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Betterment Review aka An Epic Betterment Experiment

Last Updated on October 31, 2018 Last Updated on October 31, 2018
betterment review
  • Betterment
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Betterment is a low cost automated investing service with a goal of making investing easy and accessible. They provide their customers with features like Tax-Loss Harvesting, Portfolio Rebalancing, and Automated Advice which are usually not available to the average investor. Betterment customers also gain access to RetireGuide which provides investment guidance before and after retirement.

Visit Betterment to Learn More

 Is Betterment the silver bullet they suggest it is? That’s where this Betterment Review and Experiment comes in. We’ve explored the service and interviewed key members of the Betterment team, so you don’t have to.

If you want your savings to make you money and you don’t want to spend a lot of time managing than a Robo Advisor is your dream come true. They are best suited for people who want stable long-term investments that kick ass and beat the market average.

At its core, Betterment is a highly automated Robo-advisor that takes into account your age and risk tolerance to build you an optimal portfolio.

Betterment’s goal is for investing to take minutes a month to maintain, have all the necessary logic built into the tool and whip all the traditional investment managers on cost.

Girl, look at that body

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The body of this article has been completely rewritten to go deep on the concepts within Betterment and how they work.

The goal is to teach you a lot about Betterment investing as well as what goes into building a successful portfolio over time. Betterment features like Allocation Drift and Tax Optimization matter.

If you just wanted a sales page to sign up then just go here. If you want an in-depth analysis of the Betterment app and its features, you’ve come to the right place.

How Does Betterment Work and How Do You Use It?

Traditionally when you wanted to invest successfully, you would do two things. First would be a ton of research picking funds (or stocks if you’re hardcore) that diversify you enough so that you won’t lose your life savings on a bad day.

You’ll also try to make sure it’s aggressive enough, so you grow your savings over time. Nobody wants to miss out on the boom cycle or get destroyed by the bust cycle.

At its core, this is the problem Betterment attempts to solve.

From the start Betterment has you tackle these two concepts, and they make it pretty easy. Since every decision you make automatically updates this sweet graph and shows you what sort of growth you should expect, you only really need to answer one question.

What is your ultimate goal? Are you trying to buy a home, retire, fill an emergency fund, etc.? Betterment reviews your goal and gives you a rough idea of how much risk they think you should take on based on your age.

For example, if you’re trying to fill an emergency fund they’ll suggest you take it slow and recommend a 60/40 stock/bond split.

In the top left of the Betterment app screenshot, you’ll notice a little slider that moves between stocks (risky) and bonds (conservative). The faster you want to grow, the more stock you will need and the more aggressive you’ll have to be. Betterment lets you decide but will let you know what they think of your choice by labeling your risk with “Too Aggressive,” “Aggressive,” “Moderate,” etc…

This now leads me to the secret sauce of Betterment – their execution of Modern Portfolio Theory. Simply put, this is how they diversify and distribute your investments so that you’ve got exposure to U.S. growth, international growth, stalwarts of business and rock-solid bonds for your foundation.

Betterment reviews all of these elements, and with complete transparency, shows you exactly what your risk level means through what your holdings will be:

If you’re a finance nerd like me, one of the first things you may notice is that the vast majority of the funds Betterment selects for you are from Vanguard. We’re about as obsessed with Vanguard as we are with Betterment and most of their choices are on our list of the top Vanguard funds. Badass. Their taste is impeccable.

Now, as you flip your risk slider between 0% and 100% you’ll notice the fund weightings (and the number of funds) change. I’d say that 40% of the value of the Betterment app is in their execution of Modern Portfolio Theory, the fund choices they’ve made and how pleasurably easy it is to manage your money like this.

Since we’ve got the basics of Betterment investing down, let’s review that other 60% where the real heavy lifting gets done behind the scenes.

Betterment Review: A Look at the Features

Everyone needs different things from a Robo-Advisor so before we dive into the details, here are all the core Betterment features you should be aware of:

Minimum Deposit$0 for Betterment Digital, $100,000 for Betterment Premium
Account Fees0.25% for Betterment Digital, 0.40% for Betterment Premium
Account TypesIndividual and Joint Taxable accounts, Roth IRA, Traditional IRA, Rollover IRA, SEP IRA, Trusts, and Non-Profit
Mobile AppYes; Apple iOS and Google Android.
Automatic DepositsYes; Schedule is flexible.
Tax-Loss HarvestingYes; It now also available on Spouse's linked accounts.
Portfolio RebalancingYes; Tax efficient approach focused on dividend and automatic deposit allocation.
AdviceAutomated; Plus and Premium tier users can speak with Betterment's team of CFP® professionals.
Customer ServiceEmail - 24/7; Phone - Monday–Friday: 9:00 AM–8:00 PM ET & Saturday–Sunday: 11:00 AM–6:00 PM ET; Phone Number - (888) 428-9482
PromotionsGet up to 6 months of free investment management with this limited time offer from Betterment.

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Amp Betterment Returns with Tax Loss Harvesting

Everybody talks about the monster gains they get when investing but few people talk about the cost of those gains. When the tax man cometh.

Unless you’re the lucky 0.5% richest investors or 1% poorest, you will pay a 15% long-term capital gains tax rate. That means if you profit $1,000 you need to hand $150 over to the government for the privilege.

Betterment’s TLH+ shifts the scales in your favor by harvesting the natural dips in the stock market as losses to weigh against your gains.

These paper losses continue to add up over time and when it’s time for you to withdraw your investments it dramatically reduces your tax bill. It’s important to note that you never actually lost any money, it’s more of a clever paperwork process that you’d need a computer to accomplish. Betterment is smart like that.

While there is a lot of complicated logic behind the scenes which pulls this off, the actual concept is rather simple. For every fund in your portfolio, Betterment has a secondary and tertiary that it can flip between. They are for all intents and purposes identical in their contents, they are just managed by different companies and have different names.

For example, VTI (Vanguard’s Total Stock Market ETF) will get swapped with SCHB when the timing is right. You can read about it in all of its glorious detail in this Betterment white paper.  I highly recommend reading it if you’ve been having trouble sleeping lately. It’s that good. Sorry Betterment!

When your primary fund is at a point where it’s below the value you purchased it at, it is automatically sold and the identical secondary fund is purchased. This process is repeated as often as it makes sense for as long as you keep your money invested.

Betterment outperforms the competition in this process by 0.99% as per that white paper. Go Betterment!

The result is more money in your pocket when it comes time to withdraw your investments. Could you do this on your own? Sure. Would you want to spend your time on this instead of going outside and having fun? Probably not.

Feel like you’re missing out on that white paper and want to see a visual of what happens behind the scenes in TLH+ while simultaneously throwing an IRA account into the mix for fun? Here ya go, for your review:

TLH with an IRA in all its glory!

As always, you’re welcome.

In addition to TLH+ for your account, Betterment will now handle Tax-Loss Harvesting across your Spouse’s linked accounts as well. This will help you prevent wash sales and keep more of your overall tax savings.

Also, as a big part of Betterment’s 2017 TLH+ update, they introduced Tax Coordinated Portfolios. From the Betterment website:

Tax-Coordinated Portfolio optimizes and automates a strategy called asset location. It starts by placing your assets that will be taxed highly in your IRAs, which have big tax breaks. Then, it places your lower-taxed assets in your taxable accounts.

Our research shows that this strategy can boost after-tax returns by an average of 0.48% each year, which approximately amounts to an extra 15% over 30 years.

RetireGuide – Understand How to Retire

If Betterment had a killer feature, this would be it. Most financial tools give a lot of lip service to retirement and how important it is, but few put their money (and talent) where their mouth is. Betterment set the bar very, very high.


Don’t have anything saved yet? No problem, just push back your projected retirement age.

Can’t save enough to hit your spending goal? No problem, you’ll just need to adjust how much you can spend in retirement.

The beauty of answering the above questions and figuring it all out is so that you can understand if what you’ve already been doing is correct. If not you can change course before it’s too late.

To be as precise as possible, Betterment goes all out. Bask in all of RetireGuide’s glory.

Yes, Betterment covers the basics like how much do you make and when do you want to retire but every retirement calculator you’ve ever used does that. That’s the price of entry. What impressed me is how they account for things like existing assets and cost of living in how much income needed in retirement.

For example, if you lived in Ames, Iowa (50010), Betterment’s calculator says that your cost of living will be 4% less expensive than the national average. However, if you live in Hoboken, it’s 116% more expensive than the national average.

Therefore, if you do live in Hoboken, you’ll have to save an epic amount more both if you want to continue living there AND retire there. Having Betterment break things like this down is eye-opening, to say the least.

Good calculators give you the answer; great calculators make you think. This is definitely a great calculator.

RetireGuide – Don’t Fail at Retirement

You saw two Betterment RetireGuide sections and were like, “Oh no he didn’t.” Well, guess what, yes I did.

Want to know about the really important thing that people talk even less about than accurately estimating how much you’ll need to save? How to spend in retirement.

Just because you reach the amount necessary to retire or even retire in excess, that doesn’t mean that you still can’t blow it. You need to know how much you can withdraw and when you can do it so your nest egg can go the distance.

Betterment’s RetireGuide does all of the heavy lifting necessary here.

Since I’m not quite ready to retire yet, I put some sample numbers into their calculator. I set my assets to $200,000 and estimated that I’d be able to withdraw $600/month on that from now through the end of retirement. Betterment already knows I’m 31.

As you can see Betterment ran a Monte Carlo Simulation similar to what they do when you sign up and set your risk. This simulation is in reverse as we’ll be drawing down our account while trying to potentially make it last through retirement.

The cool part is that you don’t need to guess what you can withdraw in retirement like I did with the $600. Betterment will calculate what the chances are that you’ll successfully be able to do that and when necessary suggested a better amount that they estimate has a 99% accuracy.

As you continue through retirement Betterment will continually review and re-run this simulation and inform you if they believe that this number should decrease or increase based on how the market is acting. Simply put, Betterment takes all of the guesswork out of retirement.

I know two sections is a lot of words to dedicate to the Betterment RetireGuide, but it goes far towards creating a complete end-to-end automated solution for retirement. That’s not something to take lightly.

Invest your Change with Smart Deposit

While there is support for a fixed and scheduled monthly contribution that most services offer, one size fits all doesn’t work for everyone. If you’re a contractor or self-employed, this should make you very excited.

With Betterment’s Smart Deposit you can still invest on a consistent basis, but instead of focusing on an arbitrary date you can set a specific amount to trigger an investment.

The most important part is that you can set a max deposit. If you set Smart Deposit to trigger at $5,000 and you get a $3,000 check in the mail, that doesn’t mean you want to send all $3,000 to be invested.

Smart Deposit is very easy to set up from your account and is specifically geared towards the 60%-70% of people who don’t maintain a regular budget. (Although, if this is you, we’ve got a lot of free budget resources to help you with that.) While Acorns is the first tool to focus on trigger-based investing, their tool is not nearly as sophisticated as Betterments.

It also doesn’t withdraw nearly enough for any serious retirement plan. Let’s not kid ourselves, investing the “change” by rounding up every transaction to the nearest dollar will not net you much.

As per research conducted by the Federal Reserve the average family makes 58.7 transactions per month across Cash, Credit, Debt and “Other.” If every one of those were for $0.01, you’d only be investing $58 a month. Even Mr. Money Mustache can’t retire on that.

Betterment Financial Experts

The newest addition to Betterment is their Plus and Premium plans. These plans provide you with access to CFP professionals. With Plus you get an annual call, and with a Premium Betterment account, you get unlimited calls.

Sometimes you just want to speak with a person and make sure everything is going according to plan – we get it. And with Betterment investing, you can do that. 

The real value-add with the financial expert tiers is that you will have people, in addition to computers, looking at your Betterment account for potential tax optimizations.

TL;DR Betterment Review Summary

Betterment is a simple to use automated tool ideal for new and hands-off investors. However, what it accomplishes is by no means simple.

Under the hood, it’s a beast of a service putting traditional brokerages to shame with both its technological prowess and solid returns. As a result, they now have over $3 Billion under management with nearly $2 Billion of that arriving in just the last year.

Betterment is the largest and fastest growing Investing Robo Advisor.

Here’s a pro-con breakdown of the service from a birds-eye-view:

Betterment Positives:

  • No Trade or Withdrawal Fees: Should you fear these Betterment fees? Nope, there’s no transaction cost for touching your money. Add and withdraw money for free just like you would a savings account.
  • Easy Hands Off Investing: You don’t need to do your research, monitor your investments daily or worry about the tax implications of your actions. They take care of all of it. If you haven’t invested yet or are nervous to get started on your own, this service is for you.
  • Cheap Portfolio Management: Most portfolio management services will charge you 1% for an equivalent service and a LifeCycle fund like what Fidelity offers will come it at 0.75% or higher. These are 3x-4x more expensive than Betterment without half the features.
  • Plot your Retirement with RetireGuide: This tool takes your entire financial picture into account as well as helping you determine what you’ll need when you retire. It plots the whole thing out for you and helps keep you on track so you can be confident you’ll have what you need when the time comes. It’s deeply integrated into the entire Betterment service.

Betterment Negatives:

  • DIY Investing is Cheaper: As you’d expect, if you did everything Betterment did on your own you’d save on average 0.25% a year in Betterment fees. There is nothing stopping you from mirroring their allocation and monitoring it on your own. Savvy investors might find this more appealing than a set-it-and-forget-it approach.

Learn from the Betterment Team

We’re nothing if not thorough.

Not only did we reach out to Betterment’s CEO and Director of Behavioral Finance and Investments but we recorded it. These are brilliant men that have a ton of knowledge to impart. Give these episodes a listen during some downtime like your commute – you won’t regret it.

Our interview with the Betterment CEO Jon Stein. He shares quite a lot more than just the basic “Betterment review” and sales pitch. If you’re a fan of the podcast then you know we’re not shy.

Listen to the show every Monday, for free:

Our interview with Dan Egan the Director of Behavioral Finance and Investments at Betterment. While we do talk about the philosophy behind how they invest, he also schools us on Opportunity Cost and how it relates to Betterment investing. It’s one of our best episodes and there is a lot to learn here.

Listen to the show every Monday, for free:


Is Betterment Safe?

We’ve heard this question from a few of you. Fair enough. It’s as safe as any investment service – your funds will be impacted by market movement, whether that movement is up or down. And if Betterment were to shut down, you wouldn’t lose anything, you’d just have to find a new investment service to manage it with. That being said, I’d argue that the tools Betterment provides you with offer a measure of transparency and control that you don’t have with other services – and if safe to you means that you have all the information you need to make smart choices, then Betterment is a safer, smarter option.

To Conclude this Epic Betterment Review

With the popularity of ‘FinTech’ gaining ground every quarter, I expect that we’ll see a lot of newcomers to the investment industry. But will any of them be able to offer the comprehensive service for diversified investing & knowledgeable retirement planning that Betterment has already developed? I wouldn’t put my money on it.

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