Robo-advisors are rapidly disrupting the trading sector. With nearly every investment firm toting an algorithm-fueled machine that can analyze your portfolio and advise on what trades to buy, it can be overwhelming to decide which one to invest with. Betterment is one of these robo-advisors claiming to use the technology with more sophistication than its other automated management competitors. Does the functionality live up the hype? We take a closer look.
Betterment counts over 200,00 clients with a total $9 billion in management assets. The firm caters its services to a diverse population of investors: folks looking to save up for retirement, those who just need automatic rebalancing, and for people with limited funds. Betterment has flexible settings and options for various kinds of accounts. Customers can choose from one of three plans: Betterment Digital is the least expensive of the bunch, with a .25 percent annual fee. However, it includes tax loss harvesting, a feature that can increase your tax returns by .77 percent a year; a tax-coordinated portfolio, which they describe as “the most sophisticated form of asset location on the market”; and RetireGuide, a personalized calculator that takes into account a wide array of lifestyle factors to determine how much you should be putting aside. All plans use ETFs and are programmed to for automatic rebalancing. Betterment also conducts daily evaluations of your investments to make sure that you won’t be hit too hard when tax time rolls along. They claim that their Tax-Coordinated Portfolio can increase after-tax returns at an average rate of .48 percent.
Just like an actual human advisor would do, Betterment asks you a series of questions about your income, lifestyle, and spending habits to generate a set of financial goals, including a safety net for 90 to 180 days of expenses, a retirement savings plan, and broader investment objectives.
Betterment’s innovative deposit strategies let you invest in ways that non-AI managed portfolios don’t. Program the Smart Deposit component to automatically siphon unused cash out of your checking account. All you need to do is set a minimum balance to stretch over a few months so that Betterment won’t overdraw your account. You can also skip scheduled deposits and edit the amounts.
With a creative take on retirement, the RetireGuide feature links any retirement accounts and 401(k)s, including non-Betterment ones, to create a streamlined illustration of your current financial forecast. It compares your funds to projected spending levels during your twilight years, and it also auto populates your Social Security collections.
For traditional savers, be wary, Betterment has a unique approach to building a safety net. They advise investing an emergency fund as 40 percent in stocks and 60 percent in bonds. Conservative wisdom says to not invest any sort of emergency savings, because you never know when you’ll need that cash. Decide for yourself if you feel comfortable squirreling away these kind of funds, most feel more at ease if their emergency money is locked away in an easy-to-access savings account.
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