Betterment Review 2017

Last updated on July 22nd, 2017

I enjoy reading and writing about the investment strategies discussed in this Betterment review. But that’s atypical, and most individuals would rather spend their time doing something other than managing an investment portfolio.

If you aren’t interested in tinkering with your investments, Betterment provides a straightforward approach to successful investing that requires very little time, money, or energy.

Based on decades of relevant investment research, Betterment’s investment strategy involves owning thousands of publicly traded securities that represent the global economy.

This approach bypasses most of the fees and expenses that erode investment performance. These include commissions to buy/sell securities, loads and hidden fees charged by brokerage firms, and unnecessary taxes. This strategy also helps mitigate some of the costly behavioral flaws that are common to individual investors.

I’ll admit upfront that I’m impressed by Betterment’s value proposition. They do everything related to portfolio management for you, and they do it very well. Beyond providing a low-cost, diversified portfolio, Betterment provides advanced tax loss harvesting, tax-advantaged rebalancing, and a slew of other valuable services for a reasonable 0.25% in annual fees.

Betterment Review Introduction

Betterment is growing quickly and manages nearly $10 Billion in assets for more than 250,000 clients. The company takes pride in offering portfolio management services that are affordable and easily accessible.

Here is a nice Betterment review created by the CEO and Bloomberg:

Betterment’s selling point is ease of use. The online user interface is designed to be clear and easy to understand.

If you are looking to invest your savings without having to worry about anything else, Betterment is for you. There’s no researching which investments you need to purchase, or deciding when to rebalance your portfolio. Betterment does all of that, and more, automatically.

With Betterment, you don’t own individual stocks or bonds. Investments are held in the form of exchange traded funds (ETFs). The asset allocation between these various ETFs ensures that your account is not weighted too heavily in any specific asset class, company, country, or sector, which ultimately reduces overall investment risk.

Betterment Investment Options

When you deposit money with Betterment, it is seamlessly invested in a diversified blend of stock and bond ETFs. Betterment uses ETFs instead of mutual funds because ETFs have lower expenses and receive preferential tax treatment, making them a better overall investment vehicle.

Stock Market Funds

Betterment’s investment committee has chosen stock ETFs that reflect the U.S. market, as well as international markets. These ETFs allow you to invest in thousands of publicly traded companies at once, providing huge diversification benefits. Betterment uses the following ETFs for core stock exposure:

  • Vanguard U.S. Total Stock Market Index ETF (VTI)
  • Vanguard US Large-Cap Value Index ETF (VTV)
  • Vanguard US Mid-Cap Value Index ETF (VOE)
  • Vanguard US Small-Cap Value Index ETF (VBR)
  • Vanguard FTSE Developed Market Index ETF (VEA)
  • Vanguard FTSE Emerging Index ETF (VWO)
Why they recommend these options:

The U.S. exposure covers the total U.S. stock market with a slight tilt towards value and small-cap stocks. The value and small-cap tilt has historically outperformed the broad market, based on research by Nobel-prize winners Eugene Fama and Kenneth French.

By adding international stocks, investors benefit from growth overseas in developed markets, including the U.K., Japan, and Europe.  The emerging market ETF allows investors to capture growth in small but expanding markets such as Brazil, India, and China. These international securities further diversify the portfolio, resulting in less risk and volatility over time.

Bond Funds

Betterment’s investment committee has recently chosen to expand their bond offerings, which now include:

  • iShares Corporate Bond Index ETF (LQD)
  • Vanguard US Total Bond Market Index ETF (BND)
  • iShares Short-Term Treasury Bond Index ETF (SHV)
  • Vanguard Total International Bond Index ETF (BNDX)
  • Vanguard Emerging Markets Government Bond Index ETF (VWOB)
  • Vanguard Short-term Inflation-Protected Treasury Bond Index ETF (VTIP)
  • (For Taxable accounts only) iShares National AMT-Free Muni Bond Index ETF (MUB)
Why they recommend these options:

These bond ETFs allow investors to balance four different risk factors: U.S. interest rate risk, U.S. credit risk, international interest rate risk, and international credit risk.

Betterment also distinguishes between taxable and retirement accounts when allocating bonds. Taxable accounts hold federally tax-exempt municipal bonds. Retirement accounts maintain exposure to U.S. investment-grade corporate bonds. This strategy optimizes the after-tax return of your portfolio.

Your Betterment Portfolio

When it’s all said and done, the stock and bonds ETFs listed above are blended together to create your ideal investment portfolio.

When you create a Betterment account, you will be asked a series of questions to determine your risk tolerance and investment time horizon. The Betterment algorithm then uses that information to create a portfolio tailored to your preferences.

If you are young and looking to build wealth, Betterment will recommend that you hold more stocks than bonds to maximize long-term growth. In my example, Betterment suggested that I have 90% stocks and 10% bonds. Here is how that looks in a taxable account:

Betterment portfolio allocation review

If you are looking to establish an emergency fund, or if you have a shorter investment horizon, Betterment will recommend a more conservative portfolio that includes a larger allocation to bonds.

The Betterment process is designed to align your financial goals with the correct amount of investment risk. If you don’t like the portfolio recommendation, you can manually adjust your asset allocation at any time.

Personalized Retirement Advice (RetireGuide)

In addition to goal-based investment advice, Betterment provides a comprehensive retirement planning tool called RetireGuide.

Betterment’s RetireGuide service uses your personal retirement goals to recommend an appropriately diversified portfolio. This recommendation takes into account all sources of income, your savings rate, where you live, and what you expect to spend during retirement. Betterment reviews all of your financial accounts to make this recommendation, even if they are held outside of Betterment.

RetireGuide automatically updates with any changes in your accounts and helps you stay organized with a display of all of your retirement accounts in one place. You can also now update the age at which you expect to receive Social Security benefits and even upload a Social Security statement file from SSA.gov for precise estimates and advice.

The result is a comprehensive view of your financial progress, with personalized advice on how to achieve your financial goals and retirement goals. The RetireGuide system will recommend the amount that you should be saving in order to achieve your goals. If you’re approaching, or in retirement, the system optimizes investment returns and recommends sustainable withdrawal rates to improve the longevity of your portfolio.

Betterment’s Tax Efficiency

Betterment includes a number of services that can reduce your annual tax liability.

Tax Loss Harvesting – Capital losses can lower your tax bill by offsetting gains, but the only way to realize a loss is to sell the depreciated asset. At its most basic level, tax loss harvesting is selling a security that has experienced a loss — and then buying a correlated asset (i.e. one that provides similar market exposure) to replace it. Here is a good video by Betterment reviewing the mechanics:

Free for all customers with a taxable account, Betterment now provides a sophisticated, fully automated tax loss harvesting service.

According to Betterment’s research, this service would have increased Betterment returns by approximately 0.77% per year over the last decade. That means this feature alone more than covers the 0.25% annual fee.Betterment Tax Loss Harvesting

Spousal Tax Loss Harvesting – Betterment now offers TLH+ for married couples. When you enable TLH+ on your Betterment account, you will now be asked to provide your spouse’s Betterment account information as well. If your spouse uses Betterment, this service will optimize the investments across all accounts and help prevent wash sales (simplifying your annual tax return).

Tax-Coordinated Portfolios – Tax-Coordinated Portfolio optimizes and automates your asset location. It places your highly-taxed assets in your IRA accounts (tax-sheltered until retirement), and your lower-taxed assets in your taxable account. Betterment research shows that this strategy can boost after-tax returns by an average of 0.48% each year, which approximately amounts to an extra 15% over 30 years.

Smart Rebalancing – Portfolio rebalancing is basically shifting money between the asset classes you’ve decided to invest in. If your ideal portfolio was 60% stocks, 40% bonds, the goal is to keep that asset allocation in balance. Over time, you might end up with 70/30 allocation if you never rebalance your portfolio, resulting in more risk than you originally intended. The problem is that rebalancing often involves selling one asset class and buying another, which can result in additional taxation. Betterment uses all available cash flows (your deposits) and reinvested dividends to rebalance your portfolio. This reduces the number of asset sales, which should lower your tax liability over time.

TaxMin Lot Selling – Better uses a unique algorithm to sell securities with losses before gains, and securities with long-term gains before short-term gains. This process minimizes short-term capital gains, which reduces your annual tax liability.

Tax Efficient ETFs – Betterment uses ETFs instead of mutual funds, which can result in additional tax savings each year. ETFs are a more tax-efficient investment vehicle than mutual funds when held inside of a taxable account.

Other Betterment Features

Smart Deposit – Allows you to automatically invest any excess savings that are sitting in your bank account. You tell Betterment how much you want to keep in your bank account and how much you want to invest, then Betterment uses those guidelines to automatically transfers funds from your bank account to Betterment on a regular basis. This allows you to continue building a bigger investment portfolio without holding too much cash.

Beautiful Design – Betterment has a wonderful, easily accessible interface that can be accessed on any computer, tablet, or smartphone. The interface allows investors to easily control and edit any investment accounts held at Betterment.

Fractional Investing – Betterment can purchase fractional shares of any investment, which means that 100% of your money is working for you 100% of the time. If an ETF share costs $100 and you only have $60 available in your account, you’ll purchase 0.6 shares and remain fully invested.

Behavioral Realities – Many people begin investing with good intentions, only to see the idea fade away like a New Year’s resolution. If you don’t enjoy managing your portfolio or reading about investing, you might neglect it altogether. Betterment does everything for you in exchange for a reasonable fee.

Great Customer Service  – Betterment employees are on hand seven days a week to answer your questions by phone, email or live chat. Everyone we have talked with at the company has been kind and helpful.

Betterment Fees

Betterment offers three different plans, each with a different fee.

PlanAnnual Fee (% of account balance)Annual Cost (per $10,000 invested)Features
Betterment Digital0.25%$25All services mentioned in this review are included
Betterment Plus0.40%$40Betterment Digital + one annual financial planning call
Betterment Premium0.50%$50Betterment Digital + unlimited financial planning advice

Betterment Digital is the core offering. Betterment Plus and Premium build upon Betterment Digital by including financial planning advice from a team of CFP® professionals.

It’s also worth noting, all three service tiers are subject to a $2 million threshold. Betterment waives all fees on the portion of your account balance that exceeds $2 million.

Remember that in addition to the Betterment fees stated above, you’ll have to pay underlying ETF expenses (which average about 0.10% annually). When you invest in any ETF, you will pay a fee to the ETF provider (such as Vanguard). This is not unique to Betterment, and they don’t receive any kickback on the ETF expenses.

Betterment charges no other fees. No trading commissions, no minimum required balance, no transfer fees, and no account closure fees.

Betterment Security

When reviewing Betterment, I wanted to verify the measures taken by Betterment to secure each account.

Unsurprisingly, Betterment offers the same security protections provided by commercial financial institutions, including:

  • Two-Factor Authentication – You can create an additional layer of security beyond your account password.
  • SIPC Insurance Coverage – Securities in your account are protected up to $500,000 in the case of fraud or mismanagement.
  • 256-bit SSL Encryption – All parts of the Betterment website are encrypted and protected by monitored firewalls.
  • Paramount Privacy – Your personal info is never shared without consent.
  • Strict Regulations – Betterment is regulated by the SEC and FINRA, and subject to all regulations set forth by the federal government.

Possible Drawbacks

Features – Betterment’s biggest competitor (Wealthfront) recently began offering a number of services not yet available on Betterment, including a variety of advanced tax-loss harvesting features. Betterment responded by providing Tax-Coordinated Portfolios (discussed earlier in the review), but Wealthfront still maintains the edge for taxable accounts.

Cost of Service – Betterment fees are reasonable, and I think the included features more than justify the 0.25% annual fee. But if you are eager to learn about investing, you can manage your own portfolio. 

Investment Customization  – Some investors might prefer to invest in asset classes that are not available through Betterment, such as real estate. Other investors might be interested in choosing the individual securities in their portfolio, which is allowed at M1 Finance.

Betterment Review Bonus

Betterment is currently offering our readers up to one year of free service as a limited time offer.

The signup process takes less than five minutes. Betterment will ask you a series of short questions about your investment preferences to help determine your risk tolerance and the correct type of investment account. Once you accept or modify the Betterment recommendations, you can link your bank account and fund your Betterment account. Money can be transferred into the Betterment account whenever you desire, or you can setup an automatic deposit from your bank account.

You can open a taxable brokerage account or IRA (Traditional or Roth). If you are self-employed, you can also open a SEP-IRA account. Betterment also allows you to rollover an existing employer-sponsored retirement plan (401k, 403b, pension, etc.) into a Betterment IRA if you’d like to let Betterment handle your retirement savings instead of a past employer. The entire transfer process can be completed online in a few business days.

If you are undecided about the service, my Betterment vs Wealthfront vs M1 Finance article can help you make an informed decision.

Betterment Review 2017
Summary
Betterment is the largest independent robo-advisor for good reason. For a flat 0.25% annual fee, Betterment will create and manage a diversified investment portfolio tailored to your unique goals and risk profile.
Features8.3
Total Cost8.8
Ease of Use9.5
Customer Support8.9
Investment Options9
Strengths
Goal-based financial advice
Diversified portfolios
Reasonable fees
Weaknesses
Limited asset classes
Limited tax-loss harvesting
8.9
Overall
Comments
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    • John Bungen
    • July 20, 2017
    Reply

    Betterment vs fundrise for investing 500-1000/month for early retirement in lieu of home ownership. I am 43.

      • Jacob Lumby
      • July 20, 2017
      Reply

      Fundrise offers diversified real estate investments. Betterment offers diversified stock and bond portfolios. Apples and oranges.
      You should choose the asset class that you would like to own, which will then make it easy to select the correct firm.

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    • Leo
    • May 16, 2017
    Reply

    Hey Jacob, I’m absolutely new and clueless. In my late 20’s and want to start being able to save for my future. I have a business I run in the summer (12 weeks) and then work full time the rest of the year. I want to know if it’s honestly worth it to start out with $1000 with no automatic deposit ( I cater so leftover money will vary month to month). Will the fees outweigh the return? Am I better off just investing in bonds through my local bank? Sorry it’s so broad of a question but like I said I’m clueless and just want to insure we have money that’s building without us touching it. Thank you in advanced.

      • Jacob
      • May 16, 2017
      Reply

      Hi Leo,
      Betterment and Wealthfront are great options for someone just getting started. The fees are very low (You would pay $2.50 annually per $1,000 invested), so it can make sense to start with something like $1,000 if that is what you have. Stocks have historically provided excellent long-term performance within a diversified investment portfolio, so that is one reason to consider using a robo-advisor instead of a local bank.

    • Buff Ambler
    • May 14, 2017
    Reply

    What if you have 2 million to invest? Would you be confident in using Betterment, given that their protection is limited to $500K? By way of comparison, my understanding is that Vanguard accounts are insured by Lloyd’s of London for up to $50 million. What do you think?

      • Jacob
      • May 15, 2017
      Reply

      Hi Buff,
      First of all, $500,000 is the SIPC limit at every brokerage firm. Vanguard’s additional insurance has an aggregate limit of $250 million, which is a tiny fraction of total assets invested there (several trillion). Therefore, if SIPC insurance was exhausted due to fraud or bankruptcy (it doesn’t cover financial losses due to normal market swings), it’s unlikely that the additional $250 million is going to help you recover your losses.
      For that reason, I would invest where you want to invest, or hold the $2 million in separate brokerage accounts (up to $500,000 each) if you are concerned about SIPC protection.

    • Tim
    • May 2, 2017
    Reply

    Hi,
    I am a novice to investment. Lets say I want to use a taxable account to invest. Can I withdraw all money(including interests) anytime ? Thanks.

      • Jacob
      • May 2, 2017
      Reply

      Yes you can.

    • Celia
    • April 15, 2017
    Reply

    Hi Jacob,
    Do you happen to know of any reputable UK alternatives to Betterment? I was hoping to join up but see that you can not become a client from outside the US.
    Thanks

    • Clayton
    • April 13, 2017
    Reply

    Hello Jacob , I am an old guy just getting into the world of investing(Above the age of 45). I had an event that made me start all over again .Am I too late ? What would you advise for someone like me . I make $101,000 a year . Started the job finally in January .

    • Jeffrey
    • March 21, 2017
    Reply

    Jacob, I stumbled onto your blog today and and very impressed. I’m recently retired, 67 (wife is 70) and fortunate in that our finances seem to be in pretty good order. In addition to other investments, mainly real estate worth perhaps 6M, we have my (401)k of around 800k under management with minimal interaction, a small IRA of about 133k managed by the same firm and my wife’s IRA of around 700k managed by a different firm. Neither of us are savvy on financial choices nor are we likely to become suddenly interested or adept. We expect to live 30 years more based on family history. Something like Betterment or Wealthfront seems perfect for us – initial decisions on risk and then minimal involvement, and reduced fees. As these are retirement accounts there would be little additional depositing. Is one option better than the other? In what form would the accounts be held (new Roth IRA, ?). Many thanks in advance.

      • Jacob
      • March 22, 2017
      Reply

      Hi Jeffrey,
      Congratulations on your financial success. Both choices are great options for investors such as yourself. My reviews of each service cover the unique selling points, and many features do overlap.
      If your accounts are traditional, you can roll them into a rollover IRA. If you hold any Roth accounts, you would roll them into a Roth IRA at either firm. Any taxable brokerage accounts would also be separate.

    • Maddy
    • March 16, 2017
    Reply

    Jacob,
    Informational review! I am 22, recently graduated, debt free, maxing my Roth and looking to take the next step by investing in some ETFs. (If that is the next step?) I have set some lofty goals to achieve in the next 5 years as well as being foceused on my long term goals for early retirement. I’m looking into investing 10k with Betterment to start working towards the 5-year goal. (Of course, I already have my 6 month living expenses saved and $1000 emergency fund.) I want to make my money work for me in the most efficient way. Is this the path you’d recommend? Any advice and guidance is appreciated. I’m always trying to grow my knowledge and net worth!
    Thanks.

      • Jacob
      • March 22, 2017
      Reply

      Congratulations on your success. Those are great achievements.
      The optimal solution depends on your preferences. I think Betterment offers an outstanding service for busy professionals looking to build wealth. Of course, you can DIY for cheaper, but that requires some work and you won’t ever obtain the complete automation/features provided by a quality robo-advisor.

    • Bill
    • January 4, 2017
    Reply

    I recently retired and I will also soon be receiving about $500k from an inheritance. I am considering using a robo-advisor to hold that inheritance. Some comments on your blog indicate that most of the robo-advisor clients are young people (i.e. people in their accumulating phase.) What are the drawbacks of robo-advisors for retirees?
    Does Betterment, or do any of the other robos that you have used, provide advice on withdrawal strategy?
    How do they select assets to sell to satisfy client withdrawal demands?

      • Jacob
      • January 9, 2017
      Reply

      Age has nothing to do with using a robo-advisor, other than the fact that younger individuals tend to be more comfortable with new technology.

      Yes, Betterment also provides withdrawal advice at no additional cost.

        • Bill
        • January 9, 2017
        Reply

        Thanks for those replies Jacob!
        What about my last question? How does Betterment select assets to sell in order to satisfy withdrawal demands? Or is that part of their “secret sauce” (i.e. proprietary info)?

          • Jacob
          • January 13, 2017
          Reply

          Hi Bill, I don’t know for certain. Do you mind emailing them directly and sharing their response for the benefit of other readers?

    • Rebecca
    • December 29, 2016
    Reply

    I already have a good amount saved for a safety net in a betterment account and a decent amount in the bank. I see you said if you plan on needing the money in a short amount of time it’s better the just save in a bank account. What exactly is considered short term? If I plan on buying a car in the next 2-3 years is it better to save in a betterment account or the bank account?

      • Jacob
      • February 6, 2017
      Reply

      Hi Rebecca,
      For rule of thumb, many interpret “short-term” to mean less than 3 years. Your definition may vary.

    • Casey
    • December 13, 2016
    Reply

    New to the blog! A few investing blogs, even Betterment itself (their “Safety Net” goal), have suggested using the market or even a ROTH IRA to build an emergency fund. You’re probably familiar with the idea, but it’s recommended because: A) 8% average return, even with a conservative portfolio, is much better than even an online account like Ally and B) with taxable investment accounts you can withdraw at any time and with a ROTH IRA you can always withdraw your own investment (not the interest). If I’m honest, this seems dubious, but I also have kept everything in a brick and mortar bank mostly out of fear.

    Is a conservative investment account or ROTH IRA a great place for an emergency fund, awful emergency fund advice or decent advice under a particular set of circumstances? If the third option, what are the circumstances in which that is decent advice? Thank you in advance!

      • John Napiorkowski
      • February 27, 2017
      Reply

      I’m just doing a drive by, but noticed your question and I would say anything you put into an investment fund cannot be considered emergency money. Maybe you could put it into gov’t bonds or something I guess (although with the current gov’t who knows how safe that really is anymore.) I saw the same thing in the 1990’s the stock market was strong for many years in a row and everyone forgot that it actually does go down hard from time to time. And when it goes down the hardest, that is often when you need that emergency money the most. If you must insist on this approach I would say you should double the size of your emergency fund so that when there’s a massive crash (as it will eventually happen) you will have at least something to fall on. Investment accounts are not savings accounts! The only reason you see very wealthy people treat them as such is because they often have big reserves to fall back on should the worst happen. And in any case any type of IRA is not good for this need since generally you end up paying big penalties if you withdraw the money before age 59.5 (some exceptions but its not at all liquid).

      Regarding a Roth IRA, in my mind unless you expect to pay more taxes when you retire than when you are working (not very likely) a tradition IRA is better because having that tax break helps you to save more. I might consider a Roth IRA if I was in a position to max out my allowed yearly cap without needing the tax deductions (maybe you just started working and have no debt to pay off and are already used to living frugally, for example). Most people need the classic IRA tax deduction in order to permit them to max out the contribution. I would say after paying off high interest debts and putting aside that emergency fund that maxing out the IRA is your next best thing to do with your money (besides investing in yourself of course). If you work for a company with a 401K the allowed contribution is like 18K, and if you are an independent consultant than look into an SEP-IRA.

    • Johnathan
    • November 20, 2016
    Reply

    Hello, Jacob
    You have wisdom beyond your years so I am here asking for some advice. I am 26 with literally $0 saved up or invested. I decided to make a change and I am making the necessary changes. Budgeted so i can hit my emergency fund (in a 1% savings account) in a couple of months. After that is done with I want to focus on all my savings into a long-term account. I opened up a betterment account but opening up an IRA from them is the best way to go?

      • Jacob
      • November 21, 2016
      Reply

      Hello Johnathan,
      Great job in setting goals and working hard to achieve them. Many of the tax features available through Betterment are only applicable inside a taxable account. An IRA or other tax-sheltered account loses tax-loss harvesting and some of the other features. Betterment is still an excellent option for establishing a Roth or Traditional IRA, and you can establish multiple different account types as you see fit over time.

    • Chris
    • October 17, 2016
    Reply

    Hi Jacob,
    Thanks for your review! I recently got into Betterment to begin learning about investing. I have very little money, and I noticed you mentioned a 5% savings account. Would you be able to give me a link to look up information on that? I am looking at needing to save for a down payment for a home within 5 years at the most and it seems from your previous posts that this would be the better option for that. Thanks!

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    • Ryan
    • August 14, 2016
    Reply

    Thank you very much for your informative review. I’d like to have 25% (200k) saved to make a down payment on a first home purchase within the next 2-3 years. I currently have about 150k saved towards the purchase in a savings account earning 1% annually. Would it be worth considering moving this to a Betterment taxable account to earn greater than 1% for the next few years? I was thinking about setting a conservative risk during that time, and then moving to more moderate risk after the home purchase and keep making new deposits into the Betterment account for the long term.

      • Jacob
      • August 14, 2016
      Reply

      2-3 years is not far away. Having a large equity allocation could prove risky if we experience a market downturn. Bonds are probably a little more safe, but still subject to decline if interest rates rise.
      That said, your plan is solid if you want to continue growing your Betterment account over time. I just don’t know if I would risk the home down payment if needed in 2-3 years.

    • George
    • July 28, 2016
    Reply

    I just heard about Betterment and checked out the site. I’m excited to see something like this. I know nothing about investment, and I have very little money to invest (if you were to ask today, I’d say it’s in the double-digits.)
    Just wondering, and this is definitely going to sound like a dumb question, but how low can starting investment be? How low can monthly auto-deposits be? I know on the site it says there’s no minimum, but most people in the comments tend to have at least $250 to invest (at pretty much the absolute least as far as I’ve seen). I have less than this, but given that I don’t want to spend the rest of my days living hand-to-mouth (as I currently do), I’m itching to put my money into something that will one day grow. I want to build wealth and a retirement fund. I’m in my late 20’s, I have no loans, and have next to nothing. Is Betterment still a “place” for someone like me?

      • Jacob
      • July 29, 2016
      Reply

      Hey George,
      You could definitely begin using Betterment. You would just make continual contributions over time to increase the account balance.
      However, I would recommend at least having some funds set aside in an emergency fund before investing in stocks/bonds.

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    • Ken B
    • July 15, 2016
    Reply

    Hi Jacob –

    I’m interested in starting an account with Betterment. I currently just have a small emergency fund of about $8,000, and no other investments of any kind (outside of a retirement account at work I don’t know that much about). So is starting from nothing, and depositing $100 (or more) a good decision or should I just stick with my savings account? Also – My initial emergency savings goal was just $5,000. I just wasn’t sure how to start saving after I had hit that initial goal. Is there an upside to using some of that money to make an initial deposit with Betterment? Lastly, I have a very simple tax return that I still can barely figure out on my own. Does having an investment like this complicate filing my tax return? Appreciate any feedback you may have!

      • Jacob
      • July 15, 2016
      Reply

      Hey Ken, what are you financial goals? I can’t give specific advice (for legal reasons), but Betterment invests your money in a combination of stocks and bonds. As such, it is best suited for long-term investors who don’t need the money for several years. Stocks and bonds have historically outperformed a savings account by a large margin, but there are no guarantees and sometimes the stock market is quite volatile.
      Regarding your taxes, you would receive additional paperwork if you utilize a taxable account (to report taxable gains or losses). If you only have an IRA at Betterment, there are no additional tax forms until you begin withdrawing the funds.

    • Felix
    • June 12, 2016
    Reply

    Hi Jacob,

    Great article, really appreciate the solid advice you’ve been handing out. I’m just getting started on betterment. I have about 15,000 in a checking account doing absolutely nothing for me. I was thinking of contributing the maximum amount to a Betterment ROTH IRA immediately, and then putting 2,000 in a Build Wealth Account. For the remaining 7,500 Im thinking of putting in a Savings Account with the intent of adding 300 monthly to my Build Wealth account. I just turned 26 and currently make roughly 60k. Would you advise against any of this? any help is greatly appreciated!

      • Jacob
      • June 16, 2016
      Reply

      I can’t give specific advice, but I think you have a solid plan. Setting aside an emergency fund is a good idea, as is investing for long-term growth via Betterment.

    • Emma
    • March 16, 2016
    Reply

    Thanks for the great article. Say someone invested $500 just to try it out. Would the monthly fees likely exceed the returns? Or, in other words, what would be the minimum amount to wisely invest for someone who’s mostly curious?

      • Jacob
      • March 21, 2016
      Reply

      There are no guarantees with stocks and bonds. If you are mostly curious, you can get $15,000 managed free through our Wealthfront review.

    • Cathy
    • March 11, 2016
    Reply

    I’m thinking about rolling over my 403b from a former job which would put me over the $100000 threshold. Even with the management fee, I think I would come under the current fees I have with my current 403b company. How easy is the rollover process? How much guidance does Betterment provide? Also, if I also want to move over some of my taxable accounts, how might I go about finding out if I qualify for the beta test you mentioned rather than having to liquidate funds. Thanks in advance.

      • Jacob
      • March 12, 2016
      Reply

      It is easy, and I’m pretty sure the 403b transfer can be done online in a few clicks. Regarding the beta test, you would have to speak to them directly to find out.

    • Art Aleman
    • February 28, 2016
    Reply

    I have a managed account with fidelity for my IRA which is very expensive. I really not investment savy and wanted a service to manage my portfolio so I could concentrate on other things in retirement, hence my going with the Fidelity IRA managed account . I really never have a need to talk with the advisor, so I’m wondering if transferring my Fidelity IRA over to Betterment wouldn’t make more sense for me. It definitely would be cheaper.

      • Jacob
      • March 9, 2016
      Reply

      I think it would make sense because you indicate that you don’t need or use an advisor. Betterment does the portfolio management very well.

    • Art
    • February 26, 2016
    Reply

    Hi,

    I have approx $220,000 in a managed account in Fidelity. I pay approx 1.5 % of my balance for this “managed” account. I am not a savvy investor whatsoever. This is all the $$$$ I have. Would I ‘d be better off moving it to Betterment ? I am afraid to make a mistake, yet, if Betterment would be doing basically the same things for me, I’d be saving the $$$ I am paying Fidelity. As side question…..I do have a Roth IRA account with Betterment with approx $2,000. I have had it since October 2014. From that time, I am losing approx $150. Does that sound right based on market conditions from then until now ? Any help you could offer me would be greatly appreciated.

    Thank you

      • Jacob
      • February 29, 2016
      Reply

      Those are high fees, and if you aren’t getting any help from an advisor, I don’t see a reason to keep paying that.
      Regarding your Roth IRA, that does sound correct. Most stock and bond markets (including the US) are down since that time.

        • Art
        • August 8, 2016
        Reply

        Well, when you say help, they are the ones deciding when and how much to buy/sell if whatever EFT. I guess that is “rebalancing”. I guess my question is, is Fidelity doing the same thing that Betterment, Wealthfront, Vaguard or anyone else is doing out there ?

          • Jacob
          • August 8, 2016
          Reply

          Betterment will do all of that and more for you, but charges 0.15% instead of 1.5% annually. Seems like a switch would save you a ton of money over time.

    • Keyten Smith
    • January 1, 2016
    Reply

    Great review Jacob, Thanks….I have been struggling to decide between Wealthfront and Betterment. Other than fees and asset allocation difference, one particular area I struggle to understand is how they both execute Tax Loss Harvesting. Both companies do it differently and they both claim theirs is better. Could you please share you views on the tax loss harvesting comparison between two companies?

      • Jacob
      • January 3, 2016
      Reply

      Both offer the same basic TLH service at the ETF level. Wealthfront adds additional features if you have $100k or more invested. I explain that in my Wealthfront review.

    • Rinzin
    • December 11, 2015
    Reply

    Hi Jacob,
    I’m 24 and I’ve been trying to read up on how best to invest and I’m so glad I stumbled upon your comprehensive review of Betterment, which I just heard and learned about for the first time today. I have some savings set aside for emergency fund, no debts of any kind, but I also don’t have retirement accounts and no 401k. I want to start investing with Betterment. I was just wondering what your advice would be for someone in a situation like mine.

      • Jacob
      • December 11, 2015
      Reply

      Hey Rinzin,
      Thanks for the comment and welcome. Sounds like you are in a good place with the emergency fund and no debt. I would personally start investing in the stock market to build long-term wealth. If you don’t want to manage your portfolio, I think Betterment would be an excellent option. They offer the most benefit in the taxable account, with tax loss harvesting and other great tax features. You could also setup an IRA or Roth IRA there as well.
      Let me know if you have any questions.

        • Rinzin
        • December 12, 2015
        Reply

        Thanks so much for the prompt response! I just opened Roth IRA and set up automated monthly deposits of $200 in my long term investing with 90%stocks and 10% bonds. Please correct me if I’m wrong; I read somewhere that making a one time contribution of the maximum allowed in Roth has a slight advantage in the long run over going after DCA and making the monthly contribution. I’m just a bit confused here and I’m able to make the one time payment of the maximum allowed in my Roth IRA if you think thats the way to go. Please advise. Thank you and You’re AWESOME 🙂

          • Jacob
          • December 13, 2015
          Reply

          No problem, glad to help. If you have the money available, I see little reason to wait. I would just lump sum in the maximum annual contribution. That’s usually what we do each year for IRA funding.

    • Tyler
    • November 30, 2015
    Reply

    Jacob,
    I manage my own ROTH IRA with Vanguard, and I feel comfortable doing that. However, I’m considering opening an account with Betterment and throwing $10k into a taxable account there as I would like to invest more cash outside my IRA for the year. Would this be a good option?

      • Jacob
      • November 30, 2015
      Reply

      I would definitely think so. You would also get the TLH+ in the taxable account.

        • Tyler
        • November 30, 2015
        Reply

        Are there penalties for withdrawing money from your Betterment account? Also, so long as my balance is above $10k, but below $100k, is all I pay the 0.25 fee AND the $2 a month?

          • Jacob
          • December 1, 2015
          Reply

          No penalties to withdraw funds from a taxable account. Above $10k, you will only pay the 0.25% annual fee.

    • Bob
    • November 17, 2015
    Reply

    I am confused. I currently have about $500K in my company 401K, at Fidelity. In 2008 it had about the same, then took a HUGE hit but now I have recovered. I hear many top-notch experts/advisors say this bull is ending and a big big bear is afoot, similar to 2008 or at least 2002.
    As I said, I recovered my big 2008 loss, but since I am now set to retire, I could not take another big loss of some 35-40% . So the answer, I hear, is to rebalance my 401k temporarily out of stocks for the next year (taking a loss of the last of the bull, I know) and wait out the big bear, then get back in. Preserve the seed corn before retiring, then put it back in, so to speak.

    So I am confused. I want to move it all to Betterment, but want to be able to move my money out of stocks and into “cash” (money market type things) if needed.

    Can I do this with Betterment, maybe by choosing a risk number or whatever it is such that it will have very high bond amounts? (Or are these dangerous high yield bonds?)

    I’m not sure if this is timing the market; I’ve heard it called the wiser, newer policy of ‘buy, hold, sell’ versus ‘buy and hold’, that buy and hold is dead, that one can due better by running from big market collapses by getting out of the market and then re-entering, especially when nearing retirement.

    I am wanting so badly to go with Betterment, but afraid of a big market dip with my retirement looming, but I also like to be in stocks since they have the higher yield. So ability to rebalance out of stocks when danger lurks seems a good way to “somewhat more safely” be in stocks. Any help/thoughts appreciated.

    Bob

      • Jacob
      • November 18, 2015
      Reply

      That is trying to time the market, and empirical evidence shows that it usually fails. Yes, it’s been a bull market, but no one knows when that ends.
      If you want to hold cash, you would have to do that yourself. Betterment does not allow customers to hold a portfolio of cash equivalents. They add no value if that’s the case.

    • Ken
    • October 21, 2015
    Reply

    If I rollover a Roth IRA that I have had for 10 years to Betterment would the clock reset as having a new Roth IRA. e.g. would I have to wait another 5 years before I pulled that money for a house down payment or child’s education?

      • Jacob
      • October 21, 2015
      Reply

      No

    • Happytobehere
    • October 20, 2015
    Reply

    Hi Jacob,
    I’m really happy I stumbled onto this. I’m 26 year old that does contracting work, so I don’t have retirement or anything except a savings account I put into every month since it’s just me. I don’t understand all this stuff and have been reading and reading on joining up with Scottrade or Vanguard. Then I found this. Now I’m leaning into this, mainly because I don’t have the time to look, read, and understand where and how to invest. It’s so confusing, I’m trying to learn what I can from reading everything I can!
    I read all the comments before I asked something, to make sure it wasn’t already answered. Most were! Just another question and some clarification please and thank you.
    I can set up a bettermint account at 100 a month, leave it to grow and ‘invest’ in itself. Then get to 10,000 and the % drops, etc etc?
    Is the 100 a month the same as a Roth IRA. Or would this be 100 a month and then more money to put into Roth IRA? I’m confused on the difference.
    When you talk about the taxing, the Roth IRA isn’t something you get taxed on as long you don’t withdraw before a certain point? What about the 100 or so a month I put into Betterment, is that something i have to worry about taxing at the end of every year?
    Thank you
    Like I’ve said, I’m 26, I just have a savings account, I’m looking to set up a Roth IRA and let it sit for years till I hopefully retire. I need something set up sooner than later to retire on eventually. Is betterment the way to go for me?

      • Jacob
      • October 21, 2015
      Reply

      Yes, $100/month is fine. Roth would be tax-free if you delay withdrawals until retirement, and there aren’t any taxes to worry about. In a taxable account, you could have gains each year, but the tax loss harvesting services will probably lower your annual tax bill.

    • Bill
    • October 13, 2015
    Reply

    I’m a new investor and I don’t have much money to play with, also have student loans. I have a 403-b going now, but do you think it’s a good idea to start a Roth-IRA or a traditional account with betterment? My goals are long term investment, but i also would like the option to pull some out if I want to put a down payment on a house in 10 or so years.

      • Jacob
      • October 13, 2015
      Reply

      What rate are your student loans? If they are above 6%, it’s tough to beat that guaranteed return by paying them off. If you want to invest and have the ability to withdraw funds for a house, either IRA option will work. Roth allows you to withdraw your contributions at any time, penalty free. If you have owned the account for 5 years or longer, you can withdraw earnings without penalty for a first-time home purchase ($10k max). Traditional IRA allows you to withdraw up to $10k per spouse for a first-time home purchase, penalty free.

    • Edmon
    • September 28, 2015
    Reply

    Hello,

    From previous comments I read that this is not available outside the US. My question is if you know if this service is available for US citizens living abroad investing with US funds? i.e. Funds coming in from bank accounts in the US.

    Thanks.

      • Tammy
      • September 30, 2015
      Reply

      Not sure about Betterment, but I assume it would work since we’re Americans living abroad with a Vanguard account. We have been investing for the past year with our US bank account and no problems. After all, you are transferring money from one US account to another.

      If there is a problem with getting the website to load, or transfer money you can always subscribe to a VPN service, as we have had to do to pay some online bills back home.

        • Edmon
        • October 15, 2015
        Reply

        Did you use a US address? Because Vanguard and Fidelity have both turned me down to open an account with them because I did not have a permanent US address.

          • Tammy
          • October 23, 2015
          Reply

          Yes, we keep a permanent address in the US (our house which is rented). Can you set up a US address the next time you go home? Maybe a PO box or a relative’s house?

      • Jacob
      • September 29, 2015
      Reply

      I’m pretty sure you can if your bank account is in the US, but now 100% not sure. Can you ask Betterment’s customer service and let us all know?

        • Edmon
        • October 15, 2015
        Reply

        Sorry for the late response, had forgotten to check back on this.

        I didn’t as customer service, but as per Betterment.com’s FAQ:

        Betterment currently only operates in the United States, and for regulatory reasons cannot accept customers residing outside the country.

        Customers must have a permanent U.S. address, a U.S. Social Security Number, and a checking account from a U.S. bank.

    • Sarah
    • September 28, 2015
    Reply

    Hi Jacob,

    Thanks for taking the time to write such a comprehensive review! I’ve been using Betterment for a while now — auto-depositing $100 monthly into a Build Wealth fund — and I’m really excited about it. I started using it because it seemed like a great option for people like me who want to invest but don’t have enough extra cash to open a Vanguard index fund (last I checked, the minimums for most Vanguard index funds were around $3,000-$10,000). But I was glad to learn more about it from your post.

    The one thing about Betterment that I do wonder about is the fact that their portfolio includes a relatively low number of international stocks. I know you mention international interest rate risk and international credit risk, but there is risk is U.S. stocks as well. It seems to me that it would be best to diversify as much as possible internationally (news from China this past month notwithstanding). If you happen to have any thoughts on this, I’d love to hear them. I’m probably going to keep using Betterment regardless. But I’m definitely curious and interested in learning more about this.

    Thanks again for the great post!
    Best,
    Sarah

      • Jacob
      • September 28, 2015
      Reply

      Hey Sarah,
      Thanks for the thoughtful comment and question. It’s always great to hear from another satisfied Betterment user. Your current plan is a great way to build wealth over time, so keep it up.
      Regarding international stocks – Betterment portfolios hold thousands of them. If you look at the included stock funds in my review, you will see VEA and VWO included. Those are both international stock ETFs. VWO holds over 1000 stocks from emerging international markets, and VEA holds over 1400 stocks from developed international markets.
      And if you look at your own portfolio online, I’d imagine it’s similar to the screenshot in my review which shows that more than half of the total stock allocation is in these ETFs. That means Betterment is allocating a roughly half of the stock portfolio to international countries and half to the U.S. This is theoretically sound based on GDP and other economic factors.
      Hope this clarifies things for you and clears up any confusion.

        • Sarah
        • September 28, 2015
        Reply

        Ah, got it! I don’t think I was doing a great job of deciphering the acronyms in my portfolio.
        Thanks for your reply!

    • Len
    • July 26, 2015
    Reply

    Jacob,
    I’m near retirement approx 1 year year or so. Ive worked at a major corporation for 15 years. I have a 401k where I can move a portion to an IRA. My 401k does have a variety with small cap, mid cap, large cap, stable fund, a bond fund and some longer term investments with specfic target expirations from 2015 -2035.
    I have the option to move a portion of my 401k as I have done this in the past. So from that prevoius move, I also have $22k in a roth and $7500 in a regular IRA, both with Vanguard. I do have a brokerage acct at Vanguard where I have the ability to buy ETF’s. I’ve had a Vanguard ETF portfolio in the past, but have temporarily moved to a money market, due to volitility. I also have some cash in savings from the sale of a condo. I’m past 59-1/2.
    At retirement, my company pension and ssn should cover my expenses, combined around $60k annually, with some potential after retirement projects.
    Betterment looks like a good option and would place money there to grow for several years, maybe 5 years or more.
    What would you advise? Move some of my 401k, or move the Vanguard IRA/IRA Roth, or the cash, or a combination of all. The cash is giving me the lowest return so my thought is to move a portion of the cash in any case.
    My company also matches up to 5% in my 401k.
    Thanks,
    Len

      • Jacob
      • July 27, 2015
      Reply

      Len, it’s hard to say without knowing more about you and your risk tolerance.
      If your pension and Social Security will cover all living expenses, it would probably be wise to invest most of your 401k, IRAs, and cash in something that will grow. Stocks have historically outperformed other asset classes over long periods of time. You might keep an emergency fund in cash and think about putting everything else in the market for long term growth. But don’t invest in stocks if you need the money in 5 or less years.

    • Chuck
    • July 12, 2015
    Reply

    Jacob. I really do not much at all about investing. I am recently retired. And receive a pretty good guaranteed pension for life with 3% guaranteed annual growth. (it has not missed in over 30 years). I also have a Roth IRA with 21.5 k with a large regional banking securities division. Within the Roth, I can invest in any investment mechanism (CD, IRA, stocks, bonds) and it remains tax free. Being single, I like the Roth, as I don’t have to worry about tax issues when I am older and probably more of feeble mind. 🙂 Within the Roth I have 3 structured CD’s. Each CD follows a group of 10-12 stocks/bonds/commodities and performs accordingly. I have been making around 4-5% annually. I also invest in a few companies within the Roth. I don’t do trades very often, maybe a few times per year. My Roth account is only about 6 yrs. old, and I will continue to make deposits. The bank fee is pretty high for any transaction. Would I better to keep that Roth where it is, or move it to something like Betterment? I am definitely more of a “put-it and leave-it alone” kind of mindset.

      • Jacob
      • July 12, 2015
      Reply

      Without knowing your specifics at that bank, I would almost guarantee you are paying excessive fees and management charges. And 4-5% is very modest in this bull market, depending on your asset allocation.
      In short, Betterment is likely a much better option with much lower fees. If your pension covers all your living expenses, I would also consider investing your Roth aggressively if you move it to Betterment (i.e. large allocation to stocks). This will allow the opportunity for more growth over time to either spend late in life or pass to heirs (but will also involve more risk/volatility).

    • Jenny
    • July 8, 2015
    Reply

    What advice would you give to a 20 year old with all this? I am a full time student and work part time so I don’t have much saved up right now to invest ? What’s your best idea for me? I’d like to be able to start saving for a down payment on a house.

      • Jacob
      • July 8, 2015
      Reply

      My best advice is to start building solid financial habits now. Learn the importance of saving and invest as often as possible while you are young.
      When do you want to buy a house? As a general rule, you should avoid investing in stocks and bonds (and choose a savings or money market account) if you need the money in less than 4 or 5 years. This is because you could see a significant drop in the value of stocks and bonds, and your portfolio wouldn’t have time to recover before you needed to liquidate for your financial goal.

  11. Reply

    Jacob,

    I currently have an emergency fund account with Betterment, and I have been contributing money based on dollar cost averaging. I am hesitant to contribute the total amount of what I ultimately plan to contribute all at one time considering that the market is so high right now. Any thoughts on this?

    Also, my wife and I each have Roth IRAs and traditional IRAs with Morgan Stanley and we have been weighing moving all of it to Betterment. However, the financial adviser is a friend of my wife and I am not knowledgeable enough to accurately tell her why we want to switch other than to pay significantly lower fees. Any suggestions on this, especially considering that she and her colleagues have probably all been trained on how to counter clients who want to switch to robo advisers?

    Lastly, our IRA accounts with Morgan Stanley are currently at a loss of a few thousand dollars, so it pains me to take the loss in order to switch to Betterment. Any thoughts on this? I assume it may be worth taking the loss considering that I will quickly make that up considering the drastically lower fees I will be paying with Betterment?

    Thanks a lot for your input.

      • Jacob
      • June 30, 2015
      Reply

      Mike, thanks for stopping in, and valuable questions for all readers.
      1) I won’t lie, stock market valuations scare me right now as well. They are historically high. However, there is no guarantee that they won’t go even higher. This bull market could last another couple of years, so I really can’t recommend trying to time the market. The other consideration is that there aren’t a lot of attractive investment options right now outside of the stock market. Bond prices will fall as interest rates rise. Physical Real estate can be attractive if you want to mess with it, but REITs (the easy way to invest in real estate) seem to be more and more correlated with stocks.
      2) You have all the ammunition that you need in fees. Fees are a primary determinant of investment success, and there is plenty of research showing that (email me if you need some links to show her). If you are paying significantly higher fees than Betterment, without getting significantly better investment results (very likely that her friend isn’t beating the benchmark indicices), you should take your money and leave. Don’t feel bad about making wise financial decisions, even if the advisor doesn’t like losing your commissions/fees/loads/whatever else being charged.
      3) Don’t worry about sunk costs. The loss has already occurred (even though you don’t have any tax consequences for losses inside an IRA). What’s done is done, and if you are losing money in this bull market, you need to leave ASAP. Think of it like this – your current account balance is what you have available today. Do you want to invest what you have today at a high-fee brokerage firm that is losing your money, or at a low-cost solution like Betterment that is based on sound academic investment principles? I think the choice is easy, even though the paper loss hurts.

        • Philip
        • March 1, 2016
        Reply

        Have you figured out why Betterment doesn’t do REITs even in tax-deferred accounts?

          • Jacob
          • March 1, 2016
          Reply

          I’m not certain, but I remain hopeful that REITs will be added in a future update.

      • Reply

        Jacob,

        Thank you for your response. You make some great points. I have two more questions.

        1. I have linked my Morgan Stanley accounts up to Feex.com to see what type of fees I am paying for the mutual funds that we are in, and the fees are ridiculous! I spoke with our financial adviser awhile back, and she she that she would put our money in ETFs if that would make use feel more comfortable due to the lower fees. However, I know I would still be paying the Morgan Stanley management fee and probably others, but they way they disguise the fees it is tough to know how much I am paying in fees on top of the mutual fund fees. Is there anyway for me to find this out to arm myself with more information when talk with her about pulling our money out.

        2. I know you mentioned that you can’t really time the market and Betterment’s strategy of passive investing does not attempt to time the market, if I pulled all of our retirement accounts from Morgan Stanley now and moved them to Betterment, I would be putting a significant amount of money into their ETFs at a time when the market is very high, which is concerning. On the hand, if I wait for the market to drop (who knows when this will be) before pulling my money from Morgan Stanley, I will have less money to pull out and put into Betterment. Any thoughts?

        Thanks again.

          • Jacob
          • July 1, 2015
          Reply

          1) It really is sickening to hear so many horror stories about brokers collecting massive fees while severely underperforming an appropriate passive index. Happens all the time (you aren’t alone) and I think it should be criminal. If she told you that she would put you in index ETFs, but you continue paying outrageous fees, I would use that reason to leave. Regarding how to see the layered fees that you are paying above the mutual fund fees, I imagine you need to dig around your paperwork and find that. Online sources won’t know, because as you mentioned, they disguise and layer fees differently for each individual investor. I think you have all the ammunition that you need. Show her the outrageous fees and explain that you have a money manager (Betterment) that will charge you a mere 0.15% for a great portfolio, tax-loss harvesting, and everything else.
          2) Realize that you aren’t ever really pulling your money out with tax advantaged accounts. You are just rolling it over and there aren’t any tax consequences for that if you do it right. What you have said is exactly my sentiment and is the exact reason that market timing really isn’t possible in an illiquid account (IRA, 401k, etc). You can’t withdrawal that money (to buy real estate, spend, etc) before retirement age without paying taxes and penalties, so the stock market is almost always the best option. And if you are going to be in the stock market, you might as well just stay in because trying to exit and re-enter at the right time is nearly impossible.
          3) All that said, I would stop paying the outrageous fees immediately and move your money into Betterment. Even if the market corrects, Morgan Stanley can’t stop that, and they will continue charging you fees…

          • Thanks a lot, Jacob.

  12. Reply

    Jacob
    Thanks for the very informative, and easy to understand, article. I am sorry if this has been asked and answered but I didn’t see it. I have created my own taxable and IRA accounts using only Vanguard mutual funds. Am I understanding you correctly that to use Betterment, I transfer ownership of my mutual funds to Betterment, they cash in everything so that they can redo my portfolios in ETFs (none of which I have now)? Thanks

      • Jacob
      • September 23, 2015
      Reply

      Hi Larry,
      You would have to liquidate the taxable account and then move the money to Betterment. For an IRA, you can just rollover directly to Betterment.

        • JOY
        • June 7, 2017
        Reply

        Hi Jacob,

        Does Betterment and / or Wealthfront cover termination and transfer costs from the old providers? I currently have a 403b with Vanguard and Franklin Templeton as well as a general savings account with Discoverbank.

        Would you recommend dollar cost averaging (i.e. 25 / day instead of 9,125 / year)?

        Thanks,
        JOY

          • Jacob
          • June 8, 2017
          Reply

          Hi Joy,
          There shouldn’t be any cost if you use the typical ACH transfer between accounts. Dollar cost averaging is fine, as are lump sum contributions. That’s a matter of preference.

    • Mason
    • June 21, 2015
    Reply

    I’m pretty excited to try Betterment, but then I checked out the performance tab. I’m guessing I’m missing something, but for some comparisons, the Betterment returns are lower than the S&P500 index. If that’s true, why bother?

      • Jacob
      • June 21, 2015
      Reply

      Hi Mason, thanks for stopping by.
      It’s not an issue with the tool, or Betterment, it’s an education issue. Many investors don’t understand benchmarking or the basics of index investing.
      The S&P 500 is just one index, tracking 500 large-cap domestic stocks. Betterment is a company that builds diversified portfolios comprised of many indices, including large cap domestic stocks, but also small-cap domestic stocks, value oriented stocks, international stocks of all flavors, and a variety of bond funds. They provide completely diversified, global portfolios.
      As it happens, the S&P 500 has done quite well in recent years. Much better than bonds and most international stocks. That’s why that one index has outperformed a more complete, diversified portfolio like those provided by Betterment. It doesn’t mean you should run out and buy only the S&P 500. Wise investors understand the importance of diversification, and understand that most investments tend to revert to the mean over time.
      In summary, it doesn’t matter if the S&P has outperformed a global stock/bond portfolio in the last few years. It’s not an appropriate benchmark, and there is not guarantee that this hot streak will continue.

        • Mason
        • June 21, 2015
        Reply

        Thanks for the quick response. I’m just starting to learn about personal finance, and I was given the impression that the S+P 500 is the benchmark to compare to, and if you don’t think you can beat it, join it. So, the S+P is just on a streak? I haven’t looked at a far back history. I started listening to Dave Ramsey telling me to expect 12% returns on mutual funds, lol. It’s disillusioned me a bit…

          • Jacob
          • June 21, 2015
          Reply

          No problem, and I understand where you are coming from. Many have been mislead by Ramsey’s investment advice, but that’s another article altogether.
          The S&P 500 is a fine benchmark and a fine index, for large-cap domestic stocks. Yes, large US stocks have done very well lately, but everything ebbs and flows in the investing world.
          Don’t be enamored by recent hot performance, as it will always be changing. Figure out your risk tolerance level, and build a diversified portfolio that you will be happy with for many years. You will see many “hot streaks” over the years, but stay the course and stay diversified. You will do well over time.

    • Jeremy
    • June 10, 2015
    Reply

    Great write up, Jacob. Thanks.
    My question is this: I’ve been with Fidelity for 20 years. I have a mixed portfolio of mostly individual stocks and some mutual funds split between a brokerage account and an IRA. What’s the best way to switch to Betterment? Do I sell all my stocks? Do I keep everything as is at Fidelity and simply open a new account at Betterment? Or a combination of those options??

    I’d like to switch because as much as I say I’ll do it, I just never can get a handle on active investing. And the idea of automated investing and adjusting is very appealing.

    Thanks!
    Jeremy

      • Jacob
      • June 21, 2015
      Reply

      Jeremy,
      You can always rollover an IRA directly to Betterment without any tax issues.
      Regarding the taxable brokerage accounts, The Betterment team said this: “We’re working on being able to transfer over assets in-kind to mitigate any tax consequences; however, it’s still in beta and only works in specific cases. Depending on if the customer qualifies, we may be able to open the beta to them as a test trial.
      Otherwise, such scenarios currently require liquidating the assets then transferring to Betterment.”

    • Tom
    • May 22, 2015
    Reply

    Hi Jacob,
    I’m 63 yrs. old and retired, my wife is 53 yrs. old and still works. Together we make 100k a yr.
    She makes 52K and I make 48K (SS, pension and annuity). We have 205K in savings. 115K in a taxable account and 90K in an IRA account both with Metlife Securities which has a 1.25% fee and also has not performed well during the past year.
    I want to move the 205K into a Retirement Income Fund which has a monthly payout either with Betterment or Vanguard.
    Would you recommend one company over the other and why.

      • Jacob
      • May 25, 2015
      Reply

      Betterment uses many Vanguard funds. It’s mainly a question of your preference. Want to tinker with your portfolio, rebalance, etc? Vanguard is great for DIY investors who are able to conquer most of the behavioral flaws that accompany buying high and selling low, trading too much, etc.
      If you want a portfolio with 10-20 ETFs, automatic rebalancing, tax-loss harvesting, and all the other things that either take time, or aren’t possible for the individual DIY investor, consider paying the 0.15% for Betterment.

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    • Dave
    • May 15, 2015
    Reply

    Hi Jacob, I read a bunch of your reviews, great insight and well written, Thanks. Question I had is I believe Vangaurd is offering a management service also, how would you compare that to Betterment if fees are comparable since betterment uses lots of Vangaurd ETF’s.

    Thanks again.

      • Jacob
      • May 15, 2015
      Reply

      Hey Dave, thanks for reading.
      The Vanguard management service is twice as expensive for those with $100k and more. The investment side is also inferior. From what I’ve read, portfolios are more simple (arguable difference) but more importantly, Vanguard has none of the impressive tax features such as tax loss harvesting, smart rebalancing, etc. In exchange for higher fees and inferior asset management, you do get online/phone access to a fee-only advisor. Now, how consistent the advice is, or how much time each advisor has per client, I don’t know. But I suspect they are managing a full load.
      In short, I’m yet to understand the role of Vanguard’s new service among traditional advisors and robo-advisors. High net worth need more than an online advisor/mass produced financial plan, and will probably always work with a good local team of financial experts. On the other hand, The masses who need quality money management/investing services are better off with the robo-advisors for reasons mentioned above.

    • Reuben
    • May 5, 2015
    Reply

    Thank you for the writeup. It seems like a good service, but I’m struggling to justify even the reduced cost of a service like Betterment over just following a similar model allocation and rebalancing diligently myself. Particularly for a tax-deferred account that isn’t receiving active contributions. Would you disagree?

      • Jacob
      • May 6, 2015
      Reply

      Hey Reuben, a few thoughts:
      1) In taxable accounts, there is no way the average investor can perform the valuable tax services offered by Betterment. I think the fee is justified by tax-loss harvesting alone, and all the other features are just icing on top.
      2) In tax-deferred, which you mention, you lose out on a few of the tax benefits. However, I still think the value proposition is there. They do everything for you, select great ETFs, rebalance, etc. For most investors, the result is a hands-off approach which reduces their ability and desire to actively trade, time the market, chase hot tips, etc. All of these things combined leave me recommending the service. I’m not suggesting that a very discplined and sophisticated investor couldn’t replicate the tax-deferred holdings at Betterment, just that it takes time and effort and the avoidance of all the common behavioral flaws that plague us all. Most investors would be better off focusing on their craft to increase income. Not attempting to determine proper asset allocation, purchasing 15 ETFs and trying to rebalanc them every 6 months.
      Just my $0.02

        • Reuben
        • May 6, 2015
        Reply

        Thanks for your reply Jacob.

    • rick
    • April 28, 2015
    Reply

    Thanks for the very helpful review. Is it possible to have both an IRA and a taxable account with Betterment at the same time?

      • Jacob
      • April 28, 2015
      Reply

      Yes, any combination of accounts is allowed.

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    • Jeff
    • April 9, 2015
    Reply

    Jacob my wife and I are currently investing with an advisor who charges .6% per annum. He invests in a 60/40 ratio of index funds through vanguard, ishares, and DFA funds. All are passively managed. We are retired since 2011 and our current ages are both 60. We have about 1mm with this advisor. I have a small taxable account at Betterment. We are thinking of doing it ourselves at Vanguard with a 3 or 4 fund portfolio. All the money is in tax deferred accounts. Do you think Betterment would be a better choice in the long run (20 years) vs Vanguard because of the diversity of betterments investments?

      • Lamont Cranston
      • June 14, 2015
      Reply

      A 0.6% VS a 0.15% over 20 years, is a $90,000 difference.
      Can your advisor convince you he can make that much difference
      in the growth of your portfolio?
      I don’t think that is shown in the historical record.

      • Jacob
      • April 12, 2015
      Reply

      That’s a possibility but no one knows if a small cap/value tilt or anything else will continue to outperform in the future. I do think Betterment’s portfolios are better than a simple 3-fund portfolio, but it’s no guarantee.
      I think your decision really lies within asking if you want to do it all yourself to save the 0.15% annually, or if you want Betterment to do everything and more (Tax loss harvesting and other features you probably can’t do yourself) for a small fee?

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  22. Reply

    We have brokerage & IRA accounts with Fidelity & Vanguard. How does it work transferring the funds over to Betterment? Do we have to sell our assets and pay capital gains tax?

      • Jacob
      • July 1, 2015
      Reply

      Rachel,
      You can always rollover an IRA directly to Betterment without any tax issues.
      Regarding the taxable brokerage accounts, The Betterment team said this: “We’re working on being able to transfer over assets in-kind to mitigate any tax consequences; however, it’s still in beta and only works in specific cases. Depending on if the customer qualifies, we may be able to open the beta to them as a test trial.
      Otherwise, such scenarios currently require liquidating the assets then transferring to Betterment.”

      • angelia
      • May 2, 2015
      Reply

      I have the same question.

        • Jacob
        • July 1, 2015
        Reply

        See below

    • Peter
    • March 13, 2015
    Reply

    Hi,

    My wife and I have about $17k between our 2 Roth Iras at Vanguard. About $10k in the target retirement fund 2055, and $7k in vanguard health care mutual fund. We have seen pretty solid growth, however we only started investing in 2013. So, we have seen the brighter side of the economy. Do you think we are okay sticking to Vanguard target retirement, or would Betterment be a better option. We plan to max both of our Roth IRAs out in coming years. Appreciate your feedback.

      • Jacob
      • March 13, 2015
      Reply

      Hi Peter, I think you will be fine either way, although you will get a more diversified and complete portfolio through Betterment. Target date funds are very simple, and actually charge higher expense ratios through the underlying mutual fund shares when compared with their respective ETF shares (i.e. total bond market mutual fund has a higher expense ratio than total bond market ETF at Vanguard, even though mutual funds are inferior investment products when compared with ETFs).
      Betterment portfolios hold more index ETFs and I like that, but you are paying a small fee for that. If you have a taxable account that can utilize tax loss harvesting, I’d say it’s a no-brainer for Betterment.

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  26. Reply

    I have some questions need helping:

    1) How many times can I change allocation in one day ? Any fee ?

    2) If I change from stocks to bonds or back ? How long it takes ? Any fee ? Tax ?

    Thanks

      • Jacob
      • February 3, 2015
      Reply

      1) The policy used to be once per week, not sure if that’s changed. No fee.
      2) You don’t change from stocks to bonds, you can only change your risk tolerance score (which changes your asset allocation). They don’t believe in market timing or dynamic asset allocation so it’s not a feature meant to be abused. They attempt to rebalance using dividends and cash flows to avoid any taxes. There are no fees to change your risk tolerance score.

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    • Dan
    • January 15, 2015
    Reply

    If they have a predetermined set of ETFs in the portfolio allocation how does tax loss harvesting work? Suppose an ETF has a losing year, wouldn’t tax loss harvesting imply finding a highly correlated security (but not too correlated to be considered identical) say SNEW, selling the loser and buying SNEW? Where do they get the correlated securities?

    Thanks,
    Dan

      • Jacob
      • January 15, 2015
      Reply

      Hi Dan,
      Those are the ETFs they use when first constructing a portfolio. They have others that are used during tax loss harvesting. low-cost index ETFs are widely available, so it’s not difficult to find a correlated offering that can be used to replace the one being sold.

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    • Tom
    • January 3, 2015
    Reply

    To Jacob,
    I am 62 yrs old and retired my wife still works and we earn 100k a yr between the two of us.
    I have 200k invested with Met-Life Securities which I do not withdraw from at this time.
    I have 10k in a regular savings account at my bank that we add $500 a month to it.
    We use this as our emergency or money as needed account.
    Would I be wiser to invest this regular saving account money and monthly deposit into a betterment account ?
    I would be taking out money as needed from time to time

    Thanks,
    Tom

      • Jacob
      • January 11, 2015
      Reply

      Tom, if the 10k and $500/month are used as short term funds or an emergency fund, I would not invest that money with Betterment. Stocks and bonds are not appropriate investments for money needed on a whim because of volatility in pricing.

    • Ron
    • January 3, 2015
    Reply

    I have $100,000 in a deferred comp account. I am retired. I am almost 71 so face mandatory withdrawals. I do not need any income from this money as have sufficient cash flow from pension and social security. Should I consider something like Betterment? Or are other options better?

      • Jacob
      • January 11, 2015
      Reply

      Ron, I think Betterment is a great option for someone in your situation. The automated tax loss harvesting is a wonderful feature and probably worth the 0.15% management fee in itself, but it’s only used in taxable accounts. In general, Betterment runs a very good program and their investment philosophy is sound.

    • Karla
    • January 1, 2015
    Reply

    Hi. So if I have $10,000 to invest in betterment right now and continue to deposit $100.00 each month will I be charged more for having that amount? I guess I am really new at this and don’t really understand.

      • Jacob
      • January 11, 2015
      Reply

      Hi Karla,
      No, if you have $10k to invest, you will pay 0.25% in management fees on that money until you reach $100k, at which time the fee lowers to 0.15%.

    • Megan
    • November 11, 2014
    Reply

    I enjoyed the review! 🙂 I don’t know much about investing so this was a good option for me. The website is so simple for me to navigate and I also have the app for my phone. Love the automatic deposits and that they tell me if I’m on track to meet my goals.

    • Ryan H
    • September 10, 2014
    Reply

    I’ve been waiting for a product like this to come to market! I never understood why we need humans to do what we can have software do for us. I’ve been using Betterment since May 2014, and it works exactly as expected. The setup process was very smooth. Adding funds is a snap.

    Why pay an “advisor” 1%+ (sometimes much more!) for the same functions!? This product is a perfect fit for me, and it’s a bargain. You can’t beat it.

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    • Andrew
    • July 3, 2014
    Reply

    Hey Jacob,
    The review has really got me interested in Betterment. I have been trying to find a way to start investing some of my money but am unsure of how to do it and really know nothing about investing at all. My wife and I have a budget set up and I want to stick with that as much as possible. So with any money left over after applying everything to our budget, I would put that into an account like Betterment. Does it make sense to start with an account as low as $250, or should I save up to start an account like this?

      • Jacob
      • July 3, 2014
      Reply

      Hey Andrew, I think Betterment is an excellent option for someone like you. Great place to begin building wealth.

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    • Tammy
    • January 18, 2014
    Reply

    Jacob,
    Thanks for this article. I just learned of Betterment. Sadly, I have not done much towards my retirement other than 401K’s. I currently have one sitting with Edward Jones. Do you think Betterment is a better option? I’m the “invest it and forget about it” investor and not at all interested in doing anything more.

      • Jacob
      • January 18, 2014
      Reply

      Tammy, thank you for reading and commenting! If all of you want to do is set it and never think about it again, I think it is a great option.

    • Jacob
    • January 8, 2014
    Reply

    Hey Kalyan! I’m a fan of both, but for different purposes. With Vanguard you’ll have to buy and sell any investments you would like to own. You will also likely need to rebalance your investment portfolio over time. It is free to trade Vanguard investment ETFs if you set up an account there.

    Betterment is completely hands off. They actually use Vanguard for investments, but they buy/sell/rebalance/tax loss harvest for you. In return, you pay them a small ongoing fee.
    Does that help? Thanks for reading!

    • VXS
    • January 5, 2014
    Reply

    I am financially savvy (work on Wall St) and at this point in life have the ability to take risk and mostly do single stock investing and a couple of ETFs that I don’t touch for some diversification. I haven’t used Betterment just as a disclaimer and I came here after seeing ads for Betterment on my Mint account.

    I just want to highlight a couple of things for some others who are interested in Betterment and looked at this good post (especially if you are busy and are not financially savvy). There are a few points on fees which people generally focus on but I think Betterment is offering something very significant which trumps all this if you are not financially savvy and can think 20-30 years down the line:

    1) Automatic investing – As of now something that even I am very guilty of, I only actively invest when I see a lot of money sitting in my checking/savings account. While automatic investing is easy on your 401k not all brokerages make it easy to do this. This is probably the biggest wealth creating step in your life if you manage to do this in a disciplined way.

    2) Automatic rebalancing – People who were close to retirement and didn’t rebalance before 2008 (and couldn’t take part in the subsequent rally) are going to really struggle through the rest of their lives in what is probably the greatest American human tragedy since World War 2. If you are not financially savvy and are too busy to actively take an interest in how/where to invest, I cannot recommend a service like Betterment (or some inevitable competitor) more highly to you. The generation after the boomers have been left to fend for themselves for retirement and with how complex the whole investment space is, being disciplined from a young age cannot be more emphasized.

    Props to Betterment for a timely product and wish you success.

      • Fran
      • September 21, 2015
      Reply

      Amen to auto investing! I could retire early because every time I got a raise half the net would go into upping my IRA contribution. The other half could be spent foolishly.

  39. Reply

    Your advice is sound. For such a young couple, you have obtained wisdom in financial matters beyond your years. You have also mastered the art of getting more for less. Being frugal is not being cheap. Being frugal means not being stupid. Perhaps the smartest thing anyone can do from a financial standpoint is to diversify their investments as long as they don’t take their profits and spend it on bottled water.

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