Clark Galvan
Betterment is a robo-advisor that offers a range of investment options, including various portfolios constructed from exchange-traded funds (ETFs). These portfolios are designed to cater to different investor needs, such as socially responsible investing, innovation and technology, and value tilt. Betterment's Core portfolio, composed of globally diversified, low-cost ETFs, is its flagship offering. The company also provides the option to invest in third-party portfolios, like the Goldman Sachs Smart Beta and BlackRock Target Income portfolios. With a focus on low-cost and high-liquidity ETFs, Betterment aims to provide well-diversified and tax-efficient investment solutions for its clients.
What You'll Learn
Betterment's Core Portfolio
The Core Portfolio is constructed using Modern Portfolio Theory (MPT), which emphasises asset allocation based on targeted risk levels. It is the default strategy for a typical investor and is designed to be well-diversified and give optimal performance. The portfolio is made up of ETFs that track broad-market stock or bond indexes and are bought and sold like stocks throughout the day.
The Core Portfolio includes Vanguard stock and bond ETFs, such as the Vanguard U.S. Total Stock Market, Vanguard U.S. Large-Cap Value, Vanguard FTSE Developed Markets, and Vanguard FTSE Emerging Markets. It also includes iShares funds like the iShares Emerging Markets Bond and iShares iBoxx $ Investment Grade.
The Core Portfolio is suitable for investors with different risk tolerances, offering options ranging from conservative (more bonds, fewer stocks) to aggressive (more stocks, fewer bonds). It is also possible to choose a Flexible Portfolio and adjust the weightings of asset classes yourself.
The Core Portfolio is just one of several portfolio options offered by Betterment. Others include the BlackRock Target Income Portfolio, the Goldman Sachs Smart Beta Portfolio, and several socially responsible investing (SRI) portfolios.
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Betterment's Socially Responsible Portfolios
- Reducing exposure to investments involved in unsustainable activities and controversies.
- Increasing exposure to investments addressing core environmental and social challenges.
- Allocating to investments that use shareholder engagement tools to promote socially responsible corporate behaviour.
Betterment identifies ETFs classified as ESG by third-parties and considers internally developed "SRI mandates" for its SRI portfolios. The company launched its first SRI portfolio in 2017 and currently offers three options: Broad Impact, Climate Impact, and Social Impact.
The Broad Impact portfolio seeks to balance all three ESG dimensions and includes an engagement-based SRI ETF. It focuses on ETFs considering lower carbon emissions, ethical labour management, and greater board diversity.
The Climate Impact portfolio is designed for investors wanting to focus on the environmental pillar of ESG. It invests in companies with lower carbon emissions, funds green projects, and divests from fossil fuel holdings. This portfolio includes ETFs such as iShares MSCI ACWI Low Carbon Target ETF (CRBN) and iShares Global Green Bond ETF (BGRN).
The Social Impact portfolio is for investors wanting to emphasise the social pillar of ESG. It focuses on supporting minority empowerment and gender diversity. ETFs in this portfolio include Impact Shares NAACP Minority Empowerment ETF (NACP) and SPDR SSGA Gender Diversity Index ETF (SHE).
Betterment's SRI portfolios offer a diversified, low-cost approach, allowing investors to align their investments with their values while seeking long-term growth.
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Betterment's Innovative Technology Portfolio
The Innovative Technology Portfolio is designed to provide investors with access to a variety of high-growth potential innovation trends. To maintain long-term diversification, the portfolio is balanced across various asset types. It is important to note that as bond allocation increases, the exposure to high-growth innovation stocks decreases.
The Innovative Technology Portfolio is just one of the many portfolio options available through Betterment. The company offers a range of portfolios to suit different investment goals and strategies, including the Core Portfolio, BlackRock Target Income Portfolio, Goldman Sachs Smart Beta Portfolio, and several socially responsible investing portfolios.
Betterment is a robo-advisor that provides automated investment management services. The company uses modern portfolio theory (MPT) to create and manage investment portfolios for its clients. MPT emphasizes asset allocation based on targeted risk levels. Betterment offers a range of portfolio strategies, including the default Core Portfolio, which is widely diversified and designed for long-term investing goals.
Overall, Betterment's Innovative Technology Portfolio is a well-diversified option for investors seeking exposure to high-growth potential companies in emerging industries. The portfolio is curated for long-term investing and regularly refreshed to include new early-stage innovators. However, it is important to note the increased exposure to risk that comes with investing in cutting-edge technologies.
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Betterment's Value Tilt Portfolio
The Value Tilt Portfolio is built on the ETFs that make up Betterment's Core portfolio but substitutes a portion of the allocation to US equities with specific allocations to three asset classes: large-, mid-, and small-capitalisation US value funds. These value asset classes seek to provide exposure to companies that may be considered undervalued in the market relative to their underlying fundamentals, such as earnings.
The Value Tilt Portfolio is compatible with automatic dividend reinvestment, automatic rebalancing, and auto-adjust allocation features. It also offers automated and optimised tax strategies to help minimise the tax impact on returns.
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Third-Party Portfolios
Betterment offers a range of third-party portfolios, including the BlackRock Target Income Portfolio and the Goldman Sachs Smart Beta Portfolio. The BlackRock Target Income Portfolio is a 100% bond portfolio designed to help investors generate a steady income while minimising their capital losses and protecting them against stock market volatility. The Goldman Sachs Smart Beta Portfolio, on the other hand, is designed for investors in retirement or those seeking a low-risk portfolio. This portfolio is also 100% composed of bonds and aims to outperform conventional market strategies by investing in companies that exhibit specific characteristics, such as low relative pricing or strong sustainability.
Betterment also offers three socially responsible investing (SRI) portfolios: the Broad Impact Portfolio, the Climate Impact Portfolio, and the Social Impact Portfolio. The Broad Impact Portfolio invests in a wide range of companies that meet various environmental, social, and corporate governance criteria. The Climate Impact Portfolio focuses on companies with lower carbon emissions and investments in green projects, while the Social Impact Portfolio prioritises companies that promote gender equality and minority empowerment in the workplace.
In addition to these third-party portfolios, Betterment offers the Innovative Technology Portfolio, which focuses on high-growth potential companies in sectors such as clean energy, semiconductors, virtual reality, and nanotechnology. This portfolio carries increased exposure to risk.
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Frequently asked questions
An exchange-traded fund (ETF) is a security that tracks an index, a commodity, or a basket of assets like a stock on an exchange. ETFs are well-diversified, low-cost, and built for long-term investing.
Betterment uses ETFs because of their low management fees and tax-efficiency. ETFs are also cost-effective and flexible.
There are two types of ETFs: actively managed and passively managed. Passively managed ETFs are the most common, and they aim to replicate the performance of a specified market index. Actively managed ETFs, on the other hand, use the investment expertise of portfolio managers to try and outperform a specified market index.
Betterment offers a range of ETFs, including the Betterment Core Portfolio, which consists of ETFs from 12 asset classes. They also offer three Socially Responsible Investing (SRI) portfolios: Broad Impact, Climate Impact, and Social Impact. Additionally, they provide the option to invest in third-party portfolios, such as the Goldman Sachs Smart Beta portfolios and BlackRock Target Income portfolios.
Betterment uses a proprietary unbiased investment selection methodology based on qualitative and quantitative factors to select the ETFs for their portfolios. They consider factors such as cost-effectiveness, flexibility, diversification, and long-term performance.
