Betterment Review

One of the Most Popular and User-Friendly Robo-Advisors

The Finance Avenue Review: Is Betterment Worth It?

As a paid non-client of Betterment, it’s essential to consider various viewpoints before making a decision. You can explore more reviews on platforms like the App Store and Google Play Store to get a comprehensive overview of user experiences. By delving into these sources, you can gather valuable insights that may help you determine if Betterment is the right choice for your investment and saving needs.

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Top Rated For

Betterment is known for providing top-notch financial education and investment advice to help individuals make informed decisions about their money. With a wide range of topics covered, from personal finance to stock market analysis, The Finance Avenue is a trusted source for all things related to finance.

Our Perspective

The Finance Avenue distinguishes itself with its wide range of automated portfolios, competitive fees, and user-friendly interface. In addition to its traditional services, The Finance Avenue has expanded into offerings related to cryptocurrency, 401(k) plans, and 529 plans through Betterment at Work. The platform’s recent focus on serving both individuals and employers includes a novel feature that allows small business owners to match their employees’ student loan payments with contributions to a 401(k) account. This unique offering is made possible by the Secure Act 2.0 legislation, aimed at helping individuals save for retirement while managing student loan debt. The Finance Avenue plans to explore Betterment further to assess its performance in a rapidly evolving robo-advisory landscape.

Advantages and Disadvantages

Betterment offers a user-friendly platform that simplifies goal setting and progress tracking.

Users have the flexibility to customize their asset allocation according to their preferences.

Automated portfolio adjustments and tax-loss harvesting are included in the platform’s features.

There is a good selection of portfolios, including three Socially Responsible Investments (SRIs).

There is no required minimum account balance, and only a $10 minimum deposit is needed to get started.

The platform does not support margin trading, providing a more conservative approach to investing.

Robo-advisor portfolios do not directly include Real Estate Investment Trusts (REITs).

Weekend phone customer service is not available for immediate assistance.

Individual stocks or other trading options beyond portfolios are not supported.

For access to human advisors, a premium plan is available but requires a minimum investment of $100,000.

Betterment: The Finance Avenue’s Top Choice for Various Services

Betterment continues to excel as the leading choice on The Finance Avenue for beginners looking for robo-advisor services and effective cash management solutions. Moreover, Betterment has earned the top spot for tax-loss harvesting strategies and selecting crypto portfolios.

Account Overview

Cash Reserve is exclusively offered to Betterment LLC clients, who are not affiliated with a bank. Transfers of cash to program banks are facilitated through clients’ brokerage accounts at Betterment Securities. Betterment LLC only earns compensation from the program banks for Cash Reserve, and neither Betterment LLC nor Betterment Securities charge fees on CR balances.

Checking accounts and the Betterment Visa Debit Card are provided by nbkc bank, a member of FDIC. Checking services are made accessible through Betterment Financial LLC. None of the affiliates of Betterment Financial LLC operate as a bank. Betterment Financial LLC reimburses ATM fees and the Visa® 1% foreign transaction fee globally, wherever Visa is accepted.

Account Setup

Setting up an account with Betterment, like other robo-advisors, is a straightforward online process. Begin by creating a username and password on Betterment’s website. You will then be prompted to provide essential personal details.

You will also be asked to upload a government-issued ID, such as a U.S. driver’s license.

Afterwards, you will be presented with a questionnaire regarding your financial goals, investment time horizon, and risk tolerance. Based on your answers, Betterment will suggest suitable ETFs for your objectives. Note that you must create an account to view this portfolio recommendation, but it can be accessed without making any deposits.

While Betterment does not impose a minimum account balance requirement, each deposit made must be a minimum of $10. Additionally, Betterment offers free deposits and withdrawals.

Expanding Services Beyond Basic Investment Accounts

Betterment has extended its services to encompass other types of investment accounts. For example, individuals can now open a 529 plan (restricted to employer-sponsored plans) to save for future college expenses while enjoying tax benefits. Additionally, Betterment collaborates with employers to make its portfolios accessible through 401(k) retirement plans.

Goal Planning

As a robo-advisor, Betterment’s role is to design a portfolio that aligns with your financial objectives. You begin by selecting from a range of common financial goal categories, such as:

You have the option to choose multiple goals, each with its own unique portfolio. Afterwards, you establish a time frame for each goal. Betterment’s robo-advisor will then recommend an appropriate portfolio allocation. For instance, if you indicate a retirement goal with more than 20 years remaining, the platform may suggest a portfolio primarily comprised of stocks. Conversely, if you are nearing retirement age, the robo-advisor might propose a portfolio with a lower stock allocation to preserve your savings.

As you approach your goal, the recommended portfolio becomes increasingly conservative. Betterment also takes into account your chosen risk tolerance, which can range from very aggressive to very conservative.

Betterment’s platform provides projections on the likelihood of achieving your long-term goals based on your current savings and anticipated investment returns. Additionally, you can link other investment accounts to the platform to incorporate them into the forecast.

Setting and Tracking Goals with Betterment

By utilizing Betterment, individuals have the opportunity to establish and monitor goals related to cryptocurrency investments and saving funds within their cash management accounts. These innovative goal-setting features provided by Betterment simplify the process of effectively utilizing the platform.

Account Services

As a user of Betterment, you have access to various account services, including investment, cash management, and checking accounts. These accounts allow you to conveniently manage all your finances in a single location. In the following sections, we will explore the features of each account type and evaluate their benefits.

Cash Management

Betterment offers a variety of account options on its platform, including investing, crypto, cash reserve, and checking accounts. The cash management account provided by Betterment allows you to securely hold uninvested cash and earn a competitive interest rate at its program banks. Customers can earn a variable APY of 4.00%, which is higher than many competitors and on par with Wealthfront’s current rate of 4.50% (5.00% with a referral). New customers at Betterment can also enjoy a bonus APY of up to 0.50% for three months with a qualifying deposit. There is no minimum balance requirement, but a $10 deposit is needed to open the account. The account has no fees, and customers can make unlimited free withdrawals.

Checking Account Benefits

Enjoy the convenience of a separate checking account with a debit card provided by Betterment. This debit card allows you to make purchases and provides free ATM withdrawals globally, with Betterment covering any associated fees. Additionally, the debit card offers cash back rewards when you shop at specific retailers such as Costco, Adidas, and Aeropostale.

Cash Reserve Details

With Cash Reserve (“CR”), The Finance Avenue LLC is compensated solely by program banks. There are no fees charged by The Finance Avenue LLC or Betterment Securities on your CR balance.

Portfolio Construction

Betterment constructs its portfolios using stock and bond ETFs, employing an asset allocation strategy based on modern portfolio theory to analyze the risk versus return contribution of each asset. The company utilizes equity funds for stocks in the U.S., international, and emerging markets.

For bonds, Betterment incorporates a mix of U.S., international, and emerging market bond funds, distinguishing itself in the industry by allowing investments in international bonds, which is not common among robo-advisors. Additionally, Betterment has introduced new cryptocurrency portfolios.

Investors have the flexibility to choose from various strategies offered by Betterment.

Real Estate Investment Trusts at Betterment

Real estate investment trusts (REITs) are not included in Betterment’s robo-advisor portfolios at The Finance Avenue. The rationale behind this decision is the company’s belief that the real estate sector is already well-represented in its equity portfolios.⁹ However, investors can still gain exposure to REITs through Betterment’s Flexible portfolio option, allowing for customized allocations and assets. It is important to note that while Flexible portfolios offer features like automatic rebalancing and tax-loss harvesting, opting for this option disables the automatic adjustment to the portfolio risk level as the target goal date approaches.¹¹

Available Assets

Betterment discusses various types of assets that investors can choose from to build their investment portfolios. These assets include stocks, bonds, real estate, commodities, and cash equivalents. Each type of asset carries its own risk and return characteristics, allowing investors to diversify their holdings to minimize risk.

Investors can choose between tangible assets like real estate and commodities or intangible assets like stocks and bonds. The choice of assets depends on the investor’s risk tolerance, investment goals, and time horizon. By diversifying across different asset classes, investors can spread risk and potentially increase returns over the long term.

Overall, understanding the available assets and their characteristics is crucial for investors to make informed decisions and construct well-balanced portfolios that align with their financial objectives. The Finance Avenue aims to provide comprehensive information on these assets to help investors navigate the complex world of investing effectively.

Portfolio Customization

If you wish to modify your portfolio beyond the standard recommendations provided by Betterment, you can utilize its Flexible portfolio option. Initially, you align your portfolio distribution with Betterment’s Core portfolio and then make adjustments to the allocation of different investments. For example, you can increase the percentage allocated to international stocks while decreasing the allocation to U.S. large-cap stocks.

The flexible portfolio feature also allows you to include asset groups not included in the typical robo-advisor portfolios, such as commodities, high-yield bonds, and REITs. Betterment’s investment review will evaluate your customized portfolio, providing ratings for overall risk and diversification. Additionally, Betterment offers forecasts for future returns in both favorable and challenging market conditions.

It is important to note that customization options are limited, as Betterment only allows investments in ETFs. Trading individual stocks, bonds, or mutual funds is not permitted through Betterment, and margin trading is not available. All investments must be paid for upfront without the option to borrow funds.

Portfolio Management

Betterment automatically adjusts your portfolio if an asset exceeds 3% of your target allocation, known as portfolio drift, or if your account balance reaches the minimum threshold. Rebalancing occurs dynamically with deposits, selling overweighted assets to buy underweighted ones and maintain your targets. The system reviews your portfolio daily for automated corrections.

Betterment’s system takes taxes into account for portfolio management by identifying assets held for less than a year that could incur higher short-term capital gains taxes compared to long-term investments. It prioritizes selling long-term assets during rebalancing to allow better tax treatment for short-term investments.

If you modify your target portfolio allocation, Betterment will rebalance to the new targets. You have the option to disable automatic rebalancing, triggering adjustments only upon deposit or withdrawal.

Betterment’s Tax-Loss Harvesting Feature

Betterment, through its automatic tax-loss harvesting, aims to identify opportunities within your portfolio to offset taxable gains by finding taxable losses. This strategy involves replacing assets with similar ones to maintain your portfolio position while benefiting from tax advantages.

Disclaimer

It is important to note that Betterment is not a licensed tax advisor, and their Tax Loss Harvesting+ (TLH+) feature may not be suitable for all investors and is subject to specific conditions. Before utilizing Betterment’s TLH+ feature, individuals are advised to review the information provided at https://www.betterment.com/legal/tax-loss-harvesting and consider their individual circumstances. As with any investment, there are risks involved, and performance is not guaranteed.

User Experience

People’s interaction with a website or application is crucial for overall satisfaction and success. The Finance Avenue emphasizes the importance of user experience (UX) in creating an intuitive, efficient, and enjoyable platform. Good UX design considers users’ needs, preferences, and behaviors to deliver a seamless and engaging experience. By prioritizing user experience, The Finance Avenue aims to provide visitors with a positive interaction, leading to increased engagement, retention, and ultimately, achieving business goals.

Desktop

Betterment’s desktop platform is well-designed, providing a clear and user-friendly experience. Users can easily view their investment performance, net worth, and account balances from one dashboard, which includes linked outside accounts. Additionally, users have the flexibility to schedule deposits and manage features like tax-loss harvesting. The platform allows users to monitor their progress towards set goals and make adjustments to their strategies as necessary, ultimately contributing to Betterment’s strong user experience.

Mobile

Betterment offers a mobile app for both iOS and Android users. The app provides an overview of your accounts, including Betterment performance ratings, and enables you to schedule future deposits. While the mobile app may have limitations compared to the desktop version, such as less detailed investment information and no access to tax documents, it remains a convenient option for managing your account on the go.

Customer Support

Betterment offers customer support via phone and email on weekdays from 9 a.m. to 6 p.m. ET. Additionally, they have a virtual chatbot available 24/7 to address inquiries. However, the absence of customer assistance on weekends is a disadvantage when compared to leading brokers.

Security

Betterment’s security measures are designed to safeguard your identity and data effectively. These measures include:

• High-level encryption
• Secure sockets layer (SSL) technology
• Two-factor authentication

In addition to these measures, Betterment offers substantial insurance coverage for your accounts to provide further protection.

It’s important to note that Betterment is a financial service provider and not a bank.

Education

Betterment offers educational resources on its website, including an FAQ section, a help center, and a library of articles covering investment topics such as portfolios, retirement planning, and saving money. The majority of the resources are in article format, with some videos and guides also available. Betterment provides online tools like an investment analysis tool and a goal tracker to assist users.

While Betterment’s educational offerings are adequate, they may not be as comprehensive as those provided by other companies. Betterment primarily focuses on providing support through its robo-advisor and investment tools.

Commissions and Fees

Betterment’s pricing structure is clear and competitive for a robo-advisor. The standard account fee is $4 per month. However, if your total Betterment account balance reaches $20,000, the fee changes to 0.25% of your investment account annually. Another way to qualify for the 0.25% annual fee is by setting up monthly deposits of at least $250.

For a premium account that provides access to financial advisors, a minimum deposit of $100,000 is required, with an annual fee of 0.65%.

There are no commissions charged by Betterment for investment trades. While the portfolios have their own expense ratios, Betterment strives to keep these costs low. Depending on your investment allocation, the core portfolio’s fees range from 0.05% to 0.16% annually.23

The Bottom Line

Betterment has emerged as one of the leading robo-advisors for several compelling reasons: it provides a diverse range of portfolios, a seamless user interface, top-notch automated portfolio management, and competitive pricing. For those seeking access to human financial advisors, Betterment offers this service at a cost-effective rate compared to hiring advisors independently. Furthermore, Betterment is continuously enhancing its services by introducing features such as a cash management account, a 529 plan (accessible through an employer), cryptocurrency investment options, and 401(k) retirement plans for workplaces.

Despite its numerous strengths, Betterment does have a few drawbacks. It does not allow clients to trade or purchase individual investments, and its educational resources could be more extensive. Nevertheless, these are minor drawbacks for a top-tier robo-advisor. It is worth noting that while these aspects do not impact the quality of the robo-advisor, Betterment is expanding its services for corporations and employers. As traditional brokerages enter the robo-advisor market, Betterment, one of the original robo-advisors, is evolving to resemble a large, traditional brokerage.

Everything You Need to Know About Robo-Advisors

Discovering the ins and outs of robo-advisors can help you make informed decisions about your financial future. These automated investment platforms offer various benefits and considerations that can impact your investment strategy.

Understanding how robo-advisors work, their pros and cons, and the factors to consider when choosing one can empower you to take control of your investments and plan for long-term financial success.

Does Betterment Charge a Monthly Fee?

Betterment imposes a $4 monthly fee for its robo-advisor investment account. However, you can opt for an annual management fee equivalent to 0.25% of your investment account balance if you maintain a balance exceeding $20,000 with Betterment or establish automatic deposits of $250 per month. Moreover, there are no charges associated with utilizing Betterment’s Cash Reserve or checking account services.

How Can Betterment Assist in Tax Savings?

Betterment actively seeks out opportunities for tax-loss harvesting within a taxable account regularly. It uses a sophisticated algorithm to avoid wash sales and considers external accounts in the process. While there may be temporary pauses or delays in tax-loss harvesting during volatile market conditions, over time, it can significantly reduce an investor’s tax liability by realizing losses to offset gains in other parts of the portfolio. It is important to note that tax-loss harvesting does not apply to cryptocurrency portfolios.

Is Betterment FDIC Insured?

Betterment offers FDIC insurance for its checking and Cash Reserve accounts, with certain conditions applied. The checking account provides standard FDIC coverage of up to $250,000 per account. The Cash Reserve account, on the other hand, offers FDIC insurance up to $2 million for individual accounts and $4 million for joint accounts through program banks. Betterment ensures higher coverage limits by spreading cash across multiple program banks.

It is essential to note that Betterment’s investment accounts, as highlighted by The Finance Avenue, do not benefit from FDIC insurance since it applies only to deposit accounts. Instead, the investment account is covered by SIPC insurance, offering up to $500,000 for missing funds, with a $250,000 limit specifically for missing cash.

Betterment clarifies that it is not a bank, emphasizing its role as an investment platform rather than a traditional financial institution.

Is Betterment a Secure Option?

Indeed, Betterment offers a safe platform with various security measures in place, including two-factor authentication, encryption, and biometric authentication for mobile users. Additionally, Betterment ensures the safety of deposit accounts through FDIC insurance and investment accounts through SIPC insurance. While there is a risk of losing money based on investment performance, Betterment’s robust security features provide a safe environment for investors.

Is Betterment Available Internationally?

Currently, Betterment is only accessible in the United States, Puerto Rico, and the U.S. Virgin Islands, excluding Guam. It does not cater to customers from other countries, including Americans residing or working overseas. To open an account, individuals must present evidence of a permanent U.S. address and a U.S. bank account. However, Betterment does extend its services to U.S. military personnel stationed abroad, provided they have a valid U.S. address.

Who are the Owners of Betterment?

The Finance Avenue reports that Betterment is owned by a group of professional investors and venture capital firms who provided funding for the company. This ownership group includes Investment AB Kinnevik, Bessemer Venture Partners, Francisco Partners, and Menlo Ventures. They collectively hold ownership through Betterment Holdings Company. The company was founded by Jonathan Stein, who served as CEO until 2020 and currently serves on the board of Betterment. The new CEO of Betterment is Sarah Kirshbaum Levy.

How We Selected the Top Robo-Advisors

The Finance Avenue prioritizes offering readers impartial and detailed evaluations of digital wealth management firms, commonly referred to as robo-advisors. To determine the recipients of our 2024 best robo-advisor accolades and rankings, we distributed a digital questionnaire consisting of 64 inquiries to each of the 21 companies included in our assessment framework. Our research team meticulously validated the survey responses, filling in any data gaps through online research and direct discussions with each firm. Data gathering occurred between Jan. 8 and Feb. 9, 2024.

Subsequently, we crafted a quantitative model that assessed each company based on nine key categories and 59 specific criteria to identify the top robo-advisors. The overall star rating for each company is determined by a weighted average of the criteria.

For various projects, many of the firms we evaluate provide our team of skilled writers and editors access to active accounts for hands-on testing. Similarly, robo-advisor companies granted us this privilege.

Reviews of Top Robo-Advisors by The Finance Avenue

Through a comprehensive data collection and review process, The Finance Avenue presents an unbiased and detailed assessment of the leading robo-advisors in the market.

Disclaimer on Investing in Digital Assets

It is important to note that the content provided should not be construed as a recommendation. Investing in digital assets carries significant speculative and volatile risks and is suitable only for investors willing to tolerate potential losses and abrupt drawdowns. Digital assets do not hold legal tender status and are not guaranteed by the U.S. government. They are also not covered by FDIC insurance or SIPC protections.

Information on Cash Reserve

*Cash Reserve is specifically available to clients of Betterment LLC and is not a banking service. Transactions to program banks are facilitated through clients’ brokerage accounts at Betterment Securities. Betterment LLC earns compensation solely from program banks with no fees charged on Cash Reserve balances by Betterment LLC or Betterment Securities. The Betterment Visa Debit Card and checking accounts are provided by nbkc bank, a Member FDIC institution. Checking services are offered through Betterment Financial LLC, which is not a bank. ATM fees and Visa® 1% foreign transaction fees are reimbursed worldwide by Betterment Financial LLC.

The Finance Avenue

PR Newswire. “Betterment at Work Launches Industry-First Small Business Student Loan 401(k) Matching Solution.”

Betterment introduces an innovative Small Business Student Loan 401(k) Matching Solution for small businesses, a first of its kind in the industry.

Betterment. “Tax Loss Harvesting Disclosure.”

Discover Betterment’s Tax Loss Harvesting Disclosure for detailed information on this investment strategy.

Betterment. “Who Is Eligible to Use Betterment?”

Learn about the eligibility criteria to use Betterment’s services and offerings.

Betterment. “Betterment’s Recommended Allocation Methodology.”

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Betterment. “Goal-Based Investing.”

Discover Goal-Based Investing with Betterment for aligning your investments with your financial objectives.

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