Betterment Review [2024]: Passive Investing App For Beginners

Betterment: The basics

	Betterment Digital Plan	Betterment Premium Plan
Account minimum	$10 to get started investing, $0 minimum balance requirement	$100,000
Management fees	.25% per year	.65% per year
Account types	Individual taxable account SEP IRA Roth IRA Traditional IRA 401(k) Account rollovers	Individual taxable account SEP IRA Roth IRA Traditional IRA 401(k) Account rollovers
Asset classes	Exchange-traded funds (portfolios made up of U.S. and international stocks and bonds)	Exchange-traded funds (portfolios made up of U.S. and international stocks and bonds)
Features	Recommended asset allocation Automatic rebalancing Advanced tax-loss harvesting	Recommended asset allocation Automatic rebalancing Advanced tax-loss harvesting Unlimited calls with a financial advisor
	Visit Betterment

Who is Betterment best for?

Betterment is available for anyone to use, but I would recommend it especially for those who are new to investing and aren’t sure where to start. Because the Digital Plan only requires $10 to get started, you don’t have to save hundreds or thousands of dollars before you can begin investing as you would with some other companies.

Betterment takes a lot of the guesswork out of the equation, and you don’t have to do a lot of work to manage your investments, which makes it a good choice for passive or hands-off investors. You simply answer a few questions, and Betterment creates a portfolio of ETFs for you, then rebalances your investment portfolio as needed.

Why Betterment may not be a great fit

Although Betterment is great for beginners and passive investors, some advanced and active investors will want to skip this platform:

• No individual stocks and bonds: Betterment’s investments focus on exchange-traded funds. If you want the option to choose the individual stocks and bonds that comprise your portfolio, it won’t be a good fit.
• Human advising is reserved for hefty portfolios: You need at least $100,000 to sign up for Betterment’s premium plan, which offers advising from a human person.
• Limited 529 options: While you may be able to access a 529 plan within Betterment, the company offers limited options, and you’ll need to manage your 529 account outside of the Betterment platform.

How does Betterment work?

Betterment uses an investment strategy called modern portfolio theory, which is designed to optimize investment portfolios over time.

When you create an investment account, it will ask you questions about your financial goals, risk tolerance, and time horizon.

Based on your answers, Betterment will recommend you invest your money in a pre-selected portfolio of exchange-traded funds.

Automatic portfolio recommendations

Betterment’s automated portfolios focus primarily on ETFs because they provide instant diversification and low management fees. It offers a diverse set of portfolio ETFs, including U.S. stocks, emerging market stocks, U.S. bonds, internationally developed bonds, and more.

The diversification is a key benefit. If one security performs poorly, the other stocks or bonds within the ETF can sometimes offset the losses.

Two management plans to choose from

There are two plans, each with different pricing options:

• Digital Plan: The Digital Plan is best for hands-off investors who don’t need personal investment management. It offers unlimited access to automated portfolio management, tax-efficient investing features, personalized financial support, and customer support. There is no minimum balance required for a Digital Plan, but there is a $10 minimum to start investing. The fee is $4 per month or 0.25% of your balance annually.
• Premium Plan: This plan is best for investors with sufficient funds and the desire for human investment advising. Premium Plan members are eligible for unlimited calls with Certified Financial Planner (CFP) professionals and licensed financial experts. You must have at least $100,000 invested to become a Premium Plan member, and the fee is 0.65% of your assets annually.

How to get the most from Betterment

Because Betterment uses low-cost ETFs, choosing Betterment for your investments can help you produce long-term returns. With ETFs, you can earn both capital gains (when you sell an asset for more than you paid for it) and dividends (distributions of a company’s profits to shareholders).

To get the most value from your investments with Betterment, follow these tips:

• Take advantage of expert advice. Betterment offers financial advice if you have $20,000 to move and are exploring whether its services are the right fit for your goals. The call is short but free.
• Change your allocation. If you want to maximize your earnings and are willing to take on more risk for the chance of a higher rate of return, you can adjust your allocation. For example, the default allocation for safety net goals is 15% stocks and 85% bonds. You can adjust the allocation to be more heavily weighted in stocks to increase your returns, but there will be more risk.
• Allow Betterment to reinvest dividends. Instead of cashing out your dividends, leave your money in your account. Betterment will automatically rebalance and reinvest your dividends, which can reduce your tax bill.

Betterment alternatives

Although Betterment is an excellent choice for many investors, it may not be for everyone. If you’re looking for other options, consider these alternatives:

• Wealthfront: Wealthfront is a close competitor to Betterment, and in my mind, a solid alternative. You have a range of account and investment options to choose from and can tweak them to your liking. However, the minimum to start is much higher, at $500 compared to Betterment’s $10. You can see how Wealthfront vs. Betterment compare side-by-side and determine which is better aligned with your investment goals.¹
• Stash: Stash allows you to invest in stocks, bonds, and ETFs with your spare change. When you link your bank account to Stash, it rounds up your transactions and sweeps the difference to your investment account.²
• Fundrise: With Fundrise, you can invest in a portfolio of real estate funds without needing thousands of dollars. This real estate investment platform pools investments together, and the minimum investment is just $10. This could be a great way to diversify your investment portfolio by allocating funds to both the stock market and real estate.

Is Betterment safe to use?

Brokerage and advisory services are provided by Betterment LLC, which is an entity registered by the U.S. Securities and Exchange Commission (SEC) as an investment adviser and broker-dealer. Betterment LLC is also a member of the Financial Industry Regulatory Authority (FINRA) and Securities Investor Protection Corporation (SIPC).

Although Betterment is a reputable company registered by the SEC, no investment is guaranteed. There is always a level of risk when you invest your money, and your investment could lose value.

Securities in your account are insured by the SIPC up to $500,000. However, SIPC insurance only protects against errors on Betterment’s behalf, not market changes.

Although investing always comes with some risk, there are ways to minimize that risk:

• Consider long-term vs. short-term financial goals. Only invest money you don’t need for at least five years, to give it time to earn returns and weather short-term market changes. If you think you’ll need the money sooner than that, consider keeping it in a savings or money market account so it won’t lose its value, and you can access it quickly if needed.
• Think about your timeline. It’s easy to panic when you see the market dip, especially if you're investing during a recession. But keep your timeline in mind. If you're focused on retirement planning, and retirement is years away, you have time for the market and your investments to recover. Stay the course and keep investing your money.
• Reduce your stock allocation: If you’re uncomfortable with the current level of risk in your portfolio, you can reduce the percentage that is invested in stocks. By investing more in bonds, you’ll get lower returns, but you’ll have less risk.

FAQs

Bottom line

Betterment offers low-cost automated investment management, making it a great fit for first-time investors and passive investors alike. We like the company’s low fees and diversified portfolio offerings, plus the fact there’s no account minimums to worry about. If you’re looking for a robo-advisor that offers a variety of account options and expert-built portfolios but don’t have hundreds to get started with, Betterment would be a solid choice for you.