If you want a hands-off approach to your investment portfolio, Betterment is for you. Here's my Betterment review.
Many people worry about investing and choosing an online broker that will work for them. There are many brokerage options out there, and that means that you have to carefully consider the best option for you. If you are looking for straight-up simplicity for the long-term, it's hard to beat Betterment.
I use Betterment to manage my own investment goals, and it's worked well for me.
Betterment Review: Manage Your Financial Goals
One of the earliest robo-advisors, Betterment is kind of the OG of the space. Rather than forcing you to figure out how to invest your money, you can set up your account and Betterment will use your risk tolerance and modern portfolio theory to put together an account that works for you.
I love that it's possible to sign up for a variety of goals. My accounts include:
- Roth IRA
- Rollover IRA — from a work 401(k)
- Travel fund
- Savings — called Cash Reserve
- Checking — shiny and new
Each goal comes with its own risk level. For example, my retirement accounts have a 90/10 stock/bond split. However, my travel fund is a little more conservative, with a 58/42 stock/bond split. (I recently updated my travel fund split. It used to be a 77/23 split.)
The idea is that you can put money to work on your behalf, and reap the benefits, based on what kind of tax treatment you want for the money, as well as when you think you might access it.
Signing up for Betterment
The signup process for Betterment is very easy. It takes just a couple of minutes. I was able to sign up quite quickly and begin the process of setting up my asset allocation. The following accounts are available with Betterment:
- Individual taxable
- Joint taxable
- IRA (Traditional, Roth, SEP, Rollover)
Betterment also allows you to set up goal-based accounts. You can set up an account designed to help you build your emergency fund, save up for a house, or do any number of other things. Really, it's up to you.
Interesting features offered by Betterment
Since its inception, Betterment has been adding new features, and one of my favorite features is how it manages tax reporting. For those with non-Roth accounts, Betterment's tax tools can also help you better harvest losses. Betterment will help you figure out when to sell, as well as help you match up capital gains and losses more effectively.
On top of that, Betterment also offers financial planning packages starting at $199. Some of the ways you can benefit include:
- Getting started
- Financial checkup
- College planning
- Marriage planning
- Retirement planning
It's also interesting that Betterment is also getting into the banking services game. You can get an FDIC-insured account, called a Cash Reserve, with a competitive yield. Plus, Betterment also offers a checking account. I'm eligible for checking and waiting to receive my debit card.
Finally, it's possible to sync up outside accounts to pull in information about what's going on in other places. This feature can be useful since Betterment offers a two-way sweep feature that will analyze an outside account and automatically move money into savings — and out — automatically.
Personally, I'm not fond of the two-way sweep feature. While it's nice in theory, I generally have an idea of where I want my money to be working on my behalf, so it's unnecessary for me to use an auto feature like that.
How does Betterment build your portfolio?
As you sign up for Betterment, you'll answer basic questions about your name and address, and share your Social Security number, as well as share information about your basic goals.
Since I opened a Roth IRA as my first account (my first Roth was a financial mistake), the main question asked was when I hoped to retire. Betterment picks an asset allocation for you, using ETFs to accomplish your goals. In my case, Betterment is using an allocation of 90% stocks and 10% US Treasury bonds. If I want to tweak my goals or asset allocation, I can do so fairly easily.
Betterment automatically keeps you on track by adjusting your portfolio every three months — or when your asset allocation strays by more than 5%.
Asset allocation is considered one of the most important aspects of long-term investment planning, and that is what Betterment focuses on for you. I also like the Betterment makes it easy for you to see your portfolio composition and makes it easy to get answers to the “why” questions you might have.
Betterment's transparency with why certain ETFs are chosen, and the reasoning behind other moves, is refreshing and adds an educational dimension to Betterment's offering. In addition to offering basic portfolios, you can also choose socially responsible investing, target income, and smart beta portfolios that offer different options, based on your preferences.
Finally, you do need to go through a verification process with Betterment before your initial deposit is taken from your bank account. You will need to confirm your email, as well as confirm two small deposits made to your bank account to verify the situation.
The confirmation email came very quickly in my case, but it can take up to two days for the bank deposits to be made. Until then, all you can do is manage your asset allocation and set up details like adding beneficiaries.
Using ETFs to build your Betterment portfolio
I also like the focus on ETFs from Betterment. Investing in individual equities requires more effort and attention. ETFs also allow you to take advantage of large swaths of market performance.
For many investors, using ETFs can mean that it's possible to take a more aggressive position than the generally accepted 80/20 stock/bond allocation. Indeed, my portfolio is 90/10, and I'm thinking of changing to maybe 95/5 or even 100/0. But we will see. So far this year, my performance has been much better than if I had a less aggressive asset allocation.
Betterment also offers real estate exposure through the use of REITs. This makes it appealing on many levels, especially since it adds another asset class to your portfolio.
How much does Betterment cost?
- 0.25% for accounts up to $100,000
- 0.40% for Premium accounts above $100,000
There are no minimum requirements with Betterment, which means you can start anytime you want — and contribute as much as you want.
Betterment Review: Pros and Cons
- Easy to invest: Makes it simple to get started investing with a small amount of money. You don't have to make a lot of decisions or worry about stock picking.
- Tax optimization: It's great that you can take advantage of tax-loss harvesting, and that Betterment will help you put different types in assets in accounts where they'll do the most good.
- Manage different goals: Love that you can set up different goals, with different asset allocations. This is a great help if you're interested in using a bucket strategy to manage your investments.
- Portfolio tools: Use the projection tools to run different scenarios and see if you can tweak your contributions and asset allocation to better reach your goals.
- No active trading or stock picking: I'm an indexer who's kind of lazy and doesn't want to bother with stock picking. But for those who want a little more control over their portfolios, Betterment might not be the best choice.
- No 529 account: While there's a college planning package, you can't actually invest in a 529 with Betterment.
- No custodial accounts: I'm also bummed that there still aren't custodial accounts. I have to manage my son's investment account in a different place.
Final Word: Who Should Use Betterment?
Betterment is likely best for those who want an easy way to use investing to meet various goals. It's a great robo-advisor for someone hoping to manage their money easily and get a solid overview. I love using Betterment because I'm a set-it-and-forget-it sort of indexer.
I use Betterment to save for retirement, keep liquid cash and also to meet my short-term travel goals with the help of my travel fund.
If you want an easy way to start investing for different goals, and you don't want to tinker a lot, Betterment can be a solid way to move forward and make the most of your money.