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Account Minimum: $0  –  Fees: .25% Annual, .40% Premium  –  Best for: Retirement, Investing

Visit Betterment


If you see the word financial advisor and panic, good. Traditional financial advisors are pretty hit and miss, but robo-advisors are a bit different. Betterment is a robo-advisor that got its start in 2010 in attempt to disrupt the financial advisor system. Here’s our review of Betterment. TL;DR, Betterment is a faster and cheaper version of the human financial advisor. There are still fees but it’s (usually) better than the alternative human being. 

 

What is Betterment?

With over 440 thousand accounts and $16.4 billion in assets under management, it’s safe to say that Betterment isn’t going anywhere. Betterment is a mobile and desktop application that is geared toward people who want to kick start their long term savings. 

Harvard graduate Jon Stein and NYU Law School graduate Eli Broverman built Betterment to make the process of getting financial advice easier for everyone. Since then they have become an SEC-registered investment advisor and a broker dealer. This means they are certified investment advisors and can buy and sell stocks/securities on someone else’s behalf.

 

Getting started with Betterment.

Setting up a Betterment account is easy. First you enter some information about yourself. Then you decide what your goals are. Your goal can be anything from aggressively investing in the stock market, saving for your kids college, buying a home or building your retirement portfolio. Betterment has a huge variety of options for people in every financial situation.

 

Betterment goal based investing goals in order of priority

Multiple Goals at Once

A lot of investment apps focus on one or two things. Robinhood focuses on stocks, M1 Finance focuses on an individual investment portfolio, but Betterment focuses on the individual and getting them to a financially healthier place.

If you want to retire at 60, but you also want to be saving for a house and college, all of that can be tracked through a Betterment account. 

 

Here are 6 Reasons we love Betterment

  1. No Account Minimum – Unlike Schwab or other older more traditional investment vehicles, Betterment doesn’t ask for you to put in any money to get started. This is really helpful if you aren’t sure Betterment is right for you. You won’t get penalized for taking a look around and seeing if you like it. At $0 balance there is no fee, but a 0.25% fee of whatever money they manage for you. At $100,000 or more they charge a 0.40% fee annually. More on that later.
  2. Fractional Shares – Sometimes when buying stocks you have to buy the whole stock, even if it costs thousands of dollars. Betterment lets you buy part of a stock which limits the amount of money you have uninvested. This way your money doesn’t sit around waiting to earn returns.
  3. Goal Based Investment – Traditionally investing tries to beat the market or pass certain benchmarks. After the recession in 08, more people begin to take their finances seriously. Goal-based investing is the idea of planning for a certain objective rather than just a dollar amount. Saving that much be hard. Setting goals to save $500,000 dollars for a house and putting a kid through college is easier. Goal based investing helps people feel more in control of their financial situation, and empowers them to make better long term decisions. With Betterment it’s easy to set and track your goals.
  4. Automatic Rebalancing – One of the most annoying parts of investing is shuffling money around to make sure the balances are right. With Betterment, you don’t need to worry about this. Simply set your portfolio allocation and they will take care of the rest for you. Every time you invest, Betterment automatically rebalances your portfolio. For more information on rebalancing with Betterment, see here.
  5. Real Financial Planners – Financial planners are difficult to find, and it’s even harder to find a good one. With Betterment, you have the option to speak with a digital advice expert, or if you need more specific advice you can speak with a financial advisor on the phone. This comes at a cost. One $200 phone call sounds expensive, but most financial advisors work on fees or commissions which can cost you hundreds of thousands or even millions throughout your lifetime. Betterment has Certified Financial Planners and many other specialists to fit your needs.
  6. Tax Loss Harvesting – Tax loss harvesting is selling something that experienced a loss. By realizing this loss, it looks like you made less money on your taxes. This saves you money at the end of the year. Betterment offers this feature free on all accounts, and it can save you up to $3,000 per year!

 

A Note on Financial Advisors

Choosing a financial advisor is incredibly complicated and beyond what can be discussed in this article. With that in mind, let’s look more at the pricing of Betterment.

Betterment Pricing

Betterment touts a cheaper alternative to financial advisors. While this is true, there are still fees.

For accounts under $100,000

Betterment charges a 0.25% annual management fee. This is a full percentage point cheaper than the average financial advisor. If you are planning on saving up for short to mid term goals, Betterment could be an awesome option.

For accounts over $100,000

Betterment charges a 0.40% annual management fee. That’s $400 a year if you never put in another dollar after $100,000. If you are looking to build serious wealth and want to invest in index funds, Betterment might not be the most cost effective solution. You can end up losing a huge amount of money over time with management fees.

 

Where Betterment could be… Better

  1. Annual Fees – While Betterment’s fees are much lower than industry standard, they are still quite expensive for a passive investing method. Once you have over $100,000 in your account, the fees almost double which is very counterintuitive.
  2. No Direct Indexing – Direct indexing is when financial advisors buy the stocks in an index that is performing well rather than the account itself. This cuts away certain management fees. This is also known as tax-loss harvesting. Betterment’s biggest competitor Wealthfront offers this feature.
  3. Can’t Manage External Accounts – If you have accounts not created through Betterment, you cannot manage them in your Betterment account. You will need to log into multiple different platforms to manage your finances if this is the case.
  4. Expensive Advice – A $200 45 minute phone call is expensive. If you are making money hand over fist, this might be cheaper than management fees. This isn’t the case for most of us though.

Betterment Review: The Bottom Line

If you are looking to save a small to medium sized amount of money, financial advice or you value seeing the whole picture, Betterment might be right for you.

On the other hand, if you have a serious chunk of change to invest, a .40% management fee could be incredibly detrimental to your portfolio.