Betterment Robo-Advisor Review: Is Investing With Betterment Worth It?

FT Contributor
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If you’re just starting out in your career or finally in a financial place where you’d like to start planning for the future, it may be time to think about investing. Building an investment portfolio requires research and buying stocks is not for the faint at heart. It may be best to work with an expert to safeguard your head-earned money. You could choose between a full-service brokerage like Charles Schwab, a self-directed investing app like Stash, or a robo-advisor like Betterment.

Betterment charges an annual percentage to manage your funds and handles most of the process automatically. You can literally set it and forget it. If you don’t know much about Betterment, take a closer look at how it works.

What Is Betterment?

Betterment is a robo-advisor, meaning the investment process is handled by an algorithm and not a human investment advisor or manager. You won’t have access to a financial planner or customer support representative over the phone or in person, although you can send an email for help.

How Does Betterment Work?

Betterment uses algorithms to create an investment portfolio on your behalf, based on your financial goals. Once you’re ready to open an account, Betterment will ask you some questions to understand your needs and help establish investment goals.

You’ll then need to fund your new account(s) by linking an external account from which to transfer or by moving your existing investments from another provider. Betterment will invest your money into exchange-traded funds (ETFs), which are funds that own many different stocks. Each share Betterment buys for you creates a diverse investment portfolio with your cash investment, even if it’s small.

Who Is Best Suited for the Betterment App?

There are several types of investors that would be best suited for the Betterment app. They include:

  • Beginners;
  • Passive investors;
  • Goal-oriented investors;
  • Investors with minimal funds available.

What Are the Betterment App’s Features?

Goal setting is the Betterment investment app’s most unique feature. You may have one or several goals set up. The app will ask some questions to better understand your goals and help you set up the right account. There are five Betterment goal-based investment accounts:

  • Safety Net: To build an emergency fund; the recommended allocation is 15% stocks and 85% bonds.
  • Major Purchase: To save money for a future expenditure, such as buying a home or starting a business; the most aggressive recommended allocation is 90% stocks and 10% bonds.
  • General Investing: Investing with no foreseen expenditure in the future; this account has the widest allocation flexibility. The recommended allocation varies between 55% stocks and 45% bonds to 90% stocks and 10% bonds.
  • Retirement Savings: To save for retirement; the most aggressive recommended allocation is 90% stocks and 10% bonds.
  • Retirement Income: For retirees who need to access their funds; the least aggressive recommended allocation is 56% stocks and 44% bonds.

Digital and Premium Accounts

Betterment will charge you an annual percentage-based fee based on the amount of your account balance. There are two account levels — Digital and Premium.

  • Betterment Digital: A fee of 0.25% per year. If you’ve invested $10,000, your annual fee will be $25. There’s no minimum balance and you’ll receive automatic rebalancing, automatic tax-loss harvesting and asset location, and email-only customer support.
  • Betterment Premium: A fee of 0.40% per year. To qualify for Premium service, you’ll need a minimum of $100,000. Premium will cost you at least $400 per year, but you’ll receive all the benefits of the Digital plan plus unlimited access to a certified financial planner.

Multiple Types of Accounts Supported

When you open an investment account with Betterment, the app starts to build a diversified portfolio, based on your goals. You’ll likely have more than one account, depending on your activity. The types of accounts you can open with Betterment are:

  • Checking account for everyday spending;
  • High-yield savings to hold funds short term;
  • Individual retirement account (IRA);
  • 401(k) for retirement;
  • Taxable account (AKA brokerage account) for your investment funds.

Fractional Shares

With fractional shares, you can buy less than one full share of stock. Imagine if you were purchasing a high-priced security valued at $1,000 per share. If you had only $500 to invest, many brokers would not allow you to purchase a portion of the share. Betterment would allow you to buy a fraction with your funds, so you could own half of a share. The key to investment growth is time — buying half a share today may be better in the long run than waiting until you have enough for a full share later.

Betterment is convinced that not being able to own fractional shares makes your portfolio less efficient. You’ll end up with a cash balance for the amount with which you were unable to purchase a full share. Not taking advantage of fractional share purchases also affects the robo-advisor’s automated tax-loss harvesting. If you can’t own a fraction of a share, there would be fewer chances to buy and sell stocks and harvest a tax loss.


The robo-advisor automates many tasks on your behalf to make the investing process seamless. They include:

  • Tax-loss harvesting: Selling parts of your investments at a loss for tax purposes and replacing them with similar investments.
  • Account rebalancing: Maintains your investment portfolio’s target allocation, which naturally changes with market shifts.
  • Two-way sweep: Account transfers from your checking account to savings in order to maximize your interest earnings and transfer back to your checking account when your balance is low.

Savings Account

Betterment’s high-yield annual percentage yield (APY) account is FDIC insured up to $1 million and includes unlimited account transfers. The current interest rate is 0.40% APY.

What Are Betterment’s Fees?

Betterment’s fee structure is pretty simple. The asset management fee is 0.25% per year for Digital or 0.40% per year for Premium. There are no other charges except for fees at the fund level. Expect to pay expense ratios for:

  • Taxable funds: From 0.03% to 0.39%, although most funds charge between 0.04% and 0.07%.
  • IRAs: From 0.03% to 0.50%, although only one fund has an expense ratio of 0.50% and it’s an alternative to a similar fund. Most ratios come in between 0.03% and 0.07%.

Pros and Cons of Betterment

Hands-off investors stand to gain the most from Betterment. Here’s a closer look at the robo-advisors benefits and drawbacks.


  • User-friendly app;
  • The annual fee covers most of your transactions;
  • Great goal achievement functionality;
  • External account sync;
  • Retirement planning advice and resources;
  • Values-based investing;
  • No minimum deposit;
  • Smart portfolio diversification;
  • Great pre-investment transparency;
  • Fractional share purchasing;
  • Two-way sweep;
  • Tax-loss harvesting to gain a tax advantage.


  • “Safety Net” recommends stocks and bonds. If you’ve set money aside in a Safety Net account for an emergency or unforeseen expense, stocks are risky investments — market fluctuations may cause your investment to lose value when you need the funds most.
  • Cannot manage external retirement accounts;
  • Does not offer commodities;
  • Tough to pull out and switch to a different broker.  

Is Betterment the Best Robo Advisor for You?

If you’re an investment beginner and don’t have the confidence to make your own stock purchasing decisions, Betterment does a great job of automating the process for you. Betterment is considered the best robo-advisor for beginners. Wealthfront may be its closest competitor, with similar services and the same 0.25% annual management fee.

Betterment doesn’t require a minimum balance, compared to Wealthfront’s $500 minimum. Betterment is a good place to start if you want to get into the world of investing and building a diversified portfolio.

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