Over the past few decades, there has been a surge in the number of personal finance tools available to consumers. While this has made accessing your finances easier than ever, it can be difficult to know which tool(s) are right for you. Do you need help with budgeting and saving? What about investing in a retirement portfolio? With the Betterment app, you can review all these options – and more.

Before we continue, Financial Professional wants to remind you that this review is informational in nature and does not constitute investing advice. Although we may receive financial compensation (at no cost to you) from affiliate links in our reviews, our opinions are our own. 

If you’re in the market for new investment opportunities – or even your first – we can help! With Financial Professional’s marketplace, you can research firms and compare opportunities to find the right investment for you. 

What is Betterment?

New York-based Betterment was founded in 2008 by John Stein as one of America’s first technology-powered financial advisory services. The goal of the company was to help individuals reach their financial goals in the wake of the 2008 Financial Crisis that threw global economics into turmoil.

Betterment is unique in that it was one of the first big robo-advisors to hit the market. If you’re not familiar, a robs-advisor is a digital platform that provides algorithm-driven financial planning services. These automated tools often come with lower fees than traditional services, as they don’t have physical locations or excessive human oversight.

And in Betterment’s case, these lower fees have helped attract over 500,000 clients and $21 billion in just 12 years.

Quick Review: Betterment Features

For the most part, Betterment offers tools for investing and retirement planning. They start with a quick survey that helps determine your saving and spending goals. Then, they recommend the best investing strategies to reach said goals in your preferred timeframe. Depending on your age and time horizon – say, five years versus thirty years – they will recommend more or less aggressive portfolios that auto-adjust as you move through life.

Most of Betterment’s investment strategy focuses on asset allocation and tax loss harvesting to maximize returns. (Asset allocation describes where your money is invested – for example, your portfolio may be 10% bonds and 90% stocks.)

Betterment’s main selling point is their retirement accounts. They allow you to sign up for Traditional, Roth, and SEP IRAs (individual retirement accounts).

In addition to these services, Betterment also offers a no-fee checking account with a debit card. This provides users with the opportunity to earn interest on any funds they don’t invest. While 0.4% may not seem like a high yield, it’s fairly competitive in the current financial climate.

But if you don’t choose to use their banking services, you can still link your own account to Betterment’s platform. Hello, easy transfers!

Betterment Fees and Pricing

In total, Betterment offers two different plans: Digital and Premium. It’s important to note that there are not out of pocket costs for either plan. Instead, both plans charge a different annual fee.

The Digital Plan offers everything you would need to open an investment or retirement account. It comes at a cost of .25% annually (about $25 for every $10,000 you invest). There is no minimum investment required for this account.

The Premium Plan offers access to CFPs (certified financial planners) to advise you through life’s financial events. This plan costs .4% annually and requires a minimum balance of $100,000.

Review: Betterment Pros and Cons

When it comes to personal finance, every tool is going to have pros and cons. However, what constitutes a pro or a con may differ based on your individual needs. That said, let’s review the pros and cons of using Betterment’s platform.

Pros

  • Personalized advice: If you sign up for Betterment Premium, you can access a CFP anytime you have questions. Thus, users can enjoy the low fees of a robo-advisor while receiving professional help. (Of course, you also need a minimum of $100,000 to invest with this plan.)
  • Goal setting: Betterment allows you to set up multiple investment accounts with different goals for each. If you need a rainy day account, a new car fund, and an IRA, the world is your financial oyster.
  • Sustainable investing: If you want to align your investing goals with ecological or social concerns, Betterment offers portfolios with these causes in mind. All you have to do is select the sustainable portfolio options when you set up your account.
  • The ability to sync outside portfolios: They allow you to sync other investment accounts from 8 major banks so you can view all your investments in one dashboard.
  • Prebuilt portfolios: After assessing your financial goals, Betterment will recommend which pre-built portfolio is best for you. The main difference between their portfolios is the percentage allocation between stocks and bonds. (The more aggressive your goal, the more stocks the portfolio contains). Take a look at a sample portfolio below.
  • Transparency: Betterment is thorough when it comes to documenting and reporting your investments. You can check your account on their website, mobile app, or monthly statements about your account’s performance. Additionally, they put together all the forms you need for tax season.
  • High-yield checking account: Even though it’s not their main offering, their high-yield checking account offers a competitive rate. (.4% is about 8 times the national average). Thus, you can earn interest even on the money you don’t invest.
  • Tax advantages: Betterment uses a strategy called tax-loss harvesting to offset your tax burden come Tax Time.

Cons

  • Lack of investment options: The main drawback of using Betterment’s platform is that it does not offer a lot of investment options. Since their portfolios are prebuilt, you are forced to pick from one that already exists – you can’t venture outside the preselected options. This means that you are unable to purchase things like cryptocurrency, options, or even individual stocks.
  • Simplicity: Another potential drawback of Betterment’s platform is that it’s simple. It gets the job done without being flashy or offering a plethora of personalized options. If you’re new to investing and interested in opening a retirement account, this may be a good place to start. Otherwise, Betterment may not have much for you.

Potential Returns

Betterment doesn’t make any guarantees of potential returns on their website. However, since the majority of their investments are comprised of index funds and ETFs, you can expect to receive returns that mirror the overall return of the stock market (approximately 8-10% per year).

One thing that Betterment does a very good job of is being transparent about how your portfolio is performing once your account is up and running. Here are a few ways that they keep you updated:

  • Access to view your account on their website or app.
  • Sending you monthly updates that document performance.
  • Analytics behind how your account is performing (even how it compares to other types of portfolios).

Although sharing this type of information is very standard, Betterment does an above-average job at making it easy to read and clear to follow.

Investment Risks

Since Betterment mainly invests your money in indexed funds that track the entire stock market (or different sections of the stock market) they are not a particularly risky place to invest. They further limit risks by investing in a wide variety and range of stocks.

That said, investing is inherently risky, and any investment is going to have a degree of potential to see losses. This is because you are using your money to buy stocks/bonds which can fluctuate in value. You hope that they increase in value after you buy them – but there is always a chance that they won’t.

A Final Word in Our Betterment Review

Overall, Betterment offers a good platform for people who are just starting to invest or save for retirement. Their individual retirement account options are top-notch, come with very low fees, and are easy to track once you have started. Additionally, if you are the type of investor who likes passing control off to someone else, then Betterment may be a good pick for you.

However, if you are not interested in opening a retirement account and are more than a beginner investor, you can find better tools to suit your needs. Additionally, if you are interested in trying to get above-average returns, then their pre-built portfolios are not the ideal place to start.

We hope that you have found this review of Betterment valuable when it comes to getting an in-depth look at the service that they offer. If you are interested in reading more, please subscribe below to receive alerts of new articles as we write them!

And to check out investment firms on our marketplace, take a look at our review of M1 Finance.

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