Categories
Reviews

Betterment Review | Pros, Cons & Alternatives (2021)

Betterment

8.8

Fees & Costs

8.0/10

Minimum Investment

10.0/10

Ease of use

9.0/10

Account Opening

8.0/10

Beginners

9.0/10

Pros

  • Perfect for easy, hands-off investing
  • Great goal-based approach.
  • Low fees & No hidden fees
  • Rebalancing and Tax-loss harvesting
  • Fractional shares

Cons

  • Not for DIY investors
  • Only USD-based accounts
Disclosure: Please note that this article may contain affiliate links

Betterment is the probably the most heavily promoted independent robo advisor out there.

However if it really makes sense for you to invest with Betterment depends on your particular situation.

In this article we will look at everything you need to know before signing up. I have made an attempt to write this review as easy to understand as possible so even beginners will find it easy to understand.

So let’s start with the basics:

What is Betterment?

Betterment or Betterment.com is a an online company that specializes in automated investment advice, a so-called robo advisor. It is one of the largest players in this space.

The company uses their clients assests to invest them in a portfolio which largely consists of exchange-traded funds. (ETFs)

Ever since its inception in 2010, the service has evolved dramatically, and they now offer a number of related services features. Among their services are now access to a live human adviser and even the ability for financial advisers to partner with them.

As of 2020, Betterment has nearly $20 billion of assets under management.

Best service
logo of betterment
Account Minimum
$0 for Betterment Digital and $100,000 for Betterment Premium
Management fee
0.25% for Digital and 0.40% for Premium
Portfolio
ETFs from about 12 asset classes. The user can choose between a recommendation or decide the percentage of portfolio in each investment.
Rebalancing
Tax Loss Harvesting
Frational Shares
Human Advice
Smart Beta
401(k) Assistance
SRI
Automatic Deposits
Supported Accounts
Individual and joint accounts. Roth, traditional, SEP and rollover IRAs. Trusts. 401(k) plans. (Betterment for Business) Non-profit.
Best for
Investors who are looking for hands-off, "set it and forget it" type of robo advisor with low fees.
Summary
Betterment uses a goal-based investment approach. The portfolio consists mainly of low fee ETFs. The service is great, it is easy to use and very beginner friendly. It is also the largest independent robo-advisor. The premium allows for in-depth investment advice and unlimited access to certified financial planners. The only downside is that fees increase once you hit $100,000.
Best service
logo of betterment
Account Minimum
$0 for Betterment Digital and $100,000 for Betterment Premium
Management fee
0.25% for Digital and 0.40% for Premium
Portfolio
ETFs from about 12 asset classes. The user can choose between a recommendation or decide the percentage of portfolio in each investment.
Rebalancing
Tax Loss Harvesting
Frational Shares
Human Advice
Smart Beta
401(k) Assistance
SRI
Automatic Deposits
Supported Accounts
Individual and joint accounts. Roth, traditional, SEP and rollover IRAs. Trusts. 401(k) plans. (Betterment for Business) Non-profit.
Best for
Investors who are looking for hands-off, "set it and forget it" type of robo advisor with low fees.
Summary
Betterment uses a goal-based investment approach. The portfolio consists mainly of low fee ETFs. The service is great, it is easy to use and very beginner friendly. It is also the largest independent robo-advisor. The premium allows for in-depth investment advice and unlimited access to certified financial planners. The only downside is that fees increase once you hit $100,000.

How does it work?

I will first give you a general overview of how the Betterment works and then will move on to each step individually.

Betterment is all about automation. You will be asked questions about your investment goals, your level of risk and your time horizon among other things. Using the info you provide, they will build a custom portfolio for you. From then on, Betterment takes care of your portfolio on an ongoing basis and rebalance it so you can focus on other things in your life.

To make it short, the steps are

  • 1. You will be asked a series of questions
  • 2. A portfolio will be built with the answers you have provided
  • 3. Their technology manages your portfolio

Account opening

Head over to Betterment.com, take advantage of the current promotion and click on “Get Started”

betterment-promotion

You will then be guided through a series of the aforementioned questions. Upon providing some answers including your age and income level, you will have to make a choice between the following 3 goals, it will look like something like this:

goal-selection-betterment

Deposit and withdrawal

How does depositing into Betterment work?

Just find the option “Transfer or roll over” in your account. Standard transfers as well as transfers from other brokerages are possible. However personal checks are not accepted.

If you chose to  withdraw money from your Betterment account you can do so at any time, at no additional cost. There are no trading fees or penalties for requested withdrawals or account closures.

However you may have to wait a little until you have access to your money. Withdrawals generally take about 4-5 business days to process, the funds will then be sold and sent to your bank account.

How to withdraw?

From a web browser, after logging in to your account, go to Transfer or Rollover and then simply click on “Withdraw”.

Interface

The interface is definitely one of Betterment’s strengths.

Especially if you’re new to investing with a robo-advisor, and you’re concerned about the technical hurdles this may present, there is not much to worry about with Betterment.

You’ll have everything you need at your fingertips, the platform is not only intuitive but also allows for an easy-to-view experience. 

This not only goes for desktop but also when reviewing your investments via tablet or mobile phone.

Trading options

As mentioned earlier, the service uses a pretty hands-off approach. The portfolios consist ofstock and bond exchange-traded funds (ETFs).

However you don’t get to pick the individual ETFs yourself, Betterment choses them for you based on the asset allocation you select. As an investor, all you have to do is decide how much of your portfolio you want in stocks and how much in bonds. Betterment will then invest them in their pre-built portfolios.

How to know which asset allocation makes sense?

If you need some help with deciding how to allocate your investments, there are several tools that can offer you some guidance.

If you want to build a portfolio yourself you need to have $100,000 or more in your account. If this is not the case, and you want more of a DIY investing approach, another robo advisor like M1 Finance may be better suited to your needs.

Costs

Fees

First off, it is important to not that the  fee is based on your account balance.

Betterment distinguishes between the Digital Plan and the Premium Plan. Let’s look at an overview first before we get into the details

Digital Plan
Premium Plan
Account Minimum
$0
$100,000
Annual Fee
0.25%
0.40%
Automated portfolio
Fractional shares investing
Rebalancing
Tax loss harvesting
Basic Support
Proactive account management
Advice on outside investments
Unlimited access to financial experts
Digital Plan
Account Minimum
$0
Annual Fee
0.25%
Automated portfolio
Fractional shares investing
Rebalancing
Tax loss harvesting
Basic Support
Proactive account management
Advice on outside investments
Unlimited access to financial experts
Premium Plan
Account Minimum
$100,000
Annual Fee
0.40%
Automated portfolio
Fractional shares investing
Rebalancing
Tax loss harvesting
Basic Support
Proactive account management
Advice on outside investments
Unlimited access to financial experts
Say you invest $1,000. You would then go for the Digital Plan and at 0.25% the fee will be $2.50 annually.

Quantity discounts

If you invest over $2 million, a 0.10% fee discount will be applied. Keep in mind that this goes for both the Digital and the Premium Plan, so the annaul fee for the Digital plan would lower to 0.15% and the Premium plan would lower to 0.30%

Any hidden fees?

Not necessarily a hidden fee as this is a fee that you will have to pay with any robo advisor that uses ETFs but it is only fair to mention (especially for beginner investors) that there is also a fee called expense ratio. It pays for the operating costs of the ETF. (charged by the ETF, not Betterment)

The ETFs Betterment uses have expense ratios of around 0.07% to 0.15%. which can be considered low.

Say you invest $10,000 in a fund that has a 0.07% expense ratio, you will pay $0.70 annually.

When am I charged?

The annual fee is charged automatically every quarter. So each quarter the fee will be applied to your average balance during that quarter. So if you thought that you could just take out all of your assets just before the end of each quarter then I am sorry Betterment has already thought of that 🙂

Extra Advice

Betterment offers one-on-one sessions with their certified financial experts. A 45-minute call with a CFE to get you started will cost $199 and a a 60-minute call with CFE to develop an action plan with you will cost $299.

That may seem like a lot and don’t worry this is not obligatory. However keep in mind that this extra service has a 30-day full refund, so if you’re not happy with the advice you receive you can easily claim your money back.

Screenshots / Tutorial

The exact step-by-step are best explained with a video. Thanks to Travis Sickle for making this awesome tutorial:

Betterment Pros and Cons

In a different article we have already established why we think a robo advisor is better than a traditional financial advisor.

If Betterment is the right fit for you entirely depends on your situation, please make sure to review all the pros and cons to see how Betterment compares to other robo advisors before making your final decision.

PROs
Perfect for easy, hands-off investing – Once you have set your goals you can lean back and let Betterment do the rest.
CONs
Difficult to cancel the account – Betterment makes it paperwork heavy to leave them.
Rebalancing and Daily tax-loss harvesting – Minimize your tax liabilities with daily tax-loss harvesting, selling off your losses to offset your gains
Encourages you to invest your emergency fund – Most financial experts recommend keeping your emergency fund liquid, but Betterment recommends a specific portfolio that is on the aggressive side and could put your emergency fund at risk.
Offers a variety of tools – Betterment helps you plan your financial future by making smart financial decisions with your investments and regular accounts too.
-
No minimum deposit – You don’t need any money to open an account, but even better is the low $100,000 minimum for Betterment Premium which offers access to professional financial advisors.
-
Low management fees – Betterment charges just 0.25% for less than $100,000 and 0.40% for over $100,000
-
PROs
Perfect for easy, hands-off investing – Once you have set your goals you can lean back and let Betterment do the rest.
Rebalancing and Daily tax-loss harvesting – Minimize your tax liabilities with daily tax-loss harvesting, selling off your losses to offset your gains
Offers a variety of tools – Betterment helps you plan your financial future by making smart financial decisions with your investments and regular accounts too.
No minimum deposit – You don’t need any money to open an account, but even better is the low $100,000 minimum for Betterment Premium which offers access to professional financial advisors.
Low management fees – Betterment charges just 0.25% for less than $100,000 and 0.40% for over $100,000
CONs
Difficult to cancel the account – Betterment makes it paperwork heavy to leave them.
Encourages you to invest your emergency fund – Most financial experts recommend keeping your emergency fund liquid, but Betterment recommends a specific portfolio that is on the aggressive side and could put your emergency fund at risk.
-
-
-

FAQ

Is Betterment safe?

Yes. Betterment acts as fiduciary, which means they are required by law to manage your money only in your best interest.  All the assets and securities in your portfolio remain under your ownership.

Who can use betterment?

If you want to use Betterment you need to be at least 18 years of age. Morevoer you must have a

  • permanent U.S. address
  • U.S. ITIN or Social Security Number
  • U.S. checking account from a U.S. bank

Whats the return?

Depends. This will depend on your particular portfolio, time frame etc.. Essentially these are too many factors to make an educated guess with. However if you want to see Betterments historical performance check out the graph on Betterments website.

Is Vanguard better than Betterment?

Again this depends. Vanguard Personal Advisor is geared towards millionaires and especially those who already invest through Vanguard, the masses however, will be better off using Betterment.

Is Betterment good for beginners?

The short answer is yes. The low fees and easy to use interface make it great for beginners. Especially if you are looking for a hands-off investment platform. However, before opting for Betterment, make sure to read about the best Robo-Advisors for Beginners.

How does Betterment compare to other financial companies?

I can confidently say that Betterment is among the best robo advisors out there, however there are some alternatives that you should consider before making your final decision. Check out all the best robo advisors in this article.

How does Betterment make money?

Betterment is among the most cost-effective advisors out there however of course they also have to pay their own bills.

The annual fee of 0.15% – 0.40% (depending on your plan) will ensure that Betterment can continue to provide their excellent service.

Current Promotions

Is there a current promotion?

Worth It or a Scam?

If you have made it this far, it is probably clear that we think that Betterment is definitely worth checking out.

The company which was founded by Jon Stein and several others in 2008 (launched in 2010) can definetely be trusted.

The New York City-based company is a registered investment advisor (RIA) and a broker-dealer.

Furthermore, Betterment is a member of the Financial Industry Regulatory Authority (FINRA)

Summary

Once you have decided on a portfolio there is really no need to baby-sit your investment as your portfolio will be optimized automatically.

The interface is intuitive and transparent, optimization includes constant rebalancing and tax-loss harvesting.

Their fees are low and there is no minimum investment amount.

Who is it best for?

Betterment is best for passive investors. If you are looking to invest your money with a hands-off approach, Betterment is the way to go.

The platfom is great for beginners and advanced investors alike.

Who should look for a different service?

The DIY-investment crowd who is less reliant on personal advice will be better off with a different service like M1 Finance for example. Betterment only allows ETF investing which, for those with more complex investing needs, may be too narrow.

Robo Chooser

Use the following Quiz and find out which robo advisor is best for you.

If you have any questions, please comment below.

Leave a Reply

Your email address will not be published. Required fields are marked *