Finance News

Betterment: “Better” Than Mutual Funds?

Betterment: “Better” Than Mutual Funds?

There’s a reason that the idea of autopilot on an airplane and cruise control on a car holds a certain appeal and sense of luxury to people. It’s nice to think that we have reached the point where highly complex tasks can be performed automatically. Investments are a funny thing – while complex and very important, many people are less willing to put their portfolio on cruise control than they are a car traveling at the speed limit on a highway! But actively managing a portfolio can be time consuming, stressful and require expertise. On the other hand having professionally managed investment products such as mutual funds can be extremely expensive.

One product that does a good job of navigating that dilemma is Betterment. It consistently gets top grades for its robo-advisor service, with the main benefits being seen in low fees, strong returns and user-friendly features that allow for highly customized investment strategies.

Understanding Betterment

Before looking more closely at specific features and benefits of Betterment, it helps to take a step back and understand what the service is. While there are not actually Betterment mutual funds, on a basic level it offers many of the advantages of mutual funds, which is to say broad exposure to the stock markets, without the downsides – namely, high fees. Betterment achieves this by offering investors access to a number of Vanguard indexes and iShare bond funds.

The Betterment Advantage

Investors should do their own due diligence and research before landing on an investment platform, but it’s pretty easy to start with a long list of advantages to considering Betterment. One of the most obvious are the two F’s – flexibility and fees. In terms of flexibility, Betterment offers a low (or no) barrier to entry, with no account minimum for the Betterment Digital service. Betterment Premium has an account minimum of $100,000. Fees for the two levels range from 0.25% – 0.40%, significantly below what is typical for mutual funds. It is also fairly easy to withdraw your funds, with about a 4-5 day wait time and no fees other than applicable capital gains tax.

The robo-advisor component of Betterment is where many of its strengths are drawn from. Its Flexible Portfolio allocates assets based on an investor’s individual profile, including overall portfolio size, risk tolerance and investment goals. It can easily re-balance a portfolio based on changing needs and priorities. It also offers more standardized portfolios based on goals such as growth, stability or socially responsible investing. Betterment is also looking to add cryptocurrency portfolios in the future to serve investors who want access to those types of plays.

More Than a Robo-Advisor

A lot of people would stop there and consider asset allocation to be a good enough benefit of low-fee management, but Betterment does quite a bit more. It offers tax loss harvesting strategies in order to make your portfolio as tax efficient as possible and allows for the automatic re-investment of dividends.

Another great feature is auto deposit to allow for consistent and incremental investing depending on your ability to save. Betterment allows for fixed deposits of a certain amount on a defined timeframe, or ‘smart’ auto-deposits where a given amount is transferred from your bank account when your balance exceeds a pre-determined level.

Betterment Performance Review

Of course, all the smart features in the world don’t mean very much if a service doesn’t return profits. Here, Betterment performs quite well – it has beaten the market 88% of the time and returned an impressive 172% cumulatively from 2004 – 2020.

Different Options for Different Investors

In addition to several different types of investment options, Betterment offers multiple types of accounts to suit different investor needs. Examples include individual and joint accounts, trust accounts and high-yield savings accounts. One option that may be of particular interest is the Roth independent retirement account (IRA), a tool that allows for tax-free retirement withdrawals by taxing investments when they are initially made. Overall, there is a great chance that most investors can find an asset class and investment account type on Betterment that suits their individual needs and priorities.

While fees are already quite low to begin with, Betterment often will run promotions to attract new users. This includes offering new sign-ups between one month and one year of no fee investing depending on their account balance. Check out current offers that are available to determine if you are eligible for up to one year of no fee investing with Betterment.

Is Betterment Right for You?

It’s always a personal assessment when deciding which investment service to park hard-earned money with. As long as you have a strong understanding of what the Betterment offering is, there are many circumstances where it makes sense to use. If you are looking for a low-fee robo-advisor with lots of unique features and services that can be tailored to specific risk levels and personal circumstances, Betterment may be the choice for you.

To Top

Pin It on Pinterest

Share This