Betterment Review: Real & Uncut

Quick Summary: If you want low-cost asset management service based on sound investment principles, Betterment is a perfect fit.

  • Review of: Betterment
  • Reviewed by: Janet Berry-Johnson, CPA ( Contributor)
  • Published on: July 9, 2016
  • Last modified: July 23, 2016
  • Betterment Promotional Offer? Betterment Provides Non-pay 2 Months

A new report confirms what financial advisors and market analysts have known for years: Millennials are not interested in investing in the stock market. Just 33% of millennials say they own stock. More than half of the respondents (54%) say they do not invest. Reasons for staying out of the market include not having enough money, not knowing enough about stocks, risk aversion, distrust of brokers and advisors, and fear of high fees.

Betterment may be the solution to their investing concerns. Betterment’s focus on simple asset allocations, goal setting, and low-cost portfolio management make it the perfect introduction to investing for beginners.

A Little Background

Betterment was founded in 2008 and launched in 2010 after debuting at TechCrunch Disrupt NYC. They quickly scored $3 million in funding and have grown steadily ever since. Today, they are the leading robo-advisor, with about $4.8 billion in assets under management.

How Betterment Works

Co-founder and CEO Jon Stein created Betterment because he believed investors should be able to get investment advice that helps them reach their goals without paying exorbitant fees that damage their investing power over time.

Do you want to save for retirement, a down payment on a house, or just an emergency fund? With Betterment, you don’t just put money into an account and hope for the best. Betterment allows you to set up different “buckets” for your money based on your goals. Their goal-based investing framework and advice algorithm lets you know if you are on track to reach those goals.

How does it work? Betterment suggests an asset allocation based on your target timeline. Say you want to retire in 15 years with a million dollars in assets. You tell Betterment how much you are starting with, and Betterment suggests an asset allocation and tells you how much you’ll need to save per month to reach that goal. From there, you can tweak your asset allocation or your timeline. If your goal is a long way off, Betterment will recommend a more aggressive portfolio consisting of more stock ETFs. As you get closer to your goal, your portfolio will change to more conservative investments. It may not be a perfect method since we can’t predict with certainty what the markets will do, but Betterment helps you focus on the one thing you can control: what you put in.

The Portfolios

Betterment portfolios consist solely of low-cost, liquid, index-tracking exchange traded funds (ETFs) that are designed to achieve optimal returns, whatever your risk tolerance.

Stock ETFs

  • Vanguard US Total Stock Market Index ETF
  • Vanguard US Large-Cap Value Index ETF
  • Vanguard US Mid-Cap Value Index ETF
  • Vanguard US Small-Cap Value Index ETF
  • Vanguard FTSE Developed Market Index ETF
  • Vanguard FTSE Emerging Index ETF

Bond ETFs

  • iShares Short-Term Treasury Bond Index ETF
  • Vanguard Short-Term Inflation-Protected Bonds ETF
  • Vanguard US Total Bond Market Index ETF
  • iShares National AMT-Free Muni Bond Index ETF
  • iShares Corporate Bond Index ETF
  • Vanguard Total International Bond Index ETF
  • Vanguard Emerging Markets Government Bond Index ETF

Investors looking for a wider range of options including individual stocks, commodities or REITs may not find all they are looking for with Betterment, but investors looking for solid, low-cost investing that is as easy as opening a savings account should have all they need to get started.

The Features

The real allure of Betterment is the features they offer – features that were previously available only to investors who could afford to hire an investment manager.

Tax Loss Harvesting

Betterment helps you lower your tax bill by finding and harvesting capital losses in taxable accounts, offsetting gains to reduce your tax bill and increase after-tax returns. You don’t need to do anything to take advantage of this feature, and it is available to all Betterment clients.

Smart Deposit

Every robo-advisor offers auto-deposit. Only Betterment offers Smart Deposit, an automated cash management tool that puts your excess cash to work.

Many young investors deal with uneven cash flow by holding on to large cash balances in checking and low-interest savings accounts. Holding excess cash results in an opportunity cost – cash earning little to no interest when you could be earning investment gains. That opportunity cost ends up costing thousands over a lifetime.

Smart Deposit puts that excess cash to work. You set an account ceiling (the maximum you want in your bank account at any time) and a maximum amount to transfer to Betterment at any time. Betterment then monitors your checking account weekly for cash above the threshold.

Before transferring any cash, Betterment takes into account upcoming automatic deposits and reduces the Smart Deposit by that amount. Then Betterment alerts you, giving you the option of skipping the Smart Deposit if you need the excess cash for an expected expense. As a final precaution, Smart Deposit checks your account balance again just before making a transfer to confirm you still have the excess cash available.


Worried about generating taxable gains if you need to withdraw funds from your Betterment account? TaxMin is an algorithm designed to minimize taxes by choosing specific shares to sell. The feature seeks losses first, then long-term capital gains sorted from smallest to largest.

Earlier this year, Betterment took tax minimization a step further by removing the element of surprise from selling securities. Tax Impact Preview provides a real-time estimate of the tax implications for any withdrawal or allocation change – before you complete the transaction.

Portfolio Rebalancing

A chore of traditional investing is rebalancing portfolios to maintain desired diversification. The work, scheduling and transaction fees involved usually mean few people do it. Betterment does the work for you quarterly. Any portfolio that is off by more than 5% is automatically rebalanced using the same tax-minimizing principals.


Any outside bank accounts, other investment portfolios, loans, mortgages, and credit cards can be synced with Betterment so they’ll appear on your account dashboard. The dashboard gives you a snapshot of your net worth in one place and also allows Betterment to provide advice on how much you’re losing to fees and idle cash.

Speaking of idle cash, Betterment puts every cent of your money to work by purchasing fractional shares, as small as 1/1,000,000 of a share. The purchase of fractional shares just isn’t available to the DIY investor.

Dividends earned are also automatically reinvested, meaning your money is always being put to its best use. Betterment intelligently reinvests dividends, too. If you receive a dividend from a stock fund, it isn’t automatically reinvested in that fund. Betterment looks for an area of your portfolio where you may be low and automatically invests the money there.

Unfortunately, Betterment isn’t able to take the place of Mint or other budgeting software. The dashboard will not have detailed transaction information for credit cards, but it will show account balances, giving you a big-picture view of your financial position.


The days of wondering whether you are saving enough to prepare adequately for retirement are behind you. Betterment’s RetireGuide calculates your retirement gap – the difference between how much money you’ll have and how much you’ll need. Unlike other retirement calculators, RetireGuide takes your entire life into account, from where you live to current savings and your spouse’s holdings. RetireGuide refreshes daily to give you updated advice based on current account balances.

Low-Cost Advice

In 2016, the average investment management fee percentage for an account with a $50,000 investment was 1.18%. Compare that to Betterment’s fee structure:

  • Balances $0 – $10,000: 0.35% with a minimum $100 monthly auto-deposit or $3 per month without auto-deposit
  • Balances $10,000 – $100,000: 0.25%
  • Balances greater than $100,000: 0.15%

Market fluctuations that cause your account to fall below the threshold for a better pricing tier will not adversely impact your fee tier. If you have multiple accounts, the total balance counts towards determining the fees you’ll pay, including taxable and retirement accounts.

If your account has been open for less than a year, Betterment prorates your fee based on the average daily balance in your account. Fees are charged quarterly. You won’t have to search to find out how much you’ve paid in fees. That information is available in real time on the dashboard.

Betterment never charges transaction fees for buying and selling shares, and there are no minimum account balance fees. You can open an account with no initial investment, and you’ll still be charged just $3 per month if you don’t set up a $100 minimum auto-deposit.

It’s important to note that the fees above are for Betterment’s management services. The ETFs themselves come with fees as well, as would Any ETF you purchase through any broker, but those fees are drastically lower than those of mutual funds. Betterment purposely seeks out ETFs with the lowest fees. The expense ratio for Betterment’s ETFs are between 0.13% and 0.16%, so realistically, investors should add about 0.15% to the management fees above to see what they’ll pay. That’s still a bargain compared to traditional investment management methods and well worth the personalized advice that Betterment offers.

Ease of Use

Opening an account with Betterment takes just a few minutes and is as easy as opening an online savings account. You should know that you must link a checking account to set up your account. Betterment currently only allows ACH electronic transfers to and from your checking account. This helps keep costs low since wires transfers, paper checks, and credit and debit card transactions are cumbersome and expensive to process. For transfers greater than $300,000, Betterment can provide wire services upon request. Betterment does not charge a fee for wire transfers, but your bank probably will.

Investing is easy because there is no researching which investments you should purchase and how much you should buy in order to have a diverse portfolio. Betterment does it all for you.

Tax time is easy as well. Betterment integrates with Turbo Tax, TaxAct, and H&R Block tax prep software, allowing you to import tax documents quickly and accurately with just a few keystrokes. Your 1099 forms are automatically imported to your Betterment account in mid-February, in both CSV and PDF formats, and you’ll receive an email notification as soon as they are available.

If you are worried about liquidity, Betterment promises better access to your money. Money in your Betterment account is always available without a transaction fee. If you have an unexpected life event and need your money, it can be back in your checking account in four to five business days. While that may seem slow in today’s fast-paced world, it is due to the ACH system that was set up to move money from one bank to another in the 1970s. Betterment is continuously looking for ways to speed up that process in an affordable way.

Account Options

Some robo-advisors offer limited account options, but Betterment allows you to invest in taxable accounts; traditional, Roth, SEP, and Rollover IRAs, and trusts.

One feature we’d like to see expanded is the ability to set up a SEP IRA for multiple employees. Typically, small businesses with two or more employees can set up a SEP IRA in lieu of – and at a much lower cost than – a 401(k) plan. Currently, Betterment does not support this type of account and supports SEP IRAs for only one plan participant.


For now, Betterment only operates in the United States and for regulatory reasons cannot accept investors who reside outside of the country. In order to open an account, investors must have a permanent U.S. address, Social Security Number, and domestic checking account.

Several other robo-advisors have started offering their platform in other countries, so this is definitely an area where Betterment falls short, but hopefully that will change in the future.


Betterment offers apps for both iOS and Android, allowing customers to access and manage accounts with a touch ID or PIN. You can even view goals and account details with an Apple watch or access your account via the website wherever you have internet access.

Whether you access Betterment on your smartphone, tablet, or computer, Betterment has an attractive, easily accessible interface that allows investors to control and edit any investment accounts held at Betterment.


Betterment is a member of the Financial Agency Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC), which protects securities up to $500,000, including cash deposits of up to $250,000. In the unlikely event that Betterment went under, your investments are insured. Of course, that protection does not cover market fluctuations.

Your personal information is secure as well. Betterment has incorporated bank-level security measures including the strongest available browser encryption and secure servers. They also require two-step verification as an additional layer of security. When you attempt to log in, you will be prompted with verification questions or a code sent via email, text, or phone. You’ll need to answer the question or provide the code in order to get access to your account information. It’s just an extra level of protection Betterment offers to keep your money secure.

Betterment promises your personal information will never be sold, rented, or traded with any third parties without your consent.

Customer Service

Betterment’s customer support is available by phone seven days a week – try getting that level of service from a traditional investment advisor. Their support team can walk you through every part of the investment process, including 401(k) or IRA rollovers. They can also be reached via email and live chat.

Bottom Line

Investors looking for a fairly priced, hands-off and accessible approach to investing can’t go wrong with Betterment. Its features, including automated rebalancing, Smart Deposit, and Tax Loss Harvesting are features that aren’t available to DIY investors. Because of that, Betterment says their customers can expect 4.30% higher returns.

A DIY investor that wants to take the time to study the market and enjoys taking on their own portfolio rebalancing can avoid Betterment’s fees, but they’ll lose many of the features that Betterment provides to help maximize after-tax gains. They provide the service of an investment manager without the hefty price tag. So if you want low-cost asset management service based on sound investment principles, Betterment is a perfect fit.

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