Betterment Review 2018

Betterment Review Investing

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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 financial assets 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, 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, financial planning, 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 $12 Billion in assets for more than 300,000 clients. The company takes pride in offering portfolio management services that are both affordable and easily accessible.

Here is a nice overview created by the CEO and Bloomberg:

One of Betterment’s selling points is ease of use, and the online user dashboard is very intuitive 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.

As of September 2017, new Betterment customers can choose between four different portfolios. The standard Betterment portfolio is recommended by default. New and existing clients can opt into one of the other portfolios at any time.

1) The Betterment Portfolio

The Betterment portfolio includes exposure to a variety of stock and bond index ETFs.

Stock 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 Markets Index ETF (VEA)
  • Vanguard FTSE Emerging Markets Index ETF (VWO)

Why Betterment recommends these funds:

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 tilts have 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 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

The Betterment Portfolio includes the following bond funds:

  • 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 Municipal Bond Index ETF (MUB)

Why Betterment recommends these funds:

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.

2) Socially Responsible Portfolio

In July of 2017, Betterment began offering an optional Socially Responsible Investment (SRI) Portfolio. This service is provided at no additional cost, but Betterment clients must opt into this portfolio. Existing clients can choose the socially responsible portfolio from within the “advice” tab of their account. New Betterment clients can choose this option when signing up.

The Socially Responsible Portfolio replaces the standard U.S. large-cap stock allocations listed above with a large-cap socially responsible ETF (DSI). Other asset classes are not replaced with an SRI alternative because an acceptable alternative doesn’t yet exist or because the higher fees or lack of liquidity make for a prohibitively high cost.

The SRI portfolio reflects a 42% improvement in social responsibility scores for U.S. large-cap stocks when compared to the standard portfolio, and works with all existing Betterment tax features, including tax-loss harvesting and tax-coordinated portfolios.

3) Blackrock Income Portfolio

In September of 2017, Betterment began offering two additional portfolios. The first is an all-bond portfolio designed by Blackrock to provide regular income.

In the Income Portfolio, all stock market funds are replaced by bond funds (including lower-quality, high-yield bonds). The result is a lower risk portfolio that provides more income than the Core Betterment Portfolio.

However, the portfolio offers far less growth potential without any allocation to stocks. Additionally, bond interest is usually taxed as ordinary income, making this portfolio far less efficient when held inside of a taxable account.

4) Goldman Sachs Smart Beta Portfolio

The other portfolio introduced in September is the Smart Beta Portfolio designed by Goldman Sachs. This portfolio replaces the market-cap weighted indices in the core Betterment Portfolio with smart-beta ETFs designed to outperform the broad market.

This portfolio includes exposure to four factors designed to improve portfolio performance, including value, quality, momentum, and low volatility. The underlying ETF expenses are significantly higher than the core Betterment Portfolio.

Your Betterment Portfolio

After you select a portfolio, 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. Here is how that appears 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 Financial Advice

In addition to creating and managing your investment portfolio, Betterment provides two forms of financial advice at no additional cost.

The first feature is unlimited messaging through the Betterment mobile app. If you have any financial questions — big or small — you can securely message Betterment and receive answers from a licensed professional. The application also provides an ongoing record of every conversation that you can reference at any time.

If you aren’t yet a Betterment client, you can use the messaging service to answer potential questions that you may have. For example, deciding which funds to move to Betterment, setting goals (like saving for college, a house, or retirement), choosing appropriate risk levels in your account, and selecting the correct type of investment account.

In addition, all Betterment clients also have access to a comprehensive retirement planning tool called RetireGuide.

Betterment’s RetireGuide service uses your 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 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 – At its most basic level, tax-loss harvesting is selling a financial asset that has experienced a loss — and then buying a correlated asset (i.e. one that provides similar market exposure) to replace it.

Free for all customers with a taxable account, Betterment now provides a sophisticated, 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 reduce your tax liability over time.

TaxMin Lot Selling – Betterment 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 account 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 two different plans for customers to choose from.

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

Betterment Digital is the core offering, which includes all services mentioned in this review. Betterment Premium builds upon Betterment Digital by including financial planning advice from a team of licensed, CFP® professionals.

It’s also worth noting, both service tiers are subject to a $2 million fee limit. 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 at 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 Cash Cow 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 between your bank and Betterment account at any time, or you can establish 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 2018
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.
Total Cost8.8
Ease of Use9.5
Customer Support9
Investment Options9
Diversified investment recommendations
Socially responsible investment options
Unlimited financial advice
Reasonable fees
Limited customization
Fewer tax-loss harvesting features than Wealthfront

Editorial Disclaimer: The editorial content on this page is not provided by any of the companies mentioned, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are author’s alone.

User Generated Content Disclosure: Responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.


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Veronica M.EllaJacob Lumby, PhDJanetRobbie Recent comment authors

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Is it possible to speak to a human being with Betterment. I would like to invest but have been unable to reach anyone or find a phone number.


Thanks for the review. I also like M1 Finance which you mentioned for the reason you mentioned it. I like the customization. I think Betterment is good for a more passive approach though. Thanks!


If you withdraw from an account does that affect your credit score?


Why is Betterment more advisable for young investors? I understand that fees and ease of use are factors but why is this group preferred over retirees (such as myself, age 66)?

John Bungen
John Bungen

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


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… Read more »

Buff Ambler
Buff Ambler

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?


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.


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.


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 .


Clayton, did you ever get a reply? I’m one of the older ones as well and would be interested in the advise you get.


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… Read more »


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.… Read more »


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?


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?


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… Read more »

John Napiorkowski
John Napiorkowski

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… Read more »