Betterment Review

Betterment Review – How it Works

When you create an account Betterment will ask you some basic questions about yourself in order to determine your risk tolerance.

They use these questions as well as your age to determine this.

After answering my set of questions they determined my risk allocation to be 90 percent stocks and 10 percent bonds. Yep, sounds about right to me!

After determining your risk allocation you can then set up your chosen an account (which takes about a minute) and create a goal.

The accounts you can set up are:

• Roth IRA
• Traditional IRA
• SEP IRA
• Trusts
• House Down Payment Savings
• Education Savings (not to be confused for a 529 college savings account, Betterment's Education Savings is not tax advantaged.)
• General Savings (Feel free to name this what you want.)

After setting up your account and linking up your bank info you simply choose a goal and Betterment will give you advice.

How Your Money is Invested

The next thing you’re probably wondering is how will your money be invested?

Well it works like this: Based on your allocation, Betterment will automatically invest your money in a diverse group of Index Funds. (Read: What are index funds?)

Here is an example:

You do no work at all here. You simply deposit your money and Betterment invests it for you. And you can adjust your allocation ratio at any time.

If you feel the allocation they give you is either too risky or too boring simply adjust it to what you prefer!

What About Minimums, Deposits, and Fees?

My favorite part about Betterment?

There are no minimums to open an account and no required automatic deposits. This is perfect news for beginner investors with little money to put down!

A “digital” plan, what I signed up for, costs a straightforward 0.25% fee of the account balance. If you deposit $10k into a Betterment account, the annual fee to Betterment (0.25% of $10k) is $25. Not bad. 

What you get in exchange for that fee (straight from their website):

• Personalized financial advice
• Low-cost, globally diversified investment portfolios
• Automatic rebalanced
• Advanced tax-saving strategies
• Your entire financial picture in one place (you can sync external accounts)
• Reliable customer service

Betterment also offers a “premium” plan, which costs 0.40% annually and requires a $100k minimum balance. Included in this price is what you would expect, much more hands-on and personal advice regarding your financial situation. For example, the premium service includes:

• All the benefits listed as part of digital plan
• In-depth advice on investments outside of Betterment (such as 401(k)s, real estate, etc.)
• Unlimited access to Betterment’s team of CFPs. These are real humans that can advise you on planning for a child, buying a home, retiring, etc.

Right now you can get up to 1 year of free management when you sign up for Betterment using our special link.

Betterment Financial Advice

What if you have the digital plan but still want to actually talk to someone and get some real help or advice? Betterment has that too. 

Betterment customers at any balance can purchase individual financial advice packages to receive in-depth guidance around various life events. These packages include a personalized action plan and educational content related to the life event or financial goal they are seeking guidance on. All calls will be handled by a CFP or licensed financial expert. 

The currently have 5 different packages, ranging in price from $149 to $399. Unlike their management fee for your portfolio, this is a one-time fee.

The packages are:​

Getting Started package: For new customers who want confirmation from a professional that they’ve set up their account correctly.

Additional Features and Perks of Using Betterment

Betterment has a ton of additional features that may be of interest to some - especially if you want to at least know what's going on with your investments even if you maintain a hands-off approach.

Some of the key ones include:

Tax Loss Harvesting

This was one of the early features of Betterment that set it apart from other companies. If you have a taxable account, you can leverage tax loss harvesting to potentially boost your returns over the long run. What happens is when your investments lose value, Betterment can sell them to help offset the taxes that come with income and capital gains.

This strategy is usually employed by sophisticated investors, but Betterment's technology enables it for everyone.

Retirement Goals

Betterment's software is designed around goals - with one of the biggest being retirement. Their retirement tools are easy to understand and helpful for calculating both what you'll have and what you'll need.

One thing we noticed is that their tools actually factor in an early retirement, unlike other tools on the market. This is great for those looking to FIRE. 

Cash Analysis, Two-Way Sweep

One of the great things about Betterment is that it's set and forget - but one thing you typically have to set is at least a deposit into your Betterment account. Now, with their Betterment Everyday program, you can setup a minimum amount to keep in your checking account, and Betterment will sweep the rest into your Betterment account.

Then, of you just want to keep cash on hand, Betterment has an Everyday account that could earn you more than 20x the average savings account. This is a great way to keep cash without worrying about having to open another account at another bank.

Finally, Betterment is introducing a Two-Way Sweep - which combines the best of the above. Two-Way Sweep allows you to take your extra cash and invest it in your Smart Saver account. When you need it, they'll move it back to your checking account. 

Read our full Betterment Smart Saver review here.

Socially Responsible Investing

If investing in companies that align with your values is important to you, Betterment also offers a Socially Responsible Investing (SRI) portfolio. It's not a perfect fit for SRI investors, but it's a good mix of SRI and performance.

Betterment's SRI portfolio aims to maintain the diversified, low-fee approach of Betterment's portfolio while increasing exposure to companies that meet SRI criteria.

The great thing here is that you can get SRI investing at the same pricing you'd normally pay Betterment. Contrast this with companies that offer SRI, like Swell Investing, and it's a more economical approach for investors.

Charitable Giving

Finally, for individuals interested in giving, Betterment has a charitable giving program where you can donate shares from your taxable accounts to a charity that Betterment has partnered with. 

Betterment will calculate and recommend donating shares that you’ve held longer than one year so that the gift can be deducted up to the maximum amount come tax time. 

This can be a great way to contribute to a charity and maximize your tax benefits.

Conclusion

I love Betterment for the fact that it’s so easy. Every single part of the process is simple.

You don’t get charged any transaction fees, you start investing with practically nothing, and your money is invested based on your risk profile.

This is exactly what a beginner needs. Check out Betterment here.

Have you ever tried Betterment? What did you think?