Betterment Review: Rethink What Money Can Do

Fees Digital – 0.25%/year; Premium – 0.40%/year
Minimum Investment $ 0
Types of Accounts available Taxable, Joint, Roth IRA, Traditional IRA, Rollover IRA, SEP IRA, Trusts, Non-Profit
Advisor type Human Assistance
Asset Under Management $ 10.5 Billion
Access Android/IOS Application & Website

 

Jon Stein, CEO and Strategic Allocation of Betterment. He started Betterment after 4 years of consulting for Wall Street's biggest financial institutions. The Team of Betterment consist of highly experienced financial planners, behavioral finance specialist, Ph.D. Mathematicians and masters of financial planning/investment to create a platform for the investors where they can get the best returns with the minimum risk involved.

Betterment was conceived with a mission:

A Mission to change to the old ways of investing. Investing is done to for the future. Generally, you have two options to take investing forward. One- Do it yourself & Two- Take help from an investment manager. The first one could prove to be very tedious, time-consuming and error-prone. No investor would want to have such characteristics of their investments. The second one is lead by technology which has been outdated for quite some time now and the investment managers are sometimes set to have a major conflict of interest with the investors they are managing.

To give the best solutions for the problem mentioned above:

Jon Stein created Betterment. Jon believes that the investor's money should work as hard as the people who work so hard to earn it. By designing a platform which is based out of proven investment strategies and latest technology, Betterment is offering exactly what the investors want.

Unique Feature of Betterment

Tax Loss Harvesting+

Betterment provides one of the most exciting services in the Robo-Advisor industry, that is Tax Loss Harvesting. It is the practice of selling a security that has experienced a loss. By making money on/through a loss the investors "harvest" a loss and are able to offset taxes on both gains and income. The vacant seat of a security sold is replaced by a similar security, maintaining an optimal asset allocation and expected returns.

The realized losses on investment can result in the offsetting of gains and reduce the taxable income by as much as $3,000 per year. Betterment provides the services of tax loss investment with no additional cost to investors who are managing money with them. The best thing about Betterment Tax Loss Harvesting+ services is that it looks for opportunities to harvest every day and can reduce tax exposures better than any other automated tool.

Best Features of Betterment

Investments

The Investment philosophy of Betterment is based on the modern philosophy of investment, which puts a great emphasis on diversification. As the market has become more unpredictable than it was before, diversification is the key to reduce risk on overall investment. Betterment uses ETF's which represent up to 12 different classes of assets, where the investors can invest depending upon their requirement.

Betterment is equipped with one of the most advanced technologies available. Betterment automatically rebalances the investors profile when cash flows in or out. The cash flows in the form of withdrawal, contributions, and dividends. The rebalancing is also required in the cases when the allocation an asset drifts more than 3% from its estimated position. To keep a check on the daily balancing of the investor's accounts, Betterment has created an algorithm which rebalances the investor account and re-invest the cash flow back into the system based on the investor's preferences. This results in maximized profits.

Betterment also provides their investors an opportunity to invest in Socially Responsible Investing Portfolio. In these type of portfolios which uses ETFs consists of companies whose interests are aligned with certain social causes. These portfolios are created by doing positive and negative screening to get out the best companies in that realm. This gives assurance to the investors that their hard earned money will be invested only in those companies which have proven record of great performance.

Management Fees

Betterment charges management fees based on two plans that it offers to its clients. The two plans namely Betterment Digital and Betterment Premium have a management fee of 0.25% and 0.40 % respectively.

Betterment Digital: Its management fee of 0.25% is not the least management fee that investors have played in the era of financial planners/managers. But when we add the other offerings included in the package like access to in-app messaging with the financial advisors, it makes sense to pay 0.25% Fee.

Betterment Premium: Similar to Betterment Digital Plan, the additional values that come along with the Betterment Premium Plan makes it reasonable to pay 0.45% as Management Fee. In this Plan, you have access to a team of financial planners with unlimited phone calls and emails.

Management Fee is waived off if an account has a balance of more than $2 Million.

Minimum Account Balance

Betterment is one of the Robo-Advisors in the market that require no minimum deposits in their accounts. But for their Betterment Premium account, you need to have a minimum balance of $100,000 to get access to unlimited calls with the Financial Advisor.

Security

Betterment has one of the most advanced security systems which protect the investors from many cyber threats. They provide Data Security using the strongest browser encryption available and secure data in a safe facility. They protect you from frauds by providing one of the best solutions for unauthorized activity. They do not share your private information with the third party without your permission. They have enabled their system with one of the most advanced login protection systems.

Tax-Efficient Investing

At Betterment, the investment team believes in the money you make after paying taxes. Unlike many traditional investment managers, Betterment automates advanced tax saving strategies, like asset location and tax loss harvesting. This approach results in a direct increase in the returns from your portfolio value by an estimated 15% over 30 years.

Services provided by Betterment

Financial Planning

Betterment will help you plan the most effective and personalized plan based on your needs. Starting with your goal- the reason you are investing to various recommendations: risk level, amount to invest, and type of account. The type of personalized strategy is known as goal-based investing and it improves the outcomes by encouraging optimal behavior and wealth management.

If you are planning for retirement, to buy a home, have a baby, switch jobs, receive an inheritance, if the market goes down, or you are not sure what to save for. Betterment is there to help you invest in the most efficient way.

Retirement Planning

Saving for retirement can be a stressful and a complicated task. It takes a lot of effort in planning and executing the investment based on your retirement goals. Betterment helps you in planning and investing for the retirement you want. Their planning tools offer personalized advice for you which takes into account a lot of factors like, where you live, your current savings, your income etc. This gives out an optimized advice for the best investment plan based on your needs. Betterment retirement account is designed for your financial needs and offer traditional, Roth, and SEP IRA's as well as taxable retirement accounts. This makes an overall package for the retirement investing.

401(k) & IRA Rollover

When you change your Jobs, your 401(k) disappear but the fee based on it stays the same. Rolling over to a low-cost IRA from a typical 401(k) mean that you can save up to 0.52% on your annual fees. Betterment IRA is better than a typical 401(k) in many ways like low fees, the optimal level of risk, globally diversified portfolio, tax-smart savings etc. Betterment makes sure that you have to do the least work when you Rollover with them.

Trust Accounts

Betterment provides a solution to manage your trust accounts with much more convenience than what is provided by traditional trust accounts. It provides you complete visibility and total control. You can create multiple goals tailored to each beneficiary, automate cash transfers for beneficiaries on a custom schedule and you can manage different trust accounts with a single login.

Tax Coordinated Portfolio

Tax Coordinated Protfoliooptimizes and automates the strategy of asset allocation. It starts by placing the assets which are bound to taxed higher in IRAs first and then place those assets which are bound to be lesser taxed in your taxable accounts. According to the research conducted by Betterment, this approach increases the after-tax returns by an average of 0.45% per year cumulating to 15% over 30 Years.

Brief on the portfolio of investment

The portfolio of Betterment is based on a Nobel-Prize winning research. The Betterment portfolio is a globally diversified mix of exchange-traded funds, chosen to help you earn better returns at various levels of risk. The Betterment portfolio consists of investments from across the world. This helps in the investors being benefited from global growth no matter if the stock market of one country is not performing well, it will be countered by the global growth.

Here are the Stock ETFs and Bond ETFs used in the portfolio of Betterment.

 

Stock ETFs Bond ETFs
US Total Stock Market - Vanguard U.S. Total Stock Market Index ETF (VTI) Short-Term Treasuries - iShares Short-Term Treasury Bond Index ETF (SHV)
US Large-Cap Value Stocks - Vanguard US Large-Cap Value Index ETF (VTV) Inflation Protected Bond - Vanguard Short-term Inflation-Protected Treasury Bond Index ETF (VTIP)
US Mid-Cap Value Stocks - Vanguard US Mid-Cap Value Index ETF (VOE) US High Quality Bonds (IRA and 401(k) accounts) - Vanguard US Total Bond Market Index ETF (BND)
US Small-Cap Value Stocks - Vanguard US Small-Cap Value Index ETF (VBR) National Municipal Bonds (Taxable accounts)- iShares National AMT-Free Muni Bond Index ETF (MUB)
International Developed Stocks - Vanguard FTSE Developed Market Index ETF (VEA) US Corporate Bonds - iShares Corporate Bond Index ETF (LQD)
Emerging Market Stocks - Vanguard FTSE Emerging Index ETF (VWO) International Market Bonds - Vanguard Total International Bond Index ETF (BNDX)
Emerging Market Bond - iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB)

Summary: Betterment

Betterment is one of the most exciting Robo-Advisor services available right now. It provides services that add real value to the life of the investors who invest in them. Services like retirement planning, receiving an inheritance etc. eases some of the most time-consuming and error-prone tasks.

Although Betterment has increased their management fees in recent times vacating the spot of least fee taking Robo-Advisor available. It is still one of the best Robo-Advisors available in the market and their past performances are witness to the effectiveness of the strategies inculcated by Betterment.