Updated June 4, 2018

Betterment Review: Is It Good?

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Betterment is one of the most popular robo-advisors with low fees and no account minimum. But is it safe? Read this review to see if Betterment is worth it.

Betterment
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Overall Score

4.1

Annual Fee

4.5

Minimum Deposit

5.0

Human Advisors

3.0

Customer Service

4.0
5-point scale (the higher, the better)

Pros and Cons

  • No minimum investment
  • Many customized portfolios
  • Automatically invest extra funds
  • Limited investment options
  • High fees for large investors

Bottom Line

Great robo-advisor for beginners with low fees, good tools, and tax strategies

Investing is the best way to build long-term wealth. But it can be risky.

You'll need a lot of research and a good strategy. Many people are afraid to make mistakes.

Betterment may be the perfect solution for beginners who don't have the confidence or time to invest on their own.

Read on for a detailed review to see how Betterment works and whether it fits your investing needs.

How Betterment Works

Betterment is a robo-advisor, which means there's no human involvement in your investing.

It uses algorithms to figure out the best strategy based on your goals and risk tolerance. Betterment selects the right investments for you and manages your portfolio.

You don't need to do anything beyond filling out a profile. And since it's automated, the fees are much lower than if you were to hire a financial advisor.

Betterment focuses on investing in ETFs (Exchange Traded Funds). ETF fees are very low - typically only 0.1% - 0.2%. This means that management fees are low.

An ETF is a diversified collection of assets, including stocks, commodities, and/or bonds. ETFs are similar to mutual funds, but they are traded on an exchange, like a stock.

How to Start Trading with Betterment

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Getting started with Betterment is simple.

First, you create an account by sharing information like your:

  • Age
  • Annual pre-tax income
  • Investment goal (retirement, emergency savings, or general)
  • Desired type of account (taxable, IRA, etc.)

Using this info, Betterment develops a personalized portfolio for you. The stock and bond allocation will be different depending on what your goals.

For example, a 30-year old saving for retirement may be recommended 90% stocks and 10% bonds. You can adjust the allocation if you don't like it.

You'll also need to link a bank account to fund your Betterment account. Betterment will then automatically make the trades for you. It takes about 2 days for trading to start after you sign up.

How Much Does Betterment Cost?

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You can start an account for free. Downloading the app also won't cost anything. However, as with any brokerage, you pay for the service.

Betterment has two tiers. The fees are calculated based on your balance.

  • Digital basic service - 0.25% annual fee. For accounts up to $100,000. Includes automated portfolio management and access to financial experts. You get automatic rebalancing and tax loss harvesting.

  • Premium service - 0.40% annual fee. For accounts $100,000 and over. Includes unlimited access to financial experts for guidance on life events and in-depth advice for investments outside of Betterment.

Did you know?
Betterment never charges a fee if your balance is $0. You'll also pay no fees for account deposits or withdrawals. Even your trade fees are covered by the annual fee.

Compare:

Betterment Smart Saver Account

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The Smart Saver account is Betterment's solution to a high-yield savings account. It invests in low-risk U.S. government bonds.

If rates on those go up, the rate on the Smart Saver account will increase too. Think of it as a savings account through an investment firm instead of a bank. Some features include:

  • No minimum balance requirement.
  • Unlimited withdrawals (unlike the federal limit of 6 withdrawals/month for bank savings accounts).
  • No penalties or fees for withdrawals.
  • Can transfer balance between your Smart Saver account and linked bank account or taxable Betterment account whenever you want.

Betterment also analyzes your expenses and tells you how much extra cash you have sitting in your bank account.

Difference between Smart Saver and savings account: The yield rate is similar to that of high-yield online savings accounts.

The difference is that banks return interest when they loan your money out, while Betterment puts it in low-risk bonds that yields income through bonds. The performance tracks federal interest rates.

The two-way sweep feature automatically moves extra cash into Smart Saver. If your bank account balance gets low, it'll move money back into it.

Every Betterment customer can open one Smart Saver account. There is a fee of 0.25%.

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Reasons Why We Like Betterment

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  • It does the work for you.
    The investing process is complicated. Usually, you need to study asset allocation and investment time horizons and other aspects.

    But with Betterment, you simply set a goal and transfer money to your account. The automated service does the rest.

    Betterment will find investments that give you the best chance of reaching your goals. It automatically makes trades for you, and any profits are automatically re-invested according to your strategy.

  • A registered broker.
    Betterment is a registered broker with the Securities and Exchange Commission (SEC). That doesn't guarantee you'll make money with your investments. But you can be confident this isn't a scam.

  • Accounts are SIPC-protected.
    SIPC protects against the loss of securities held by customers at a brokerage. If Betterment were to go out of business, SIPC would cover your losses (up to $500,000 per account type).

    Note: Betterment is not FDIC insured - it is not a bank. SPIC does NOT protect against losses caused by a decline in the value of your securities. Nor does it protect against bad investment advice.

    Betterment does serve as a fiduciary, which means that it is legally bound to act in the best interest of the participants.

  • It automatically rebalances your portfolio.
    When you start, you set your allocation (ex: 70% stocks and 30% bonds). This may drift over time, since stocks and bonds increase at different rates.

    If you don't pay attention, your portfolio may slip beyond what you originally wanted. But Betterment automatically rebalances your portfolio every 3 months to ensure the allocation stays the same.

  • The SmartDeposit feature makes it easy to invest.
    This feature automatically sends money to Betterment when your bank account exceeds a certain balance.

    You can set up a frequency and maximum transfer amount, so you maintain total control. This ensures that you're investing your extra cash, instead of just letting it sit in your bank account.

  • Minimizes taxes you'll pay.
    Betterment has a Tax Coordinated Portfolio feature that puts your most highly-taxed assets into accounts with tax breaks (like IRAs). Assets with lower taxes will be diverted to the standard taxable account.

    Betterment also has a Tax Loss Harvesting feature. Should you lose money on a particular investment, tax loss harvesting uses that loss to offset capital gains you may have from making money with other investments.

    How tax loss harvesting works: Your securities with losses are sold and replaced with similar securities, to keep your portfolio allocation the same.

    Meanwhile, the loss is "harvested" when Betterment sells your securities at a loss, which means it offsets capital gains, and thereby reduces your taxable income.

    This graph shows how Tax Loss Harvesting provided additional after-tax returns over a 13-year period.

  • It offers a socially responsible portfolio.
    If you have ethical concerns about investing in companies that don't align with your value, Betterment offers a socially responsible investing (SRI) portfolio.

    It invests in low-cost SRI ETFs. You can keep your values while maintaining the diversification and low cost.

  • A helpful RetireGuide.
    This feature allows you to link all external financial accounts to Betterment to get personalized retirement planning advice.

    You can say how much you plan to spend per year in retirement, and Betterment will calculate how much you need to be saving.

    This RetireGuide helps you gain an understanding of your future and what you need to do to reach your goals. It shows you whether you're on track to your retirement goals.

  • The low-risk Smart Saver account. Betterment helps you invest the extra cash in your account and earn more interest. The Smart Saver account invests in U.S. government bonds so it's low risk.

  • You can get real person support. If you have questions or need additional information, Betterment's customer service is available 7 days a week by phone and email.

    Betterment customer service hours:
    • Monday-Friday: 9 am - 6 pm ET (phone & email)
    • Saturday-Sunday: 11 am - 6 pm ET (email only)

    Phone: (646) 600-8263
    Email: support@betterment.com

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    Compare Pricing

Why Betterment May Not Be For You

  • Limited number of investments.
    If you're expecting Betterment to work like an E*TRADE account, you'll be disappointed.

    Betterment only invests in ETFs. For beginners and those with simple goals, this is probably plenty. But for those with more complex investing needs, Betterment 's offerings may be too narrow.

  • You have a lot of capital and don't need personalized advice.
    If you have significant money to invest, the annual flat rate fee for the Premium Account can be a little steep - $100,000 in investments will cost $400 in fees at the 0.40% tier.

    With a large amount of money to primarily buy and hold, you're probably better served by a broker with a per transaction fee.

    And if you understand investment strategy, you could be making more profits by selecting investments yourself.

Betterment App

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Betterment offers a free app for both iOS and Android users. Features include:

  • See your Betterment account balance and performance chart
  • Review your activity history
  • Make deposits into your Betterment account(s)
  • See overview of your external linked financial accounts
  • See whether you're on-track to your retirement goals and projections
  • Set up and manage a Smart Saver account
  • Send message to Customer Support

The app is simple and lets you review your account from anywhere.

Is Betterment Safe?

Betterment is a registered broker with the SEC. It recently added a two-factor authentication to accounts. You can use an authenticator app on the smartphone or SMS text to secure the account.

Now if you're asking whether you'll lose money by using Betterment, this service - like any investment service - cannot guarantee against that.

You Should Know: Virtually any kind of investment has the possibility of losing money.

Betterment's robo-advisor service attempts to maximize returns while minimizing risk, but there is still risk.

Betterment is a fiduciary, which means that it is legally bound to act in your best interests. It assumes the responsibility for investing your assets.

Betterment also reviews its investment managers to make sure they're choosing the best ETFs for investors.

You can minimize risk by the goals and timeframe you set. If you are very uncomfortable with risk, or if you may need your money soon and couldn't withstand a loss of capital, Betterment will select investments with less risk to your principal.

On the other hand, if you set long-term goals and can handle some risk in the short term, Betterment will select investments likely to show a lot of capital appreciation over time. This concept is called risk versus return.

How it Compares

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Betterment vs Wealthfront:
Wealthfront and Betterment have a lot of similarities. But pay close attention to fees, as both services have changed their fee structures in the past year. These fees differ depending on how much you have to invest.

If you have a lot to invest, Wealthfront has a few advanced features that Betterment lacks. Wealthfront can also create more complex investment structures and can do a better job at avoiding taxes.

 BettermentWealthfront
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Betterment

Wealthfront

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SPECIAL OFFER
Automate Your Investments - Learn More

 

Benefits and Features

Annual Fee0.25% for accounts under $100,000; 0.40% for accounts $100,000+
0.25%
Minimum Deposit
$0
$500
Phone Support
Yes
Yes
Live Chat Support
No
No
Email Support
Yes
Yes
Human Advisors
Yes
No
Robo Advisor
Assets Under Management
$14 Billion
$10+ Billion
Tax Loss Harvesting
Yes
Yes
Goal Tracker
Yes
Yes
Automatic Deposits
Yes
Yes
Online Platform
Yes
Yes
iPhone App
Yes
Yes
Android App
Yes
Yes
Single Stock Diversification
No
Yes
Fractional Shares
Yes
No
Taxable Accounts
Yes
Yes
401k Plans
Yes
No
IRA Accounts
Yes
Yes
Roth IRA Accounts
Yes
Yes
SEP IRA Accounts
Yes
Yes
Trust Accounts
Yes
Yes
529 Plans
No
Yes
 Visit SiteVisit Site

Betterment: Pricing information from published website as of 04/04/2018

Wealthfront: Pricing information from published website as of 04/04/2018

Betterment vs Vanguard:
Vanguard is a huge established investment management company. Vanguard offers a Personal Advisor service, which gives you an actual person managing your account.

That person will select your investments based on your goals and financial situation. Vanguard does require a minimum investment of $50,000 for this service. And it charges a flat 0.30% annual fee.

Just like robo-advisors, Vanguard will do the work for you, including rebalancing the portfolio. Clients can contact the advisor whenever they like. For a low 0.30% flat fee, this is a great service if you have more to invest and want human interaction.

 Betterment
 Visit SiteLearn More
 

Betterment

Vanguard Personal Advisor

SPECIAL OFFER
Get 1 Month Managed Free - Learn More

 

Benefits and Features

Annual Fee0.25% for accounts under $100,000; 0.40% for accounts $100,000+
0.3%
Minimum Deposit
$0
$50,000
Phone Support
Yes
Yes
Live Chat Support
No
No
Email Support
Yes
Yes
Human Advisors
Yes
Yes
Robo Advisor
Assets Under Management
$14 Billion
$100+ Billion
Tax Loss Harvesting
Yes
client-by-client basis
Goal Tracker
Yes
Yes
Automatic Deposits
Yes
Yes
Online Platform
Yes
Yes
iPhone App
Yes
Yes
Android App
Yes
Yes
Single Stock Diversification
No
No
Fractional Shares
Yes
No
Taxable Accounts
Yes
Yes
401k Plans
Yes
No
IRA Accounts
Yes
Yes
Roth IRA Accounts
Yes
Yes
SEP IRA Accounts
Yes
Yes
Trust Accounts
Yes
Yes
529 Plans
No
Yes
 Visit SiteLearn More

Betterment: Pricing information from published website as of 04/04/2018

Vanguard Personal Advisor: Pricing information from published website as of 04/04/2018

Betterment Overall:
Vanguard's service is much more personalized but is only available to people with $50,000 or more to invest.

Neither Wealthfront nor Vanguard offer the SmartDeposit feature that Betterment provides, which is a great option if you have a hard time budgeting.

Betterment vs Acorns:
Acorns uses an "invest spare change" approach.

You link a bank account and credit cards to your Acorns account. After every purchase, Acorns will round up the spare change and automatically invest it for you.

This is a good way to invest without thinking. But you can't build real wealth from spare change.

Betterment is better for those serious about retirement savings. And Acorns' monthly fee may be high if you keep a very small balance.

Betterment vs Stash:
Stash is for the novice investor who needs a little hand-holding. Unlike Betterment, it does not automatically select and manage investments for you.

Instead, it curates stocks and ETFs for you based on your values, goals, and risk tolerance. You still get to make your own investing decisions.

Common Questions

Is Betterment a good investment?
Betterment is good for beginners who aren't ready to invest on their own AND for investors who prefer to be hands-off.

The service fee is low, so you get to keep more of your profits. But like all investments, returns are not guaranteed.

Can you withdraw money with Betterment?
Yes, you can withdraw funds back into your bank account at any time with no penalties or withdrawal fees.

However, if you withdraw funds from an IRA account before age 59-1/2, there will be a tax penalty.

Note: Withdrawals generally take 4-5 days to complete.

Can you buy individual stocks on Betterment?
No. Betterment is a robo-advisor that automatically invests in a diversified portfolio of ETFs.

You cannot trade individual stocks or funds on your own. And you do not make your own investing decisions.

Is Betterment FDIC insured?
No, Betterment is not a bank and is not FDIC insured.

However, Betterment accounts are SIPC protected, which means that if they were to go out of business, SIPC would cover your losses (up to $500,000 per account type).

Is Betterment a fiduciary?
Yes, Betterment serves as a fiduciary, which means that it is legally bound to act in your best interests. It assumes the responsibility for investing your assets.

Betterment also reviews its investment managers to make sure they're choosing the best ETFs for investors.

Bottom Line

Betterment has no account minimum and a low fee structure for those with little money to invest. If you have a lot of capital or if you want more control over the process, another brokerage service might be better.

For those just starting out and uncomfortable with choosing their own investments, Betterment makes a lot of sense. The automatic SmartDeposit feature is also a great tool.

There's no guarantee your investment will grow with Betterment, but we like your odds. And you can't start growing a nest egg without a little bit of risk.

Disclaimer: Opinions expressed here are author's alone. Please support CreditDonkey on our mission to help you make savvy decisions. Our free online service is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content.

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