Betterment: The Autopilot Portfolio
The idea of a portfolio on autopilot can be both disturbing and very relaxing – sometimes at the same time! Our personal investments are one of the main vehicles of growing our wealth, so having their management somewhat automated can be stressful. At the same time, it is a lot of work and worry to actively manage our money and be responsible for day to day trading decisions amid our busy lives and constantly changing financial markets. A new generation of robo-advisors has emerged that aim to split the difference by letting you set parameters for your investments, while they handle the rest. One of the strongest options available in this product class is Betterment.
Betterment… For the Better?
While Betterment offers some customization for users who absolutely insist on it, its main appeal is definitely “plug and play” – set your high level portfolio architecture, and then leave it to grow. At a basic level, users determine their overall asset mix (as an example, you might select 75% stocks and 25% bonds) and select pre-designed portfolios that reflect the mix they have chosen. Most are anchored by ETFs, including their set of Goldman Sachs portfolios. They also have several portfolios focused on socially responsible investing, an emerging field that is increasingly popular and in demand among investors of all experience levels and net worth. It’s a good idea to read a full review of all the features.
Betterment also has a number of “smart” features that automate some of the more complex parts of investing that can trip up a novice trying to manage things for themselves. Examples include tax loss harvesting and dividend reinvestment. Overall, it’s a very compelling product for those looking for expert guidance matched with low fees.
Is Betterment Safe?
This is a great question to ask, especially given some of the truly wild stories of fraud and scam out there associated with investments. Fortunately, it is very clear that Betterment is safe. They have a solid track record of growing investor money – their long term growth roughly matches that of the S&P 500, one of the most widely used benchmarks that many people pay human advisors a lot of money in order to equal or barely beat. Additionally, they have a significant amount of assets under management and have never been accused of being anything other than completely above board.
Betterment vs Acorns
That said, there are a lot of emerging options in the world of robo-investing, so it’s well worth a look at some other platforms and evaluating how they stand up to Betterment. One in particular is known as Acorns – it allows investors to put away very small amounts of money, sometimes even just cents, into funds that are robo-managed and oriented towards certain goals. It achieves this by letting users round up their purchases to the nearest dollar, with the difference being put towards their portfolio.
While Acorns fees sound low, at $3/month for an individual and $5/month for a family, they do add up to $36 and $60 respectively per year, which can actually be more than Betterment’s extremely low management fee of 0.25% for Betterment Digital users. All things considered, Betterment is definitely a stronger option for someone who is serious about their long-term investing strategy and has a decent amount of start-up cash available to them. Acorns is still a good option for those extremely new to investing that just wants to get their feet wet without a large financial commitment. There are also a lot of other online resources available to help new investors who are in this situation.
Betterment vs Vanguard
On the opposite end of the robo-advisor spectrum is Vanguard. A true behemoth that has been in business since 1976, it is one of the most recognizable financial brands and its mutual fund offerings are so widely invested in that it is quite likely most investors have some in their portfolio whether they realize it or not. Betterment’s management fees are very slightly lower than Vanguard’s, but given Vanguard’s skew towards higher net worth investors the differences in fees start to converge with the more money you have invested.
Unlike Betterment, Vanguard allows for virtually no customization, which may be a drawback for some but is likely offset by their long track record of success. Betterment also offers a larger number of portfolio choices and account types. Overall, both Vanguard and Betterment are strong options for investors, though the higher your net worth the more likely it is that Vanguard will be the best choice for you.
The volume of information and choices available to investors when it comes to robo-advisor options can feel overwhelming and impossible to navigate. Some are unquestionably better suited to different types of investors – for instance, those just starting out with a lot of cash should carefully consider Acorns, while high net worth investors will do well with Zacks. For most investors, Betterment offers a great middle of the road solution: low fees, some customization and a great robo-advisor service. It just may be what you have been looking for.