Betterment Review 2022

Overall, Betterment’s portfolio grew 172.9% between 2004 and 2020. And in 2013, the platform boasted 11% growth with a 70% mix.

Charitable Donations

Betterment also supports charitable giving allows users to donate some of their shares. Plus, giving to charities helps investors avoid tax liability.

Flexible Portfolios

If you have $100,000 in your Betterment account, you will have the Flexible Portfolio feature. It allows you to adjust the asset class weights within your portfolio. This feature works much like investment pies work in M1 Finance. The main difference is that with Betterment, you only work with a set of ETFs. With M1, you can add individual stocks or ETFs.

Tax-coordinated Portfolio

This feature allocates assets based on the tax efficiency of your taxable accounts.

Betterment Tax-Loss Harvesting

Tax-loss harvesting is a feature most robo-advisors fail to offer. As your portfolio grows, you will need to worry about your gains becoming affected by taxes, especially when selling investments held for less than 365 days.

Rather than signing up with a traditional brokerage, investors with more extensive portfolios can take advantage of Betterment tax-loss harvesting.

Betterment does its best to ensure your gains are only ever taxed at the long-term capital gains rate of 20%, rather than the short-term capital gains rate of 37%. The platform doesn’t just stop there, either.

Betterment provides specialized guidance on how to offset your taxable gains through other intelligent tax strategies. Although it requires some additional effort on your behalf when filing your taxes, Betterment’s guide can save you thousands of dollars in taxes. As always, speak to your accountant to make sure any tax avoidance strategies pertain to your financial situation.

For example, Betterment may suggest using your gains as a charitable donation or giving a relative a portion of it as a gift.

Financial advice often costs thousands of dollars when obtained from a financial advisor. Betterment investing acts on your behalf to limit your tax exposure. There’s nothing to opt into, and there are no hidden charges involved in activating this service.

Fees for Digital and Premium

Betterment’s fee structure is fairly straightforward. The fee for its Digital Plan is 0.25%, while Digital will cost 0.40%. See more info about Betterment’s pricing here.

There is no minimum balance for the Betterment Digital plan. But the Premium plan has a $100,000 minimum balance.

Investors can get unlimited access to investment advisors by phone and email with this service. That makes it excellent for financial planning. But it’s worth noting that the Premium plan has a minimum account balance of $100,000.

On the whole, there is an impressive range of low fees all round for all Betterment services.

Portfolio and Allocation

Betterment’s portfolio choices include:

• Betterment Core portfolio. The standard Betterment portfolio; invests in a broad set of ETFs.
• Goldman Sachs Smart Beta. Specialized portfolio with a goal of beating the market using Goldman Sachs ETFs.
• Socially responsible portfolios. Betterment has three socially responsible portfolios: Broad Impact, Climate Impact, and Social Impact. The latter two focus on specific social initiatives, while Broad Impact looks to invest responsibly across the board.
• BlackRock Target Income. The Target Income portfolio consists only of bonds, putting the focus on stability.
• Flexible portfolios. With this option, Betterment gives you more control. You can adjust the exact allocation of its various ETFs. That said, it gives you feedback and suggestions to improve your returns.

Betterment offers users a strong selection of individual stocks and bonds. Whether you use Digital or Premium, you gain access to the same set of 14 different ETFs. As a result, users see great historical performance and affordability in a Betterment investment account.

The user selects their own stock/bond allocation. For example, you might have a portfolio of 80 percent stocks and 20 percent bonds. Since bonds are generally safer investments, they reduce volatility. Conversely, stocks are more volatile but can experience higher growth.

Betterment invests in a broad mix of stocks and bonds, from total market index funds to small-cap value index funds. It adds funds like short-term treasury bunds and corporate bonds for more dependable returns.

The range of expense ratios for Betterment’s ETFs is from 0.07% to 0.15%, depending on your stock/bond mix.

Betterment’s current portfolio offerings are as follows:

Note: Betterment stocks favor value and small-cap stocks. These stocks tend to outperform the broader market.

Portfolio Balancing with Betterment

Betterment rebalances your portfolio when certain criteria are met. Hence, no action is needed from you to trigger rebalancing. Here are the methods Betterment uses:

• Cash Flow Rebalancing: suggested when drift reaches 2%
• Buy/Sell Rebalancing: automatically triggered when drift reaches 3%
• Allocation Change Rebalancing: corrects drift when you manually change your target allocation

As mentioned above, you always have the option to change your portfolio allocation. But that isn’t necessary to trigger rebalancing. This happens any time drift reaches 3%.

Socially Responsible Investing

Socially responsible investing refers to stock and bond ETFs that have a positive impact on the world. It’s often called ESG investing, and it considers environmental, social, and governance factors.

ESG investing is growing fast. For instance, in 2019 investors with at least 1/4 of their portfolio in ESG investments increased from 48 to 75%. That’s according to consulting firm Deloitte.

Betterment allows users to invest in ESG funds while being fully diversified and low-cost. Specifically, it replaces the following asset classes with SRI alternatives:

• U.S. stocks – large-cap
• Emerging market stocks
• Developed market stocks

Betterment has offered responsible investing since 2017. But, in 2020, it expanded its socially responsible products. As a result, the original portfolio became known as the Broad Impact portfolio.

It then added two new socially responsible portfolios: Social Impact and Climate Impact. In doing so, it allows investors to hone in on the issues they value most.

Get up to 1 year free with Betterment

Climate Impact Portfolio

According to NASA, the average global temperature has risen about 2.12 degrees Fahrenheit since the late 19th century. And investors are taking notice of this issue. Thus, the Climate Impact portfolio focuses on mitigating climate change.

In particular, it invests in three areas:

• The companies with the lowest carbon footprints in each sector
• Funds that actively exclude companies with fossil fuel reserves
• Green bonds, which invest in alternative energy, pollution control, and climate adaptation

Specifically, the portfolio invests half of its assets in the iShares MSCI ACWI Low Carbon Target ETF (CRBN). It’s worth noting that low carbon does not mean carbon-free.

CRBN scores a C grade on Fossil Free Funds and has almost $23 million invested in fossil fuels. That said, the fund also has almost $485M in assets. That’s less than half a percent of its equity in fossil fuels.

And that’s better than other popular funds such as VTSAX. Indeed, this fund has about 6% of its equity in fossil fuels. Still, I would have liked to see a better score for climate impact.

The rest of the portfolio is invested in SPYX, EFAX, and EEMX. SPYX also scores a C on Fossil Free Funds. On the other hand, the other two score a bit better with a B grade.

Social Impact Portfolio

The Social Impact portfolio invests in US companies that value diversity. This includes funds such as the NACP ETF and the SHE ETF.

These funds give exposure to organizations that value ethnic, racial, and gender diversity.

BlackRock Target Income Portfolio

This is a new portfolio option at Betterment. Still, it’s an ideal solution for anyone who is looking for low-risk investments.

To illustrate, the entire portfolio focuses on bonds that provide a low level of risk.

Goldman Sachs Smart Beta Portfolio

Goldman Sachs Smart Beta is another portfolio that is a recent addition to Betterment. Betterment added this portfolio to compete with Schwab and others, but it can also improve returns.

Then, if you want a call that is more tailored to your needs, you can book one of four 60-minute calls. These calls cost $299 and let you meet with a human advisor about:

Betterment vs. The Competition

Here, we’ll take a look at how Betterment compares to its various competitors. In particular, we’ll compare it to Vanguard and Robinhood.

Betterment vs. Vanguard

Vanguard can sell you the same portfolio as Betterment for a slightly lower annual fee. But only if you are willing to do a lot more work on your own. And in most cases, the cost difference is very slight.

At Vanguard, you’ll also have to do the following on your own:

• Rebalancing
• Tax coordination
• Reallocation
• Reinvestment

These perks more than cover the cost of your Betterment fees. So if you’re wondering, “is Betterment Better than Vanguard?” the answer is it depends. Although Betterment comes with fees, you can a lot of value for them.

See a more in-depth Betterment vs. Vanguard comparison.

Betterment vs. Robinhood

Betterment and Robinhood both have a lot to offer, but the target market is quite different. We’ll find out why in this quick comparison.

Betterment is great for those who want a hands-off approach to investing. Once you determine your stock/bond, all you have to do is add money to your portfolio.

Then, the platform takes over. And since it has rebalancing and tax-loss harvesting, it is a set-it-and-forget-it service. Of course, you do pay a fee for that convenience. The same is true if you want access to human advisors, which Betterment offers for a fee. Hence, Betterment is the preferred choice for financial planning.

Robinhood is quite different. Because the app is a commission-free trading platform, it allows you to trade many different assets.

Specifically, you can use Robinhood to trade stocks, bonds, ETFs, and options. And you can even trade cryptocurrency with this app. There are no commissions for any of these trades, and there is no membership fee.

What you don’t get with Robinhood is dynamic rebalancing or tax-loss harvesting. That’s because it’s more of a DIY solution.

However, the lack of commissions makes Robinhood good for active traders. Hence, day traders find this app useful.

Frequently Asked Questions

It’s time to take a look at what Betterment has to offer in more detail.

Too busy to read the full review? Here are some answers to your deepest burning questions about Betterment.

Is Betterment Worth Using?

Betterment is worth using for newer investors. And if you don’t have a lot of time to manage your portfolio, you will appreciate that it lets you automate your investments. Plus, it now has a feature that automatically adjusts your risk tolerance as you move closer to retirement.

With all these features and access to financial advisors, Betterment is worth using for many investors.

Is Betterment Good for Beginners?

Betterment is ideal for beginners because it guides you through the process starting with a questionnaire. Then, it suggests a portfolio of ETFs. If you are satisfied with Betterment’s suggestions, you can start investing right away. And if you automate your deposits, Betterment requires little to no maintenance from you.

How Good is Betterment?

Betterment has an excellent customer service record. And, if needed, you can get help from certified financial planners (CFPs). Plus, Betterment Premium customers get unlimited access to certified financial planners. If you need the help of a financial advisor, it’s a great option.

Betterment is also perfect for new investors. Why? Because it helps cut hours of research. Hence, Betterment remains the best-known robo-advisor on the market.

Indeed, investors love Betterment because of its tax advantages. Chief among them is tax-loss harvesting. After all, investing in a tax-optimized way helps your money grow faster.

So, now is a good time to sign up with Betterment as you’ll get up to 12 months free.

See how much you can save with the promo here.

Can Betterment Be Trusted?

Yes, Betterment can be trusted and is completely safe. The company has been around for more than a decade and is regulated and its users are SIPC-insured. Betterment Checking is FDIC-insured up to $250,000. Plus, it has great scam/fraud protection and encryption.

See its BBB rating here.

Is Betterment a Good Investment?

A Betterment investment account works well for many people. To illustrate, it invests your money in a diverse portfolio of 14 different asset classes.

This allows it to have strong long-term performance. And it does that with a low management fee of 0.25% for Digital members. Plus, you can consult a financial advisor at any time.

Can You Make Money with Betterment?

Yes, you can make money with Betterment.

Betterment invests your money in the stock market, which can be volatile. But Betterment can make you money, too. Betterment has beaten the market 88% of the time and had a cumulative return of 172% between 2004 and 2020.

Your portfolio allocation plays a role as well. For example, aggressive investment portfolios will be hit harder during bear markets.

Betterment has a tool on its website that lets you see past returns using real Betterment data. This past year, an aggressive portfolio would have outperformed a conservative one.

For instance, from June 2019 to June 2020, a Betterment portfolio of 60% bonds and 40% stocks would have had a +2.3% return. In contrast, a portfolio of 100% stocks would have had a –2.7% return.

Can You Take Your Money Out of Betterment?

Yes, you can take your money out of Betterment at any time. Betterment doesn’t charge any fees when you do so, and it usually takes 4-5 business days to withdraw money from Betterment.

Yet, you may be responsible for capital gains when the money comes out. Note that money invested for more than a year is subject to long-term capital gains. These taxes are lower than short-term capital gains taxes.

The only exception to this is if you have a tax-advantaged account in Betterment, such as an IRA. But money withdrawn from a traditional IRA before age 59 & 1/2 is subject to a 10% penalty.

If you have a Betterment Roth IRA, you can withdraw contributions at any time with no penalty. But if you withdraw earnings on your Roth IRA before age 59 &1/2, you may be subject to taxes and penalties.