New and Notable Updates
On February 8, 2022, Betterment announced that it is acquiring crypto manager Makara. As a result of the acquisition, Betterment now gives retail investors and advisors the ability to invest in diversified crypto portfolios alongside their existing investments.
There’s a reason that Betterment is the largest stand-alone robo-advisor with nearly $27 billion in assets under management. The firm offers excellent low-fee investment management for new investors right through to high net worth clients and provides all of its users with comprehensive financial planning. Another sign of Betterment’s stellar reputation comes from former competitor Wealthsimple, who recently turned over all of their U.S. customers to Betterment.
Betterment goes beyond the typical offerings from robo-advisors, providing Smart Beta, income, and several socially responsible investment (SRI) portfolio choices. Adding to the platform’s allure, financial advisors are accessible for all users. All of this is in addition to checking and high yield cash reserve accounts, making Betterment a strong candidate to meet all your financial needs with one robo-advisor. We’ll dig deeper into Betterment’s platform to help you decide whether it is the right fit for you.
- Betterment is our best robo-advisor for beginners and best for cash management.
- Portfolio choices include customizable Core, Smart Beta, and Retirement Income.
- Betterment allows you to create multiple goals and see average and worst-case scenario returns to make your financial planning straightforward.
- Investment portfolios are designed to outperform over the long term, due to value and small-cap bent.
- Betterment syncs data from outside accounts for more accurate investment management.
Easily set up multiple goals and track progress
Portfolios are adjusted to accommodate users’ changing goals and risk tolerance
Three distinct SRI portfolios
No minimum investment amount required
Tax-loss harvesting for all customers
No margin or borrowing
No real estate or international bonds in Core portfolios
No weekend customer service
Must create an account before viewing portfolio
Premium plan requires $100,000
|Account Minimum||Digital $0.00
|Fees||Digital 0.25% AUM
Premium 0.40% AUM
|Goal Setting||Investing categories: growth, specific goal, retirement|
|Interest Paid on Cash Balances||0.10%|
|Customizable Portfolio||Yes-Core portfolios only|
|View Portfolio before Funding||Need to set up account including social security number to view portfolio|
|Customer Service||Phone-Monday - Friday, 9am-6pm ET
|Financial Advisor Available||Yes - Premium customers have unlimited meetings.
Digital customers can access low fee Advice Packages
|Cash Management||No fee checking and rewards debit card.
Cash Reserve savings with high yield
|External Account Sinking/Consolidation||Yes|
The account setup is easy and begins with creating a login and password. At that point, you can select from five general goals that can be customized later in the process.
To complete the account setup, you simply provide your name, phone number, address, Social Security number, and a few other items. After account setup, you complete the questionnaire with queries about your goals, time horizon, and risk tolerance. Betterment offers live customer service by phone for assistance with the process, which is a plus.
After you have completed your questionnaire and account registration, a potential investment portfolio is presented with a mix of stock and bond exchange-traded funds tailored by your questionnaire responses. Unfortunately, those unwilling to go through the complete account setup process, including providing your Social Security number, can’t view their recommended investment portfolio. If you go through with the account setup, however, you will be able to select goals to generate investment portfolios tailored to the target timelines and fund them through automatic deposits from the same external accounts that you are encouraged to sync as part of the setup.
Betterment’s suggested portfolios tend to fall into the standard modern portfolio theory types tailored by your stated time horizon and risk appetite. An alternate account type may be suggested according to your stated goal, as Betterment supports individual retirement accounts (IRAs) and trust accounts in addition to regular taxable accounts. If you are looking for a 529 account or custodial account, however, you will need to look elsewhere as betterment doesn’t support them (although you can still save for the goal of educating yourself or a child, it just won’t be tax-advantaged).
The standard Betterment portfolio is made up of ETFs that diversify a portfolio globally and it usually includes the lowest-cost index trackers from the usual suspects like iShares and Vanguard. You can, however, opt for a few different portfolios beyond the standard one. This includes three ESG based portfolios called Broad Impact (full ESG), Climate Impact (focus on climate change), and Social Impact (companies championing diversity). There are also third-party portfolios like Goldman Sachs Smart Beta and BlackRock Target Income that aim to outperform or produce regular income respectively. Finally, you have the option of a Flexible Portfolio where you can tweak the standard MPT weightings to your own preferences. All that said, Betterment’s recommended portfolio for any goal will be a version of its standard portfolio with the weighting adjusted by your risk profile and the time until you need the money.
Betterment excels at the goal planning model of investment management. Your saving and investing are segregated into buckets with various growth, timeline and risk metrics. For example, the money you’re saving for a home down payment is invested conservatively in cash and short-term bonds. While money for retirement is invested more aggressively with greater allocations to U.S. and international stocks.
Betterment’s goal tracking includes the choice to connect outside accounts, for a 360° view of all of your assets. The Goal Forecaster tool also enables you to calculate when you will likely reach the goal. With ongoing goal tracking, you can adjust your saving and investing to improve the likelihood of success.
Goal setting begins with five broad choices:
- General Investing
- Major Purchase
- Safety Net
After making a selection, you personalize your goals with a name, the number of years until funds are needed, and the target amount needed. One of the key strengths of Betterment is that it calculates the likelihood of achieving the goals under different market scenarios. Betterment also allows you to assign the external accounts synced to its platform to a goal, giving you a consolidated snapshot of your progress towards it. This level of consolidated scenario planning is a key strength of Betterment’s platform.
Betterment customers can easily set up automated deposits and structure them to fund specific goals. Withdrawals from your account don't incur any fees or penalties, and they are similarly easy to make. The checking account, debit card, and high-yield cash reserve enable you to keep all of your finances under one roof with Betterment essentially acting as your bank as well as your robo-advisor. Many robo-advisors offer cash accounts, but the checking account setup that Betterment provides is less common within the industry. It is a handy feature as it enables investors to keep more of their money in high-yield accounts, including money that they are holding for monthly expenses they haven’t yet incurred. An added bonus is that no management fees are levied for money held in Betterment cash accounts.
Betterment doesn’t offer margin, lending, individual stock trading, or cryptocurrency. It is pretty plain as far as portfolio composition, only selecting exchange-traded funds (ETFs) in its portfolios. So, investors seeking greater portfolio customization might prefer M1 Finance or SoFi.
Betterment’s banking services include a no-fee checking and a cash reserve account. The checking account includes a Visa cash-back debit card. This checking account beats the competition with ATM fee reimbursement nationally and internationally. The account has no overdraft fees or minimum balance requirement. That said, you will need to open a checking account separate from your investment account to take advantage of this feature.
The cash reserve account is a fee-free, high-yield savings account with funds deposited across several banks. This account is suitable for shorter-term cash needs. Transfers and withdrawals are easy and fund within one to two days.
Betterment messages you if your cash balance exceeds your target, so you can transfer cash to higher-yielding assets and keep your money working for you.
The Betterment Core portfolio includes a diversified mix of ETFs from companies like Vanguard, Schwab, and iShares. The globally diversified funds lean towards value and small-cap equity index funds. The bond offerings, which are also through ETFs, are widely diversified among US corporate and government bonds, including municipal bonds for taxable accounts. Betterment offers both international and developing market international bond funds. It is uncommon to find international bond funds available through a robo-advisor, so that fact is in Betterment’s favor as it helps diversify a portfolio globally.
In addition to the Core offers, Betterment provides alternative allocations for distinct categories of investors. Retirees and those seeking income might consider the BlackRock Target Income portfolios and a high yield cash account. Investors who strive to beat the market returns have access to Smart-Beta factor portfolios from Goldman Sachs. Socially conscious investors have the most selection with three model portfolios: Broad Impact, Climate Impact, and Social Impact.
We like the nod towards value and small-cap stocks in the Core portfolio, despite recent lackluster performance. Over long periods of time, this allocation is typically rewarded. The lack of a REIT fund is a missing piece in Betterment’s asset allocations. That being said, Betterment also offers Flexible Portfolios to give you some customization options with which you can remedy this omission.
Betterment offers several investment portfolios:
- Betterment Core: portfolios include US and internationally diversified stocks and bonds with exposure to value, small- and mid-cap equities.
- Goldman Sachs Smart Beta: includes funds that weigh their assets with factors, such as volatility or momentum, in lieu of market cap weighting. Many funds in this portfolio are from Goldman Sachs with higher fees and distinct diversification, in contrast with the Core portfolios.
- Socially Responsible: portfolios offer three choices: Broad Impact, Climate Impact with lower carbon emissions, and a Social Impact portfolio that favors minority empowerment and gender diversity.
- Retirement Income: for investors seeking an income stream these portfolios combine growth with cash flow.
|Fixed Income||Only fixed income ETFs|
|REITs||No-Available through Core portfolios customization option.|
|Socially Responsible or ESG Options||Yes - Broad Impact, Climate Impact, and Social Impact|
Flexible portfolios are available to Core portfolio investors. This feature enables more advanced Investors to adjust specific asset class weightings. This might be useful if an investor prefers a greater allocation to emerging markets or small-cap value stocks.
Through Flexible Portfolios, clients can also invest in additional asset classes outside the Core portfolio ETFs including commodities, high yield bonds, and REITs. Users who’ve adjusted their asset class weightings still receive risk and diversification information as well as tax-loss harvesting and rebalancing.
Betterment’s rebalancing is set to occur when assets veer 3% above or below the desired asset percentage. Betterment’s tax-loss harvesting is designed to avoid any cash drag, keeping investors in the market at all times. Betterment shines when it comes to the ability to link your external accounts and sync your financial planning to include all of your assets, not just the funds managed by Betterment. Once you have synced all your accounts, the platform also uses your complete financial picture to make recommendations and offer guidance.
|Key Portfolio Management Features|
|Automatic Rebalancing||Daily account monitoring. Rebalanced when portfolio drifts 3% from target allocation.|
|Reporting Features||Dashboard provides financial overview with net worth, goal progress, and investment performance. Betterment provides regular nudges and reminders to keep users invested.|
|Tax Loss Harvesting||Yes - Keeps users invested, avoids wash sales and short-term capital gains tax.|
|External Account Sinking/Consolidation||Yes-Clients can link retirement, banking and brokerage accounts. Only Betterment assets are rebalanced.|
Betterment’s desktop user experience is clean with a comprehensive dashboard and easy access to accounts, goals, performance, and fund transfers. The ability to connect outside accounts enables users to monitor all of their finances from the Betterment platform. Investors can monitor and adjust goals from the dashboard as well.
The Betterment app offers all of the functionality of the desktop version. There are a number of clever nudges on the app that help users save more and invest with taxes in mind. Both the android and iOS versions are highly ranked (4.8 iOS and 4.6 android), although some users have reported difficulty with linking accounts and fund transfers.
Betterment’s customer service includes weekday phone and email. Customers can text with financial advisors, although no chat feature is available. Premium members can schedule meetings with certified financial planners. The Digital members have access to low-fee targeted financial planning packages.
Betterment’s FAQ page is adequate, with the advantage of live phone customer service during weekdays. The only drawback is that phone customer service is not available on the weekends. Clients seeking more comprehensive customer service hours might consider robo-advisors connected with major investment brokerage firms.
- Weekday phone and email
- Access to certified financial planners (Premium members or through a paid financial planning package for Digital members)
- Virtual assistant, but no live chat
- Clear FAQs for most customer questions
Users can be confident with Betterment’s security protocols:
- All data is stored on servers in a secure facility
- Strong browser encryption
- Fraud protection and procedures
- Data and information never shared with third parties
- Two-factor authentication
- No data breaches within the last 30 days
- Biometric entry including fingerprint and facial recognition
In addition, Betterment's portfolio insurance is among the best in the industry with the following offerings:
- Cash Reserve accounts are eligible for up to $1 million ($2 million for joint accounts) of FDIC insurance ($250,000 insurance per Program Bank)
- Checking accounts are FDIC-insured up to $250,000 for individual accounts and $250,000 per depositor for joint accounts
- Each investment account is covered by $500,000 of SIPC insurance for missing funds, including a maximum of $250,000 for cash claims
The education category includes tools, articles, and videos. The tools include a retirement planner, goal tracker, and tax guidance. The resource library is replete with articles on a variety of personal finance topics. The search window is the primary way to access articles by topic, making self-education somewhat confusing. Betterment’s video content is minimal, but there are a few basic topics about how Betterment works that are available as a video.
For investors seeking a comprehensive investment and personal finance portal, it’s best to visit other websites. The advice nudges can provide nuggets of tailored investment guidance, albeit with a slant towards moving more assets into the platform.
Commissions and Fees
Betterment’s commissions and fees are reasonable and transparent. The Digital Plan charges 0.25% per year for assets under management and has a zero minimum balance entry point. The Premium plan charges 0.40% AUM and requires a $100,000 minimum. This plan includes access to certified financial planners for all Premium clients.
Although there are no transaction fees, all ETFs charge management fees which are paid directly to the fund company. Betterment’s weighted average expense ratio for the Core offer is a low 0.09% and falls within the lowest third of the ETF fee range among competitors.
Separate Financial Advice Packages range from $299 to $399 per financial advisory session. We like the pay-for-services-you-need model.
|Management fees for $5,000 account||Digital - $12.50|
|Management fees for $25,000 account||Digital - $62.50|
|Management fees for $100,000 account||Premium - $400.00|
|Expense ratios||0.09% average|
Betterment is a solid choice for every level of investor from beginners just starting out to those with high net worth. Betterment delivers a lot of value throughout its lineup of products. The Digital package offers access to goal-based financial planning packages that are ideal for investors seeking professional management at a reasonable cost. The premium version with access to Certified Financial Planners is a quality service with bargain pricing when compared to the costs of traditional advisors. Last, the cash accounts bump betterment into competition with the top online banks, especially with the high-yield cash reserve account.
The only drawback to Betterment’s services is the educational resources. The articles might be superb, but there’s minimal organizational structure to access them. This shortcoming aside, Betterment is a solid robo-advisor at an incredibly low price. That is ultimately what makes it a very strong competitor in the robo-advisor space - there are robo-advisors that are more robust, and others that are cheaper, but very, very few are both.
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