Exploring Betterment
Robo-Advising Meets Your Goals
Have you ever thought about getting serious with your investments but felt a bit lost on where to start? Meet Betterment, a robo-advisor designed for those looking to invest for major life goals like a home down payment, college fund, or retirement. Betterment uses sophisticated algorithms to match your risk tolerance and financial goals with diversified portfolios of low-cost exchange-traded funds (ETFs). Let’s dive into what makes Betterment stand out and whether it might be the right choice for you.
Who Should Choose Betterment?
Betterment is perfect for people ready to take their investing game to the next level. Whether you’re planning for a significant purchase or securing your future, Betterment’s tailored approach can help you reach those goals. The platform doesn’t require a minimum deposit to open an account, but you’ll need at least $10 to start investing.
Opening an account is straightforward, and Betterment makes it easy to select the right investment portfolio for each of your financial goals. If you ever need assistance, Betterment Digital customers can pay $299 for a 45-minute coaching session with a financial professional, while Premium members get this service at no additional cost.
How Betterment Works
Getting started with Betterment involves providing some basic personal details—age, income, Social Security number—and then selecting your financial goals. These could include building an emergency fund, long-term investing in a taxable account, or saving for retirement with an IRA (Traditional, Roth, or SEP).
Once your account is set up and funded through linked bank accounts, Betterment presents you with customized investment portfolios for each of your goals. The default Core Portfolio consists of ETFs spread across about a dozen asset classes. You can also choose from several other portfolios, such as:
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- Socially Responsible Investing (SRI) options that focus on environmental, social, and governance (ESG) factors.
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- Innovative Technology for those interested in cutting-edge sectors like clean energy and blockchain.
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- Goldman Sachs Smart Beta for alternative diversification strategies.
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- BlackRock Target Income for steady income generation through diversified bonds.
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- Flexible Portfolio that allows you to adjust asset class weightings.
Betterment Management of Your Money
Betterment builds diversified portfolios using low-cost ETFs that track established indexes. Your specific asset allocation is based on your profile and goals. For example, an emergency fund portfolio might have 15% in stocks and 85% in bonds, while a general investing portfolio for a 35-year-old might hold 90% in stocks, diversified across large-cap U.S. stocks, international stocks, and more.
Unlike some robo-advisors that rely on risk tolerance questionnaires, Betterment uses your age, income, and goals to create your investment strategy. This method aims to align your portfolio with your long-term financial objectives.
Betterment Features
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- Professional Financial Advice: Betterment Premium users can schedule free sessions with certified financial planners (CFPs), while Digital customers can access this service for a fee.
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- Tax Management: Betterment offers automatic tax-loss harvesting and Tax-Coordinated Portfolios to minimize your tax burden and optimize your asset allocation across taxable and retirement accounts.
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- Cash Management Accounts: Betterment Checking and Betterment Cash Reserve offer convenient cash management options with competitive APYs and FDIC insurance.
Betterment Fees and Costs
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- Betterment Digital: 0.25% annual advisory fee, with optional professional advice sessions costing $299 for 45 minutes.
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- Betterment Premium: 0.40% annual advisory fee, including unlimited consultations.
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- ETF Expense Ratios: Generally range from 0.07% to 0.17%, with some higher for specialized portfolios.
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- Cryptocurrency Portfolios: 1% management fee plus Gemini trading expenses.
Advantages of Betterment
Betterment is particularly suited for younger professionals advancing in their careers, starting families, and seeking help with investing. The lack of a minimum balance requirement makes it easy to start, and the option to create low-cost SRI portfolios appeals to those committed to social responsibility. The goals-based approach encourages disciplined saving and investing.
Disadvantages of Betterment
New investors might find the array of portfolio options overwhelming. Betterment’s fee for a 45-minute setup call with a CFP ($299) is steep, though the service is free for Premium users. The recommended emergency fund portfolio, with its 15% stock allocation, might not suit everyone’s risk tolerance for money meant to be highly liquid.
Final Thoughts
Betterment’s blend of technology and professional advice makes it an attractive choice for goal-oriented investors. Whether you’re saving for a major life event or planning for retirement, Betterment offers tools and services to help you achieve your financial goals efficiently and effectively. Happy investing!
Disclaimer: Rates and terms are subject to change. Please verify the latest details with the respective banks before making a decision. The market is volatile. No investment is a guarantee of returns
