A digital investment firm with low fees, Betterment offers automated investing advice (“robo advisors”) to its customers. Founded in 2008, it has helped over 200,000 people reach their financial goals and managed over $7 billion in funds. It gives mid-level investors the chance to improve your portfolio without spending a lot of money on financial advisors.
Betterment’s user-friendly online tools enable even novice investors to keep track of their finances, and some of the company’s products include help from financial planning experts. The Betterment reviews online by experts and current customers consistently give the company between four and a half and five stars.
Betterment supports the following account types:
Betterment offers three different account plans, two of them with human advisors.
Betterment Digital gives investors with small or moderate deposits the chance to keep track of their investments online only, without worrying about in-person meetings with advisors. This basic account has no minimum deposit and a 0.25% yearly fee.
Betterment Plus includes all the online tools of the Digital product, with one consultation a year wit a member of Betterment’s certified financial planning team. It requires a $100,000 balance and 0.40% of your yearly balance.
Betterment Premium gives clients with more complex financial needs unlimited consultations with the company’s certified financial planners every year. A Premium account requires a $250,000 balance and 0.50% of your yearly balance.
You can safeguard your Betterment account by turning on Two-Factor Authentication (2FA) in your security tab. This feature helps protect your information even if a hacker has obtained your password.
You’ll receive a free month of management services when you open an account with at least a $10,000 deposit.
How the Product Works
Signing up online only takes a few minutes. After you let Betterment know your financial goals, age, how much money you earn and other information, the robo-adviser decides on the best investment strategy for your needs. You can manually set the asset allocation if you want (40% bonds, 60% stocks, etc.). You can set up an automated deposit from your paycheck, or transfer money into your Betterment account whenever you want.
Open a standard account, IRA or Roth IRA, and you’ll get the ability to move funds from an outside account into the Betterment account in weeks. You’ll fill out an online form, answer a few questions, and you can earn more from investments from the comfort of your Smartphone, tablet or desktop computer.
Betterment trades 12 classes of ETFs (exchange-traded funds). The stock ETFs include US Large, Mid and Small Cap Value, International Developed Markets and Emerging Markets. Bond ETFs range from Short-Term Treasuries, USMunicipal Bonds, Inflation-Protected Bonds to US Corporate Bonds and International Bonds.
Young investors may have most of their money placed in bonds and growth-oriented stocks, while people closer to retirement age will see more bonds and stable stocks in their online portfolio.
A feature called SmartDeposit withdraws money from your linked bank account and add it to your Betterment account when funds reach a predetermined amount.
Tax Loss Harvesting means selling a security after its experienced a loss. By doing this, you avoid taxes on income and gains. Betterment replaces the first security with a similar one, maintaining expected returns on investment. This automatic feature is included free of charge on all accounts.
Automatic Rebalancing realigns your account back to its original asset allocation. Betterment’s automated system sells stocks or buys bonds to retain the stock/bond ratio in your portfolio.
Betterment buys fractional shares to ensure all cash in your account is invested.
You can set up a Tax-Coordinated Portfolio from your online summary page. Select the IRA or 401K you want to include in the portfolio, your taxable goal and the allocation or the entire portfolio. The digital financial advisor system will locate and place accounts with the least tax advantages in the tax-coordinated portfolio. The reorganized accounts keep your allocation the same while reducing your tax payments.
Add accounts to your portfolio at any time using the manage button on your summary page. You’ll still receive the same tax forms at the end of the year (1099-DIV, 1099-R, 1099-B).
Betterment invests in ETFs instead of mutual funds, which provides tax savings for all three types of accounts. Their algorithm sells securities with long- term gains before short term gains, and securities with losses before gains. This method results in fewer short-term capital gains.
After you create your online account, you can use the following tools:
Basic and Advanced Retirement Calculator
External Accounts Analysis
iPhone and iPad Apps
Link outside accounts, including 401Ks, using the Retire Guide to compare your current savings with the amount you want for retirement spending. It will approximate when you’ll be able to retire and if you’re saving enough money. It also lets you upload Social Security Data.
You can set goals for one or more trust beneficiaries and schedule cash transfers. The online tools include performance graphing so you can see potential long-term outcomes of your trusts.
Using a Tax-Coordinated Portfolio may show you a minimal amount of savings when you close your account if you’re a short-term investor.
Only customers with $100,000 or more to invest can talk to an advisor over the phone. You’ll have to use automated advice only (Betterment Digital) if you have a smaller account balance.
Betterment lacks direct indexing, a service that lets you buy single securities held by an index instead of having an ETF track the index. A few other robo advisors, including Wealthfront, offer direct indexing.
You’ll have to look elsewhere for 529 Plan Accounts if you’re saving for your children’s or grandchildren’s college tuition. Betterment doesn’t offer them.
The Betterment Digital program works best for investors with a low balance and retirees. The Plus and Premium products offer the financial advice necessary if you have multiple income streams, property, and other complicated investments, these accounts may be better if you prefer to speak to an advisor occasionally instead of relying solely on the digital system.
Some investors think they can manage their portfolios, only to lose interest months or years down the road. Betterment takes care of decisions for you through its algorithm (and financial advisors, if you’ve chosen the Plus or Premium services). A Betterment Digital account will offer you consistent and accurate investment opportunities, and you won’t need to worry about scheduling appointments with your broker or following the markets.
If you choose the Plus or Premium accounts, Betterment’s certified financial planners can help you with second opinions on your financial plans, retirement planning and spotting hidden fees.
Betterment even offers a “Rollover Concierge” service to help you rollover your 401K or IRA. Their personalized service makes the transition easier if you don’t have the time or experience to deal with rollovers on your own.
Uber recently partnered with Betterment to offer retirement planning for their drivers.
Betterment’s no minimum deposit and easy-to-use, secure online tools make it an ideal digital financial advisor for new investors. There aren’t any fees for
making withdrawals or closing accounts, and Betterment reviews from many sources praise the company’s low price, apps, and customer service.