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 investment advice. Although we may receive financial compensation (at no cost to you) from affiliate links in our reviews, our opinions are our own.
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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 the global economy 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.
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 its 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!
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 different annual fees.
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.
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.
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:
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.
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.
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!
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