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- Transparent portfolios
- No account minimum and low fees
- Quick and easy account setup
- Perfect for young investors
- Investments are limited to stocks and bonds
- Up to $299 to speak to an advisor
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Planning for retirement and other aspects of your financial future can be daunting. According to a GoBanking Rates survey, 64% of Americans don’t have plans for how they will fund their retirement.
Fortunately, you don’t need an economics degree to get your finances in order. In this Betterment Review, we’ll explore how this platform could help you.
Many people find saving, investing and budgeting overwhelming, but platforms like Betterment aim to help.
What is Betterment?
Betterment has been around since 2008 and was the first online, automated investment platform or robo advisor. Since then, dozens of robo advisors have entered the market, but Betterment continues to stay on the cutting edge.
This robo advisor remains the largest independent platform, managing over $16 billion in assets. Betterment offers full service investment management at a fraction of the cost of traditional investment advisors.
How Does Betterment Work?
Like most robo advisors, Betterment employs MTP or Modern Portfolio Theory. In essence, this allows you to create and manage investment portfolios. This investment strategy emphasizes the allocation of assets according to targeted risk levels.
There are 14 asset classes; eight bond funds and six stock funds. Each asset class has an exchange traded fund or ETF. Once you create a portfolio, Betterment will fully manage it, providing rebalancing periodically to ensure each asset remains consistent with the target percentage.
Is Betterment Safe?
Yes, Betterment accounts are protected by Securities Investor Protection Corporation (SIPC) coverage. This provides coverage for up to $500,000 including up to $250,000 in cash.
For additional security for your account, you can set up two factor authentication. This will provide further protection should a hacker try to gain access to your account or password.
This type of authentication requires you to enter a unique verification code. You can set up your Betterment account to send a code via email or text each time you want to log in.
How Much Does Betterment Cost?
Betterment has two different plans and each has a different management fee.
- Betterment Digital: This is the standard plan and offers digital tools and advice. The fee for this plan is 0.25% per year.
- Betterment Premium: This provides access to certified financial planners to monitor your account. There is also support via email and unlimited phone calls. This plan has a fee of 0.40% per year.
If you have a large account balance of over $2 million, you can enjoy a reduction in the Betterment fees. Before 2018, these clients enjoyed free management. But, after this date, the fees are 0.15% for Betterment Digital and 0.30% for Premium.
Betterment Sign Up Bonus
Betterment has a sign up bonus for new users and accounts. This is a waiver of advisory fees according to your size of deposit.
This provides free management for up to 1 year.
- $15,000 to $99,999: 1 Month Free
- $100,000 to $249,999: 6 Months Free
- $250,000: 12 Months
To qualify for this sign up bonus, you need to make your deposit within the first 45 days.
How to Open Account with Betterment?
Step 1- Start an Investment Plan
To get started, you need to enter a valid email address. You will then need to confirm your age, work status and annual income. Betterment will also ask whether you are new to investing.
Step 2- Set Your First Goal
Betterment will start suggesting stock allocations and an annual retirement income so you can set your first investment goal. You’ll have a number of options to tailor your plan to your specific requirements.
Step 3- Review Retirement Goals
The next step is to review your goals and Betterment will provide a list of features. This includes:
- Smart rebalancing
- Diverse ETF portfolios
- Tax efficiency
- Personalized advice
- Tax loss harvesting
You can click on any of these features to see a detailed explanation and how it could benefit you. Once you are comfortable with the features and options, you can click continue to proceed with the sign up.
Step 4- Supply Your Information:
You will now need to provide your basic information including your full name, email address and contact information. You will also need to select a password, which is a minimum of eight characters.
Step 5- Verify Your Identity:
You will then need to verify your identity. This can be accomplished by providing your date of birth, gender and Social Security number.
You will also need to provide your employment status, household income and an estimate of your investable assets.
Step 6- Confirm Regulatory Questions:
Betterment will now provide a list of regulatory questions, you will need to answer yes or no. The questions include:
- Are you a 10% shareholder, policy maker or director of a publicly traded company?
- Are you associated with or employed by a broker dealer?
- Has the IRS notified you that you’re currently subject to backup withholding.
Step 7- Account Security:
The last step is to answer two account security questions. You will need to indicate you’ve read the terms and by clicking “create my account”, you’re done.
You can now add your bank details to fund your Betterment account and make your initial deposit.
Betterment Key Takeaways
Account Minimum Investment
There are few robo advisors on the market that don’t require a minimum deposit, and Betterment is one of them. This only applies to Betterment Digital plans.
If you opt for a Premium plan, you will need to deposit a minimum of $100,000 to access the additional features including unlimited phone support.
The account fees for using Betterment will depend on which plan you choose. Digital plans have a 0.25% annual fee, while Premium plans have a 0.40% fee.
This allows you to tailor your Betterment experience to suit your preferences.
- Roth IRA
- Traditional IRA
- SEP IRA (single participant only)
- Inherited IRATo
- Individual taxable accounts
- Joint taxable accounts with rights of survivorship
- Trust accounts
Financial Planning Packages
Betterment offers packages that are specifically targeted to specific life events. For example, there is a 45 minute $199 “getting started” package that can help you to set up your account and make the most of the tools and features.
There are four other packages that involve a 60 minute call and cost $299. These packages have advice centered towards marriage, college planning, general financial health and retirement.
Regardless of which financial planning package you use, you’ll be speaking with an experienced certified financial planner.
Betterment has a retirement planning tool that allows you to link any non Betterment accounts including your 401k. This provides a full picture of your investment and saving accounts.
With all this information on hand, you can get comprehensive planning advice for your retirement. This includes comparing your current levels of savings with your desired retirement spending levels, answering queries about whether your savings are on track to retire at the desired time and if you are even using the correct vehicles for your savings and investments.
This tool even updates and syncs to your outside accounts each day and allows for data uploads from Social Security.
The initial set up process walks you through goal setting based on your current income and age. It will then suggest various goals tailored to your answers with an estimated safety net for up to six months of expenses, retirement savings targets and general investment goals.
Each of the goals has a recommended target and allocation of assets, which you can adjust.
You can also add personalized goals that will indicate the types of accounts you should use and the ways you should invest your money.
You can also set up automatic deposits for each goal.
How to Withdraw Money from Betterment?
You are able to withdraw money from your Betterment account at any time, without incurring any additional fees. Betterment agrees that it is your money and will always be accessible to you.
To withdraw money from your Betterment account, you can log in through the web browser and go to the Transfers tab and select Withdraw.
Generally, withdrawals take approximately four or five days for processing. The funds are automatically liquidated and will be sent to the bank account you link to your Betterment account.
Note – If you are withdrawing more than $250,000, the transfer paperwork will need to be medallion signature guaranteed.
What are the Betterment Pros & Cons?
- Quick, easy set up
- Transparent portfolios prior to funding
- Add new goals at any time
- Sync external accounts
- Up to $299 to talk to a financial planner with a standard plan
- No margin lending or other borrowing options against your Betterment portfolio
- Betterment review comments suggest planning function users are continually urged to fund an account.
Is Betterment Worth it?
Betterment is not for everyone, but it is certainly a platform that is well worth consideration.
With no minimum investment, it is ideal for new investors. You can simply open an account and then gradually fund it with regular contributions.
It also provides a great solution for those who have little time to manage investments. This platform provides a low cost, yet professional management plan as an alternative to managing your own investment portfolio.
Betterment vs Stash
Stash is another robo advisor platform with no account minimums and low fees. Like Betterment, it is an ideal solution for new investors who need help with short and long term financial planning.
Where Stash differs from Betterment is that there are no retirement portfolios, calculators or tools to gauge your future financial needs. Additionally, Stash has subscription plans from $1 per month.
Betterment vs Robinhood
Robinhood is more of a trading platform rather than a robo advisor. It offers commission free trading of ETFs, stocks, options and cryptocurrencies.
Since it is a free platform, Robinhood does have limited investment trading options. There is also very limited support. You can only access support via email.
Additionally, Robinhood only offers taxable accounts, so there are no retirement accounts such as IRAs.
This makes Robinhood a more suitable solution for experienced investors who are primarily looking for commission free trading.
Betterment vs Acorns
Unlike Betterment, Acorns uses the Father of Modern Portfolio Theory for its portfolios and determining investments. These portfolios allow exposure to stocks (both US and foreign) and bonds.
The core feature of this platform is Round Ups. The basic idea is that when you link your credit cards and checking accounts, Acorns will round up transactions up to the nearest dollar. The difference will be invested.
This micro investing can be a good way to accumulate some saving, but it is not ideally suited to long term investments and financial planning.
0.25% or 0.40% depending on your chosen plan
Yes, regardless of your financial goals, there is a investment plan to suit your needs.
This robo advisor can help you to maximize your investments and build your portfolio.