Investing is an easy way to turn a profit without an enormous amount of work.
But if you don’t know what you’re doing, your bank account may see the consequences.
Luckily, many companies are creating new solutions to help anyone take advantage of this earning opportunity.
One of the leaders in this niche is the Betterment investing platform.
Whether you’re new to investing or just need a bit of support in your ventures, Betterment may become your preferred way to earn and save.
In this article, we’ll go over how Betterment investing works, what other services the platform offers, and whether it’s really worth it.
What Is Betterment?
Betterment is an online money management platform that uses its technology to provide you with a solid investment strategy.
Using robo-advisors instead of human financial advisors, the company allows you to hit your savings goals at a low cost.
Within the platform, you’ll be able to personalize your profile so all your investments are suited to your needs and risk tolerance.
Then, you can pretty much take a step back from there.
Betterment automatically links your investment portfolio to its other financial services, which we’ll describe later in this article.
If you’re unsure about how trustworthy a digital advisor can be, don’t worry too much.
Betterment uses an investing process that is supported by Nobel Prize-backed research (specifically, modern portfolio theory) and trusted by many financial experts.
Plus, robo-advisors are far less subject to human error and function based on logical formulas.
This means your money is managed by a platform that takes out as much investment guesswork as possible.
How Does Betterment Investing Work?
As mentioned, Betterment investing is a fairly hands-off process that allows you to earn without any major intervention.
When you set up your account on Betterment’s website, you’ll be asked to provide information about your age, income, retirement status, and more.
The site will suggest goals for you that may include:
- Creating an emergency fund
- Saving in the long-term for retirement
- Investing to generally build wealth over time
Based on your goals and personal information, Betterment will get a better understanding of the level of risk you should take and suggests an investment portfolio of a specific amount of stocks and bonds.
More bonds generally means lower risk, but even if Betterment recommends you invest largely in bonds, the platform’s technology works to give you the highest returns at the lowest risk possible.
Betterment uses exchange traded funds (ETFs), which are securities that keep expenses low and your Betterment portfolio flexible, on both stocks and bonds.
With this strategy, the company is able to trade fractional shares when it suits your needs better.
The company even offers socially responsible investing (SRI) portfolios if you don’t want to invest in companies that have a positive social impact.
With the platform’s suggestions, you’ll be able to select exactly how much money you want to invest.
Then, once your deposit is in, Betterment will automatically handle the trading for you.
In addition, the company will occasionally rebalance, which keeps you on track with your target investment percentages.
The platform also offers automatic tax loss harvesting, if you have a taxable account that will affect your tax returns.
This is the practice of offsetting any losses by selling assets that are taking a loss, then replacing it with an asset that is more on-target.
Again, this is something you do not have to touch or worry about as a Betterment user.
Additional Betterment Investing Services
While Betterment is largely lauded for their robo-advisor service, the company helps you save in a couple other ways.
Retirement Services
Another large part of the platform is assistance for retirement planning.
The company takes a look at your needs and will suggest an individual retirement account (IRA) for you.
Betterment offers IRA accounts that include:
Traditional IRAs:
With these accounts, your contributions are tax deductible, reducing your present expenses.
However, when you retire, you’ll have to pay taxes on withdrawals.
Roth IRAs:
These are beneficial because you can contribute your after-tax money and never pay taxes on withdrawals when you retire.
However, your contributions are not deductible.
SEP IRAs:
These accounts are available for self-employed individuals or small business owners, as long as you don’t have employees.
You will have to pay taxes on withdrawals, but your contribution limits are much higher than those allowed for Traditional or Roth IRAs.
Betterment states that its retirement planning services can earn you 38% in 30 years.
This is done through the platform’s auto-deposit and account rebalancing services, which both work to keep your retirement savings on track.
Checking and Savings Services
The platform additionally has a service dubbed as “Betterment Everyday.”
Currently, this is an in-app savings account that allows you to earn 2.19% APY with no fees and no minimum balance.
It’s a service that helps savers save and earn.
Soon, Betterment Everyday will also offer checking accounts, which allows you to track and use your money with no fees.
The checking account will come with a debit card that you can use for all transactions.
When you use an ATM, any eligible transaction fees will be reimbursed.
Joining the wait list for Betterment Everyday Checking by scrolling down and entering your email on this page can boost your savings rate to an impressive 2.44% APY.
How Much Does Betterment Cost?
If you’re on a tight budget, the good news is that Betterment is one of the lowest cost robo-advisors around.
If you create a Betterment account on the Digital plan, which suits almost every investor’s needs, you will only pay an annual fee of 0.25%, based on your current account balance.
This will get you:
- Financial advice personalized to you
- Diversified investment portfolios
- Automatic rebalancing
- Automatic tax-saving strategies
- Ability to sync external accounts
- Customer support services
The best part is, Betterment doesn’t require any account minimum.
This means you can pay a low fee of $2.50 per year for a $1,000 balance, or have the platform manage $10,000 for just $25 per year, and still get everything you need.
The only reason to upgrade your Betterment account is if you’re seeking in-depth advice, as this basic Digital plan will cover all of the company’s major services.
However, if you choose to upgrade, the Premium plan offers everything in the Digital plan, plus unlimited access to Certified Financial Planner (CFP) professionals for a 0.4% fee.
You’ll also get advice for non-automated investments you personally make outside of Betterment.
The Premium plan is typically unneeded if you’re investing just for yourself or short-term goals.
However, it can be great for anyone who has financial goals beyond their individual needs.
For example, you may want ongoing advice if you’re starting a family and are considering college funds and life insurance.
Both Betterment Everyday account types come with no additional management fees, minimum balances, or overdraft fees.
All you need to do is deposit $10.
Betterment Review: Are Betterment Returns Worth It?
Betterment is known for providing great returns at a low risk level.
While you won’t make money fast, you can rely on the platform for the stable growth of your retirement savings and wealth.
Betterment has far more impressive returns than most of its competitors like Wealthfront, while keeping its annual fee up to four times lower.
With its low fees, this platform is well worth the cost if you want easy entry into stock market opportunities.
Plus, Betterment’s unique integrated platform allows you to track all of your finances without switching between apps and websites.
These integrated financial planning services ensure that the company understands the full scope of your financial health, before selecting investment options on your behalf.
That said, Betterment works best for new investors, or for people who simply need to earn money without spending much time on it.
If you understand how to navigate the stock market on your own, doing it yourself comes with no annual management fees and will be far cheaper for higher balances.
Frequently Asked Questions
Starting your Betterment account is an easy way to begin your investment journey.
Before you start, consider these frequently asked questions to better understand your risk and options.
1. Can I lose money when using Betterment?
It’s impossible to completely avoid risk when investing, so there’s always the chance that your investment portfolio might decrease in value.
However, because Betterment is a relatively low-risk platform, any downturns are typically temporary and should not be reason to immediately worry.
2. I only need short-term investment help. Can Betterment help with this?
Yes, Betterment allows you to cancel at any time with prorated fees.
You’re not required to use the platform for any specific amount of time.
However, if personalized advice from experts is more of what you need, Betterment also sells advice packages for non-members.
These allow you to book 45 minute to 60 minute calls to help you review your financial situation, or to help you with college planning, marriage planning, or retirement planning.
Most of these in-depth one-on-ones cost $299.
3. Can I manage my Betterment account on mobile?
Yes, Betterment has a great mobile app that is compatible with both Androids and iPhones.
This app allows you to track your goals, balance, and much more.
The app is a fantastic alternative to the desktop site when you’re on the go.
4. If I use Betterment Everyday in addition to investing, how do I know my savings are secure?
Betterment Everyday is Federal Deposit Insurance Corporation (FDIC) insured, which means your funds are protected no matter what happens to the company.
The FDIC helps pay back any debts, up to $1 million in savings ($250,000 for each program bank), and $250,000 for your checking account.
Invest Better With Betterment Investing
When you’re not investing your savings in a retirement account, stocks, bonds, or a savings account with great annual returns, you may be wasting your earning potential.
Your personal finance will remain healthiest in the long-run when you take advantage of the opportunities around you.
Betterment is a leading company to help you start your investment account without the risk of figuring out Wall Street stock market forecasts on your own.
Especially for new investors, this platform is a great modern solution to expensive, in-person investment advisors.
If you’re interested in considering a second investment platform before becoming a Betterment customer, or getting more hands-on with your investment decisions, check out our guide to the Stash app.
