Finance · Investments

Betterment Review

Back in June 2015, I decided to try out a robo investing service called Betterment. In case you aren’t familiar with them, Betterment is a brokerage firm that takes over the work involved in investing. I already have a Schwab brokerage account so I wanted to see how the two compare.

**It’s important to note that I will not receive any compensation for this review and the link to their site is NOT an affiliate link. This is my honest review.

Let me start by explaining more about what Betterment does:

  1. Investing based on your goals. When setting up an account with them, you’ll go through a series of questions so they can determine the best investment allocation to reach your goals. You can override this, though, which is what I did. I wanted a certain ratio of stocks to bonds for my Early Retirement fund (which I’ll use to cover the time between 50-60 years old). I also moved a decent amount of cash into another account with them, and went with their recommended conservative ratio for that account.
  2. Tax loss harvesting. This is a tax strategy. It recognizes any capital gains and offsets these by selling funds at a loss. This was the main reason I wanted to try them out. As I invest more in my brokerage account, I expect higher capital gains and these are taxable since I’m currently in the 25% tax bracket. Yes, you could do this yourself but Betterment does this for you automatically throughout the year.
  3. Automatic rebalancing. This could also be done manually but they do this for you so you maintain a certain ratio of stocks to bonds.

I decided to wait to write a review about them until after I received my 2015 tax forms.  For me, the tax loss harvesting is the most compelling feature, since it allows me to be lazy and still get a tax benefit.

Here’s what I like about the service:

  1. You can easily set up and modify automatic transfers to your account. Betterment also sends email reminders a day before the transfer will occur to make sure you haven’t forgotten.
  2. They’re honest about the fees they charge you. There’s an annual fee of .35% if your balance is between $0-$10k, .25% for balances between $10k-$100k, and .15% for balances over $100k.  On the account summary screen, they clearly show how much you’ve paid in fees. It isn’t hidden, as many other firms like to do.
  3. They have tools to help you reach your goals. They have an advice section and I’ve personally used it for retirement planning. I find it to be helpful, but Personal Capital has a feature similar to this.
  4. I’m a fan of the tax loss harvesting.  For 2015 I had a net loss of $400, which means that my federal tax owed is $100 less than I had expected. Definitely worth the small fee I paid to them.
  5. They invest your money in low fee EFTs. This helps to keep expenses low. Many are highly rated Vanguard funds.
  6. They rarely contact me. Ok, this may sound crazy to some people, but they don’t have reps calling me and they don’t send me emails trying to sell more products to me.  I love that they don’t contact me unnecessarily.

What I don’t like about the service: You can’t hold any cash in your account. This makes it difficult to take advantage of short market drop drops.

That’s it — only one part of the service that I’m not 100% happy with, but that isn’t a deal-breaker for me.  I will admit that I’ve never tried withdrawing funds so I can’t speak to how that process works.

There are various opinions about robo advisors within the personal finance community, both pro and con. This is going to depend on how active you want to be in working with your investments. Most people would rather be passive investors, so this is an ideal service for them. I know that I’d rather leave this to someone else to manage so I can focus on more important things in my life.

Do you have an account with a robo advisor? Would you consider giving up control to one?

Leave a Reply

Your email address will not be published. Required fields are marked *

CommentLuv badge