Betterment Robo-Advisor: Investing your money is one of the best ways to save for retirement and build future wealth, and a robo-advisor like Betterment makes it easy for investors to put their money in personalized portfolios. These portfolios are built with your risk and goals in mind, so you have the best asset allocation for future performance.
In this Betterment review for 2020, you’re going to learn what makes Betterment stand out in a growing crowd of robo-advisor, and why investing through Betterment might be the right move for your money in 2020 and beyond.
Betterment is an online robo-advisor that focuses on helping people in making better returns on investment. They use portfolio-based investment options to simplify investing. It focuses on an algorithm based investing instead of human management. The platform particularly invests money in ETF-based portfolio. The tax-efficiency and automatic diversification are among the best features.
They are using algorithm techniques according to the investor’s financial position, risk tolerance, and goals. They also charge a lower fee when compared to a human financial advisor. Also, they charge only 0.25% annual fees to investors. The platform claims that its services suite to all types of investors. They offer an equal investment opportunity for new, hands-on and hand-off investors.
The platform also works with users in making the right financial planning. Their experts guide investor regarding retirement, buying a home and achieving any other goal.
What Betterment Does
Planning for retirement: They advise investors and users on how much they need to save and what types of accounts they need to invest in and what is the optimal risk level.
Buying a home: If you set a goal of buying a home, the platform will create a slightly conservative portfolio to achieve that goal in a short to medium-term.
Having a baby: The platform also permits investors to invest for their child.
Switching jobs: The platform permits investors to roll over 401(k)s and IRAs to reduce the fee and make the most of your money.
Receive an inheritance: The experts from betterment are in a position to suggest you how to invest the money you received an inheritance.
The market uncertainties: The platform has built a model that factor in market downturns. It has also put guardrails in place to help prevent you from making decisions in the heat of the moment.
How and what to save: Sometimes investors don’t have a particular reason to save. In this case, the platform will guide you to save money to grow wealth.
Betterment Basic Features & Tools
Minimum initial investment: None! Betterment is one of only a handful of robo-advisor that allows you to open an account with no money at all. Of course, you’ll need to put funds into your account to begin investing. This can be done with regular deposits of, say, $100 per month. This makes Betterment the perfect platform for small or beginner investors, who may not have a large initial investment.
Available accounts: Individual and joint taxable accounts; traditional, Roth, rollover, and SEP IRAs; trusts and nonprofit accounts.
Mobile App: Betterment’s mobile app has all the capabilities of the online version. That means you can track your investments wherever you go, and at any time. The app is available at the App Store for iOS devices, 11.0 and later, and is compatible with iPhone, iPad, and iPod touch. It’s also available at Google Play for Android devices, 6.0 and up.
Customer service: Available by phone or email, Monday through Friday, 9:00 am to 6:00 pm, as well as Saturdays and Sundays, from 11:00 am. to 6:00 pm, all times Eastern. But be aware that customer service is available by email only on weekends.
Account protection: All Betterment accounts are protected by coverage from the Securities Investors Protection Corporation (SIPC) for up to $500,000 in cash and securities, including up to $250,000 in cash.
Account security: Your account can be set up with two-factor authentication. Even if a thief were to acquire your access codes, they’d be unable to enter your account due to the second authentication. This has become common practice with many financial providers, and requires the use of a unique verification code, emailed or texted to your smart phone device, to enter the account.
You can sync external accounts to individual goals
Add a new goal at any time and track your progress with ease
Easily change portfolio risk or switch to a different type of portfolio
Users of the planning function are constantly nudged to fund a Betterment account
The standard plan incurs a charge of $199–$299 to talk to a financial planner
Socially Responsible portfolios are invested in exchange traded funds (ETFs)
There is no margin lending, secured loans, or borrowing options against your portfolio
How Betterment works
Betterment uses MTP
As is typical of every robo-advisor, Betterment uses Modern Portfolio Theory (MTP) to create and manage your investment portfolio. It’s an investment strategy that emphasizes asset allocation based on targeted risk levels.
You begin by completing a questionnaire that establishes your investment goals, time horizon, and risk tolerance. Depending on your situation, a portfolio will be designed for you in various levels ranging from conservative (more bonds, less stocks) to aggressive (more stocks, less bonds).
They invest in 14 different asset classes
Your portfolio is comprised of investments in 14 different asset classes – six stock funds and eight bond funds.
Each asset class is represented by a single exchange traded fund (ETF). Since the ETFs are index-based, they’re invested in a portfolio that matches the underlying index. With the use of index funds, Betterment can keep investment expenses to an absolute minimum, which is a major reason why they can manage your portfolio at such low fees.
Your account will be fully managed
Once your portfolio has been created, it will be fully managed for you going forward. Betterment will provide periodic rebalancing, to keep each asset class consistent with the target investment percentage. They’ll also reinvest dividends, consistent with portfolio targets.
On taxable accounts, they provide tax-loss harvesting. This is a strategy in which losing asset positions are sold off near year-end, to offset gains in other asset classes. The losing asset classes are later replaced with comparable ETFs to maintain the target asset allocation in the portfolio.
Betterment Account Types
Betterment is always adding new account types and features. You can now open:
An Individual Taxable Account: This is the standard account whose growth will be taxable.
A Joint Taxable Account: If you file a joint tax return, you may want to choose this account option.
A Retirement Account: You can hold your Betterment investments in a tax-preferred IRA (traditional or Roth) or a SEP-IRA if you’re self-employed.
A Business Account: Business owners can use Betterment to manage their company’s 401(k) plans.
Banking Accounts: Along with investments, Betterment now has a high-yield savings account and a checking account.
Is Betterment Safe?
Theft or security risks
Betterment is a registered broker with the SEC. As a fiduciary, the company is legally bound to act in your best interests. It assumes responsibility for investing your assets while protecting them from:
Betterment uses two-factor authentication. You can use an authenticator app on the smartphone or SMS text to access your account.
Loss if the company fails
The platform is a member of the Securities Investor Protection Corporation (SIPC), which insures investments made through Betterment Securities up to $500,000 (per account type). But the SIPC will NOT protect you from losing money through investing.
Is Betterment FDIC insured?
Betterment is not a bank so it is not FDIC insured. But the SIPC would cover your losses (up to $500,000 per account type) should the platform go out of business. In addition, Cash Reserve and Checking accounts offered through Betterment Everyday are FDIC insured via their program banks. Learn more about those accounts below.
How to Get Started with Betterment
First, you’ll need to create an account by sharing information like your:
Annual pre-tax income
Investment goal (retirement, emergency savings, or general)
Next, choose a type of account to open. Betterment offers the following:
Roth and Traditional IRAs
Finally, you’ll need to link a bank account to fund your investment portfolio. The money you deposit is transferred to Betterment Securities, a FINRA member broker-dealer.
What About Minimums, Deposits, and Fees?
That’s one great 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):
Your entire financial picture in one place (you can sync external accounts)
Reliable customer service
Betterment Robo-Advisor 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.
Betterment is best for:
Users with low balances.
Those who want automatic rebalancing.
Users who like goal-based tools.
How much does betterment cost?
Betterment charges a percentage-based fee to manage your assets. The fee works like this:
Betterment digital: 25 percent of your assets under management each year.
Betterment premium:4 percent of your assets under management each year; $100,000 minimum deposit required.
Betterment withdraws the fee each quarter based on your average level of assets during that quarter.
Can you take your money out of betterment?
Yes, your money flows both ways with betterment. Your linked bank account can deposit and receive funds from your betterment account. This process works a lot like making a transfer between two banks. Expect to wait 4 to 5 business days before the transfer finalizes, and your money becomes available in checking.
Will betterment charge for withdrawals
Betterment will not charge any fees for withdrawals. But withdrawing invested money requires betterment to sell some, or all, of your investments, and this process could have tax consequences for you.
Can i trust betterment?
Betterment has been in business since 2008 but this isn’t very long. However, robo-advising is a new sector of investing, and betterment has been a pioneer. eBtterment has a solid track record and a simple and straightforward approach to investing.
Does anyone use betterment?
Betterment manages about $16 billion in assets for about a half-million customers. Some people have hundreds of thousands of dollars in their betterment accounts.
Betterment is one largest independent robo-advisor amongst others, and the speed at which it has been able to attract clients and assets is impressive. Its goal-oriented tools and features should appeal to retirement investors, and the human advice offering is inexpensive compared with other independent hybrid advisors.
If this article was helpful to you, kindly Subscribe and share it with your friends and loved ones. Thank you.