Did you know that Betterment was one of the first financial brokerages to automate the investing process using a robo-advisor? In this Betterment review, we’ll explore whether this robot works for you!
Betterment is an American SEC-registered investment advisor and financial advisory company founded in 2008 that provides digital investments, retirement, and cash management services. It offers automated (robo-advisor) and goal-oriented investment services.
This platform best suits beginner and hands-off investors who want a simple, diversified, and tax-efficient investment plan. There may be better options for experienced and high-net-worth investors (over $50,000).
As of 2024, Betterment had over $45B in assets under management (AUM) and more than 850,000 customer accounts in the US, Puerto Rico, and the Virgin Islands. It is not available in Europe or outside the US. Here is everything you need to know before trusting Betterment with your money.
Table of Contents
Betterment Review of the Platform
Our Betterment review finds they’re an online financial advisory company that provides automated and goal-oriented investing services through its website and mobile app. It operates only in the United States, Puerto Rico, and the US Virgin Islands.
It cannot accept international customers residing outside the US. Here are the various investments offered on the Betterment platform. Remember that they are perfect for less knowledgeable investors with a smaller portfolio. No minimum balance is required; your funds are FDIC-insured up to $2M.
Let’s dive into what makes Betterment unique. It’s not just one of the largest online financial advisors but also a platform that helps users manage their money, provides investment guidance, and assists with retirement planning. Betterment offers a checking account for those who prefer to handle their day-to-day banking with them.
Similar to other robo-advisors, they offer:
- automated portfolio management,
- goal-based tools,
- tax strategies, and
- access to human financial advisors
Betterment’s website and mobile application allow users to access services and manage their investments. Customers praise the platform’s user-friendly interface, diverse investment options, and excellent customer support. Overall, Betterment receives positive reviews from users who appreciate its easy-to-use platform and helpful features.
Automated Investing (Robo-Advisor)
Firstly, a robo-advisor is a digital platform providing automated, algorithm-driven financial services with little human involvement. Secondly, these platforms use advanced algorithms to create and manage investment portfolios based on your personal investment goals and risk tolerance.
We begin with a Betterment review of their auto-advisor. When you set up your account, you define your investment goals, time horizon, and risk tolerance through an online questionnaire.
Betterment’s robo-advisor algorithms automatically build and manage a diversified portfolio for you using ETFs across stocks and bonds. Your portfolio is periodically rebalanced and optimized for tax efficiency through strategies like tax-loss harvesting.
You can set up automatic recurring investments or make one-time contributions. Betterment automatically reinvests dividends, factors in inflation, and taxes. It will show a range of potential future outcomes based on your goals.
The base fee is $4$/month. You can switch to an annual fee of 0.25% when you set up monthly recurring deposits or transfers of $250 or more or if your total balance exceeds $20,000.
What can robo-investing do in general? Many things! For the most part, Robo-advisors offer a wide range of services, including:
- goal-based investing,
- tax optimization,
- automatic rebalancing, and
- retirement planning.
Robo-advisors, in general, offer a cost-effective and diversified approach to investment management. What I like about robo-advisors is their simplicity. Often, little money is required to start, and their fee structures are transparent. You’ll not get bogged down in the financial industry jargon.
All one needs to do to manage their investments is log into the robo-advisor’s website and let the robot work magic. Although robo-advisors automate many aspects of investing, some platforms have access to human financial advisors for additional help.
Betterment Premium
If your balance exceeds $50,000, there may be better, cost-effective, and lucrative options. However, Betterment is trying to bring bigger balances to its platform. If your account balance exceeds $100,000 (stocks, bonds, and crypto holdings), you can opt for Betterment Premium at a 0.40% annual fee.
It provides unlimited access to certified financial planners for personalized advice. Premium members also get a preferred APY rate of 0.25% on their Betterment Cash Reserve account balances. More on this feature later in our Betterment review. Finally, the Premium plan offers a 20% discount on estate planning services with Trust & Will.
Betterment Review of Portfolio Options
Betterment offers eight additional customized portfolio options. Here is a Betterment review of that list.
- Core Portfolio – Globally diversified portfolio of low-cost ETFs across stocks and bonds.
- BlackRock Target Income – 100% bonds with various yields and risk tolerance levels.
- Broad Impact -For investors who want to make a positive impact with low carbon emission, ethical labor management, and other ESG metrics stocks and bonds.
- Climate Impact – Stocks and bonds of companies focusing on green products and low carbon emissions.
- Social Impact – Stocks and bonds screened for ESG criteria.
- Goldman Sachs Smart Beta – Alternative portfolio strategy aimed at potentially outperforming a traditional market cap-weighted portfolio by taking on additional systematic risks (high-quality and good value stocks, strong momentum, and low volatility). A higher risk tolerance is suggested.
- Innovation Technology – Focus on high-growth technology companies like clean energy, semiconductors, robotics, etc.
- Value Tilt – Tilts towards potentially undervalued U.S. companies.
Crypto
Betterment review shows they offer diversified crypto portfolios that allow you to invest in Bitcoin, Ethereum, and other established coins. The platform’s partner for securely holding all crypto assets is Gemini.
Betterment’s crypto portfolios are managed similarly to their traditional portfolios, with automatic rebalancing based on your account balance and market movements to manage risk.
The annual advisory fee for crypto investing is 1%, plus associated trading expenses (up to 0.15%). There are three portfolios available.
- Universe – Provides a diversified exposure by including a wide range of established and emerging digital assets. It holds over 20 cryptocurrencies, including major ones like Bitcoin and Ethereum, and is exposed to decentralized finance (DeFi), metaverse, and more.
- Sustainable – Cryptocurrencies that consume less energy and lower carbon emissions. It includes cryptocurrencies that utilize mechanisms like proof-of-stake (PoS) instead of the energy-intensive proof-of-work (PoW) Bitcoin uses.
- Bitcoin/Ethereum
Betterment recommends limiting crypto investments to no more than 5% of one’s overall portfolio due to the high volatility and risks involved.
Tax-Loss Harvesting
Betterment offers an automated tax loss harvesting feature called Tax Loss Harvesting+ (TLH+). It is an algorithm that regularly checks for opportunities to sell securities at a loss and replaces them with similar ones, allowing investors to offset taxes on gains and income.
It protects against violating the wash sale rule (disallows tax loss if you repurchase the same security within 30 days) across all linked accounts. All harvested losses are reinvested, maintaining the optimal asset allocation.
A Betterment review of the tool aims to maximize tax benefits by harvesting every penny through fractional share trading and intelligent rebalancing.
Betterment Review of IRAs and 401(k)
Betterment offers Traditional, Roth, and SEP IRAs for individual retirement savings. Their IRAs have an annual advisory fee of 0.25% for the standard plan and 0.40% for the Premium plan. 401(k)s may have higher overall fees due to additional regulatory/service provider costs, though employers may cover some.
For 401(k) plans, Betterment acts as the 3(38) investment manager. It selects and manages the investments for the employer-sponsored retirement plan. It handles compliance and fiduciary tasks and forwards advisor fees associated with the 401(k) plan.
A Betterment review highlights that rolling over an old 401(k) to a low-cost IRA can save on high fees over time compared to leaving it in a 401(k) with higher expenses. They offer free guidance for rollovers over $20,000.
For more questions about a Roth IRA and a 401(k), see our article here.
Cash Management Services
A Betterment review of their cash management services offers clients a competitive return on their cash while having easy access to funds for investing or spending needs.
High-Yield Cash Account
The platform’s high-yield cash account offers a competitive variable interest rate (5.00% APY as of May 2024) with no minimum balance required. The national average with conventional banks and financial institutions is at a very disappointing rate of 0.47%.
The account provides FDIC insurance coverage up to $2M for individual accounts and $4M for joint accounts across Betterment’s program banks. It allows access to cash in 1-2 business days with no withdrawal limits.
Checking Account
Betterment also offers a checking account in partnership with NBKC Bank. It comes with a Betterment Visa debit card with no ATM fees worldwide and no foreign transaction fees. It is FDIC insured up to $250,000 per depositor through NBKC Bank.
Rewards
Betterment Checking accounts offer cash back rewards when you use their debit card for purchases at thousands of popular retailers and brands such as Costco, Adidas, TOMS, Sam’s Club, Aeropostale, and many more. They automatically credit to your account. You get cellphone insurance (up to $600 per claim) as a bonus.
Betterment Review of the Pros
- Low Fees: Betterment charges 0.25% per year on balances above $20,000 or for users who set up monthly deposits of at least $250. This fee is competitive with other robo-advisors.
- Personalized Investment Portfolios: Betterment’s platform uses algorithms to create customized investment portfolios that align with users’ financial goals, risk tolerance, and time horizon.
- Automated Rebalancing: Betterment makes it easy for users to maintain their desired investment mix by automatically rebalancing portfolios, which saves them time and effort.
- Tax Optimization: The platform utilizes tax-efficient strategies, such as tax-loss harvesting, to help users minimize their tax liabilities and enhance after-tax returns.
- Access to Human Advisors: Betterment combines automated and human financial advice. Human financial planners are available to offer their clients additional guidance and support. This way, clients can benefit from the expertise of automated and human advice to manage their finances effectively.
- Superior Settlement/Transfer Speed: Betterment’s trading solution is fast and easy to use. You can move your money between different accounts quickly, usually within one business day. You can invest your money in markets much faster than usual. Betterment’s solution is great if you want to transfer your money from a Betterment Checking/Cash Reserve account to a Betterment Roth/Traditional IRA or individual taxable investing account. This process is fully automated and very simple, making it easier than ever to invest your money.
Betterment Review of the Cons
- Limited Investment Options: Betterment mainly offers exchange-traded funds (ETFs). Unfortunately, this may only work for investors wanting a narrow range of investments or even specific asset classes.
- Lack of Direct Asset Ownership: Some investors like to own the securities in their portfolio directly. However, with Betterment, investments are kept in a custodial account. You do not have direct ownership of the underlying assets.
- Potential Duplication of Holdings: Betterment’s computer program adjusts investment portfolios based on how much risk its users are willing to take. However, this may lead to repeating certain investments across various types of assets. This repetition could impact how diversified the portfolio is overall.
- Limited Control over Tax-Loss Harvesting: Investors who use Betterment to minimize their taxes can benefit from the platform’s tax-loss harvesting services. However, users should know they have limited control over these transactions. Betterment’s algorithm is responsible for determining the timing and frequency of these transactions.
- Possible Reliance on Market Performance: Investing with Betterment involves market fluctuations, meaning the portfolio’s performance can vary. During times when the market is down or when it is experiencing significant volatility, investors may experience losses.
- You Can’t Use Betterment In Canada: If you’re in Canada, you won’t be able to use Betterment. However, other platforms in Canada offer services similar to those offered by Betterment. Some of these platforms include Questrade’s Questwealth Portfolios and Wealthsimple. They can help you invest automatically and provide diversified portfolios, among other features.
Who Are Betterment Competitors?
A Betterment review of similar platforms include Wealthfront, WiseBanyan, Vanguard, Robinhood, and other robo-advisors and online brokerages. These platforms offer comparable features and benefits for investing and saving.
Betterment has long been a leader in the robo-advisor market. Vanguard is more for people who want to manage their retirement more closely, and Robinhood is a better pick for people who are day trading or want to pick individual stocks.
Betterment vs. Vanguard
When comparing Betterment and Vanguard, there are a few key factors to consider:
Fees
The management fees charged by Betterment range from 0.25% to 0.40%, depending on the account balance. Meanwhile, Vanguard charges fees ranging from 0.05% to 0.30% for its robo-advisor service.
Portfolio Options
Both Betterment and Vanguard offer a range of diversified portfolios. Betterment creates portfolios using ETFs, while Vanguard has its funds and offers access to individual stocks.
Investment Strategy
When it comes to investing, Betterment and Vanguard offer different approaches. Betterment focuses on helping customers achieve their financial goals through personalized investment plans based on their risk tolerance, time horizon, and objectives. On the other hand, Vanguard offers a wide range of investment options to suit different risk levels and goals.
User Experience
Both Betterment and Vanguard offer easy-to-use interfaces and intuitive dashboards. However, Betterment focuses more on automation features such as tax-loss harvesting, while Vanguard offers a wider variety of investment products beyond its robo-advisor service.
Additional Services
Betterment provides access to Certified Financial Planners for its premium customers, while Vanguard offers access to financial advisors through its Personal Advisor Services. However, Vanguard’s service has a higher minimum investment requirement.
When deciding between Betterment and Vanguard, consider your investment goals, preferences, and level of involvement. To make the best decision, carefully evaluate fees, portfolio options, investment strategy, user experience, and other services. Keep in mind that different people have different needs and require different information.
Final Thoughts: Betterment Review
Betterment offers an intuitive platform for beginners with limited investment knowledge. Over 850,000 Americans have trusted this platform so far. Betterment offers investment options across different asset classes with various conventional and unconventional portfolio options.
Furthermore, the platform offers a high-yield savings account (5.00% APY as of May 2024) and a convenient checking account. These options may satisfy some investors, but some are looking for more. Betterment offers additional features for higher net worth clients, but better platforms are available. Unfortunately, the platform disappoints users by not allowing them to trade individual stocks.
This Betterment review finds them to be a company that helps people manage their money. They are cautious to follow the rules that require them to always act in their client’s best interests. Betterment ensures that clients can trust them by being very open and honest about how they do business. They don’t try to hide anything or charge hidden fees. Betterment also advises their clients to help them make good decisions about their money.
Overall, Betterment provides a user-friendly and holistic approach to investment management. It combines technology-driven solutions with personalized advice to help users reach their financial goals effectively.
Frequently Asked Questions
Like many traditional brokers, Betterment is legit and regulated by the SEC and FINRA.
Betterment only operates in the US, Puerto Rico, and the Virgin Islands. It doesn't accept international investors.
Betterment does not offer individual stocks.
Betterment is not available in Canada. However, other providers in Canada offer services similar to Betterment. Some popular options Canadians can use are Questrade's Questwealth Portfolios and Wealthsimple.
