Expert Betterment Review – Goal Based Investing + RetirementGuide + More
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Betterment Review – Part 2
Betterment’s Newest Features – Socially Responsible Investing, Smart Beta Portfolios + Income Stream
The unique RoboAdvisorPros reviews give you a deep view into what to expect if you invest, the costs, and a comprehensive look at the platforms’ advantages and disadvantages. Our comprehensive approach gives you all the information you need to make the right decision for you, without actually signing up. In this 2nd Betterment Review learn whether Betterment is the best place for your investing dollars.
Should I Sign Up for Betterment? – Part 1: Explored the Betterment philosophy, went through the initial introduction screen that describes the 3 initial goals; Safety Net, Retirement, and Investing.
The Betterment platform is set up so you get as little or as much information as you desire. The Betterment sign up delved into the Betterment philosophy, investment funds, and an overview of all of the Betterment features. In plain language, Betterment is based on Nobel-prize winning investment research and strives to give the user the best returns with the least amount of risk. Now, you’ll explore some of the other goals, investment portfolio choices and the fee structure through the eyes of Dylan, a 40-year-old, who earns $80,000.
Betterment Review – Goals-Based Investing
After inputting Dylan’s profile, the broad goals were the same as the categories for Jenae; Safety Net, Retirement and Investing Goals.
The safety net recommendations for Dylan and Jenae were distinct. Dylan needed a larger safety net of $13,000 compared with Jenae’s recommended $10,000 safety net, due to his higher income level of $80,000 as compared with Jenae’s $50,000. Although the safety net dollar amounts were distinct, the asset allocation percentages were the same for both Jenae and Dylan; 40% invested in stocks and 60% in bonds.
Dylan’s retirement goal of $1,999,999 was much larger Jenae’s $1,233,000 recommended retirement pot. This could be explained by the 5 year age difference between Dylan and Jenae as well as Dylan’s higher income.
Priority 3 was identical for both Jenae and Dylan, General Investing – grow and preserve capital without a specific target. Even the asset allocation was the same. For the investing goal, Betterment recommended a very aggressive allocation for both Jenae and Dylan of 90% stock assets and only 10% Bonds.
The Retirement Goal
Here you’ll learn about how Betterment tackles the Retirement goal.
Here’s how Dylan’s retirement goal would be carried out.
A very aggressive asset allocation of 90% stocks and 10% bonds was recommended for Dylan. I assume the asset allocation rationale was decided because Dylan was 40 years old and had several decades until retirement. This is an aggressive allocation, even for a 40-year-old. Fortunately, if Dylan wants a more conservative allocation with a heavier weighting towards bonds he can change the allocation.
Betterment suggested that he strive for a retirement fund of $1,999,999. The retirement monies may be in either a taxable or tax advantaged account such as an IRA. The recommended savings goal amount at retirement were enough to continue his current lifestyle financial needs.
After selecting the retirement goal, Dylan was directed to the same type of screen as Jenae’s safety net screen. The left side had an asset allocation recommendation and the right side of the screen listed the Betterment Features.
The Betterment features screen on the right side of this goal was consistent across all of the goals. You can click on any element to gain additional information about the platform. This is great if you desire information about certain aspects of the program.
I clicked on the ‘Personalized advice’ feature and was taken to this article which explains why ‘goal-based investing leads to success’. Continuing with the easy use of the platform, you may select a goal directly from the article.
The Smart Rebalancing feature takes you to another article which details further the Betterment methodology.
You can drill down into each feature without signing up for the program. In sum, the program gives you:
- Diverse, low fee, well-researched Exchange Traded Funds (ETF)
- Portfolio rebalancing
- Tax efficiency
- Tax loss harvesting
Each of these components is consistent with ‘best investing practices’. Although you could DIY all these activities, you may not want to. You can choose these same ETF investments on your own, you can rebalance on your own, you can also perform tax loss harvesting and rebalance on your own. But for a low fee, these services are well worth the expense.
The RetirementGuide Calculator
Adding to their retirement offerings this robust calculator is a nice addition to the Betterment tools. This tool takes some of the uncertainty out of retirement planning and answers these questions:
- Am I saving enough for retirement?
- When can I retire?
- What will my retirement look like if I don’t boost my savings?
- What are the financial implications of moving to a different place for retirement?
- Are there better ways to invest for retirement?
This powerful retirement planning tool combines advice with tactics to save and invest for retirement. The RetirementGuide Calculator looks at all of your accounts, even if they’re not invested with Betterment to give you a specific retirement blueprint. This is impressive and sets Betterment apart from many of its competitors who don’t consider the investors total asset picture. Further, there’s a detailed spending drill down to help clarify the Betterment financial recommendations.
RetireGuide delves into your personal situation, incorporates 20 inputs, and figures out how much you’ll need to have in order to meet your individual retirement spending goals. Then the guide tells you exactly how much you’ll need to save and in which accounts in order to reach your retirement plan.
The RetireGuide eliminates the retirement fear that you’ll outlive your money.
Finally, here’s a deep dive into the third suggested Betterment goal.
The Investment Goal
For the investing goal, this Betterment review trial recommends an aggressive allocation for Dylan of 90% stock assets and only 10% Bonds. This is the same recommended asset allocation as the retirement goal.
After choosing the ‘select this goal’ in the priority 3-General Investing Goal you’re taken to an almost identical screen as the retirement goal, with asset allocation on the left and Betterment features on the right.
The recommended asset allocation was the same for both 45-year-old Jenae and 40-year-old Dylan. The 90% stock and 10% bond asset allocation is determined based on the user’s age range. Don’t worry if this is too aggressive for you as with all goals, you can change the allocation to better suit your investing preferences.
The abundant explanatory information is easy to access and clearly written. With consistency across all goals, the program is accessible for users of all levels of investment knowledge.
In sum, without actually signing up for the service, it’s easy to get a taste of the service, types of funds and recommendations. The information is grounded in sound modern portfolio research. The use of index funds keep your costs low and returns are likely to best the majority of active fund managers. Personally, I would be quite comfortable using the Betterment platform (Barbara) because of the low costs and sound investing strategy.
SRI, Target Income and Smart Beta Investment Portfolios
Betterment listened to their users and now offers 3 new types of investment portfolios, for clients with differing investment preferences. In addition to the passive investing Betterment Portfolio the company offers options for retirees, active investors and the socially conscious:
- Socially Responsible Investors – The SRI portfolios allow you to invest with your values and choose to put your money in socially responsible firms.
- Goldman Sachs Smart Beta Portfolios – This approach is good for investors who want to attempt to beat the market and are willing to take on a bit higher risk.
- BlackRock Target Income Portfolios – These bond portfolios are designed for conservative investors seeking cash flow.
Pros and Cons of Betterment Retirement and Investing Goals
The Betterment fund choices are among the smartest ETFs available with low fees and excellent diversification. The asset class choices represent current investing research. In general, it is a well thought out, well-researched investment management approach. You can adjust the asset allocations and other components of your portfolio to best suit your personal preferences. Each of the features, from tax loss harvesting to portfolio rebalancing are wise investment portfolio decisions.
The RetirementGuide Calculator’s consideration of all of your investments, even those outside of the Betterment platform makes Betterment more comprehensive than some of its competitors.
The new investment portfolio options, smart beta, SRI and income further move Betterment to the head of the robo-advisory pack.
There doesn’t seem to be enough accounting for risk tolerance differences. Although the user can adjust his or her percentage allocations to stocks versus bonds, if the consumer was investing solely according to Betterment’s recommendations, the recommended 90% stock versus 10% bond allocations for the Retirement and Investing goals seemed overly aggressive, especially for a more conservative individual. A risk tolerance quiz would be a helpful addition to the platform.
Read the complete Betterment review series:
Part 1: Explored the Betterment philosophy, went through the initial introduction screen that describes the 3 initial goals; Safety Net, Retirement, and Investing.
Part 2: Drills down further into the platform with details about goals 2 and 3; retirement and general investing. You explore the RetirementGuide Calculator tool which teaches how much you’ll need to save in order to meet your retirement spending preferences. Learn about the smart-beta, SRI and income portfolios.
Part 3: Explains the sign up and fee structure along with a final evaluation of the Betterment platform. After this 3 part Betterment review, you’ll have all the information you need to determine whether this robo-advisor is an appropriate choice for your investment dollars.
Disclosure: Please note that this article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link. That said, I never recommend anything I don’t believe is valuable.
Updated October 10, 2017