Betterment Review – Easy Investing Option

by Neal Frankle, CFP ®

Betterment is a tool that is designed to help do-it-yourself beginner investors. It helps you save a lot of time and you can get started investing even if you have a small amount to invest. This site actually manages your money for you but let’s take a look at my Betterment review to see if this new investment company makes the grade.

Betterment works basically in a three step process:

  1. Register over at the site and open a Betterment investment account.
  2. Tell Betterment who you are, what your investment goals are and how much risk you are comfortable taking. Then you set the asset allocation.
  3. Link a checking account to your Betterment account so you can move money between your investment account at Betterment and your checking account. Then move money into your Betterment Account to get started.

Done. Your investments are made for you and the account is rebalanced as needed.

Cool Bells and Whistles

You can see the home page below. It’s a summary that provides a great deal of information. The summary shows what your current balance is, how much you’ve earned and how your account is allocated.

betterment review

The next screen (withdrawals / deposits) shows you if you have enabled automatic deposits and if so how much. It also allows you to make one-off investments or withdrawals. This is really easy, simple and fast. A nice way to automate your investing and one of the major benefits of using Betterment.

betterment review

The allocation tab is really a snap too. You simply slide the allocation dot to set your asset mix. On the far right, the graph indicates what your performance might be and how much money you might have down the line. This is a nice way to see what the impact of your allocation might be.

betterment review

The next nice feature is the Advice tab. Here you’ll set up your various financial goals and Betterment will tell you how much you need to save each month in order to achieve them. Sweet.

betterment review

Who does Betterment help?

This is a great tool for beginning investors with limited capital. That’s because there are no transaction fees and no minimum balances. That’s nice because you’ll be able to get started no matter how little money you have available. Also, because there are no transaction fees, you won’t be at a disadvantage for starting out with a small account.

I also like this tool for beginners because it’s pretty easy to open an account, transfer money and invest. The way they set things up will save you a ton of time. Basically, when you open your account, you’ll answer a handful of questions and based on your answers, Betterment will suggest how you should invest your money. That’s also handy if you’re a beginner.

Last, I like the fact that Betterment has a customer support line as well and that they are there to answer questions on the weekends too. Friendly.

How does Betterment work?

When you open your Betterment account, you’ll determine the asset allocation of your fund by answering a few questions. Let’s say for example that you determine that your asset allocation should consist of 50% equity and 50% fixed income. Once you set that allocation, the rest is done for you. Betterment will select the funds that best match your goals and they will invest the money accordingly.

The cost ranges from .15% to .35%. This is especially attractive for investors with small balances. Betterment has 2 baskets of funds; a Treasury Bond ETF basket and a Stock Market ETF basket. The stock basket is made up of:

  • 25% Total Stock Market
  • 25% S&P 500 Value
  • 25% Euro Pacific
  • 10% Emerging Markets
  • 8% Midcap Value
  • 7% Russell 2000 Value

The fixed income basket is made up of:

  • 50% TIPs
  • 50% 1-3 Year Treasury bond

Who should not use Betterment?

While this is a great tool for beginners, it is not something I’d recommend for people with more than $50,000 to invest. There are two reasons for this:

  • Risk – My experience tells me that people may think they know how much risk they are willing to take but they may not really know. It’s almost like a patient self-diagnosing her own health.

Remember Bob Marley the king of Reggae? He thought he hurt his toe and treated himself accordingly. Unfortunately, he made the wrong diagnosis. Bob actually had cancer in his toe and because he ignored the real problem for too long, it killed him. My experience tells me that a quick questionnaire is simply insufficient when it comes to really finding out what investors are comfortable with. It requires a conversation.

And it goes deeper. Just because you are comfortable with a certain level of risk doesn’t mean that is the right allocation for you. I might be comfortable with all my money in the market but it doesn’t mean that’s the best allocation for my circumstances.

Again, for beginners, this isn’t all that important because the alternative for many people just starting out is not to invest at all. Betterment is quick, easy and inexpensive so it’s far better than doing nothing.

  • Allocation – My second concern is the static asset allocation. I am not a fan of “set it and forget it” even though it has its benefits. For example, the allocation calls for a total of 35% of the equity portfolio being invested in either emerging markets or Euro Pacific funds. I am not a fan of either one of these markets right now. This is not an indictment of Betterment per se but my continued beef with asset allocation funds. I believe it makes more sense to be proactive. Take the market’s temperature and invest accordingly.

Again, for folks with modest portfolios, this is not a huge problem. I believe these two limits will hurt performance a little. But the ease of use and affordability make up for that (I believe) with small account values.

Because Betterment will invest and rebalance your money without charging any transaction fees, you could more than make up for these two drawbacks while the account is small. Again, once your account exceeds $50,000, I’d look for alternatives.

(Note – Since this post was published, Betterment changed some of the programs. If you invest more than $100,000, you have a few more investment options and you have access to the company’s CEO to consult with. While nice, I stand by my concerns above. If you have more than $50,000 it would make sense to look for other alternatives.

Is your money safe?

Betterment accounts are covered by SIPC. That means your accounts are protected up to $500,000 against losses that result form fraud or mismanagement. That includes if Betterment goes bye bye. This does not however protect you from market risk.

Wealth Pilgrim Bottom Line

For the right person, this is a perfect fit. You are the right person if this describes you:

  1. You don’t know how to invest.
  2. You don’t have the time to set it up.
  3. You don’t have the time to rebalance.
  4. Your account is small and the transaction fees are prohibitive.

Betterment is not a perfect solution for everyone and you could certainly lose money using this service just like you could investing on your own. But if you have long-term goals and you aren’t invest for whatever reason, I believe you should consider Betterment and check them out further.

*Disclaimer – I am an affiliate of Betterment. If you open an account I will be compensated. Make sure to consult your financial advisor (if you have one) before investing.


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{ 14 comments… read them below or add one }

Danny September 27, 2014 at 8:53 AM

I have been using Betterment for a little while. I am pretty much a novice in investing but want to give it a shot without losing my shirt. However, I don’t really see how Betterment can aid you in building wealth unless you dump a large amount of money into it.

The only way I can see to make it money is when you actually turn some profit, cash out and then put it back otherwise, it appears you just running on a treadmill. I see the “Money I invested” and the “Money you earned” since the Money invested is always ONLY the money I put in and the “Money I earned” is pretty much just virtual, I see only benefiting if that “virtual” money actually becomes yours and then you put it in as “Money I invested”.

I maybe be wrong but other then that I really don’t see how it is doing anything for my money except serving as a savings account where you have to take the money out when it had some capital gains.


Neal Frankle, CFP ® September 27, 2014 at 12:46 PM


Your account statements should show you how much you invested and what the account is worth. That would include all gains unless you withdraw money. Betterment just offloads the investment process for you. Does that help?


Sara August 19, 2014 at 1:12 AM

I am very interested in investing with Betterment, but I would really like to know their profatiblity and their revenue to get a better confidence.
cause after all .. are they really profitable?


Neal Frankle, CFP ® August 21, 2014 at 10:09 PM

Have you asked them for a track record?


Hunter January 2, 2013 at 8:28 AM

What is your suggestion if investment is more than 50,000, is there an alternate to betterment, I am not interested in etrade, Merryl lynch type alternatives where they play with your money for commissions and you do not make much.


Neal Frankle January 2, 2013 at 11:39 PM

Hunter, I believe at that level, you might want to consider talking to a financial advisor. Have you done this? Would you prefer to do this on your own?


Tom March 15, 2012 at 9:30 PM

I found your site while searching for reviews for Betterment. Since there are no fees to withdraw money, wouldn’t this make a great higher interest emergency fund than a traditional savings account? I’m considering putting a large portion of my 6 month fund in an account with Betterment and setting the slider all the way to Conservative to get at least some return on this money that is otherwise not really earning interest. Is there a flaw in this logic or does this seem reasonable?


Neal Frankle March 16, 2012 at 5:06 AM


I can’t give you investment advice of course. I would check on the returns for the very conservative Betterment account. Also, I’d check on the volatility of that account as well. There is no free lunch. If they are paying more, that is great. Just find out:
a. if the conservative alternative is FDIC
b. if not, is it 100% bonds?
c. if bonds, what are the durations?

My guess is, if it’s FDIC the return is going to be about the same as any other FDIC account. Read


Darin February 1, 2012 at 8:30 AM

Hey Neal, sounds like a great beginners tool, investing with training wheels. But, where does one go from there?


Neal Frankle February 1, 2012 at 9:21 AM
Eric January 30, 2012 at 1:11 PM

Hey Neal, it’s in the first screenshot: “Returns since 2009: 34.8%”

It’s above the “What you’ve invested” text.


Neal Frankle January 30, 2012 at 1:15 PM

YES…thanks… Gotcha. That is the gross return since inception. I would prefer they use annualized of course.


TekGems January 30, 2012 at 8:34 AM

You got a 34.9% return with an allocation of 60% stocks & 40% bonds since 2009? You got in when irrational emotional people were pulling out?

I am using Betterment as a savings vehicle for now and using the $25 sing-up bonus as a buffer. So far, the stock investment is positive. I hope it continues to do so… If it doesn’t, its nice to know it is easy to withdraw and you don’t have to deal with asking prices.


Neal Frankle January 30, 2012 at 9:14 AM

I don’t see any mention of a 34.9% return. I believe this is the allocation and not the return you are referring to.


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