Betterment Overview
Betterment is a leading robo-advisor that offers a comprehensive and user-friendly platform for managing and growing your investments. Here’s a detailed look at what Betterment does and its key features.
Investment Philosophy and Portfolio Options
Betterment is grounded in modern portfolio theory, emphasizing the benefits of diversification. The platform provides a variety of pre-built and customizable portfolios tailored to different risk tolerances and investment goals. Key portfolio options include:
- Betterment Core Portfolio: Diversified portfolios using ETFs representing about 12 asset classes.
- Flexible Portfolio: Allows users to adjust the weights of their asset classes and includes options for non-market correlated assets like real estate investment trusts (REITs) and commodities.
- Specialized Portfolios: These include smart beta portfolios, technology-focused portfolios (e.g., semiconductors, virtual reality, artificial intelligence), BlackRock Target Income portfolios, and socially responsible portfolios (Broad Impact, Climate Impact, Social Impact).
Automated Portfolio Management
Betterment’s automated system is designed to keep your investments aligned with your goals. Key features include:
- Automatic Rebalancing: The platform monitors your portfolio daily and rebalances it when the allocation drifts 3% or more from the target, using cash flows or selling overweighted assets to minimize capital gains taxes.
- Tax-Loss Harvesting: This feature seeks to offset taxable gains by identifying and selling securities that have declined in value, replacing them with similar assets to maintain your investment position.
Goal-Based Planning
Betterment allows you to set and track multiple financial goals, such as saving for a major purchase, education, retirement, or building an emergency fund. The platform suggests an appropriate portfolio allocation based on your time horizon and risk tolerance, adjusting the portfolio to become more conservative as you approach your goal.
Account Types and Cash Management
Betterment supports a wide range of account types, including individual and joint taxable brokerage accounts, Roth, traditional, inherited, rollover, and SEP IRAs, as well as trusts. Additionally, it offers:
- Cash Reserve: A cash account with a 4.00% interest rate, no minimum balance requirement, and up to $2 million in FDIC insurance coverage for individual accounts.
- Checking Account: Features no minimum balance, no foreign transaction fees, no overdraft fees, and worldwide ATM fee reimbursement.
Access to Human Advisors
Betterment offers two service plans:
- Digital Plan: Provides core functionality including portfolio management, automatic rebalancing, and tax-loss harvesting for a 0.25% annual fee. There is no account minimum, but those with less than $20,000 may be charged a monthly fee.
- Premium Plan: Includes all digital plan features plus unlimited access to certified financial planners (CFPs) for a 0.40% annual fee, requiring a $100,000 minimum account balance.
Additional Features
- Charitable Giving: Allows users to donate securities directly to charities through the platform, potentially saving on capital gains taxes.
- Retirement Planning: Offers tools for optimizing retirement savings and portfolio management, including automated rebalancing and dividend reinvesting for IRAs.
- Crypto ETF Portfolio: A new portfolio option comprising Bitcoin and Ethereum ETFs, with a reduced management fee of 0.25% and automatic rebalancing.
User Experience and Tools
Betterment’s platform is highly functional and user-friendly, with features such as:
- Tax-Impact Tool: Helps users understand the tax implications of changes to their portfolio.
- Retirement-Planning Tool: Provides a comprehensive view of your financial life and suggests optimizations for retirement savings.
- Goal-Planning Tool: Suggests how to organize and optimize financial goals.
- External Account Linking: Allows users to link external accounts for personalized advice, though these accounts are not managed directly by Betterment.
In summary, Betterment is a robust robo-advisor that offers a range of investment options, automated portfolio management, goal-based planning, and access to human advisors, all wrapped in a user-friendly and feature-rich platform.