Betterment is a passive investing platform that many long term investors have their money with. Since this is a robo-advisor, fees are much loser than costs associated with a traditional financial advisor.
When you invest with Betterment, your money is spread out across a variety of different stock and bond funds. This is going to be based on your risk tolerance, goals etc.
However, those funds are made up of thousands of different companies or bonds. Many of the companies listed pay dividends, so what exactly happens to them?
First of all, with a fund, all of the dividends earned by the individual stocks within it are paid out together on a quarterly basis. That makes things a lot easier to track.
So, the funds that you own within your Betterment portfolio are most likely going to pay out dividends. What happens to them?
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When you earn dividends within your Betterment portfolio, they are going to be reinvested automatically. This is something that is set by default, so you can't change it.
With a traditional brokerage account, the dividend would go to your cash balance. At that point, you could choose to reinvest it yourself or transfer it to your bank.
Truth be told, reinvesting your dividends is your best move. That is how you earn compound interest, after all. Betterment is basically making the best decision possible for you in terms of what to do with dividends earned.
Since Betterment is able to purchase fractional shares, all of your money is being put to work immediately. You don't have to wait until your earned dividends are able to purchase a whole share of a fund, for example.
In addition, Betterment rebalances your portfolio with the money earned from dividends. As your allocations drift from their targets, new money deposited from the bank or earned from dividends will be used to get you back on track.