Betterment is one of the pioneers in the robo-advisory industry and is one of the first to use technology to recommend a portfolio and automate the investment process. Over the years since its founding in 2008, the firm has added additional asset classes and cash management products. Betterment's platform is intuitive, user-friendly, and full of educational resources, making it our top choice for beginners. It also offers tax-loss harvesting for all accounts, no matter the size, and a range of checking and savings account options, which made it our top choice for cash management in 2020.

New and Notable Updates

  • Betterment announced two additions to its socially responsible portfolio offering in October, 2020, with a Climate Impact portfolio and a Social Impact portfolio.
  • Betterment Cash Reserve, offering a higher yield, launched in April 2020 and replaced the previous savings product.
  • Cash Reserve offering includes spending analysis and guidance as well as easy transfers between accounts.
  • Equity allocations for the Safety Net goal, designed to beat inflation, cut to 15% from 40% to reduce risk.

Key Takeaways

There are several ways to use Betterment: you can sync all of your financial accounts to get an overall picture of your assets without investing, you can invest in one of their portfolios, or you can create a Flexible Portfolio with some of your own specifications. Taxable accounts are designed to maximize after-tax returns using tax-loss harvesting, and portfolios are rebalanced when necessary. Betterment is very much a goal-based platform, and there are many planning tools available to users along with plenty of advice. 

Pros
  • Quick and easy account setup.

  • Portfolios are fully transparent prior to funding.

  • You can sync external accounts to individual goals.

  • Add a new goal at any time and track your progress with ease.

  • Easily change portfolio risk or switch to a different type of portfolio.

  • Checking and Cash Reserve features offer two-way sweep.

Cons
  • Users of the planning function are constantly nudged to fund a Betterment account.

  • The standard plan incurs a charge of $199–$299 to talk to a financial planner.

  • Socially Responsible portfolios are invested in exchange-traded funds (ETFs).

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

Account Setup

5

Betterment boasts one of the easiest accounts to set up, and the process is optimized for mobile devices. Users enter their age, annual income, and a goal. There are none of the standard risk-related questions. Instead, Betterment presents you with an asset allocation suggestion and its associated risk, which you can change by adjusting the percentage of equity versus fixed income held in the portfolio. 

You’re also prompted to connect external accounts—such as bank and brokerage holdings—to your Betterment account, both to provide a complete picture of your assets and to make cash transfers into a Betterment investment portfolio easier. Betterment also allows clients to make automatic deposits from multiple external accounts, based on customer requests.

Users can open an individual or joint account, both Roth and traditional IRA accounts, and trust accounts. Customers interested in opening a traditional IRA can now contribute to a traditional IRA for the rest of their lives, under the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. In addition, the new law extends the age at which participants need to take required minimum distributions (RMDs), from age 70.5 to 72 years.

There are no college savings 529 plans, Uniform Gift to Minors Act (UGMA) accounts, SEP IRAs/Keoughs, or solo 401(k) accounts. Employers can sign up for Betterment for Business, a 401(k) plan for businesses, and retail clients can ask for guidance on their employer-sponsored 401(k) to see how transferring the account to an individual IRA can help them.

Betterment offers five portfolio types and clients can switch strategies after a portfolio is funded. The platform will even tell you if there are any tax implications prior to making a change. Each goal can be invested in a different strategy, so funds for longer-term goals like saving for retirement can be allocated to one of the higher-risk portfolios, while shorter-term goals, such as funding a down payment on a house, can be allocated to the lower-risk ones. 

Goal Setting

4.8

Betterment has very easy-to-follow steps for setting a goal, and each one can be monitored separately. The asset allocation is displayed in a ring, with equities in shades of green and fixed income in shades of blue. If you’re falling behind on meeting a goal you’ve set, Betterment will encourage you to put more aside. This can be a helpful prompt, particularly for young investors who may not yet feel the urgency to save for some of their longer-term goals.

Betterment screenshot

Account Services

3.5

You’re encouraged to set up automatic deposits, and once your accounts are linked during the initial account opening process, it’s easy to enable. Should you need to skip an automatic deposit, you can do so quickly from the reminder email sent prior to the transfer of funds. There is no margin available and you cannot borrow against the assets held in your Betterment account.

Consolidating external accounts to provide a full picture of your assets is one of the strengths of this platform. Each outside account can have all of, or a portion of, its contents dedicated to one of your goals. This consolidated overview of assets can be quite valuable for investors, even if it comes at the price of being prompted to move more into the platform.

Another strength of Betterment's services is the ability to coordinate tax strategies if you have both a taxable and a non-taxable account. Betterment’s Tax Coordination service is an automated version of an investment strategy known as asset location. This strategy generally places assets expected to be taxed at higher rates in your tax-advantaged accounts (IRAs and 401(k)s), which have big tax breaks. Assets expected to be taxed at lower rates are placed in your taxable account, since you’ll owe taxes on dividends and any realized capital gains each year. Betterment's research shows that this strategy can boost after-tax returns by an average of 0.48% each year, which can add up over many years.

Cash Management

The firm launched its cash management offerings, Betterment Checking and Betterment Cash Reserve, in April 2020. The checking account includes a debit card, and reimburses ATM fees and foreign transaction fees. In June 2020, Betterment added mobile deposit capability to its checking account offering. With two-way sweep enabled, cash is swept from the checking account into the reserve account, which pays a higher rate of interest.

Portfolio Construction

2.4

Betterment offers five portfolio types:

  • The standard Betterment portfolio consisting of globally diversified stock and bond ETFs (iShares, Vanguard).
  • There are three socially-responsible portfolios available. The Broad Impact portfolio filters its holdings for stocks that are well-governed and score well on environmental and social impact. The Climate Impact portfolio focuses on mitigating climate change, seeking companies with the lowest carbon footprint and using ETFs that exclude companies using fossil fuels. The Social Impact portfolio focuses on U.S. companies that emphasize diversity.
  • The Goldman Sachs Smart Beta portfolio that attempts to outperform the market.
  • The income-focused all-bond portfolio made up of BlackRock ETFs.
  • The Flexible Portfolio constructed from the same individual asset classes as the standard portfolio but is weighted according to the user’s preferences.

Socially responsible portfolios contain ETFs invested in large-cap firms, such as iShares MSCI KLD 400 Social ETF (DSI), and replace emerging market stock exposure with an emerging market environmental, social, and governance (ESG) fund. The Climate Impact portfolio includes "Green bond" funds, which finance environmentally beneficial projects around the world. The Social Impact portfolios include the NACP ETF, designed to provide exposure to U.S. organizations with stronger racial and ethnic diversity policies, and the SHE ETF, which provides exposure to U.S. companies that demonstrate greater gender diversity within senior leadership. 

You can choose to customize your own Flexible Portfolio, but it’s also invested in ETFs, which are seldom granular enough for those who want their investments focused solely on socially responsible investments. You can edit the portfolio strategy on an existing goal, then choose “Design a Flexible Portfolio.” Or, if you’re starting a new goal, choose “See other portfolios” when viewing the recommended portfolio to start a Flexible Portfolio. This feature is intended for experienced investors and includes Betterment's tax optimization tools.

Portfolio Management

5

Accounts are evaluated once a month and rebalanced if they have shifted from their goal allocation. As your target date nears, your portfolio gets more conservative with the goal of locking in gains and avoiding major losses. Having this automated risk reallocation is one of the primary reasons robo-advisors have become so popular. These are standard portfolio management techniques that most investors do not have the time or dedication to actually implement. 

Betterment’s clients are eligible for tax-loss harvesting on all taxable in-house accounts, regardless of the balance. This is another key point of differentiation in favor of Betterment. Other robo-advisors require a certain balance, typically over $25,000 and often higher, to turn on this capability. Tax-loss harvesting is an option set at the account level, so if you turn it on, it will be applied to all of your portfolios within your Betterment account.  

User Experience

4.9

Mobile Experience:

The native apps are designed to make all of the features available, though in some places there is a lot of scrolling to get to key features. Desktop and mobile capabilities are identical. You can set up all of your goals and investments on your mobile device, though there is quite a bit of data entry when you’re first opening an account. That might be better done on a desktop simply because of the typing involved.

Betterment does not offer a tablet-specific app, but its phone app resizes to use the additional screen space. 

Desktop Experience:

Betterment’s website is designed to guide you through the process of setting goals and tracking them. The process is logical and easy to follow to completion. When you access a question in their FAQs, the site maintains a list of the articles you’ve already read. Certain choices—such as clicking on the Support link—spawn a new tab, so you can wind up with a lot of open tabs after a while.

Customer Service

4.1

Customer service is available by email and phone from 9 a.m. to 6 p.m. Eastern time, Monday to Friday, and via email only from 11 a.m. to 6 p.m. Eastern time on Saturday and Sunday. Betterment eliminated its online chat capability for prospective clients, but existing clients can chat with customer service after logging in. You can get help from financial planners at any time with a premium account, but you’ll pay a fee of $199–$299 to consult a planner if you have a basic account. Financial advisor consultations take place via Zoom, which can include video if the customer so chooses.

Education & Security

4.8

Betterment’s Resource Center includes dozens of informative and well-written articles about retirement planning and how to minimize your tax burden. There are also a few videos to help you figure out how to use the platform. Betterment has also dedicated a number of articles to help investors understand the portfolio compositions and how the company approaches negative market events. In response to the coronavirus downturn, Betterment created an educational experience focused on market volatility, encouraging its clients to stay the course.

Betterment’s security is sufficient. The website is encrypted, and mobile apps offer two-factor authentication. There is no excess Securities Investor Protection Corporation (SIPC) insurance carried by Betterment itself, but trades are cleared through Apex Clearing, which has risk management tools in place. Betterment clients are not placing risky trades and there is no margin lending offered, so it’s unlikely that there would be a need for additional SIPC coverage. Still, if your account has more than $500,000 in it or more than $250,000 in cash, you might consider moving the excess to a firm with additional insurance.

Commissions & Fees

4.4

Digital-only customers pay 0.25% per year in management fees, increasing to 0.40% per year for the premium plan. Betterment offers a discounted fee on assets over $2 million, dropping the digital fee to 0.15% per year on the portion of the balance that exceeds $2 million. In the premium plan, you will pay 0.30% on the balance above $2 million. The underlying ETFs incur management fees of 0.07%–0.15% per year.

You can use Betterment’s financial planning and account consolidation tools at no charge, but you will be frequently prodded to move some of your cash into an investing account. There are no fees for closing an account or sending a check or wire.

  • Monthly cost to manage a $5,000 portfolio: $1.04 ($1.67 for Premium)
  • Monthly cost to manage a $25,000 portfolio: $5.21 ($8.33 for Premium)
  • Monthly cost to manage a $100,000 portfolio: $20.83 ($33.33 for Premium)

Is Betterment a Good Fit for You?

Along with Wealthfront, Betterment is one of the early pioneers in robo-advisors. This early experience has led to a platform grounded in goal-setting and bolstered by the ability to pull in external accounts for a true, consolidated view of your progress towards those goals. Betterment is meant to be digital-only management, but it offers the escape hatch for those who want a human touch—for a price, of course. For the basic user, there is a small account minimum ($10) to start investing, and the fees are in-line with the industry.

Betterment is an excellent platform for people looking to manage their retirement portfolio, but it really shines when investors consolidate more of their financial goals into the platform. The ability to track progress can be a great motivator for young investors, and the tax and portfolio management tools take away the headaches of manually adjusting and monitoring a portfolio. Betterment also provides a fair number of portfolio choices and customizations, rather than locking you into one of three risk ratings. Betterment’s socially responsible portfolios and digital-first approach are signs that the younger investment crowd is the primary focus, and that is understandable. For older, more conservative investors, Betterment’s digital-first approach is the first barrier to adoption. However, if those investors can get beyond that, the rebalancing based on the investment time horizon, the lower fees, and the tax-loss harvesting may actually provide better value than their current portfolio manager.

Compare Betterment

As one of our top ranking robo-advisors, Betterment is a great solution for many types of investors. See how it compares against other robo-advisors we reviewed.

Investopedia Robo-Advisor Rating Methodology

Investopedia is dedicated to providing investors with unbiased, comprehensive reviews and ratings of robo-advisors. Our 2020 reviews are the result of in-depth evaluations of over 20 robo-advisor platforms, including the user experience, goal-setting capabilities, portfolio construction, costs and fees, security, mobile experience, and customer service. You can read our full robo-advisor rating methodology for a much more in-depth explanation than the summary below.

Overall Star Rating Explained

With the individual investor in mind, we took a critical look at the services and technology provided by robo-advisors. We organized our methodology into nine categories, scoring each advisor across multiple variables to rate performance in every applicable category. The score for the overall award is a weighted average of the categories.

EVALUATION CATEGORIES
Review Category Weighting Variables
Account Setup   5% 6
Goal Setting 15% 4
Account Services 10% 8
Portfolio Construction 15% 7
Portfolio Management 20% 4
User Experience 15% 6
Customer Service   5% 5
Education & Security   5% 6
Fees 10% 5

The Review Process

To evaluate these platforms, we sent questionnaires with over 100 queries to the participating robo-advisories. Most of the companies we reviewed gave us socially-distanced video demonstrations of their platforms and services during August 2020.

From the questionnaires, the hands-on testing of the platforms, and the platform demonstrations, we scored each category and then combined the category scores into an overall rating for each robo-advisor. Each category covers the critical elements users need to thoroughly evaluate a robo-advisor.

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