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.
Update: Since writing this review I’ve had to move my money out of Betterment. However, it worked really well to help me manage my investing goals for almost a decade. I still think it’s a good tool for many people, especially beginning investors. However, it’s up to you to decide if it’s the right brokerage for you.
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.
Detailed 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 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.
How Do I Use Betterment in My Own Finances?
One of the reasons I love Betterment so much, and praise it so highly, is because I actually use Betterment in my real life.
Many people have asked me how I use Betterment in my own finances to make a difference. So here’s a look at how effective Betterment can be when it comes to hands-off investing and using your money as a tool to reach your goals.
Travel fund — taxable savings to allow me to travel more
One of the coolest things I use Betterment for is my travel fund. Each month, a set amount of money is automatically transferred into my Travel goal on Betterment. The split, as I mentioned, is more conservative than my other stock/bond split.
The good news, though, is that money still grows at a faster pace than it would if I put it in a high-yield savings account. So, the money goes in, it grows, and later, I can use it.
Normally, I pay for my travel using a credit card in combination with other rewards programs. This makes it possible for me to get credit card points and other rewards. Once the money is on the credit card, I go ahead and sell the required assets in my Travel goal. The good news is that I don’t usually have to liquidate everything in that goal. Instead, I just liquidate what I need to pay the credit card bill before the balance begins accruing interest.
Generally, any capital gains I end up with are relatively small, so the impact on my taxes isn’t big. And, if I do have to sell at a loss, I can at least deduct it. That’s right: if I have to sell at a loss, my vacation is now tax-deductible.
This works well for me because I have the capital I need, and what I don’t use keeps growing. I used this tactic to pay for a Viking River Cruise for my son and me a couple of years ago. I booked it through Delta SkyMiles Cruises and got triple points for it, plus the other credit card rewards and cash back.
Cash Reserve — last-minute money
I’ve also started using the Cash Reserve account for last-minute money things. It offers a fairly high yield, and I can access the money a little faster than going through the process involved with getting money from the taxable investment account.
I put a set amount of money into that account each month as well. Right now, I’m actually raiding the account because I’ve run into an unexpected situation with my son’s car. Again, I can use my credit card to pay for costs upfront (and get the credit card rewards), but then I can dip into the Cash Reserve for quick cash on small expenses. I’ll use the money to pay off the credit card and move on.
A different account, meant for long-term emergencies, is something else altogether. That account is invested somewhat aggressively and I dip into it for bigger issues. With small issues, I use the Cash Reserve because it’s a smaller account. Once that Cash Reserve gets beyond a certain point (usually about six weeks’ worth of expenses), I move the excess into the long-term emergency savings so it can earn at a potentially higher rate.
In any case, the idea is that I have the ability to move my money around fairly easily with Betterment, and use my money to meet different goals. I’ve always found Betterment accessible for what I need — as long as I leave adequate time for transfers.
Saving for retirement
Obviously, my Betterment account is great for saving for retirement. While I don’t really subscribe to “traditional” retirement, I like that I have this uber-long-term money sitting there, earning interest for the long haul, and able to be accessed later.
Tax-efficient investing is part of my long-term plan, so using Betterment to save for retirement makes sense. The reality, though, is that the travel fund and emergency savings are more effective for me when it comes to day-to-day benefits of using Betterment to invest and meet my financial goals.
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.