital: $0
|Account management fees||Digital: 0.25% per year
nPremium: 0.40% per yearn
|Additional fees||Annual fees: ETF expense ratios|
|Account types||Individual, Joint; Traditional, SEP and Roth IRAs; Trusts, 401(k) management|
Here’s what we love about Betterment:
- Low-cost, goal-based investing.
- Diversified and tax-efficient investment portfolios.
- Hands-off investment with a human advisor option and flexible portfolios for more advanced investors.
- Socially responsible investing options.
- Full financial outlook when you link external accounts.
- Banking with no fees, with a high interest rate on savings.
- Automatic balancing between checking and savings to maximize interest earned.
Here’s what we don’t love about Betterment:
- No borrowing options.
- No college savings account.
Betterment is on its way to becoming a one-stop shop for your financial needs. Its range of financial products and services can cover your spending, saving and investing needs, whether you’re a seasoned investor or opening a retirement account for the first time.
Betterment Digital Plan
Betterment’s basic investment portfolio is open to anyone, with a low annual fee and no minimum investment amount.
It gives you access to investment accounts for long-term saving or retirement goals — even to earn solid returns on savings for an emergency fund or major purchase.
All Betterment investors, for the standard 0.25% advisory fees, get access to:
- Goal-based investing: Set goals for retirement savings, retirement income, an emergency fund, a major purchase and general investing, and Betterment will allocate your investments (based on risk and other factors) to best ensure you have the money you need when you need it. You can also connect external financial accounts to get a holistic snapshot of your savings, retirement funds and investments in one place.
- Tax-loss harvesting: Tax-loss harvesting on taxable accounts (non-retirement accounts) automatically sells your stocks and other assets that drop in value — so you take a loss, lowering your tax bill by offsetting capital gains.
- Charitable giving: Support causes you care about by choosing to donate shares from your taxable accounts to partner charities — and enjoy the tax benefits.
- Financial advice: Any Betterment customer can chat with a financial advisor to answer basic financial questions through the app.
Financial Advice Packages
Betterment offers financial advice consulting as you need it. Anyone can set up a one-time call with a Certified Financial Planner (CFP) for personalized financial advice to plan for major life events.
- Getting Started: 45-minute call to set up your Betterment account. Cost: $199.
- Financial Checkup: 60-minute call to review your financial situation and investment portfolio. Cost: $299
- College Planning: 60-minute call to figure out how much to save and invest for your family’s education plans, including how to set up your state’s 529 plan. Cost: $299.
- Marriage Planning: 60-minute call with your partner for guidance on merging finances, including budgeting, goal-setting and debt management. Cost: $299.
- Retirement Planning: 60-minute call to review your retirement accounts (within and outside of Betterment) to create a plan to stay on-target for retirement. Cost: $299.
Customers with a $100,000 minimum balance in Betterment accounts can opt into the Premium Plan for an increased account management fee of 0.40%.
In addition to everything in the Digital Plan, Premium customers get:
- More in-depth financial guidance: Get advice on investments outside of Betterment, including 401(k)s, real estate and stocks.
- Unlimited financial planning: Get unlimited access to phone calls with a CFP for the types of guidance available in financial advice packages.
For high balances, you’ll receive a 0.10% discount on the portion of your household balance above $2 million.
Manage your money through Betterment’s mobile app by opening a Checking and Cash Reserve (savings) account.
- Betterment Checking: Get a fee-free checking account and debit card backed by NBKC bank. Betterment reimburses ATM fees and foreign transaction fees, and it doesn’t charge overdraft fees.
- Betterment Cash Reserve: Grow your savings with a no-fee, high-yield savings account, FDIC-insured up to $1 million through seven partner banks: The Bancorp Bank, Barclays, Citibank, Cross River Bank, HSBC, State Street Bank and Wells Fargo. Your balance will earn 0.40% APY.
Through its Two-Way Sweep feature, Betterment analyzes your checking account balance and spending and makes automatic deposits into your savings account. This lets you maximize the interest you earn on your cash while keeping just the right amount in checking to cover your expenses and spending habits.
Betterment also offers joint savings accounts, and joint checking is in the works.
Betterment for Business
Businesses can work with Betterment to provide an employer-sponsored 401(k) plan through Betterment for Business.
Betterment is primarily a robo-advisor, but it also gives customers access to live human financial advisors. Its core philosophy for portfolio management is based on an investment theory called Modern Portfolio Theory — the standard in investment that says you can reduce your risk and increase your rewards by spreading investments across diverse asset classes.
Asset classes are types of things you can invest in: stocks, bonds, real estate, commodities and collectibles, like fine art. Where your money is invested is called “asset allocation."
Basically, Betterment won’t put all your financial eggs into one industry or company’s basket, so you’ll take less of a hit if any particular market takes a dive.
Betterment’s core portfolio consists of stock- and bond-based exchange-traded funds (ETFs), with asset allocation optimized for growth and tax-loss harvesting for tax efficiency. It’ll automatically rebalance your portfolio based on your risk tolerance and time horizon.
Tax-loss harvesting helps lower your tax bill by reducing your overall capital gains from investing. Robo-advisors manage the feature automatically, so you don’t have to worry about the details.
You can go with that core portfolio or choose a different curated strategy based on your investing goals:
- Socially Responsible Investing: The Socially Responsible Investing portfolio strategy follows Betterment’s core strategy but emphasizes ETFs composed of stocks of companies that meet criteria for a positive social impact.
- Goldman Sachs Smart Beta Portfolio: Built by Goldman Sachs, this portfolio strategy uses a non-traditional approach to tracking the performance of stocks in an index (called advanced indexing) to improve your returns.
- BlackRock Target Income: This 100%-bond portfolio built by BlackRock is a “target-income portfolio,” which aims for less risk and higher return from income by protecting you from market volatility.
- Flexible Portfolio: Have your own ideas about investment strategy? You can opt to adjust individual asset class weights in your portfolio, instead of going with Betterment’s recommendations. You don’t have the option to choose individual companies to invest in.
The company buys fractional shares of stocks — portions of equity that aren’t a full stock. That means all your money will be invested. Brokers that only buy full shares can’t necessarily invest your full deposit, so you’d often have cash sitting in your account not earning a return.
Is Betterment a Good Investment?
You have a lot of options when you use Betterment to bank or invest.
As a robo-advisor, it’ll set you up with a portfolio strategy based on your goals and automatically rebalance based on shifts in the market and your time horizon. The company’s investment strategies are designed to maximize your returns, and minimize losses and taxes.
If the automated strategies don’t work for you, you can opt for a Flexible Portfolio and adjust your portfolio based on your own investment strategies and risk levels.
The benefit of working with a robo-advisor is that they’re easy on fees. With Betterment, you’ll pay account management fees, depending on your account level:
- Digital: 0.25% per year
- Premium: 0.40% per year
You’ll also pay some fees associated with trading particular ETFs. As of 2018, Betterment’s average expense ratios ranged from 0.07% to 0.15%.
An expense ratio shows the portion of an ETF’s funds used for overhead rather than invested. Expense ratios are shown as a percentage; the lower, the more of your money can earn a return on investment
Is Betterment Good for Beginners?
Betterment is an easy-to-use investment app that’ll help anyone just getting started with investment.
There’s no minimum investment, you don’t have to know what’s going on with individual stocks, and a suite of free and affordable financial planning tools helps set you up with a long-term plan.
Ready to start investing? Make sure to avoid these
Can You Trust Betterment?
As a fiduciary, Betterment’s first responsibility is to work in the best interest of its clients — so it’s legally (plus, karmically) bound to make responsible choices with your money. It also doesn’t own the funds it helps you invest in. It makes money when you make money, so it doesn’t have an incentive to make overly risky recommendations.
As with any investing, your accounts are also SIPC-insured in case of a problem with Betterment’s business.
Betterment uses bank-level encryption to protect financial information and personal data associated with your accounts. And it employs two-factor authentication to keep your Betterment account secure from prying eyes.
Can You Lose Money With Betterment?
You risk losing money with any investment, so your Betterment accounts could drop in value. However, all of Betterment’s investment accounts are designed for long-term savings, so you should be prepared to weather potential down-turns.
You can keep short-term savings, emergency funds and spending money in your Betterment Checking and Cash Reserve accounts or external bank accounts, where they aren’t subject to fluctuations in the stock market.
What Is the Average Return on Betterment?
Betterment created a widget in 2014 that shows how a Betterment portfolio would have performed compared to the average advised investor over the past 10 years. At the time, it would have outperformed those portfolios 88% of the time.
Average annual returns depend on the asset allocation of a portfolio (balance of stocks versus bonds). Betterment’s hypothetical historical returns between January 2004 and March 2020 range from 1.2% in a 100%-bond portfolio to 6% in a 100%-stock portfolio.
Betterment’s site hosts a robust archive of FAQs and resources to answer general questions about investing, finances and the app. Betterment customers can also chat with financial experts through the app or book a call to get personalized financial advice.
For other inquiries, contact:
- Banking: Email [email protected] or call (718) 400-6898 Monday through Friday between 9 a.m. and 8 p.m. Eastern.
- Investment and general support: Email [email protected] or call (646) 600-8263 Monday through Friday between 9 a.m. and 6 p.m Eastern (closed for market holidays).
- Betterment for Business: Call (855) 906-5281 to ask about setting up a 401(k) for your employees.
Betterment is the largest independent investment firm and well-known for its user-friendly, accessible investment accounts. Depending on your financial goals, it may or may not be a great fit for you.
Betterment might be great for you if:
- You want a low-cost, tax-efficient investment account.
- You’re new to investing and want a simple way to plan for long-term financial goals.
- You want to manage your banking, investing and savings all in one place.
- You want the convenience of a robo-advisor but want to remain hands-on with your investments.
- You have external accounts, such as an employer-sponsored retirement plan, and want to step up your investing game without losing track of all your accounts.
- You prefer to invest in companies based on their environmental or social impact.
Betterment probably isn’t a good fit for you if:
- Your primary investment goal is college savings.
- You’re interested in micro-investing.
Betterment has grown over the past decade to be way more than a popular robo-advisor. Now you can manage the bulk of your financial life through this company through banking, investing, retirement savings and financial planning.
It makes these services accessible to green investors and still worthwhile for seasoned, high-dollar investors by offering a range of services and account options.
The app is a perfect place to dip your toe in the market — with no minimum investment. When you’re ready to wade into the deep end, premium options and more flexibility let you take the reins on your personal investment strategy.
To get started with Betterment, you can sign up on its website with your email address.
You’ll start by letting Betterment know what kind of account you want to open — checking, savings, long-term investing or retirement. Before opening an investment account, you’ll answer a few questions to help the app determine your risk tolerance and financial goals and make recommendations.
From there, you can connect external financial accounts to get a holistic look at your finances and see which goals need your attention.
Dana Sitar (@danasitar) has been writing and editing since 2011, covering personal finance, careers and digital media.