Betterment: Savings Or Investment?

Betterment is a robo-advisor that provides automated investment portfolio management services. It uses technology to build and manage user investment portfolios without human assistance. The platform offers a range of investment options, including stocks, bonds, and cryptocurrencies, as well as specialty portfolios focused on specific goals and values. In addition to investment services, Betterment also provides a cash management account that earns interest on users' uninvested money. The company aims to provide an easy and stress-free way for individuals to save and invest their money. With features such as automated investing, tax-efficient strategies, and ongoing guidance, Betterment offers a convenient and low-cost alternative to traditional investment advisors.

Betterment's pricing and fees

Betterment offers a range of pricing plans and fees for its investing services. The platform provides a Digital plan and a Premium plan with different features and fee structures.

Digital Plan

The Digital plan is suitable for those who want automated portfolio management and expert-built portfolios. This plan offers a base price of $4 per month for investing accounts. However, if you have a total Betterment balance of $20,000 or more or set up recurring monthly deposits of $250 or more, the fee switches to an annual price of 0.25% on your investing account balance.

The Digital plan includes features such as advanced tax-saving tools, automated rebalancing, traditional and Roth IRAs, and expert-built stock and bond portfolios.

Premium Plan

The Premium plan provides unlimited phone access to a team of certified financial planners and in-depth advice on all your investments. This plan requires a minimum investing balance of $100,000 and charges an annual fee of 0.65%.

If you opt for the Premium plan services in connection with a Crypto investing account, the annual management fee increases to 1.40%.

Additional Fees

Betterment also charges a $75 fee for transferring money out of a Betterment investment account. However, if you have a Betterment bank account, you can transfer the money there for free.

Additionally, there are expense ratios ranging from 0.05% to 0.24% for the Betterment Core Portfolio, which are fees taken out of your investment balance.

For crypto transactions, Betterment's crypto custodian, Gemini, charges a trading fee of up to 0.15% per trade, depending on the trading volume.

Discounts

Betterment offers discounts for balances in excess of $2 million. If your balance exceeds $2 million (excluding certain account types), you will receive a 0.10% discount on the portion of your balance above this threshold.

Fee Coverage

It's worth noting that Betterment's fees can be covered by tax savings. According to their website, 78% of customers using their tax-loss harvesting feature had their taxable advisory fee covered by likely tax savings.

Tax-saving tools

Betterment offers a variety of tax-saving tools to help you maximise your after-tax returns. Here are some of the key features:

Tax-Coordinated Portfolio

Betterment uses an "asset location" strategy, placing tax-efficient investments into taxable accounts and investments with a heavy tax burden into tax-advantaged accounts. Municipal bonds, which provide tax-exempt income, are placed into taxable accounts, while core bonds go into tax-advantaged IRAs. This strategy aims to increase the overall value of your portfolio.

Tax Loss Harvesting+

Betterment offers Tax Loss Harvesting+ (TLH+/TLH+), which can help offset the taxes that come with income and capital gains. When investments lose value, you can sell them and deduct the loss to reduce your tax bill. Betterment's automated platform regularly looks for these opportunities to increase your after-tax returns. It's important to note that TLH+ may not be suitable for all investors, and you should consider your personal circumstances before utilising this feature.

Rebalancing with Deposits and Dividends

Betterment helps protect your portfolio from market volatility by rebalancing it using deposits and dividends instead of selling securities, which can trigger tax costs.

Tax Impact Preview

Betterment provides a Tax Impact Preview tool that shows the potential tax implications of any transactions before you make them. This feature helps you make informed decisions and minimises transaction taxes.

Charitable Giving

Betterment allows you to donate appreciated shares directly through its platform. Donating appreciated investments instead of cash can help reduce your portfolio's tax liability while providing tax benefits and supporting causes you care about.

Traditional, Roth, and Taxable Accounts

Betterment helps you choose the right type of account for your investments, taking into account the different tax implications of each account type.

Tax-Efficient Portfolios

Betterment uses exchange-traded funds (ETFs) in its portfolios, which are generally more tax-efficient and lower-cost than mutual funds.

The safety of your investments

We employ multiple security measures to safeguard your Betterment account and investments. Here are some of the ways we keep your investments safe:

Two-Factor Authentication (2FA)

2FA adds an extra layer of security to your account, like an extra lock on a door. It requires a second form of verification, such as a code texted to your phone or a more secure time-based one-time password (TOTP) from an authenticator app, in addition to your regular password. This makes it much harder for unauthorised individuals to access your account.

Encryption

Whenever you interact with us, your data is protected by encrypted connections. This means that the information transmitted between your device and our servers is scrambled and can only be understood by us.

Password Hashing

When you create a password for your Betterment account, we use a process called hashing to convert it into a unique string of characters. This means that even if our systems are breached, your actual password remains unknown and unusable by unauthorised parties.

No Commingling of Funds

Your funds are always kept separate from Betterment's operational funds. Your investments are held in your name, ensuring they are never mixed with our company finances. This safeguards your assets in the unlikely event that we face financial difficulties.

SIPC Insurance

Your Betterment securities are insured by the Securities Investor Protection Corporation (SIPC), which provides a safety net in case of emergency. This insurance covers up to $500,000 per customer, with a $250,000 limit for cash claims. While SIPC doesn't protect against market losses, it offers protection in the event of brokerage firm insolvency.

The benefits of investing with Betterment

Investing with Betterment has several benefits. Firstly, the robo-advisor tool actively builds and manages your portfolio like a human investment advisor but at a much lower cost. Betterment charges 0.25% per year of your portfolio, while a human advisor might charge 1% or more. This is possible because Betterment's robo-advisors are built by a team of investment experts and economists who use strategies such as modern portfolio theory.

Secondly, Betterment provides a range of investment options. You can customize your portfolio based on your goals, risk tolerance, and timeline, and also choose from specialty portfolios for different goals. For example, Betterment offers an Innovative Technology portfolio focused on investing in tech leaders and a Climate Impact portfolio that prioritizes companies with low carbon emissions.

Thirdly, Betterment accepts new customers with no minimum opening deposit. If you don’t want to invest all your money, you can earn a high interest rate on your cash using the Betterment savings account. Finally, the technology is well-designed and user-friendly, making it easy and safe to start investing.

Betterment has shown a strong commitment to keeping customers safe through security measures like SIPC insurance, external audits, firewalls to prevent the commingling of funds, and two-factor authentication. While you still accept the risk of investment losses when using Betterment's robo-advisor, you can feel secure knowing that your money is protected against any operational or bankruptcy risk.

Betterment's cash management account

The cash management account also includes a checking account, which is offered by nbkc bank, a member of the FDIC. This account has no minimum balance, no foreign transaction fees, and no overdraft fees. Betterment also reimburses ATM fees worldwide.

Frequently asked questions