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Betterment Review

Last updated by on January 17, 2016

My Betterment Review

I’ve had a number of friends rave about, suggesting that I should do a review of the online investment broker here on for their ease of use and simplicity for beginning and even experienced investors.

I’ve also seen a number of other personal finance bloggers jump on the Betterment fan club pretty early on.

Their claims to fandom have typically revolved around:

  1. Betterment makes investing for common folk easy. Just add your funds, choose your risk level, and voila!
  2. You don’t have to re-balance, they do it for you. This is a good benefit – how many of us strictly re-balance our portfolios?
  3. There are no additional trading fees for re-balancing or adding or subtracting from your balance.
  4. It has a very easy to use interface, much easier than traditional brokers.

So, I decided to take a look.

What is Betterment?

betterment reviewBefore I go on, I should first explain what Betterment is. Betterment is an investment broker and registered investment adviser.

Much like other investment firms, Betterment has a $500,000 SIPC insurance guarantee on each individual’s balance (in the event of fraud or their business going under, not on investment returns).

Betterment differentiates itself from other online brokers in the following ways:

  1. They have an easy to use interface where you choose your risk level and they allocate the funds for you.
  2. The have no trading fees and re-allocate (re-balance) your investments for you.
  3. They only invest in low-cost ETF’s.

I wasn’t Feeling the Betterment Love

To be honest, prior to some recent updates (which I’ll get to in a bit), I just wasn’t feeling it. Betterment was not appealing to me for three big reasons:

#1: You couldn’t open an IRA with them as a new investor.

A lot of my savings funds are in retirement accounts and I like to to focus on high dividend investments in my taxable accounts.

Without IRA’s, I didn’t have much reason to start an account with Betterment.

#2: Their fees were high.

Fees ranged from 0.3% to 0.9% depending on investment level. Not bad if you compare that to expense ratios of mutual fund alternatives.

What my friends and I think a lot of the fans failed to see was that these expenses were on top of the expense ratios of the ETF’s (which are low with an average under 0.2%) that Betterment invests in as part of their portfolios.

Betterment’s fee structure was:

  • Balances under $25,000 = 0.9% annually
  • Balances over $25,000 = 0.7% annually
  • Balances over $100,000 = 0.5% annually
  • Balances over $500,000 = 0.3% annually

Those ETF’s could be traded in and out of for free with a commission-free ETF online broker. For an experienced and disciplined investor, most folks were paying 0.9% extra on top of something you could do for free with a decent amount of effort and determination.

#3: Their foreign stock allocation was ZERO.

100% of the ETF’s Betterment chose to invest in were domestic stock ETF’s. There was ZERO international exposure. This mean’s you had no choice but to put all of your eggs in the U.S. basket. If you’ve paid any attention to our economy over the last four years, you’d probably be a little concerned about this lack of diversification.

How Betterment has Improved & Can Improve Further

Each of the above three complaints were a deal killer for me. But all three paired together? I ripped in to my friends for even suggesting it.

Betterment has since gone on to address each of their biggest downsides:

#1: They now offer IRA’s for new customers.

New Betterment customers can sign up immediately for IRA’s now. I have a few IRA accounts just sitting around with low balances that I don’t actively manage and re-balance that I could easily move over.

Feedback to Betterment: A number of online brokers offer to cover the account transfer fees if you close out of another account and move your funds over to them. I would love to see Betterment do this as well. If I were to move my TradeKing balance over, for example, it would cost me $100 to do so. Props to you for not having your own account closing fee (keep it that way!). Since you target low balance users, perhaps this could be offered to higher balance users (i.e. those in your new “better” and “best” categories).

#2: Betterment SIGNIFICANTLY lowered their fees.

Whereas the Betterment fee structure use to be:

  • Balances under $25,000 = 0.9% annually
  • Balances over $25,000 = 0.7% annually
  • Balances over $100,000 = 0.5% annually
  • Balances over $500,000 = 0.3% annually

They have now lowered their fees from 0.15% to 0.35% maximum with three different fee classes:

So, if I hypothetically invested $15,000 with Betterment in a year:

  • Previously, my annual expense would have been $135.
  • Presently, my annual expense would be $37.50, which is comparable to about 4-5 trades at most online brokers.

For automatic re-balancing and new buys/sells with no trading fees? I can stomach that. This is cheaper than target date mutual funds that do something similar without you having to add funds.

Additionally, Betterment feels that their tax loss harvesting capabilities can potentially save investors thousands per year – more than making up for the cost of the expense ratio.

Feedback to Betterment: How does the new “customized” plan work? I don’t see anything on your site around details.

#3: Their foreign stock allocation is up to 54%.

I give credit to Betterment for increasing their foreign stock allocation from 0% to 54% (41% VEA, 13% VWO) on a 100% stock allocation portfolio (almost three times the stodgy old financial institution 20% recommendation)! This is in line with Vanguard’s international equity allocation.

Here is the breakdown of Betterment investment allocations.

There are 6 stock ETF’s:

  • VTI: Vanguard Total Stock Market
  • VTV: Vanguard U.S. Large Cap Value Index
  • VOE: Vanguard U.S. Mid Cap Value Index
  • VBR: Vanguard U.S. Small Cap Value Index
  • VEA: Vanguard FTSE Developed Market Index
  • VWO: Vanguard FTSE Emerging Markets Index

And 7 bond ETF’s:

  • SHV: iShares Short-Term Treasury Bond Index
  • VTIP: Vanguard Short-Term Inflation Protected Treasury Bond Index
  • BND: Vanguard U.S. Total Bond Market Index (IRA) or MUB: iShares U.S. National AMT-free Muni Bond Index
  • MUB: iShares National AMT-Free Muni Bond Index ETF
  • LQD: iShares Corporate Bond Index
  • BNDX: Vanguard Total International Bond Index
  • VWOB: Vanguard Emerging Markets Government Bond Index

Feedback to Betterment: I think this is actually a pretty darn good breakdown of ETF’s, however, I’d love to see a real-estate option (VNQ has a 0.10% expense ratio) and possibly some high-dividend yield ETF’s to add further diversification. Much like with your stock vs. bonds sliding scale, I’d also love to see a international vs. domestic sliding scale on stocks.

With your bond offerings, I’d like to see some higher yield junk bonds mixed in.

Betterment Review Discussion:

Given these changes, I am going to pull the trigger on giving giving Betterment a try a try with one of my lower value IRA’s. If I’m impressed with the service, I may potentially move more over. Look for more on my experiences in an upcoming post.

  • How would you review Betterment?
  • What is your Betterment wish list?

About the Author
I am G.E. Miller, & this is my story. My goal is financial independence ASAP. If you share that goal, join me & 10,000+ others by getting FREE email updates. You can also explore every post I have written, in order.

  • Brittany says:

    Hi GE,

    Brittany here from Thanks so much for the awesome review – the Betterment team is glad to hear you are happy with our recent changes and we are excited to have you as a customer!

    I just wanted to respond to some of your feedback and questions:

    -We are happy to see you value the international exposure in the Betterment portfolio. This is actually something we added last summer, as, like you, we saw the need to diversify even further.

    -You asked about the custom portfolio option as part of the Best plan. Perhaps you have a unique situation that calls for a modified portfolio. Under the Best plan you have the option to create a custom ETF portfolio tailored to your needs. Betterment CEO, Jon Stein, is a CFA and will work with you to discuss your needs and create your personal financial plan which you can then implement through the Betterment platform. If you were to choose the Best plan now, this would be your opportunity to add some of the other ETFs you mentioned, if they make sense for your long term goals. You can see more about our new pricing plans here: If you hover over the question marks next to each benefit, the benefits are explained.

    -You also mentioned wanting some real estate exposure in the Betterment portfolio. Adding a real estate option for those who don’t currently own real estate is something that has been on our radar, so stay tuned!

    -Thanks for your feedback on covering the account transfer fees to move other IRAs or retirement plans to Betterment. As you noted, one of the things that sets Betterment apart is that we do not charge any fees for adding or withdrawing funds. The only fee you ever pay is the annual management fee. We have taken note of some companies that charge these transfer fees and will be looking into the best ways to simplify this for our customers.

    Again, we appreciate your great review and feedback, and look forward to investing with you!

  • Leigh says:

    I definitely agree that Betterment sounds better now, but the idea of investing where someone else has control over the rebalancing fees in a taxable investment account scares me. If it was me in charge, I would be doing the rebalancing within an IRA or 401(k) account, not in a taxable account, to keep capital gains fees down.

    • G.E. Miller says:

      From what I understand, it is automatic rebalancing, based on the % allocation that Betterment uses, which I highlight in the article. It is the same as a target date mutual fund. There are no fees for re-balancing.

      • Brittany says:

        That is correct, GE.

        Leigh – Re-balancing is automated by our system such that all accounts are automatically re-balanced every quarter or any time your allocation strays more than 5% away from its target, which is very tax-efficient. So, for example, if your allocation is 80% stocks and 20% bonds, and the stock market rallies such that your stock allocation has moved up to 86%, that triggers our system to bring your allocation back to 80%/20%. Because this is all automated, there is no need to worry about human error or anything of that nature.

        • Leigh says:

          I’m not concerned about human error on rebalancing – I’m concerned with the taxable activity that is rebalancing when I don’t have control over that. Your system could automatically rebalance my assets and cost me hundreds of dollars in short-term or long-term capital gains when I personally would have made those adjustments in my 401(k) account to avoid triggering any taxes.

  • Caroline says:

    I have been using Betterment for the past 4 months or so and I have nothing but good things to say about this company. As an investing newbie, I came in with nothing other than a 401K from an old employer that I wanted to roll over into an IRA. The customer service was fantastic, and they have continued to be very responsive to all of my questions.

    I have since opened a new Roth IRA with them and am in the process of maxing it out as soon as possible. Betterment is easy (and fun!) to use, and has made me much more confident about my ability to invest in my future.

  • Victor says:

    So on the automatic rebalancing you commented the software adjusts in a market rally. What about if the market goes the other way though and stocks take a dive. Does the system then move you more into stocks? Seems counter-intuitive but please explain.

    • Katherine says:


      My name is Katherine and I am the Community Manager at Betterment. Thanks very much for your question and I hope to provide clarity around auto-rebalancing, a key feature of Betterment’s products.

      At Betterment, we rebalance customers’ portfolios dynamically and efficiently as customers invest (you can check out a post on our blog about rebalancing for more details: Every time customers receive a dividend or deposit more money, including by auto-deposit, we invest the assets into securities the account is currently underweight in. For the most part, this negates the need to buy or sell to balance the portfolio. To answer your questions, Leigh and Con-man, it’s an extremely tax efficient way to rebalance, resulting in limited or no capital gains. There is more information about taxes in Betterment accounts on our Support page –

      Because of rebalancing-by-deposit, less than 1% of client goals had to sell in order to rebalance at the end of 2012.

      Furthermore, if the asset allocation in a goal is more than 5% away from the target (predetermined prior to investment), the account is automatically rebalanced that day. This ensures that the allocation does not deviate egregiously, and makes rebalancing “worth it” from a tax and asset allocation perspective.

      I hope this information is helpful. Please do not hesitate to reach out if you have additional questions. I can be reached at

      Take care,

  • chung le says:

    Hi G.E,
    I am just come across your web a couple weeks ago, but I am a fan of your web now. I have just sold my investing property in San Jose, and have some cash (200K)for investing in the taxable account. I am still undecided which broker firm I should choose. I lean toward “Betterment” due to I am a fan of index fund, (I have invested monthly with Sharebuilder for 5 to 6 years) but I agree with you that Betterment should have more funds to add to their investment allocations. My goal is make about 8 to 10% a year on my taxable account. Any inputs on what broker firm I should choose?
    Thanks you

  • Dhana R says:

    After a review of betterment, I decided to try them. I never had a financial broker like this quality and service before.

    I opened the account and added a link to an external bank. Like any other typical financial broker, they asked to verify the initial couple of deposits to my external bank. Yesterday I verified the completion and entered a deposit transfer of 5k. Then I was looking to add another external bank and couldn’t find anywhere on how to add another bank. So I tried to reach them via phone After few minutes, the phone contact is asking for details to give a call back. No way of talking to a real customer service professional.
    Later in the evening, the response I got is below.
    “Currently we only allow one bank account to be linked to each Betterment account. While we understand that this is a nuisance, the biggest reason is to ensure the security of your funds.” What a nice way of sharing the shortfall on their side to a security issue. If they are not secured, do I need to invest any more money? I never requested to deactivate my already verified bank. Now they already delinked and stopped the deposit transfer of 5k. No absolute understanding of what customer wants and missing a governance/control on handling customer financials. I sent an email requesting for additional information, but uncomfortable on the busines model.

  • Adam O says:

    For me the nicest feature is tax-loss harvesting. They even send you an email saying, “we just saved you $xxx through tax-loss harvesting”. That feature alone pays for the cost of the service.


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