How does betterment work

Then you pick one or more financial goals: building up an emergency fund, long-term investing in a taxable account or saving for retirement in an individual retirement account IRA. To fund your account, you can set up one-time or recurring deposits after you link your external bank account to the platform. After you enter your particulars and choose your goals, Betterment presents you with a menu of customized investment portfolios for each goal.

You can choose from six portfolios, including one for socially responsible investing SRI. If your goal is investing your emergency fund, the portfolio would be mostly bonds. Betterment uses a slew of low-cost ETFs that mirror established indexes to help build diversified investment portfolios. Exactly which assets allocation you get—or what percentage of your portfolio goes into each fund—is determined by your goals.

Some competing robo-advisors ask you a set of questions to gauge your risk tolerance. Betterment uses your age, income and goals to fashion the standard Betterment Portfolio mentioned above as the default choice for a typical investor. So that year-old will see most of their money directed toward stocks, divied up between asset classes such as large-cap U.

In addition to the default Betterment Portfolio, the platform differentiates itself from competing robo-advisors by giving you several custom portfolio options to choose from:.

You can also attach other accounts, such as your k or outside IRA, and Betterment will project how close you are to reaching your retirement needs. Betterment offers users cash management accounts, access to professional financial advisors and tax management features to help minimize your IRS bill. Like rival Ellevest , Betterment makes it easy to connect with certified financial planners CFPs to work through how best to optimize your Betterment accounts as well as broader financial topics.

Betterment Premium users can schedule sessions for free. For Betterment Digital customers, this service costs:. Betterment offers automatic tax-loss harvesting as a standard feature. Tax-loss harvesting is a method of rebalancing your portfolio holdings to limit capital gains taxes. To minimize your tax burden, Betterment sells securities that have lost value and replaces them with similar investments. Betterment also offers a Tax-Coordinated Portfolio feature that allocates investments in certain assets across taxable and tax-advantaged retirement accounts to lower your tax bill.

This keeps your overall portfolio holdings in check for your age and goals while minimizing the amount you may owe in taxes. The accounts are separate products, and both are available without opening a Betterment investment account and do not charge fees. Betterment Checking works like a conventional checking account, complete with a Visa debit card.

Betterment Checking charges no maintenance fee and zero overdraft fees, and it reimburses all ATM charges. This automated feature tracks your average spending in Betterment Checking and automatically deposits cash above that average amount in Cash Reserve, to earn the higher interest rate. The basic tier of service, Betterment Digital , is available for all customers, regardless of their account balances.

For both tiers of service, expense ratios charged by the ETFs comprising your investment portfolios generally range from 0. The lack of a minimum balance requirement means you can get started immediately, and the option, and ease, with which you can construct a low-cost SRI portfolio suits a generation disposed to social responsibility.

Not all robo-advisors offer SRI portfolios. Details like this make it more likely that customers will stick to their goals, rather than indulge in some ambiguous urge to have more money. The cash management accounts are functional enough to potentially replace your standard bank accounts.

Not all robo-advisors offer tax-loss harvesting, and some require either a minimum balance or additional fees for the feature. The various portfolio options are useful, but new investors may feel a bit overwhelmed by the choices. How do you know if, say, an SRI fund is right for you?

How are you to tell the difference between a smart beta portfolio and the default option? Based on your desired level of risk, Betterment recommends an optimized portfolio and manages buying and selling the funds in that portfolio for you. Betterment also provides advice based on your goals and the time or amount you want to invest.

For your everyday cash, Betterment has two options: a high-yield cash account with the additional benefit of cash goals, which allow you to hold money for specific goals in cash, and a checking account provided in partnership with nbkc bank, Member FDIC.

Retiring, buying a home, having a child—these are exciting life moments that come with many financial questions. Our goal is to help you plan and prepare financially so that you save time and have peace of mind knowing your money is working for you.

Our investing team comes from some of the largest institutions in financial services and our team of licensed financial experts and live customer support are here to help guide you along the way.

We have the ability to help free our customers to pursue what is most meaningful to them, to spend their time doing what makes them happy. Our promise is to manage your money in a way that works to give you a better outcome. Then, we do it all for you. You may be a first-time investor just starting out, a seasoned investor wondering if you could be doing better, or a retiree thinking about ways to make your nest egg last.

We strive to offer a great user experience and design our technology to be friendly and accessible. Everyone has questions regarding financial services, but a lot of people are embarrassed to ask those questions. Through Betterment, you can ask questions and receive help from our customer support team. You can also access financial experts and receive advice through our Advice Packages or by upgrading to our Premium plan.

We call this our Digital plan because you receive our advice online. For 0. Learn more about our pricing. Balances are calculated based on household. For either plan, we calculate your fee daily so we can accurately account for deposits, withdrawals and market fluctuations that occur.

We then total the fees from those daily calculations each month, billing you a fraction of the total annual fee. What does the fee get you? It covers the advice you receive, the transactions, trades, transfers, and rebalancing we manage for you, and all other account administration. We do not charge you additional transaction fees to buy and sell securities.

Any fund held in your portfolio at Betterment will assess fund-level fees, called expense ratios, but Betterment aims to keep these costs low, and we receive no part of these fees.

Finally, Cash Reserve does not charge any fees on your account. Betterment LLC only receives compensation from our program banks. Higher bond allocations in your portfolio decreases the percentage attributable to socially responsible ETFs.

There are no fees or minimums required for most of our additional accounts. Our Core portfolio is comprised of a combination of stock ETFs and bond ETFs, which are globally diversified and personalized for each goal and time horizon.

An exchange-traded fund ETF is a security that tracks an index, a commodity, or a basket of assets—just like an index fund—but trades like a stock on an exchange. We chose each ETF we invest your money in because of liquidity, diversification, and low management fees. We also offer additional strategies for those interested in socially responsible investing SRI , targeting income-generation , and quantitative factor investing.

Each portfolio is available at the individual goal level, and adjusts its recommended allocation or target income based on your preferences and time horizon. You can have multiple portfolio strategies within your Betterment account, tailored for different financial goals. Our chosen stock ETFs aim to efficiently capture the broad U. That was in , now Betterment both offers access to live financial advisers and seeks to partner with advisers as well.

The Digital service described above has a fee of 0. Consultations with a CFP professional is available but will carry a fee that will vary based on the life event consultation being used. Their site indicates that investors will not incur additional fees for trades made on their behalf, portfolio rebalancing or for transferring funds into or out of their account.

As with any investments in managed vehicles like ETFs or mutual funds , there are expense ratios that investors absorb in that returns are net of these expenses. The fact that Betterment uses ETFs in building their portfolios is a plus in this regard as ETFs are generally on the lower end of the expense spectrum. That said, investors should also perform their own due diligence on Betterment before committing their hard-earned dollars. They should look at other robo-services as well as traditional human advisers to see what type of arrangement is best for them.

As with most things in the financial advice realm, there is no single best answer for everyone. Services like Betterment and other non-traditional advice options tend to be a bit disruptive within the financial services space and this is a good thing for investors. Receive full access to our market insights, commentary, newsletters, breaking news alerts, and more.

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