A Beginner’s Guide To Betterment Robo Advisor


Beginner’s Guide To Betterment

Investing Simple is affiliated with Betterment. This relationship does not influence our opinion of this platform.

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What Is Betterment?

Betterment is an online robo advisor that creates customized investment portfolios, provides financial advice, and helps reduce fees and taxes by using cutting edge technology. Through the use of technology, Betterment operates entirely online and is available to US investors 18 or older. Betterment has changed the financial advisory industry by offering low fee financial guidance with no minimum account balance.

Here is our full review of Betterment.

How Does Betterment Work?

Betterment builds your portfolio of stocks and bonds by using Exchange Traded Funds (ETFs). These portfolios are built and assigned to investors based on your risk tolerance, time horizon and personal preferences.

Betterment offers a number of additional features and tools. After researching countless investment platforms, we believe Betterment has some of the best features among options available to investors.

Click here to Invest with Betterment!

Here are some of the additional features they offer:

Tax Loss Harvesting: 

Betterment will aim to reduce your taxes by offsetting capital gains in your account by selling any positions that are at a loss in your portfolio. Once they have generated this artificial loss, Betterment will then buy a similar security to the one you have sold in order to get a similar position in your portfolio and avoid a wash sale.

Smart Saver:

Betterment offers a portfolio built to replace your savings account. Smart saver is a portfolio currently yielding 2.18% annually according to Betterment. Keep in mind, the average bank account in the US pays about 0.05% in interest annually!

Tax Coordinated Portfolio:

As a Betterment investor, you have the option to utilize a feature called the tax coordinated portfolio. This will allocate your assets across your accounts in order to minimize taxes. Your highly taxed assets will go into your IRA first then the next portion of assets into your regular brokerage account. You can also implement this strategy combining your accounts as well as your spouses, creating even more opportunity for tax savings.

Retire Guide:

Betterment offers a retirement planner within their platform. By inputting your savings, budget, and time frame Betterment’s retire guide will analyze if you are on track to meet your goal. The planner will then make any suggestions or recommendations for how you may need to change your plan to meet your goal.

Fractional Investing:

Betterment allows you to buy fractional shares of the assets in your portfolios. For example, say there is an ETF that is trading at $150 per share. If you only have $50 in your account, Betterment will allow you to buy 1/3 of a share of that ETF. This feature allows better portfolio diversification and reduces idle cash.

Financial Planning:

Betterment offers a team of financial planners and security professionals available to work with it’s investors. Security professionals are available to any investor regardless of the plan they are in. In Betterment’s premium package, investors have unlimited access to CFP® professionals. These are financial planners that have a legal fiduciary standard to act in the client’s best interest at all times. These financial professionals are not making any kind of commission from your investments.

Professionally Built Portfolios:

Betterment offers a series of portfolios constructed by it’s own security professionals as well as outside firms such as Blackrock and Goldman Sachs. Blackrock offers an income producing portfolio consisting of different types of bonds. Goldman Sachs offers a smart beta portfolio within Betterment that aims to outperform the stock market over the long term.

How To Get Started With Betterment

1. Start by opening an account here.

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Betterment Sign Up Process

2. Betterment will learn more about you.
By asking a series of questions, Betterment will determine where you currently stand in terms of your finances. Betterment will also learn what your goals are as well as the objective of your investment.

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Betterment Questionnaire

3. Betterment will build your custom portfolio. 
Based on your risk tolerance and time horizon, Betterment will build a portfolio tailored to your specific needs. One of the key features of Betterment is the emphasis on low fees. Betterment uses ETFs offered by Vanguard, known for having some of the lowest expense ratios in the industry. There are also professionally built portfolios constructed by Goldman Sachs and Blackrock.

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Betterment Custom Portfolio

4. Betterment goes to work for you. 
Once your account is set up and funded you can sit back and allow Betterment to manage your account for you. Betterment will take care of investment management and rebalancing your portfolio. This way you can make sure you are making the most of your money as well as managing your risk. Betterment is a 100% passive investing strategy. You can even automate your contributions to your Betterment account!

What Are The Betterment Fees?

Betterment charges its fees based on the amount of assets under management. Betterment will assess their fee quarterly based on your account balance. Their digital platform begins at 0.25% annual fee and their premium package starts at 0.40%. These are minimal fees compared to traditional investment advising fees. Here is a breakdown of Betterment’s fee structure.

 Betterment PremiumBetterment Digital
Management Fee0.40%0.25%
Minimim Balance$100,000$0
Automated RebalancingYesYes
Tax Loss HarvestingYesYes
Unlimited Access CFP ProfessionalsYesNo
Account TypesTaxable, Traditional IRA, Roth IRA, TrustTaxable, Traditional IRA, Roth IRA, Trust

Is Betterment For You?

If you are relatively comfortable with technology, sensitive to high fees and understand the variety of features offered by Betterment, this may be an ideal platform for you. Betterment aims its service at long term and passive investors that are not looking to make frequent trades in and out of the market. Investors who would like to build their own portfolios may be more interested in a customizable platform such as M1 Finance. M1 Finance gives you the power to create your own diversified portfolio.

Check out our M1 Finance review here.

Betterment offers a unique service that does not compare to many other platforms out there. If you are looking for a service that will assist you in building a portfolio and provide a moderate amount of financial guidance, Betterment may be an ideal platform for you.

Click here to Invest with Betterment!

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