Betterment is a well-known company that specializes in robo-investing and helping newbie investors get started. Users add a certain amount of money to their account each month, and Betterment invests it in exchange-traded funds (ETFs) using principles of modern portfolio theory. Recently, Betterment has added more active management features for those with account balances of at least $100,000.
Read on to see if this Betterment review can help you decide whether this robo-advisor is right for you.
Who should consider Betterment
Betterment is best for investors who are interested in more of a “set it and forget it” approach to investing. Anyone can benefit from Betterment, but it’s especially helpful for beginner investors hoping to start growing their wealth. It’s also a great resource for intermediate investors looking to accomplish different goals with different “buckets” of money.
Advanced traders also can make use of Betterment as a place for long-term retirement portfolio building, though there is no active trading. Betterment offers a place for assets that are not needed for quite some time to grow at a pace that is likely to track the market as a whole.
Betterment fees and features
|Amount minimum to open account|
|Account fees (annual, transfer, inactivity)|
Three months free for new customers who are referred by an existing Betterment account holder
|Tax loss harvesting|
|Offers fractional shares|
|Ease of use|
|Mobile app||iOS, Android|
|Customer support||Phone, Email|
Strengths of Betterment
Betterment is always adding new goals and features. Here are some of the most helpful features it currently offers:
- Tax optimization: Betterment uses tax loss harvesting to help offset taxes on your gains. The company also uses its Tax-Coordinated Portfolio to give you the maximum tax benefit. Certain assets are assigned to your IRA, while others are kept in your taxable accounts.
- Smart Saver: For people who are interested in a product that’s closer to a savings account, you can divert money to your Smart Saver account, which uses low-risk products in hopes of netting a return that beats traditional and online savings accounts. Betterment can even analyze your bank account and earmark extra cash to add to your investment account.
- Set up different goals: One of my favorite features is the ability to set up different goals. I have a Traditional IRA rollover as well as a Betterment Roth IRA and a taxable account I use as my travel fund. Set different asset mixes for each type of account and adjust what you add simply and easily.
- Sync outside accounts: It’s also possible to sync outside investment and bank accounts that aren’t managed by Betterment. The platform will review those accounts and make suggestions for how to maximize the money.
- Chance to talk to a human: Betterment offers customer service by phone in addition to email. However, you also can set up a call with a financial professional who provides fee-based advice that starts at $149 for a 45-minute call. The Premium plan, for investors with a minimum balance of $100,000, also offers access to financial advisers.
- Portfolio projection tools: Set goals with the help of Betterment’s projection tools and track your progress toward reaching your objectives. You also can use the tools to tweak your monthly contributions.
Drawbacks of Betterment
While Betterment is a great choice for many investors, it’s not for everyone. There are some drawbacks, and no Betterment review would be complete without mentioning them.
- Mediocre fees: Betterment pricing, with a 0.25% management fee for the basic Digital account, is in line with many other fee structures. The Premium management fee, for accounts over $100,000 and tailored advice, is 0.40%. That’s lower than many management fees, but it’s disappointing that you don’t get a fee break at that level. You can get a break on Betterment fees when your assets under management reach $2 million.
- No active trading: If you’re interested in choosing your own investments and actively trading, you won’t be able to do that with Betterment. While you can do a little more self-directed investing with a Premium account, the reality is that you’re mostly limited to choosing your prefered asset mix rather than picking individual investments.
- Lack of 529 and education savings accounts (ESAs): There are no custodial accounts with Betterment, and you can’t set up a 529 or ESA to save for your child’s education. A similar robo-investing company that does offer a 529 is Wealthfront.
- No direct IRA rollover: You can roll over your retirement plan from your employer or elsewhere, but Betterment doesn’t handle the transfer. If you want to roll over into a Betterment Roth IRA or Traditional IRA, you need to get an account number from Betterment, ask for a check from the current provider, wait for it to arrive, and then send the check on to Betterment. The process is a little clunky.
Is Betterment safe?
Anytime you invest, there is a chance you could lose money. Poor market conditions can always lead to loss. However, Betterment’s use of modern portfolio theory in its asset allocation helps reduce your exposure to risk. Additionally, Betterment carries SIPC insurance, protecting each of your Betterment accounts up to $500,000 in the event of a failure by the company. (Note that market losses aren’t covered by SIPC insurance.)
In addition to making sure an investment company is SIPC-insured, you also can use the Financial Industry Regulatory Authority’s BrokerCheck to find out about disclosures and actions and search the Consumer Financial Protection Bureau’s Consumer Complaint Database. The Better Business Bureau is also a good source of information.
Betterment is a great choice for beginner investors looking to get their feet wet and for long-term investors hoping to grow a retirement portfolio. For investors with more than $100,000, it can also be a decent place to keep your money if you’re looking for basic advice.
However, for active traders and those who want a little more control over their assets, Betterment might not be the best choice. Instead, it could make more sense to use platforms like E-Trade and Robinhood if you want to get involved with active trading. Stockpile is also a good choice for investors who want to buy individual Stocks using fractional shares.
Overall, though, Betterment is a great choice for building wealth for the long term, including setting accounts for specific goals and using tools that help you see if you’re on track to meet your objectives.