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Betterment Investing Review: Investing Automatically

Betterment Investing Review: Investing Automatically

I love doing things automatically. Whether it’s billing, direct deposit, prescription renewal, or investing, automating things makes life easier, and that’s 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 build 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 personal interaction and a strong reliance on the latest investment tools and software.

One of the most popular robo-advisors by far is Betterment. Betterment was conceived by its founders in 2008 and has since grown to help its customers invest billions of dollars of their hard-earned dollars. This is an investment platform that you can use to invest in cruise control and even make money watching TV! You can open an account with no cash and benefit from professional, low-cost investment management that allows you to invest in thousands of stocks with just a few hundred dollars.

It was’nt easy. With other competitors like Wealthfront and Personal Capital always a few steps behind, Betterment is struggling to find a way to stand out. Despite the competition, Betterment has become one of the top online brokerage accounts and continues to expand its market share.

  • Depending on the plan, 0.25% to 0.40% annual administration fee
  • No trading, transfer or equalization fees
  • No minimum balance
  • Hands-off investments that are tailored to your goals and risk preferences

About improvement

Betterment is an automated online investment manager that uses advanced algorithms and software to find the perfect investment strategy for your portfolio and your individual needs.

The main difference between investing your money with a traditional financial advisor and Betterment is that there is minimal human interaction. If you don’t email or call, your communication with a single advisor will be very little.

However, there is some good news to counter the lack of personalized service. Betterment can charge lower fees than traditional financial advisors due to lower operating costs. This can be of great concern to individuals who want to run their retirement accounts with no hassle but don’t want to pay top dollar for access to a top notch financial advisor in their area.

With complex investment software, Betterment assigns your investment portfolio based on your individual circumstances, your investment horizon and your thirst for risk.

In the meantime, they keep fees to a minimum by using Exchange Traded Funds (ETFs), which allow you to have a diversified portfolio like mutual funds but tradable similar to stocks.

Because ETFs have very low cost ratios, Betterment can pass these savings on to the consumer. Although the program already manages over $ 16 billion for its clients, they are still growing rapidly.

With the ability and willingness to deal with investors at all stages of wealth creation, the service has become a point of contact for both experienced and inexperienced investors with a variety of investment objectives.

In addition, Betterment’s portfolio strategy is not only geared towards old-age provision. The service can also improve your return on dollars that you invest for short-term and medium-term goals like saving up for college, an annual vacation, or building a cash reserve.

How recovery works

Like other robo-advisors, Betterment offers complete, automated investment management for your portfolio. When you sign up for the service, you fill out a questionnaire that sets out your risk tolerance, investment goals, and time horizon. From this information, Betterment determines that your portfolio will be designed conservatively, aggressively, or at some level in between.

However, over time, Betterment can adjust your portfolio to gradually become more conservative. For example, as you approach retirement, your asset allocation will gradually shift more in favor of safer investments like bonds.

Your portfolio consists of Exchange Traded Funds (ETFs), which are low-cost mutual funds designed to track the performance of an underlying index. In this way, Betterment tries to match the performance of the underlying indices rather than outperform them. For this reason, investing with Betterment – and most other robo-advisors – is considered passive investing. (Active investing involves trading stocks and other securities frequently in order to outperform the market.)

Betterment also uses allocations based on broad asset classes. There are three in total:

  1. Safety net – These are funds that are made available for short-term needs, e.g. B. an emergency fund.
  2. retirement – This is of course your long-term investment account held in tax-protected IRAs.
  3. General investing – This allocation is for intermediate goals, possibly a home down payment or even your children’s education.

Given that each of the three general objectives has a different time horizon, the specific portfolio allocation will be slightly different in each. For example, the safety net is placed in cash accounts for security and liquidity reasons.

improvement advantages and disadvantages

Improvement benefits:

  • No minimum investment is required.
  • The low 0.25% annual fee for the Digital Plan lets you manage a $ 20,000 account for just $ 50 per year or a $ 100,000 account for just $ 250.
  • Tax loss harvest is available on all taxable accounts.
  • Betterment Premium offers unrestricted access to certified financial planners and offers a service similar to traditional investment advisors, but at a fraction of the cost.
  • The toll-free audit and cash reserve offer you cash management options for your investing activities.
  • Betterment offers a variety of portfolio options including Smart Beta, Social Responsible Investing, and the BlackRock Targeted Income Portfolio.
  • Using value funds also increases the potential of your investment accounts to outperform the general market, as value stocks tend to be undervalued compared to their competitors.
  • The flexible portfolio gives you some control over your asset allocations, which most robo-advisors don’t.

Cons of improvement:

  • Betterment’s annual advisory fee is on the lower end of the robo-advisor range. However, there are some robo-advisors who do not charge any fees at all.
  • Betterment does not offer any alternative investments. This includes natural resources and real estate offered by some competitors.
  • External account synchronization is only available with Betterment Premium.

The Betterment Investment Methodology

Like most other robo-advisors, Betterment manages your investment account using Modern portfolio theoryor MPT. The theory emphasizes the correct allocation to different asset classes via the individual security selection.

Your portfolio is divided into six equity and eight bond investments. Each allocation is represented by a single ETF linked to an index specific to this asset class. The single ETF offers exposure to scores or even hundreds of stocks in each asset class. That means your total investment will be spread across thousands of stocks in the US and internationally.

The six stock allocations are as follows:

  1. US Total Stock Market
  2. US Value Stocks – Large Cap
  3. US Value Stocks – Mid Cap
  4. US Value Stocks – Small Cap
  5. Internationally developed market stocks
  6. International stocks from emerging markets

The eight asset allocations for bonds are as follows:

  1. High quality US bonds
  2. US Municipal Bonds (only held in taxable investment accounts)
  3. US inflation-protected bonds
  4. US high yield corporate bonds
  5. US Treasury Short Term
  6. US investment grade short term bonds
  7. Internationally developed market bonds
  8. International emerging market bonds

Harvesting tax losses

Since Betterment offers tax loss harvesting with taxable investment accounts, most asset classes have two or three very similar ETFs. This enables Betterment to sell a lost position in an ETF to reduce capital gains in winning asset classes. Alternative ETFs will then be bought to replace the funds sold and to keep the target asset allocations in your account.

Harvesting tax losses is becoming an increasingly popular investment strategy as it effectively shifts capital gains taxes to future years. It is only available for taxable accounts as tax-protected accounts have no immediate tax consequences.

How improvement in comparison

Betterment compares itself with the aforementioned companies Wealthfront and Personal Capital.

improvement Wealth front Personal capital
Minimum initial investment $ 0 $ 500 $ 100,000
Consultant fee 0.25% on digital; 0.40% on Premium (account balance over USD 100,000) 0.25% on all account balances 0.89% on most account balances; reduced fee for balances> $ 1 million
Live advice Only in the premium plan No Yes
Harvesting tax losses Yes, on all taxable accounts Yes, on all taxable accounts Yes, on all taxable accounts
401 (k) support Yes, only in the premium plan No Yes
budgeting No No Yes

Improvement accounts and options

In the first years of Betterment’s existence, a single investment account was offered, which served as a single plan. But that has changed. They continue to offer basic investment accounts, but now they give you a choice of several investment options.

Improvement digital

This is Betterment’s basic investment plan. Neither a minimum initial investment nor a running minimum balance is required. Betterment charges a one-time fee of 0.25% on all account balances.

You can add other portfolio variations as well, with the exception of the Goldman Sachs Smart Beta Portfolio, which requires a minimum balance of $ 100,000.

Improvement bonus

Betterment Premium works similarly to the Digital Plan, but offers a higher level of service. The plan offers external account synchronization so that Betterment has an overview of your overall financial situation at a high level. External investment accounts can help Betterment better coordinate your portfolio allocations with assets held in external accounts. You can also make recommendations to better manage these external accounts.

Perhaps the biggest benefit of the Premium plan is that it gives you unrestricted access to Betterment’s certified financial planners. In this way, Betterment competes more directly with traditional investment advisers, but with a robo-advisor component.

You need a minimum of $ 100,000 to invest in the Premium plan and the annual consultation fee is 0.40%. This is only a fraction of the usual 1% to 2% typically charged by traditional investment advisory services.

Betterment Cash Reserve

The account pays a floating rate that is currently set at 0.40% APY. Betterment does not hold these funds directly, but invests them through participating program banks.

There is no fee for this account and you can move money as often as you want. And for those with very high cash balances, the account is FDIC insured through the program banks for up to $ 1 million.

Improving Socially Responsible Investing (SRI)

SRI portfolios are becoming increasingly popular in the robo-advisor space. It involves investing in companies that meet certain standards for social, environmental and governance guidelines. An improvement shows that the ETFs they use in their SRI portfolio increased their CSR scores by 42%.

SRI portfolios work with both the Digital and Premium plans and use a similar investment method. However, they are making certain changes and holding SRI-based ETFs instead of the ETFs used in non-SRI portfolios.

SRI portfolios do not require a minimum balance and no additional fees. And like their digital and premium plans, taxable SRI investment accounts capitalize on the harvest of tax losses.

Flexible portfolios for improvement

The keyword in the name is “flexible” as the main feature is to add personal options to your portfolio assignments.

This is done by adjusting the individual asset class weights in your portfolio. For example, if you have a 7% allocation in emerging markets, you can increase that to 10% if you think the sector is likely to outperform others. You can also decrease the allocation if you feel uncomfortable.

Tax coordinated portfolio for improvement

This is less of a formal portfolio and more an investment strategy. It must be used in combination with a taxable investment account and a tax-protected retirement account. Betterment will then allocate investments based on their tax implications.

For example, income generating assets that generate high dividend and interest income are held in a tax-protected account. Investments that are expected to generate long-term capital gains are held in a taxable investment account as you can benefit from lower tax rates on long-term capital gains.

Goldman Sachs Smart Beta

This option is intended for the more discerning investor and requires a minimum account balance of $ 100,000. And since this is a high risk, high return investment, a higher risk tolerance is also required.

Betterment uses the same basic investment strategy as in other portfolios. However, it is an actively managed portfolio that is being adjusted to outperform the general market. Securities are bought and sold within the portfolio and can include either individual securities or Smart Beta ETFs.

The portfolio has many variations, including a wide range of allocations. The stocks are selected based on four qualities: good value, strong momentum, high quality, and low volatility.

And as with other portfolio variants that Betterment offers, there is no additional fee for this option.

BlackRock Target Income Portfolio

Betterment recognizes that some investors are more interested in income than growth. This is especially true for retirees. The BlackRock Target Income Portfolio invests in portfolios based on your risk tolerance. This can mean low, medium, high, or even aggressive.

These categories may seem unusual for an income generating portfolio. While the portfolio seeks to minimize capital risk, it also recognizes that some investors are willing to add risk to their portfolio in exchange for higher returns.

A low risk portfolio may have a higher allocation to US Treasuries. An aggressive portfolio may mainly focus on high yield corporate bonds or even emerging market bonds that have higher interest rates due to a higher risk.

Mending Free Exam

This is a true no fee checking account provided by Betterment Financial LLC in partnership with NBKC Bank. Not only are there no monthly maintenance fees, there are also no overdrafts or other fees. They even reimburse any ATM and foreign transaction fees you incur. And there isn’t even a minimum balance requirement.

You get a Betterment Visa Debit Card with tap-to-pay technology that you can use anywhere Visa is accepted. All account balances are FDIC insured for up to $ 250,000. And as you’d expect from a state-of-the-art company, you can deposit checks into the account using your smartphone.

Check out our full review of the Betterment review.

Main features of improvement

Minimum initial investment: The upgrade does not require any money to open an account. However, you can fund your account with monthly deposits like 100 USD per month. This method makes it easier to use the dollar cost averaging to gradually get into your portfolio positions.

Available account types: Joint and individual taxable investment accounts as well as traditional Roth, rollover and SEP IRAs. Betterment can also host trusts and non-profit accounts.

Realignment of the portfolio: Comes with all account types. Your portfolio will be rebalanced if your asset allocations deviate significantly from your goals.

Automatic dividend reinvestment: With Betterment, the dividends received in your portfolio are reinvested according to your target allocation.

Betterment Mobile App: You can access your Betterment account on your smartphone. The app is available for both iOS and Android devices.

Customer contact: Available by phone and email Monday through Friday, 9:00 am to 8:00 pm (Eastern Time).

Account protection: All Betterment accounts are covered by SIPC insurance for up to $ 500,000 in cash and securities, including up to $ 250,000 in cash. SIPC covers losses due to broker defaults, not those caused by declines in market value.

Financial advisory packages: Betterment offers one-hour conference calls with live financial advisors on a variety of personal finance topics. Five topics are covered:

  1. First steps package: This package gives new users the professional confidence they need when a professional evaluates their account setup. $ 199
  2. Financial checkup package: This package goes one step further and offers the customer a professional opinion on his portfolio and his financial situation. $ 299
  3. College planning package: As the name suggests, this package helps parents who are investing with the goal of paying for their children’s college education over the next 5 to 18 years. $ 299
  4. Marriage planning package: Bringing finances together can be tricky. That’s why Betterment created this plan to help engaged couples and newlyweds thrive when they combine their lives and assets. $ 299
  5. Pension planning package: Your investment goals and strategies will change as you near retirement. This particular package will help you achieve the goal in order to achieve it. $ 299

Pension savings calculator: Robo-advisors are popular retirement account options. For this reason, Betterment offers the calculator with which you can project your age needs. By entering basic information into the calculator (it will sync external accounts if you have a Premium account – including employer-sponsored retirement plans), it will let you know if you are on track to meet your goals, or if you are Need to make adjustments.

How to sign up for a Betterment account

The Betterment sign-up process is one of the most user-friendly for any broker. It includes easy-to-follow instructions and a streamlined registration process that users can navigate through in minutes.

First start the process by clicking the button below.

After the initial sign-up process, users can expect a simple transaction when transferring money to the account, much like transferring money from a check to a savings account.

When you start the registration process, you have a choice of four different investment objectives:

I decided to “invest in retirement”. You will be asked for your current age and annual income, and then given a selection of accounts to use. This includes a traditional, Roth or SEP-IRA or even an individual taxable account. I chose a traditional IRA.

Based on a 30-year-old with an income of $ 100,000, Betterment makes the following recommendation:

You even have the option of listing the specific asset assignments. After you have clicked “Next”, you will be asked to enter your email address and create a password. You will then be taken to the application where you will be asked for general information including your name, address, phone number and how you found out about Betterment.

Once your account is set up, you can top up instantly by connecting your bank account or setting up recurring deposits.

You can also set up other accounts, such as B. “Manage expenses by check” or “Invest for a long term goal”.

Why you should open an account with Betterment

While almost anyone who invests can benefit from online portfolio management and advice, this service is definitely aimed at certain types of investors. In most cases, Betterment works best for:

  • Hands-off investors who have some investment knowledge – Since it does the heavy lifting for you, it’s best for investors who want a hands-off approach to their investment portfolio. Passive investors can leave the logistics to Betterment while they use online account management to keep track of their accounts.
  • Beginners who need help – Beginners who are just learning the ropes can turn to Betterment for low-fee online portfolio management. The many online tools and the user-friendly interface make it easier for beginners to understand basic financial concepts and investment strategies.

Robo-advisors are growing in popularity and could easily replace personal advisors in the near future. With lower fees and advanced software that can maximize results, investing online is sure to gain an edge.

Whether Betterment is right for you depends on your individual needs and investment goals. If you’re a hands-off investor looking to expand your retirement savings plan without paying huge fees, Betterment might be ideal. In addition, beginners can benefit from the online tools and investment education on the Betterment website.

If you think Betterment investments are exactly what your portfolio needs, open a new account today.

However, if you find that a more hands-on approach will serve you better, check out the other options for online brokerage accounts. As a certified financial planner, I have had the opportunity to work with several of these platforms and have performed the following reviews:


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