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.

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

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

We all know investing is the best way to build long-term wealth.

However, it's not easy. Investing requires a lot of research and a good strategy. And we totally understand that beginner investors may not have the confidence (or time).

Could robo-advisors be the answer? Instead of a human, a computer algorithm figures out the best investment strategy for you. And because it's automated, the fees are much lower than if you were to hire a broker.

Read on for a detailed review to see how Betterment works and if it'll fit your investing needs.

Terms to Know

First, let's define a few terms that you'll need to understand with this type of service.

  • ETF. Short for Exchange-Traded Fund. 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. This tends to mean low management fees.

  • Robo-Advisor. A robo-advisor is an automated financial management service. It uses algorithms to manage your portfolio based on your goals and risk tolerance. There's no human intervention; it's all done automatically based on the risk profile. Thus, the fees are lower than if you were to hire a financial advisor.

  • Tax Loss Harvesting. 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 Much Does Betterment Cost?

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It is free to sign up for an account. And you can also download the Betterment app for free. However, like any brokerage, you pay for the service.

There are 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. And there are no fees for deposits or withdrawals from your account. Also, your trade fees are covered by the annual fee.

Compare:

9 Reasons Why We Like Betterment

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  • It does all the work for you. We understand that the investing process is complicated. Usually you need to study asset allocation and investment time horizons and other aspects (we know... blah blah blah). With Betterment, all you have to do is set a goal, transfer in money, and the automated service will do all the work.

    Once you've entered the data about your goals and timeframe to reach it, Betterment will find the investments that give you the best chance of reaching them. It automatically makes trades for you, and any profits are automatically re-invested according to your strategy.

  • It is 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.

  • Its 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: SPIC does NOT protect against losses caused by a decline in the value of your securities. Nor does it protect against bad investment advice.

  • It focuses on investing in ETFs. ETF fees are typically only 0.1% - 0.2%, which is lower than most other types of investments. And investing in a low-fee product gives you a better chance of achieving the returns you want.

  • It automatically rebalances your portfolio. When you start, you set your allocation (such as 70% stocks and 30% bonds). It's not unusual for this to drift over time, since stocks and bonds increase at different rates. If you don't pay attention, your portfolio may have drifted beyond what you originally wanted. But every 3 months, Betterment automatically rebalances your portfolio to ensure that the allocation stays the same.

  • The SmartDeposit feature makes it easy to invest. The SmartDeposit 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 still have total control. This ensures that you're investing your extra cash, instead of just letting it sit in your bank account.

  • Its investment options are tax-smart. Betterment helps you minimize the amount of taxes you'll pay. It 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 has an automated Tax Loss Harvesting feature. This is when 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.

    Betterment's graph shows how over 13 years, Tax Loss Harvesting provided additional after-tax returns.

  • It has a helpful RetireGuide. This feature allows you to link all external financial accounts to Betterment, and it'll come up with 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's not an app-only service. If you have questions or need additional information, Betterment has phone representatives, web chat reps, and e-mail access options available.

Why Betterment May Not Be For You

  • Limited number of investments. If you're expecting Betterment to work like an E*TRADE account, you're going to be disappointed. Betterment only invests in ETFs. For beginners and those with simple goals, this is probably plenty. But for people who have more complex investing needs, Betterment may be too simplistic in its offerings.

  • You have a lot to invest, and you don't need personalized advice. If you have quite a bit of money to invest, the annual flat rate fee for the Premium Account can be significant. $100,000 in investments will cost $400 in fees at the 0.40% tier. If you have a large amount of money to invest and you primarily buy and hold, a broker with a per transaction fee is probably better. And if you understand investment strategy, you could be making more profits by selecting investments yourself.

Is Betterment Safe?

Betterment is a registered broker with the SEC. Betterment also 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. 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's still risk.

You can further 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 are comfortable taking some risk in the short term, Betterment will select investments likely to show a lot of capital appreciation over time. This is the concept of "risk versus return."

How it Compares

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Betterment vs Wealthfront:
Wealthfront and Betterment have a lot of similarities, but you should pay close attention to fees, as both services have changed their fee structures in the past year. Also, 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 create more complex investment structures and can do a better job at avoiding taxes.

 

Betterment

Wealthfront

 

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
Assets Under Management
$10 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

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. The 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 a lot of human interaction.

 

Betterment

Vanguard Personal Advisor

 

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
Assets Under Management
$10 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

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.

Bottom Line

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

If you're just starting out and uncomfortable with choosing your own investments, Betterment is pretty cool and makes a lot of sense. Or if you're someone who has a hard time making yourself save, the automatic SmartDeposit feature with Betterment is a great one. If you follow the simple plan from Betterment, there's no guarantee your investment will grow, but we like your odds. After all, you can't start growing a nest egg without a little bit of risk.

Disclaimer: Opinions expressed here are those of the author's alone. Please support CreditDonkey on our mission to help you make savvy financial 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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