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Betterment Review aka An Epic Betterment Experiment

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.

I’m a lazy guy and my time is crunched as it is. I want my savings to make me money, but I don’t want to spend a lot of time managing it. I’m looking for 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

girl look at that body - betterment review dance

The body of this article has been completely rewritten to go deep on the concepts within Betterment and how they work. We’ll also take a close look at a Betterment account, so you know what to expect and what information to look for.

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.

Betterment Review - How it Works

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:

Betterment Review - Portfolio Breakdown

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$1
Account FeesDigital: 0.25%; Plus: 0.40%; Premium: 0.50%
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.

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!

Betterment Review - TLH Visualization

Harvest losses for cheaper gains.

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:

Betterment Review - TLH Sexyness

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.

Betterment - Retire Guide


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.

Betterment - Retire Guide

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 I lived in Ames, Iowa (50010) like Thomas, Betterment’s calculator tells me that my cost of living will be 4% less expensive than the national average. However, I live in Hoboken, so it’s 116% more expensive than the national average.

Therefore I’ve got to save an epic amount more both if I want to continue living here AND retire here. Having Betterment break things like this down for me is eye-opening, to say the least. Perhaps I need to retire next door to Thomas.

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.

Betterment Review - Smart Deposit

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.

Personally, I cap my max at $1,000, and if I decide to add more to my Betterment account, I can do it manually on my own time.

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.

I’m definitely a fan of the service. 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.

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.


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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20 responses to “Betterment Review aka An Epic Betterment Experiment”

  1. Excellent post, Andrew! Glad to see you’re putting your own money on the line for the good of the people. This article makes me wanna try Betterment.

    I tried doing everything myself using Sharebuilder, but it was way too complicated and I’m not that into investing. I’m lazy too and just want to know my money is being put to good use without me having to check and worry everyday, and deciding what I should buy — I don’t have time or the know-how to research stocks.

    • Andrew says:

      Thanks Matt! I found it hard to recommend something without “putting my money where my mouth is”.

      Betterment is an excellent alternative to going out on your own with a Sharebuilder or equivalent equity trading service. The costs are comparable if you don’t move your money often but Betterment wins if you tend to add/remove money from your investments frequently.

      I think you hit the nail on the head for where Betterment really shines, laziness. Not all of us are investors, nor do we want to be. Betterment offers a simpler option while keeping the performance in tact.

  2. Sanjib Saha says:

    Hi Andrew

    Good to see you write a post on this subject. I will surely keep visiting the page and see how it goes.

    After reading the post, I still have few doubts in my mind-

    Is there anyway one can go in loss?

    What if one goes with 100 percent Bond scheme? Is that possible? If yes, what is the growth rate that is expected?

    What is the minimum investment one has to do per month?

    Is it available only in US or Asians can take part too?

    All the very Best


    • Andrew says:

      Sanjib, thanks for the great questions!

      1) It is possible to end a month lower than you did the previous month, however ideally you will be checking the account once every few months making it very probable that you will be up. Also, it is not possible for your account to go negative.

      2) Yes, you can go 100% bonds and the return is still many multiples higher than a normal savings account. In 1 year, Betterment estimates with a very high statistical certainty (low risk investment) that my return will be 3.896%. Definitely not terrible and very attractive to people deathly afraid of risk or people who are older and need more confidence in what their accounts will look like short term. Personally I wouldn’t recommend it, but it is possible.

      3) The minimum you have to contribute a month is $0 which is great because you can dial up and down your contributions based on how you feel each month.

      4) Unfortunately, at this time Betterment is only available to US residents. That said, the CEO has been very clear that he is working to bring Betterment to an international audience in the very near term.

  3. Definitely something that should be done more often. Good for you guys, it’s these kinds of work that make the world a better place.

    Shared your post on Google+ and following you as well, Andrew. Great job! I tip my hat off to you.

  4. Katherine says:

    Hello Andrew,

    Katherine from Betterment here. Thank you so much for taking the time to check us out and write such thoughtful reviews. It’s great to see you on board with our long term investing philosophy and that short-term losses are blips on the radar for you! If you or your readers have any questions about using Betterment, you should all feel free to contact me and hopefully I can be of assistance. Thanks again for writing about us and I hope you keep having a great Betterment experience!

    Community Manager at Betterment
    [email protected]

    • Andrew says:

      Katherine, thanks for taking the time out to read the post, it’s very exciting that you and your team enjoy our writing and that we’re philosophically on the same page!

      We really feel that Betterment is not only the perfect starting location for beginners who want to have their money multiply but it’s also an awesome place for seasoned investors to go for steady solid returns! We are so confident in the great product you guys made that we are consistently putting our own money behind it.

      I look forward to sharing our updates with you on how Betterment is working for us and will definitely share our podcast episode that talks more about it in November.

      Also, thanks for sharing your contact info, I am sure our readers will find you as an excellent resource to answer any questions they may have.

  5. Chris Lasmanis says:

    Any thoughts on Wealthfront vs Betterment? Seems like they are both doing similar things. Wealthfront doesn’t have fees until you reach $10,000, which is interesting.

    • Great question!

      I haven’t tried Wealth Front mostly because they have a minimum investment policy of $5,000 where with Betterment you could start with any amount you feel comfortable with.

      Cost wise, in the $10k-$100k range they are the same cost but Betterment again wins in the $100k+ category. Wealth front also doesn’t have tax loss harvesting.

      All in all, their approaches are extremely similar, I just decided to go with Betterment as their interface is nicer, they have fancier “pro” features and they allowed me to get in small and grow my holdings with them slowly instead of forcing more of an “all in” type approach.

  6. Stanci March says:


    Can I invest in a Roth IRA using Betterment? The tax harvesting seems like a really clever idea but what happens when it comes time to file my taxes, is there a report or something that I get that I can send to my preparer? Thanks in advance!

    • You can definitely setup a new Roth IRA with Betterment – your transfer an existing one.

      As for the taxes, it’s insanely easy. Two years ago I used TurboTax and it automatically connected to Betterment and pulled in all the details necessary. Took less than 2 minutes.

      This year I used a CPA as things are getting a bit complicated for us with our businesses. All I did was log into Betterment – front and center was a huge notification to “click here” for tax papers. I printed it out, handed it to my CPA and moved on with my life. Zero sweat on my part!

    • Roy Jones says:

      ETFs are a great solution for small accounts, but they substantially hinder the benefits of tax harvesting. There are no tax savings with tax harvesting in a ROTH or any IRA. A Vanguard, DFA or ETF allocation fund would cost less, hold less cash and would, therefore, have a higher expected return. Free retirement software and hands-off investing with secret sauce algorithms are ubiquitous: without tax harvesting Betterment, Wealthfront etc. just add dead weight.

  7. rogerfarmer06 says:

    Hi Andrew,

    Thanks for sharing such a great post. It is very informative. Keep continue update good article.

    I would also recommend, for those who looking for experienced proof of funds provider.

  8. Brian R S Haber says:

    I am in Australia, can I open a betterment account ?

  9. Marat says:

    After listening to the podcast, reading this review, comparison to others, including Wealthfront, and even more soul searching and research, I finally opened a Betterment account and rolled my 401k over to them. Thank you so much for taking the time and explain this in very easy to understand and very insightful advice. I’m looking forward to reaping the benefits of investing instead of my money just sitting in savings and being eaten away by inflation. Looking forward to more of your podcasts on this and other topics. The beer recommendations on the podcasts are fun as well!

    • @maratbeasley:disqus Thanks for the kind words and congrats on getting started, glad we were able to help!

      I’ve found that talking money pair well with beer, good to hear you’re enjoying it, I certainly am ;)

  10. lalarry says:

    I guess this blog is simply a plug for betterment but the tlh presentation in their white paper is not connected to reality. Betterment says it is constantly monitoring the accounts to do tax loss harvesting which means it can do many trades in your account. Each trade has a cost (bid ask spread) and even if small the cost adds up. I am not at all convinced that doing the tax loss harvesting trades only a couple of times a year isnt better. Also remember that eveytime you tax loss harvest you lower the cost basis and potentially set yourself off for a higher tax liability. The maximum deductible amount against current income is $3000 so between the betterment fee and the (unseen and not reflected in the paper) transaction costs in all those trades Im not sure how much is left. And remember a lot of that tax loss harvesting simply to offset short term gains against losses may simply be money spinnintg. If one holds on to the position doesnt incur transaction costs and doesnt continue to lower the basis after one year even in the tiop bracket the tax rate goes from 39.6% to 20%. A sophisticated analysis would take that into account.

  11. lalarry says:

    You can go to look up an etf click on bats and see the reality of how the “book” of bids and asks looks in realtime. You can readily see that trading is not costless particularly is betterment is doing trades of large size. figure a trade with a $40 price and a bid ask spread of ,02 means a cost of .5% on both the sell and the buy,. Add that up in the many trades betterments TLH strategy uses and you can see the tax savings may not be what is in the whitepaper. Like many academic papers including other ones on the betterment site they assume a financial market with no cost to trading…a fantasy…ask anyone who has actually worked in the financial markets.

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