How Betterment Works

Please Note: Since this article was published Betterment has updated their pricing structure. Please refer to their website for current rates and fees as this information is currently outdated.

In this article

    The Top Automated Investment Advisors

    I believe, from my time spent as a day trader, that it is incredibly difficult to beat the market unless you are devoted to it full-time. Since most of us already have full-time jobs to worry about, we should minimize how much we tinker with our investments and opt for a long-term, passive strategy with low fees.

    Automated investment advisors, or “robo advisors”, help you do all of this, keeping fees low and using sophisticated software to cheaply perform many of the tasks that high-priced financial advisors charge big fees for.

    The more you pay in fees, the smaller your return tends to be over time. And while the retirement fees charged by online personal financial firms are on average quite low compared to those found at traditional brokerages, they still vary greatly. Meanwhile, advisors like Personal Capital, Wealthfront, and Betterment all offer different perks that appeal to different types of investors.

    Betterment Deep Dive

    Here are a few of the main features of Betterment 401(k):

    Low Fees

    Ongoing fees are obviously of utmost importance when choosing any type of financial advisor, including an online firm. Simply put, fees can gobble up your returns year after year.

    Betterment Digital plan charges a fee of 0.25% per year with no minimum deposit. Betterment Premium plan will cost you 0.40% and requires a minimum balance of $100,000.

    Included Services and Perks

    Betterment offers a ton of perks as part of its package, including automatic portfolio rebalancing and automated deposits.

    Betterment offers a refer-a-friend program that awards you with one year of free account management for every three friends you refer.

    Investment Selection Methodology

    With the goal of maximizing your take-home returns, Betterment focuses on low-cost, index-tracking ETFs that they monitor on an ongoing basis.

    Meanwhile, Betterment also uses open-ended ETFs, which carry no restrictions around issuing or redeeming shares. Since they have structural advantages when compared to mutual funds, this allows Betterment to maximize returns even further.

    Tax Loss Harvesting+

    Betterment’s new “Tax Loss Harvesting+” program works to offset taxes on both gains and income. At no additional cost, this improved program runs throughout the day and can reduce your tax burden more than other automated tax loss harvesting tools. According to Betterment, taking advantage of this perk can save the average investor as much as $3,000 per year.

    Why Use Betterment?

    Customer service: In addition to the perks mentioned, something else gave Betterment an edge: Betterment provides excellent customer service.

    Goal setting: Betterment’s goal planning option helps people customize their accounts to reach four primary types of investing goals: retirement, safety net, wealth building, and major purchase.

    RetireGuide: Another huge perk Betterment offers is their RetireGuide, a series of online surveys that help you determine whether you’ll be able to achieve your long-term financial goals.

    Betterment’s Online Interface

    On the account homepage, you can see a snapshot of your current holdings and investment strategy, the average performance of your portfolio, detailed analysis of retirement goals and targets, and more.

    On your “Portfolio” page, you can see greater details in terms of your investment allocations, earnings, and overall strategy. You can also adjust your target allocation here, and take advantage of planning tools that keep your investing goals on track.

    Another bonus: The Betterment app for iPhone and Android makes it possible for to set and manage automatic deposits directly from your mobile phone.