- So in this video today, we're going to be doing a review
of the robo-advisor known as Betterment,
which is essentially an automated solution
for passively investing your money into the market.
So we're gonna cover, basically, what Betterment is,
what they're offering, what they charge in fees,
and then what may make them unique
when it comes to investing through a robo-advisor
versus just going out there and picking stocks and bonds
or different funds to invest in yourself.
Now, before we get into that,
I just wanna mention two things here.
Number one, if you do decide at the end of the video
that you want to sign up for Betterment,
I do have an affiliate link down below
if you would like to support the channel.
And second of all, I've actually put together
a completely free robo-advisor comparison table
that essentially takes the top five robo-advisors out there
and makes it very easy to compare the different features,
fees, minimums, and things like that, all in one place.
So if you want that guide, completely free,
that's also gonna be down in the description below
for your convenience at the end of this video.
So in a nutshell, Betterment is a robo-advisor,
which essentially means
rather than having a financial advisor managing your money
and determining what we call your asset allocation,
this is instead handled by a robot or an algorithm.
And so essentially, in the past, if you were looking
to invest money with a financial advisor,
you would have a meeting with them, you would go over,
you know, what are your goals, what is your income,
and basically what your whole financial situation is,
and then that financial advisor would figure out
this asset mix for you based on the information provided.
Well, there's two main problems with that.
Number one, in order to work with a financial advisor,
you would generally need to have thousands,
if not tens of thousands, of dollars
to make it worth their while.
And second of all, when you have this level
of human involvement in the process, it leads
to higher fees paid, to again make it worth their while.
So what these robo-advisors did instead is figure out
how to do this with an algorithm where you basically sign up
and fill out a questionnaire,
and they will create the portfolio based on the answers
that you provide.
And by doing this,
they pretty much solved the two biggest problems.
Number one, they can work with much smaller accounts
because basically all human involvement has been taken out
of the equation.
And number two, they were able to drastically lower the fees
compared to what you might pay
to a traditional financial advisor, again,
because there is no real human involvement.
Now, when you invest with Betterment,
your money is going to be invested in index funds
or exchange-traded funds, so essentially,
they're going to be buying funds of U.S. companies
as well as international companies
and mixtures of different bond funds as well.
And based on your goals and risk tolerance,
they're going to determine what percentage of your money
is going to go into each fund.
So for example, a young person just getting started
has more risk tolerance, and so more of their money
would be in stocks and less would be in bonds.
On the other hand, if you're nearing retirement,
you're gonna wanna have more of your money in bonds
and less of your money in stocks.
So when you start out with Betterment,
they figure out your target allocations
and they get you set up.
However, then, as you get older and closer to your goal,
they're going to rebalance this portfolio automatically
and change your target allocations
to make sure that you stay on track.
So now, let's go ahead and talk about the pricing
because there's actually two different plans
offered by Betterment.
First of all, you have Betterment Digital,
which is the basic plan where there is no human involvement,
and it's all handled by the algorithm.
And because of that, the minimum amount to get started
is literally $0.
You can open up an account with them
with any amount of money that you have,
and their annual asset management fee is 0.25%.
So to put that into perspective, guys,
that is $2.50 per every $1,000 that they manage for you,
so we're really not talking about
a heck of a lot of money here.
And in exchange for paying that fee,
they're going to basically manage your portfolio for you,
rebalance it as those numbers change,
and then as you get closer to your goals,
they're going to change your target allocations.
And there's also a number of different features offered
as well, one of which is tax-loss harvesting,
which we will talk about in a second.
Now recently, Betterment rolled out another plan,
which is called Betterment Premium,
which solves the problem of not having access
to a financial advisor.
Essentially, with Betterment Premium,
you have unlimited access to a team of CFP professionals
which can give you advice about investments
within your Betterment account,
as well as investments outside of Betterment.
So for those who are looking to still reduce
what they are paying in fees,
but they also wanna be able to call someone up
on the phone to ask questions,
that is what Betterment Premium is designed to do.
Now, for that reason, because of that human involvement,
the minimum investment is $100,000
and the annual asset management fee
is slightly higher at 0.4%.
So just for example's sake here,
if you had $100,000 invested
with the Betterment Premium account,
you're paying about $400 per year in asset management fees.
Now, the good news is even if you don't have $100,000
to invest and you're in the digital plan,
and you still wanna talk to a financial planner
or financial advisor, they offer one-time advice packages
that you can purchase, which will allow you to call somebody
up on the phone and have a discussion about your finances.
You do have to pay for those advice packages,
but it is a one-time payment.
But if you're just looking to call someone up
and ask a couple of questions,
that is a service that they provide as well.
Now, another thing you should know about Betterment
is that they offer a wide variety
of different account types
which serve a number of different needs.
So first of all, we have the basic taxable account,
which is the one that most of us are familiar with,
and then they have
a number of different retirement accounts.
So with Betterment, they have both the Roth IRA
as well as the traditional IRA and the SEP IRA
for those who are self-employed.
They also offer joint accounts as well as trust accounts.
That being said, they do not offer the 529s,
and they do not offer custodial accounts either.
And one other feature I wanna talk about here quick
with Betterment is something called tax-loss harvesting,
and this is one of those things
that makes robo-advisors unique, and this is an added value
that you won't get on your own If you just go out there
and purchase individual stocks and funds,
unless you are consciously doing this on your own.
So tax-loss harvesting is essentially where a robo-advisor
is going to sell a given asset for a loss
and buy a near-identical investment
in order to recognize a loss for tax purposes.
Now, I know that might be a bit confusing,
so I drew a quick diagram here.
Let's say both of these right here are index funds
that track the S&P 500 offered by different fund companies.
Maybe one is from Vanguard
and one is from BlackRock or iShares.
Well, earlier this year, the S&P 500 tanked
during the global pandemic,
and what tax-loss harvesting allows Betterment to do
is they could sell one of these funds for a loss
and buy back the near-identical fund
or completely identical fund
being offered by a different company, and this allows them
to capture what's kind of an artificial loss
and basically offset your capital gains,
or even have a capital loss to lower your taxes.
Now, the exciting part about this is that over the long run,
Betterment, from the research they have done,
has found that with this tax-loss harvesting,
it has boosted returns and taxable accounts
by .77% annually.
So if you're investing with Betterment
through a taxable account,
you're actually pretty much paying for that fee
when you account for the added benefit
of tax-loss harvesting.
Now, beyond the investment side of the business,
Betterment also offers an online savings account
and an online checking account.
Essentially, they're looking to become
a well-rounded financial service company,
offering all kinds of different tools for you to utilize
and manage your money.
As far as that Betterment checking account goes,
they offer full reimbursement of all ATM fees
and foreign transaction fees.
And in the future, they're also going to be rolling out
joint checking accounts for those who want to save together.
The online savings account
is called Betterment Cash Reserve.
The APY of that account changes quite a bit
based on the federal funds rate,
so I'd recommend using the link below to check the APY,
but it is six times higher than the national average APY,
as far as what is paid with an online savings account.
Another thing you should be aware of
is that there are unlimited transfers
in and out of that online savings account,
whereas many of their competitors have a limit
on how many transfers you can have per month.
So anyways, guys, that is the gist of Betterment.
In a nutshell, on the investment side,
it is 100% passive long-term investing
for those who want a set-it-and-forget-it type approach
to investing in the stock market and the bond market.
You're not gonna find individual stocks.
You're not gonna find real estate
or REITs within Betterment.
They just stick to the stocks and bonds,
and they pretty much do it all for you.
If you want to have somebody where you can call 'em up
on the phone, if you have the assets available,
you could opt in to Betterment Premium
or simply pay for the one-time advice packages.
And if you want to take advantage of the checking
and savings accounts, that's an option as well.
And you also don't have to use all of these things together.
You can pick and choose what components you want to use.
So if you just wanted to have a savings account
through Cash Reserve, you can do that
without having to do the investing either.
So there you have it, guys.
Like I said, if you wanna check out
that free robo-advisor comparison chart,
that's gonna be down below as well as a link to sign up
for Betterment if you want to support the channel.
But thanks so much for watching this video, guys.
I hope you enjoyed it.
And if you have any questions,
drop 'em down in the comments section below,
and I hope to see you in the next video.