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How Fund Expense Ratios Can Impact Your Returns

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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One of the trickier lessons for investors to learn is how to judge an investment fund by its price. Part of the reason is that funds don’t refer to their fees as having a “price.” Instead, funds have something called an “expense ratio.”

“The expense ratio is the only certain reduction of your return,” said Mark Hebner, wealth advisor, president of Index Fund Advisors in Irvine, Calif., and author of “Index Funds: The 12-Step Recovery Program for Active Investors.” That’s why understanding expense ratios and knowing what to look for can help you maximize the returns on your investments.

What is an expense ratio?

The expense ratio is the ongoing fee you pay to invest in a mutual fund, index fund or exchange-traded fund (ETF). It’s expressed as an annual fixed percentage of your invested assets — for example, 1% or 0.70%.

Included in the expense ratio are the costs of running the fund, from operations to administration, with small charges for accounting, legal, custodial or other service costs. If the fund is actively managed, the bulk of the expense ratio will go toward the investment advisory fee. There’s also something called a 12b-1 fee, or distribution fee, which some funds charge to pay for marketing to new investors.

How expense ratios work

Investors are not presented with a bill each year that states how much is due. Instead, expense ratios are taken directly from the fund. The expense ratio accrues daily as a percentage of your average invested assets, which can make it easy to miss.

But the expense ratio does impact your investment performance. To get a sense of how much, consider the number in real dollars. Invest $1,000 in a fund with a 1.5% expense ratio, and you’ll pay about $15 each year. Invest $100,000, and you’ll pay $1,500.

You also may think of it as a haircut of sorts in your annual performance. If your fund with a 1% expense ratio is up 10%, you will have returns of 9% after paying for the cost of the fund. That may not sound so terrible in good times, but it can be harder to bear in volatile markets — for example, when the fund is down by 10% for the year and you are down by 11% after fees.

Like price tags, expense ratios may not be the only factor in your purchasing decision, but they can help you evaluate and compare investments. Say you have $10,000 to invest and are considering an actively managed mutual fund with a 2% expense ratio to an index fund with a 0.5% expense ratio.

InvestmentExpense ratioAnnual cost on $10,000
Active mutual fund2%$200
Passive index fund0.5%$50

Perhaps the more costly investment adds value — enhanced performance returns, steady dividends, risk management — in a way that justifies its higher annual expenses. On the other hand, the mutual fund will have to outperform its benchmark by 1.5% just to keep up with the index fund.

How to find a fund’s expense ratio

If you are looking for a fund’s expense ratio, a good place to start is the prospectus, which is a detailed investment overview funds must file with the U.S. Securities and Exchange Commission (SEC). You can get a printed copy of a prospectus by contacting the fund company directly, and most fund websites include links to digital copies. Or you can find a prospectus on SEC.gov by searching for the name of the fund or fund company. Listed under the heading “Annual Operating Expenses” in the document will be a breakdown of all of the costs. Reading a prospectus isn’t everyone’s cup of tea, but it can be illuminating to see all the little line items that go into running a fund.

There are also some great websites — including Morningstar, MAXfunds and Kiplinger — that can give you a peek at a fund’s fees and help you compare low-cost options. When purchasing a fund from a broker, advisor or fund company, you can ask for a detailed explanation of the fees you will have to pay.

If you are so are inclined, you can calculate a fund’s expense ratio on your own by dividing total operating expenses by the average dollar amount of assets under management (often referred to as AUM).

What’s a good expense ratio?

Knowing how to calculate an expense ratio is one thing. But how do you know whether the expense ratio is good or bad?

“For the average person, you want the expense ratio to be as small as possible,” said Hebner.

The good news is average annual expense ratios have been on the long-term decline, falling by 40% over the past two decades. The average equity mutual fund expense ratio is currently 0.59%, according to the Investment Company Institute (ICI). The average bond mutual fund expense ratio is 0.48%.

Part of the reason expense ratios are declining is to keep up with index funds and ETFs, which tend to have below-average expense ratios, primarily because of lower operating costs and no active management fees. The average index equity mutual fund expense ratio is 0.09%, and the average index bond mutual fund expense ratio is 0.07%, according to the ICI.

Investors seem to be receiving the low-fee message. As of year-end 2017, the equity mutual funds with the lowest expense ratios hold more than three-quarters of total equity invested assets, according the ICI. Funds with the highest expense ratios hold only about 23% of the equity fund market. In August 2018, Fidelity began offering two no-cost index funds with a 0% expense ratio and then added two more the following month.

What’s not included in the expense ratio

There are additional fees not listed in the expense ratio that you may be charged when investing in a fund. Some can be avoided. Here is a rundown of what to look out for.

Shareholder fees

Under the general category of “Shareholder Fees” in the prospectus are several potential charges:

  • Sales loads. Some funds are sold through brokers who are compensated by fees paid by investors. These fees are known as loads or sales loads. They might be taken off the top of your investment when you purchase shares in the fund (front-end loads), or you may pay a deferred cost when you take your money out (deferred loads). That amount typically is a percentage of the assets invested and decreases as you invest greater amounts. According to Morningstar, the typical front-end load might be 4% on an investment of $50,000 or less; a typical deferred load might be around 5% but might decrease if you stay invested over time. The Financial Industry Regulatory Authority limits the sales load on a mutual fund to 8.5%. With so many desirable no-load funds for investors to choose from, there is little reason to pay a load fee.
  • Redemption fee. This is a transaction cost some funds charge when you redeem your fund shares. It is different from a deferred sales load because the fee does not go toward a broker’s compensation but pays the fund to defray the costs shared by all fund investors when you redeem shares in the fund. The SEC limits redemption fees to a maximum of 2%.
  • Exchange fee. If you exchange one fund’s shares for another, you may be charged this fee.
  • Account fee. If there is an account minimum to meet, you may be charged a fee for falling below the minimum.
  • Purchase fee. This is a transaction cost some funds charge when you purchase shares. Similar to the redemption fee, this differs from a sales load because it pays the fund to defray the shared costs associated with your purchase.

Trading costs

If there is trading going on in the fund, there will be associated broker and transaction costs. In actively managed mutual funds, where a lot of trading can occur, these fees can take a toll. A 2013 academic study called “Shedding Light on ‘Invisible’ Costs: Trading Costs and Mutual Fund Performance” found that investors paid an average of 1.44% in trading costs per year — often more than they paid in management and operational fees.

If you are buying an ETF, you also should pay attention to the trading costs you pay when buying and selling shares.

Taxes

As the fund buys and sells investments, capital gains and losses are incurred. All fund investors share the tax burden, which is paid for with fund assets. Taxes are a hidden fund cost that can take a toll on your investments.

Bottom line

You should never select an investment simply because it’s cheap, and you may have your own good reasons to favor a fund with an expense ratio that is slightly higher than average. Being aware of the expense ratio is like knowing the price of something; it helps you make a decision based on your priorities. Just keep in mind that the higher the expense ratio, the harder it is to beat or even meet the investment’s benchmark.

With average expense ratios on the decline, finding a low-cost fund that fits you is easier than ever — and it can help boost your overall returns.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Melissa Phipps
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Melissa Phipps is a writer at MagnifyMoney. You can email Melissa here

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Investing

SoFi Automated Investing Review 2019

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

SoFi has become well known for its lending products, including student loan refinancing and mortgages, as well as its life insurance offerings. SoFi Automated Investing is the company’s robo-advisor platform, offering both beginners and hands-off investors a great way to reach their financial goals.

Using sophisticated investing strategies as well as personal judgment, SoFi’s financial advisors have baked five different portfolio strategies into this robo-advisor platform. You can choose one strategy based on your risk tolerance, or fund multiple portfolios for different goals — all of which will help you build wealth consistently over time.

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The Bottom Line: SoFi Automated Investing offers a simple way to start investing with a small amount of money and pay zero management fees.

  • Receive financial planning advice from credentialed financial advisors who act as fiduciaries.
  • Choose from different accounts, including traditional, Roth and SEP individual retirement accounts (IRAs); rollover IRAs; and also taxable accounts.
  • Access a wide range of low-cost exchange traded funds (ETFs) in more than 20 different asset classes.

Who should consider SoFi Automated Investing?

SoFi Automated Investing is ideal for beginning investors looking to get their feet wet without a large amount of money. You can open an account with as little as $1 and set up recurring investments. Plus, it’s up to you to decide whether you want to make one-time investments or create an on-going investment plan — this makes it easy for newbies to get their feet wet.

Additionally, SoFi Automated Investing is well-suited for long-term investors looking to do very little of their own portfolio management. Thanks to broad-based ETFs that don’t rely on individual stock picking, there is very little effort required on the investor side, which makes SoFi Automated Investing ideal for financial goals such as retirement.

The platform asks you to choose from different types of portfolios, ranging from conservative to aggressive. The latter types are good for saving for short-term goals, including weddings and down payments for a house.

SoFi Automated Investing isn’t ideal for active traders or those who prefer a more hands-on approach to investing. Investors can’t trade individual stocks, or choose the components that make up their investments. If you’re looking for a more active, hands-on approach, you might consider SoFi Active Investing.

SoFi Automated Investing fees and features

Amount minimum to open account
  • $100 one-time deposit or $20 monthly deposit
Management fees
  • 0%
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $0 full account transfer fee
  • $0 partial account transfer fee
  • $0 inactivity fee
Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • Joint taxable
  • Rollover IRA
  • Rollover Roth IRA
  • SEP IRA
Portfolio
  • ETFs covering 20 asset classes
Automatic rebalancing
Tax loss harvesting
Tax loss harvesting detailSoFi does not currently offer tax loss harvesting.
Offers fractional shares
Ease of use
Mobile appiOS, Android
Customer supportPhone, Email, 4 branch locations

Commissions and fees

SoFi Automated Investing charges no management fees, and its investments have some of the lowest ETF expense ratios. Compare SoFi Automated Investing with the costs associated with other robo-advisors:

Robo-advisorAnnual Management FeeAverage Expense Ratio (portfolio with moderate risk)

SoFi Automated Investing

0.00%0.08%

Betterment

0.25% (up to $100,000), 0.40% (over $100,000)0.11%

Wealthfront

0.25%0.09%

SigFig


0.00% (up to $10,000), 0.25% over $10,000)0.15%

Charles Schwab Intelligent Portfolios


0.00%0.14%

WiseBanyan

0.00%0.12%

Acorns

$12/yr0.03% to 0.15%

SoFi Automated Investing offers some of the lowest costs in the robo-advisor space, allowing you to keep more of your money in your account, earning compounding returns over time.

Portfolio options

SoFi Automated Investing offers five different types of portfolios designed to help investors reach their goals. Portfolios include:

  • Conservative: Created using assets that carry a lower risk. They are designed for those who have a timeline of six months to three years. Paying for a wedding is a goal that might fit this portfolio.
  • Moderately conservative: These portfolios include assets that have a fairly low risk, but are designed with a little growth meant to help investors reach goals that are three to five years out. Saving up for a home down payment is a goal that might fit this strategy.
  • Moderate: With this type of portfolio, an investor might be a little more comfortable with risk, and the assets reflect that. There won’t be too much risk, but there is enough to help work toward a variety of goals that fall within the next 10 years.
  • Moderately aggressive: For investors hoping to reach goals within five to 20 years, these portfolios include assets that are considered higher-risk, and that offer higher potential returns. Goals like early retirement can be included in this type of portfolio.
  • Aggressive: Investors with the highest level risk tolerance — and more time to recover from market events — can use an aggressive portfolio. Goals, like saving for a child’s education, that are more than 10 years out can benefit from this type of strategy.

SoFi Automated Investing can help you decide which type of portfolio is most likely the best for your needs, and allow you to tweak it a bit. Additionally, it’s possible to change your strategy at any time if you feel the need.

Financial planning features

It’s possible to consult with a financial planner, at no cost to you, when you have a SoFi account. These financial professionals are fiduciaries, meaning they have to put your needs first when giving you advice.

It’s fairly easy to set up a time to meet with an advisor for a 30-minute session. SoFi has a calendaring app that allows you to click on a subject and then schedule a time to speak with someone. Once you choose a time, the available advisor will pop up and you can confirm the appointment. In general, the advisor you speak with is based on the topic and time slot you choose.

Some of the topics you can choose to speak with someone about include:

  • Planning for children
  • Managing debt
  • Buying a home
  • Retirement and financial independence
  • Getting a financial checkup

Each time you sign up to talk to someone there’s a chance you’ll be speaking with a different advisor, unless you coordinate to ensure that you speak with the same professional each time.

SoFi Money

In addition to providing portfolio management, SoFi also offers a “cash management account” called SoFi Money. Basically, it’s a brokerage account that offers many of the same benefits as a checking account.

With SoFi money, you can make deposits, pay bills and even transfer money to others. Plus, there is also the ability to write checks and use a debit card connected to the account. In addition, money in this account earns a higher rate of interest than traditional savings accounts.

One of the most interesting features of the SoFi Money account is the fact that there are no overdraft fees and all ATM fees are reimbursed. So, even if you end up with a negative balance, you won’t be charged a fee.

Your SoFi Money account is integrated with the company’s other products, so you can utilize it seamlessly with your SoFi Automated Investing account.

Because SoFi isn’t a bank, it makes use of partner banks to hold deposits and provide FDIC insurance to cover the balances up to the legal limit.

Strengths of SoFi Automated Investing

  • No management fees: SoFi doesn’t charge any management fees, and the average ETF expense ratio (for a moderate risk portfolio) is 0.08%, which is lower than many competing platforms.
  • Diverse investments: This robo-advisor offers a wide range of ETFs in more than 20 different asset classes. This makes it possible for you to diversify your portfolio and customize it to your risk tolerance. You can get exposure to U.S. and international stocks, bonds and real estate, with automatic rebalancing when needed.
  • Automatic rebalancing: Every quarter, SoFi Investing automatically rebalances your portfolio to help ensure that your asset mix remains on track to help you meet your financial planning goals. SoFi makes changes when an asset varies by more than five percentage points from its original allocation.
  • Free access to financial advisers: It offers unlimited access to financial planning professionals at no additional charge. SoFi’s financial advisers are fiduciaries, which means they must adhere to your best interest and they don’t make commissions based on recommendations.
  • Bonuses: Being a “member” of SoFi allows you access to some special bonuses. For example, SoFi often holds in-person events for which you can receive an invitation to join. On top of that, if you use SoFi Automated Investing, you can get rate discounts on other SoFi products. Finally, you can access career advice on top of financial planning help.

Drawbacks of SoFi Automated Investing

  • No tax-loss harvesting: SoFi investing doesn’t offer any sort of tax strategy beyond the fact that it offers ETFs. It doesn’t automatically harvest losses when you sell ETFs and it won’t distribute your assets across your accounts in the most advantageous way.
  • Limited types of accounts: While you can open individual and joint taxable accounts, and set up retirement accounts, there aren’t a lot of other options. You can’t open a 529 account or set up a custodial account. If you’re looking to do a little more, you may want to explore other options.

Is SoFi Automated Investing safe?

Anytime you invest, it’s important to be careful and comfortable with your strategy. You always run the risk of loss whenever you put your money into any investment account. However, SoFi investing is as safe as any other robo-advisor. The use of index ETFs means that your portfolio follows overall market trends, which, over time, tend to head higher returns (despite short-term losses).

On top of that, SoFi Automated Investing carries SIPC insurance, which protects account holders in the event that the broker fails. However, realize that SIPC insurance doesn’t protect your portfolio from losses due to market and economic events.

Before you invest, check with resources like FINRA BrokerCheck and the Better Business Bureau to see what disclosures and complaints might be related to the company.

Is SoFi Automated Investing right for you?

SoFi Automated Investing is a good option for most investors looking for a simple way to manage a long-term portfolio. It’s very easy to open an account and you get free personalized financial planning help and advice to help you coordinate your portfolio to meet your various financial goals.

If you’re more interested in active trading, it might make more sense to consider a more traditional broker. Additionally, you might want to compare some of the features with other robo-advisors to see if SoFi Automated Investing has everything you require for long-term success. Consider your needs and compare SoFi with services like Betterment, Ellevest, and Wealthfront to see if it works for you.

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Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Miranda Marquit
Miranda Marquit |

Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here

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Investing

Betterment Review 2019

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Robo-advisor Betterment uses exchange-traded funds (ETFs) and a high degree of automation to manage your portfolio. In addition, it’s possible to speak with financial professionals to receive more tailored advice on retirement and other financial goals.

Investors most likely to benefit from Betterment include beginning investors hoping for a low barrier to entry, as well as intermediate investors who are interested in keeping a portion of their portfolio in set-it-and-forget-it accounts. Investors interested in trading individual stocks or taking a more hands-on approach aren’t likely to benefit as much from Betterment.

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The bottom line: Betterment is great for investors looking to get started with minimum fuss — and who aren’t interested in active trading.

  • Easy to get started
  • Set up different investing goals
  • Benefit from tax optimization

Who should consider Betterment

Betterment is for investors who would like an automated approach to investing. Anyone can benefit from Betterment, but it’s especially helpful for beginner investors hoping to start growing their wealth.

Because of the low barrier to entry — there are no account minimums and you can get started with a minimum deposit of $10 — it’s possible for almost anyone to begin investing.

It’s also a great resource for intermediate investors looking to accomplish different goals with “buckets” of money. With Betterment, it’s possible to set varying levels of risk for different goals, with different asset allocations based on when you’re likely to need the money.

Finally, intermediate and advanced traders can use Betterment to build a long-term retirement portfolio, although there is no active trading. Betterment offers a place for assets to grow over longer periods at a pace that is likely to track the market as a whole.

Consider your goals and what you hope to accomplish with your investment portfolio. While Betterment can potentially be a good choice for anyone who keeps a portion of their portfolio in long-term assets, it’s not ideal for those who prefer to actively manage their portfolios or engage in active trading.

Betterment fees and features

Amount minimum to open account
  • $0
Management fees
  • 0.25% for Digital offering (no minimum account balance)
  • 0.40% for Premium offering ($100,000 minimum account balance)
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $0 full account transfer fee
  • $0 partial account transfer fee
  • $0 inactivity fee
Current promotions

Three months free for new customers who are referred by an existing Betterment account holder

Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • Joint taxable
  • Rollover IRA
  • Rollover Roth IRA
  • SEP IRA
  • Trust
Portfolio
  • 12 asset classes represented in ETF portfolio
Automatic rebalancing
Tax loss harvesting
Offers fractional shares
Ease of use
Mobile appiOS, Android
Customer supportPhone, Email

Management fees

Betterment’s pricing starts with a 0.25% management fee for the basic Digital account. This pricing is in line with other robo-advisors like Wealthfront, which also charges 0.25%.

Balances above $100,000 earn Betterment’s Premium account status, featuring unlimited access to personalized advice for a management fee of 0.40%. This isn’t out of line with other robo-advisors: Wealthsimple charges 0.40% for account balances above $100,000. Wealthfront, however, maintains the 0.25% management fee, no matter the size of your account. Once your balance reaches $2 million, your fee drops to 0.15%.

In addition to regular management fees, it’s also important to note that you’ll pay expense ratios on the ETFs Betterment selects on your behalf. Betterment’s recommended portfolios feature expense ratios of 0.07% to 0.15%. According to Betterment, this is much lower than the industry average.

Finally, there are additional fees if you want access to specialized financial planning. If you have $100,000 or more invested with Betterment, you get access to these services as part of your annual management fee. However, if your balance is lower, you pay a flat fee for financial advice ranging between $199 and $299 per advisory session.

Portfolio options and portfolio management

Betterment chooses an investment portfolio for you based on your goals and time horizon. The core portfolio includes stock and bond ETFs allocated in a way that helps you reach your goals. It’s also possible to tweak your asset allocation in your account.

In addition, Betterment offers different portfolio options based on specific goals and targets. Here are some of the additional choices available with Betterment:

  • Socially Responsible Investing (SRI): This portfolio focuses on reducing exposure to companies that have a negative social impact. The expense ratio is a little higher with these portfolios, around 0.14% to 0.22%, depending on the allocation within the portfolio.
  • BlackRock Target Income Portfolio: Aimed at retirees, this portfolio is designed to provide a regular income stream. The portfolio focuses on bond investments that offer dividends that can be used for income rather than focusing on principal and capital appreciation.
  • Goldman Sachs Smart Beta Portfolio: Rather than using basic asset allocation principles, this portfolio focuses on assets that possess four characteristics considered to drive performance — strong momentum, good value, low volatility and high quality. It’s possible to adjust this portfolio in 101 different ways.

With all portfolios, Betterment handles automatic rebalancing when your assets experience a certain amount of drift. For example, if market performance is resulting in an asset allocation that is too far outside the target for your portfolio, Betterment will sell and buy different assets to bring your portfolio back to its target.

Another way Betterment automatically manages your portfolio is by using tax optimization strategies. Different assets are assigned to your accounts based on their overall tax efficiency. Additionally, when certain assets lose value, Betterment will sell them automatically in an effort to offset capital gains in other areas. With the help of the Tax Loss Harvesting+ feature, rebalancing can occur daily.

Financial planning features

If you want a big-picture view of your finances, Betterment’s account sync feature can be helpful. With this feature, you connect some or all of your outside accounts to Betterment, which lets you view all of your financial information in one place. The app then offers personalized recommendations for managing your money.

You have the option to speak with Betterment financial professionals about planning for specific goals and life milestones. Account holders above the $100,000 balance requirement get unlimited access to personalized advice and help by phone and email as part of the management fee.

If you don’t meet this threshold, you can pay for advice packages tailored to the goals you’re working on. Here are some of the Betterment advice packages available for a flat fee:

  • Getting Started: A 45-minute phone call with a certified financial planner (CFP) who can provide step-by-step help setting up a Betterment account that helps you maximize a variety of goals. Price: $199.
  • Financial Checkup: Get a review of your investment portfolio and how it fits into your financial situation in a 60-minute call with a Certified Financial Planner. Price: $299.
  • College Planning: Aimed at families who want help getting set up for college costs and using higher education plans. It consists of a 60-minute phone call that can help you review your choices and decide what’s best for you. Price: $299.
  • Marriage Planning: Planning to tie the knot soon? Get help as you navigate goals, priorities and merging finances in a 60-minute phone call. Price: $299.
  • Retirement Planning: Set up a 60-minute holistic review of your portfolio, current situation and more that can help you make better decisions for your retirement. Price: $299.

The Betterment Advisor Network can also help you get your own dedicated financial advisor who can help you with almost any financial need. Betterment will help match you with a professional who is likely to fit your goals and priorities.

Everyday Savings Account

Betterment offers Federal Deposit Insurance Corporation (FDIC)-insured banking options. While the checking account isn’t universally available yet, it is possible to use Everyday Savings to earn up to 2.04% APY. Additionally, there are no limits on withdrawals and no minimum balance. You also don’t have to worry about paying fees on your balance. The money in your Everyday Savings account is actually held at partner banks — it’s possible to opt out of a specific partner bank, if you wish.

In addition to providing a high-yield savings option, you can also decide to use the Two-Way Sweep feature. With this feature, Betterment automatically analyzes a connected account each day and will move excess cash from your connected account and into your savings account. If you need the money back in your main account, Betterment will sweep it from your Everyday Savings without the need to take further action on your part.

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.
  • Betterment Everyday: Betterment now offers FDIC-insured checking and savings accounts. While the checking product is still in the roll-out stages, it’s possible to earn up to 2.04% APY with Everyday Savings.
  • Set up different goals: One of Betterment’s most useful features is the ability to set up different goals. It’s possible to have a traditional IRA and a rollover IRA, as well as open a Roth IRA. It’s also possible to open taxable accounts for a variety of other goals. Set different asset mixes for each type of account and adjust what you add simply and easily.
  • Chance to talk to a human: Betterment offers customer service by phone in addition to email. However, you can also speak with a financial professional with packages starting at $199, depending on what you’re looking for. It’s also possible to be matched with an advisor if you meet the requirements for access to the Betterment Advisor Network.
  • Portfolio projection tools: Set goals with the help of Betterment’s projection tools and track your progress toward reaching your objectives. Betterment offers insight into whether you’re on track with your goals as well as graphs to help you visualize the potential of your portfolio.

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.

  • 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.

Is Betterment safe?

Anytime you invest, there is a chance you could lose money. Poor market conditions can always lead to a loss. However, Betterment’s use of modern portfolio theory in its asset allocation helps reduce your exposure to risk. Additionally, Betterment carries Securities Investor Protection Corporation (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.

Final thoughts

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 or 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.

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Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Miranda Marquit
Miranda Marquit |

Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here