Betterment Review 2017

Now with lower fees, foreign investments, and Roth and Traditional IRA accounts, Betterment is a serious consideration for any investor. In this review, I’ll share my experience investing with Betterment.

betterment review

When it comes to investing, one of the most important factors is cost. That’s why it is important to invest in low-cost mutual funds and ETFs, and to use a low-cost broker if you buy individuals stocks and bonds. And that brings me to this review of Betterment, an online tool that makes investing in stocks and bonds simple and easy.

Initially, I was going to title this review “Are you Better Without Betterment? because of the fees Betterment initially charged. Having signed up for Betterment, however, I’ve come to a slightly different view. In addition, Betterment has significantly lowered the fees it once charged.

So, let’s get to it.

What is Betterment?

Betterment is a website that enables investors to invest in stock and bond exchange traded funds (ETFs). But rather than picking the individual ETFs, Betterment picks them for you based on an asset allocation you select. As an investor, all you have to do is decide how much of your investment you want in stocks and how much in bonds. And if you need some help with that decision, Betterment has several tools that can offer you some guidance.

Betterment is a registered investment advisor, and securities in customer accounts are protected up to $500,000 by the SIPC.

How Betterment Works

After you sign up, you will link your checking account to Betterment. Doing so enables you to make online contributions and withdrawals from your Betterment account. You can then either make individual contributions whenever you’d like or set up a recurring contribution. This makes monthly investments and dollar-cost averaging very easy.

Betterment Add Withdraw Money

As you can see from the above image, setting up a one-time or recurring transfer takes just a few clicks of the mouse.

Once you’ve funded your account, the next and final step is to select your asset allocation. Here, Betterment offers what it calls the RetireGuide. This guide walks you through a series of questions, such as marital status, pre-tax income, and the age at which you want to retire.

One feature of the RetireGuide is that you can link external accounts. Many people have multiple retirement savings avenues, and they may not all be with Betterment. By linking your outside 401k, IRA, and other retirement accounts, Betterment’s RetireGuide can offer a more complete assessment of retirement readiness. The result is an analysis of whether you are on track to retire, and how much more — if any — you should be saving.

Betterment RetireGuide

You can then change your allocation anytime you want (limited to one change per day). Using your age and income range, you can compare your asset allocation to others similarly situated. Betterment also shows you the potential upside and downside of your allocation over one and ten years. And it offers a handy sliding scale to show you the likely outcomes of different allocation decisions (see image below):

Betterment Asset Allocation

Investment Options

Betterment invests your funds in 8 different ETFs. Six of the ETFs invest in stocks, and two invest in bonds. Here are the eight ETFs, along with the percentage of your money invested in each:

Stock ETFs

The portion of your total investment allocated to stocks is invested in the following six ETFs:

  • 20% VTI: Vanguard Total Stock Market
  • 20% IVE: iShares S&P 500 Value Index
  • 20% IWD: iShares S&P 1000 Value Index
  • 15% IWN: iShares Russell 2000 Value Index
  • 15% IWS: iShares Russell Midcap Value Index
  • 10% DIA: DIAMONDS Trust Series 1

Bond ETFs

The portion of your total investment allocated to bonds is invested in the following two ETFs:

 
  • 50% TIP: iShares Barclays TIPS Bond Fund
  • 50% SHY: iShares Barclays 1-3 Year Treasury Bond Fund

(Note that the specific ETFs Betterment uses do change from time to time, so be sure to confirm directly with Betterment what investments it currently uses.)

Fees

When Betterment first launched, the big negative was its fees. I even spoke with Betterment’s CEO about the fees at a conference we both attended. Since then, Betterment has lowered its fees significantly. Its current fee structure no longer depends on how much you have invested. If you do have at least $100,000 invested, however, you have two options.

  • Betterment Digital: Access to our award-winning technology, with tax-efficient algorithms and digital advice — now at a flat 0.25%. For the Digital Plan, Betterment’s fees are only charged on the first $2 million of your balance. Betterment will waive its management fee on any assets over $2 million.
  • Betterment Premium: Our digital product with unlimited access to a team of CFP® professionals and licensed financial experts who monitor accounts and give advice and financial planning throughout the year. The plan is a flat 0.40% ($100,000 minimum balance required).

LIMITED TIME PROMO

For a limited time, Betterment is offering up to one year of their services for free.  Depending on how much you deposit, you’ll earn free months.

  • $5,000 – $24,000 – 1 free month
  • $25,000 – $49,999 – 2 free months
  • $50,000 – $99,999 – 3 free months
  • $100,000 – $249,999 – 6 free months
  • $250,000 – $499,999 – 9 free months
  • $500,000+ – 12 free months

Investing costs may not seem like a big deal at first. The problem is that over a lifetime of investing, these fees make a huge dent in your retirement savings. If you’d like to learn more, Ron Lieber of the NY times published a must-read article on why 401(k) plans should offer index funds. The article included the following chart depicting the effect fees can have on a retirement nest egg:

Investment Costs

Even still, fee-based advisors can be the best choice for some. With Betterment’s current fee structure, for example, it’s an ideal option for those who don’t want to actively manage their investments. Because Betterment automatically reinvests dividends and rebalances the portfolio, there’s really little for you to do.  Some like it that way, and if you don’t have the time (or knowledge) for managing the portfolio, automating this process can mean more growth in the long run.

Betterment IRA Retirement Accounts

One of the hurdles with an IRA is knowing where to invest your money. With a 401(k), you have a limited number of options and can get help from your employer’s 401(k) administrator.

With an IRA that you open on your own, however, the level of support you get depends entirely on where you open the account. Betterment makes it easy to set up an excellent portfolio. All you do is decide how much you want invested in stocks and how much in bonds, and Betterment does the rest.

Betterment offers both Roth and Traditional IRAs. You can rollover a 401k to a Betterment IRA.

Betterment is such a good option for an IRA in my opinion, that I’ve added it to our List of the Best Online Discount Brokers for IRA Retirement Accounts.

International Investments

Finally, I want to mention Betterment’s move into foreign ETFs. While this change occurred some time ago, it happened after my first review. And for creating a diversified portfolio, these foreign ETFs are critical.

Betterment has added investments in developed markets and emerging markets. For the stock portion of a portfolio, Betterment puts 25% in the Vanguard MSCI EAFE ETF (ticker: VEA). If you’re wondering, MSCI EAFE stands for the Morgan Stanley Capital International Europe, Australasia, and Far East. Betterment puts 10% in the Vanguard MSCI Emerging Markets ETF (ticker: VWO).

To give you a complete picture, here is my total asset allocation in my Betterment account (keep in mind that I have everything invested in stocks):

Betterment Stock Allocation

Lately as I think about personal finance and investing and the content here on Dough Roller, I ask myself one question–If my children read an article here and followed a tip or idea, would I be comfortable with their decision. This question forces me to really think about everything that is published here. And with Betterment, I would have absolutely no reservations if my children used it for their investments.

If you’d like to check out Betterment, they are currently offering a bonus worth up to one year of investing w/o fees.

Visit Betterment

Betterment

Varies
Betterment
9

Fees

8/10

Ease of Use

9/10

Diversification

10/10

Pros

  • Relatively low fees
  • Automated rebalancing
  • Tax loss harvesting
  • Beautiful website

Cons

  • Limited control of portfolio


Topics: InvestingMoney ManagementPersonal Finance

11 Responses to “Betterment Review 2017”

  1. Jon Stein, CEO of Betterment.com here. We’re making smart investing easy and accessible for hundreds of millions of people. I want to thank you for your great review of Betterment and for helping to spread the word about our rapidly-growing service. I also want to address your concerns.

    First, international exposure. You’re exactly right – it should be part of our portfolio. We’re adding international exposure to our portfolio very soon.

    Second, our fees. Our fees are 0.3% to 0.9% per year, based on customer balance. This is remarkably low. For higher-balance customers, we are lower than other asset management fees (which range from 1-2%). And there are no transaction fees. In good conscience, you suggest, as others do, “Just buy an index ETF from Vanguard, it only costs xx%.” But, it’s not so easy, because the vast majority of people don’t (or can’t?) follow this advice. Perhaps they don’t know where to begin with Vanguard’s hundreds of funds (even when told to stick to one), perhaps they don’t know which numbers to trust, perhaps they get bogged down in the wrong data. Maybe they don’t rebalance, or they don’t allocate assets correctly, or they try to time the market instead of contributing regularly. What seems easy in theory, in practice is not. Investing turns out to be so difficult, in fact, that the average self-directed investor underperforms the S&P 500 index by as much as 5% per year, according to Dalbar and Morningstar. There are powerful psychological forces at work that make investing very hard for many people – and the market is unforgiving.

    We are transparent about our fees and proud that they’re lower than the competition. For lower balance customers, consider that there’s no minimum balance on the account, and we have thousands of accounts with $1000 or less invested. All those customers are paying less than $10/year in fees for smart investments. Truly revolutionary.

    I share your desire to see even lower fees – and I think some day we will be able to drop them further. For now, we’re focused on the real problem, which is too many people not investing, or not investing in smart, sensible ways. We both want the same thing for people – better outcomes, and to help them reach their goals in life. We’ve built a platform that we think will do just that, for millions of folks – without taking a lot of time or effort to get started. There’s more we can do to make the platform even better, but we’re on the right track, and I appreciate everything you’re doing to help us spread the word. If you have any questions for me, please don’t hesitate to be in touch: [email protected].

    • Jon, thanks so much for the thoughtful response. I’m a hawk when it comes to fees, but I do understand that some folks want more assistance than others. When all is said and done, if Betterment can turn non-investors into investors, it will have succeeded.

  2. Hi. I just came across your review and was intrigued. You claim that Betterment ONLY charges 0.3% to 0.9%. But, when I clicked on your actual site it states “0.15% to 0.35%. So, which one is correct?

    • Rob Berger

      Maria, the lower expense ratios are correct. As I noted above, Betterment lowered its expenses since I wrote the above post. I updated my review here–https://www.doughroller.net/investing/betterment-just-got-much-better/

  3. Chris Dowling

    I have 401K to rollover in to something, soon. The 401k account could stay within the current brokerage, and they do have low cost options, but I’ve also been considering Personal Capital and Betterment, as well as SigFig. Personal Capital’s approach is attractive, but their fees seem steep, relatively.

  4. I’m a retiree and I’m quite intrigued. But why, when every $40 piece of software that I’m considering buying gives me a trial version that I can evaluate, would I take the major step of moving large sums of money to a place like Betterment without having had an opportunity to see what it really looks like and how it really operates?

    How many times has a software package looked like it was going to be just the ticket, but when you actually got your hands on it turned out not to meet your needs?

    Let me set up a test account with pretend money and play with it for a while, get all my questions answered, compare it to competing products and make an informed decision, and I might move a few hundred thousand dollars over. But with nothing but sales material and screen snapshots to go on? No way. Who would do that?

  5. marcel leveque

    all i have read about is your fees. all well and good. my concern is returns on investment. i plan to invest 20k to start and see how you do. what should i expect. i am already retired and looking for additional income. if all goes well after a year i plan to incest 200k. being retired i must be cautious.
    marcel

  6. Why choose Betterment Plus with an annual fee of .40% or premium for .50% and only have contact with a CFP once a year when you can go with Vanguard and partner with an advisor for .30% annually? With Vanguard you can contact CFP when needed and they will create a Financial Plan for you. Betterment is mainly using Vanguard funds anyway so why use Betterment when you can get a better deal with Vanguard?

    • I’ve been a Betterment customer since 2015 with a $250k+ balance with them. My account is a taxable account and as a result the most significant benefit to me is the tax loss harvesting. Of course there are several other services included but this to me is by far the most important, and costs only .15% today. As of June 1, 2017 they will raise my cost by 66% to .25% for the same service. I’m now questioning the value and am looking at other options for this account which include tax loss harvesting.

      That said, what I’m really confused about with Betterment (and where they historically fall down with me) is that there is no real detail offered on the new pricing structure. So to say for .40% you get monitoring and one call a year with CFP…what the heck does that mean? Monitoring for what? And what action are you taking as a result of monitoring? Also (and most concerning to me) is one call a year with a CFP, wtf Betterment? So my account with a $250k balance has now gone to $1000 in fees vs. $375, a difference of $625. And for what? One call a year with a CFP? $625 will buy me more than one call with a fee based planner that I choose when I decide I need a call. And realize that if you have a $500k balance, your cost of the one call now goes from $625 per year to $1625 per year for the same monitoring and one call. I don’t get it Betterment.

  7. I don’t agree with Betterment’s new fee structure. I put a lot of effort into getting into the 0.15% tier by having $100K+ in my account. Now there is an increase to 0.25% which will hurt my returns. I think they are rewarding those that were on the lower tier but punishing the ones that had higher amounts. Not really sure about the main driver but one could speculate that the robo-advisor model is just not working for them. If they are truly leveraging technology why increase the cost basis?. I think they are just trying to make more money and the one thing that used to differentiate them before is no longer there. If you think about it they are getting closer to Future Advisor, Personal Capital, Schwabb Intelligent Portfolios that rely on the human element to provide their services and justify their fees. Interested in hearing what you think Rob.

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