Over the course of the past year, I have spent a lot of time researching and experimenting with automated investing or robo-investing platforms.The beauty of robo-investing platforms is that you can get many of the tools and benefits of having your money professionally managed by a broker, but with lower fees and a completely hands off approach that requires little time, thought or effort. Previously, I wrote a review of Wealthfront and have had some money in an account with them for the better part of a year now. During that same time, I created an account with Betterment and rolled over my 401k from a previous employer for Betterment to manage. In this Betterment review, I’ll explain what it is, how it works and some of the pros and cons that I have observed since I’ve been using the platform to grow my money.
What is Betterment?
Betterment is a leading online robo-advising platform that manages your money by placing it in diversified investments with very little hands-on management required of you. They currently have over $4 billion in assets under their management and have been growing rapidly since their launch in 2008. By marrying world-class technology with a team of investment advisors, Betterment strives to provide the greatest returns for your individual risk level.
How does Betterment Work?
Once you fund your account, Betterment will determine an allocation structure for your portfolio of stock and bond ETFs that is matched to your investing goals and level of risk tolerance. Your funds are automatically invested in these assets, rebalanced, optimized and tax harvested over time to provide the highest possible returns.
Is there a minimum investment?
Unlike other automated investing platforms, Betterment does not have a minimum investment. You can start your account with as little as $10.
What are Betterment’s fees?
Betterment does not charge any trade, transaction or rebalancing fees for managing your money. Their fee structure is based on the total amount you have invested in your account with Betterment. Here is a breakdown of the fees that they charge:
- Account balance of $1 – $9,999 = 0.35% annual fee (with $100/mo recurring deposit)
- Account balance of $1 – $9,999 = $3 per month (without recurring deposit)
- Account balance of $10,000 – $99,999 = 0.25% annual fee
- Account balance of $100,000+ = 0.15% annual fee
Fees are charged at the end of each quarter and deducted directly from your balance. Market changes can move you up to a lower fee tier, but will not move you down to a higher fee tier.
Betterment offers a number of features and tactics that will help you pay as little in taxes as possible. These include tax loss harvesting (selling and re-buying stocks when they go down to claim the losses), tax coordination of your portfolio, and TaxMin lot selling (selling certain assets first to minimize capital gains taxes). Additionally, their “Tax Impact Preview” is a unique feature that allows you to see an estimate of taxes you may owe before you take an action such as withdrawing funds or changing your allocation. All of these features are included as standard in your Betterment account. To read more about their tax methodology, you can check out this link.
Smart Portfolio Rebalancing
Betterment uses dividends and cash flows to rebalance your portfolio without selling any assets. This will keep your optimal allocation intact so you can maintain your appropriate risk level for your goals over time.
Low Expense Ratios
Betterment has an average ETF expense ratio of 0.13%, compared to an industry standard of 0.52%, putting more of your money to work in the market as opposed to being used for expenses.
Reliable investing methodology
Betterment’s asset allocation selection criteria is based on Nobel Prize-winning research and diversifies your investment globally using stock and bond ETFs that are selected to provide the highest rate of returns for your goals and risk level.
In addition to automating your investing, Betterment can automate your savings through an algorithm that will automatically deduct unused funds from your checking account. Their “Smart Deposit” feature allows you to set how much money you need to retain in your checking account (to cover a couple of months of expenses), then will make deposits from your checking account into Betterment over the course of each month with the unused funds. This allows your account to grow without having to manually deposit or think about it.
Free portfolio review
RetireGuide is a feature that allows you to link non-Betterment financial accounts and have them reviewed by Betterment. This will not only give you a full picture of your financial health, but will also make recommendations based on the goals that you have communicated to Betterment and tell you how to optimize your allocations across all of your accounts.
Types of Accounts
Betterment offers a number of different types of accounts that you can have them manage. As of right now, they manage just about every type of account, with the exclusion of an active 401k account (like the one you have through your employer – you can still roll over into Betterment) and a 529 college savings plan. Account types that they do manage include:
- Individual Accounts
- Joint Accounts
- Trust Accounts
- Traditional IRAs
- 401k Rollovers
- Roth IRAs
- SEP IRAs
My Betterment Review
I created my account with Betterment just to check out the tool and see if it was something that I was interested in. I was very happy with how quick, easy and intuitive the sign-up process was. I decided that rolling over my 401k from a previous employer would make sense, so I went through the steps to initiate the transfer. I was surprised to find that a step-by-step guide was emailed to me that same day, along with follow ups over the next few days, including contact information of a customer service representative who offered to help me. I got the account rolled over and have had my 401k with Betterment ever since. It is still too early to comment on the returns that I have had, but I’m looking forward to keeping an eye on Betterment and possibly transferring more money there in the future.
How to get started with Betterment
Getting started with Betterment is very easy. You simply create an account, answer questions about your savings and retirement goals, fund your account and you are on your way.
By clicking the button below, you will get six months of management without any fees.
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