Betterment Review

Jul 16, 2020 04:06 AM ET
Betterment Review

Betterment: How Does It Work?

Betterment is the first-ever automated online investment platform that was formed in 2008. In other words, it is a robo-advisor and has bagged the title of the most innovative platform by its users. Betterment is the largest independent robo-advisor with $16.4 billion in assets under management. 

It has a very similar working manner to other robo-advisors. It initiates the investment process by asking clients a series of questions about their age, goals, and other topics they find necessary, for accurate assessment of your risk tolerance. Based on the analysis of the answers Betterment automatically creates a personalized investment portfolio. You can choose to modify it if you wish. 

Key Features of Betterment:

  • Minimum initial investment- You can open an account with zero balance and start funding it regularly via deposits.

  • Availability of accounts- The available accounts include traditional, Roth, rollover, SEP IRAs, trust and non-profit accounts, taxable individual and joint brokerage accounts.

  • Mobile check deposits- Mobile check deposits allow investors to deposit checks from the comfort of their couch. Checking account needs related to Betterment can be carried out all in a single place.

  • Financial advice packages- Betterment provides 5 different financial advice packages for giving you assistance for planning the future.

          • Getting started package- $199

          • Financial checkup package- $299

          • College planning package- $299

          • Marriage planning package- $299

          • Retirement planning package- $299

  • Better account protection- Your account is under the protection coverage of the SIPC for up to $500,000 in cash and securities. To avail extra security you can set up the two-factor authentication for accessing your account. This is protection against hackers.

  • Deposits and withdrawal- Betterment offers a convenient deposit in your account via electronic transfers from your checking account through the ACH network. Transfers from outside brokerage accounts are also possible using ACATS and transfers from retirement accounts can be carried out via IRA rollovers. Betterment denies acceptance of deposits made by debit or credit cards or by check.

  • RetireGuide- Investors can use this tool to project their retirement needs.

  • Betterment Everyday™ Cash Reserve- Betterment Everyday™ Cash Reserve offers an attractive interest rate of 0.40% APY with no minimum balance requirement or fees paid. It also offers an Everyday Checking account with your funds being FDIC insured up to $250,000 plus. ATM charges are reimbursed across the globe.

  • Customer Service- You can reach out to Betterment via email or phone, Monday through Friday between 9:00 am and 6:00 pm Eastern Time. Saturdays and Sundays you can contact them via email only between 11:00 am and 6:00 pm.

  • External Account Syncing- This is very similar to financial account aggregators like Personal Capital. Betterment allows you to add external accounts to your Betterment account. It does not manage those accounts.

How To Start Saving With Betterment?

To start saving with Betterment all you need to do is set up an account. The process is super easy and optimized for mobile devices for your convenience. You will be asked to enter your age, annual income, and a goal. After that, you are prompted to connect external accounts like a bank & brokerage holdings to your Betterment account. This is used to help you see a clear picture of your assets and to make cash transfers easy into a Betterment investment portfolio. 

What Is Betterment Investment Strategy?

BettermentThe investment strategy of Betterment is based on Nobel Prize-winning research.

  • Their investment strategy works towards achieving global diversification using Modern Portfolio Theory as a foundation for asset allocation.

  • Optimization of investment portfolios by tilts towards size and value and two drivers of performance identified by the landmark research of Fama & French.

  • Another strategy incorporated by Betterment includes two prerequisites for their investment strategy that is it must enable personalization of planning and built-in disciple.

  • Tax management strategy using municipal bonds for taxable accounts.

What About the Fees And Commissions?

The Digital plan is the most basic service applied to account balances under $100,000.

The Premium plan demands a minimum balance of $100,000. This plan offers external account syncing along with unlimited access to financial planners that are certified.

Now, each plan comes with a 0.10% discount on the portion of your account balance that surpasses $2 million. That comes up to a payment of 0.15% for the Digital plan and 0.30% for the Premium plan on higher balances.

You can use Betterment’s financial planning and account consolidation tools free of charge. But you will often be nudged to move some of your money into investing accounts. 

  • Monthly fee to manage a $5,000 portfolio: $1.04

  • Monthly fee to manage a $25,000 portfolio: $5.21

  • The monthly fee to manage a $100,000 portfolio: $20.83

Betterment Pros, Cons, and Who Is It For?

 

Betterment

Pros: 

  • The annual advisor fee is on the lower side when compared to the range of robo-advisors

  • Total investment management for just 0.25% per year.

  • Offers value investing in numerous stock asset classes.

  • No initial investment required. You can open an account with $0 and carry on funding later on via regular contributions.

  • Tax-loss harvesting offered on taxable accounts which minimizes the tax liability generated by your investment.

Cons:

  • Limited investment options such as bonds or stocks. Lacks alternatives.

  • Higher advisory charges on larger portfolios.

  • There is no margin lending, secured loan, or borrowing options against your portfolio.

After tallying the pros and cons one can see that Betterment is ideal for the following:

  • New investors

  • Hybrid investors

  • People who lack time for investment management

  • Retirement investors

  • People who desire automatic rebalancing

  • People who like goal-based tools

The Bottom Line

Betterment is one of the largest independent robo-advisor for a reason. And the reason includes multiple attractive benefits and features. It is goal-oriented, appeals to retirement as well as new investors while keeping the human advice offering inexpensive when compared to other hybrid advisors. Therefore with Betterment’s low annual fees and no initial investment need, practically anyone can open an account.


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