Betterment: The Alternative to DIY Investing

Betterment Logo

One of the things I’ve learned in the years I have been writing this blog is just how many people there are whose eyes begin to glaze over at the mere mention of investing.

They know it is important but their mind just shuts down when the topic comes up. They have better things to think about, to do. Curing diseases, negotiating world peace, building bridges, teaching our children, patrolling the streets, raising their families and any number of other engaging activities that better fit their inclinations.

The problem is, of course, that money is key to surviving and thriving in our complex world.

Typically, these people turn to financial advisors and in truth the right advisor can be a sound solution. But not often. The problem is good, skilled and honest advisors are thin on the ground and finding the right one is often more work and risk than just learning this stuff yourself. But the harsh truth is, frequently that learning is just not gonna happen.

I can relate. Many are the subjects that cause my own eyes to glaze, and I just want to tell somebody this is the outcome and say, “Make it so!”

Now, with a company called Betterment, we have exactly that…

I first came across these guys at FinCon; these guys being Jon Stein the Founder and CEO and Katherine Buck, Community Manager.

Over that long weekend we had several conversations that piqued my interest and several more by Skype and email these past couple of months. Plus I’ve been poring over their website and discussing them with other financial folks I know and whose opinions I respect.

That’s why you are hearing about Betterment from me only now. It takes me time to get on board with a new financial concept like this. Crusty old geezer that I am, I’ve seen too many come and go. But I like what I see here, and here’s why:

A. Your money is secure. This was my biggest issue and we spent a lot of time discussing it. More time, I gather, than they had been asked to spend before. Once I was satisfied, I asked Jon to put it into simple language and in his own words:

  1. Betterment is an investment manager. We advise customers how to reach their goals through a predetermined portfolio of ETFs and then purchase those shares for our customers based on their final allocation setting, which they choose. We guide customers, but they finalize the stock /bond mix.
  2. Betterment maintains books and records of our customers’ accounts, and the clearing firm we work with keeps records of the same.
  3. We tell our customers what they are invested in—customers own these securities. If Betterment were to fail for any reason, customers would receive shares of the ETFs they own in-kind through SIPC insurance.

B. They understand and use the concept of index investing.

C. Your money is invested in low-cost Vanguard or iShares index funds, and I like the funds they’ve chosen.

D. Your money gets invested more broadly and in more funds than I discuss in my post Portfolio Ideas to Build and Keep Your Wealth. While the funds in that post get the job done, for the sake of simplicity I limited the number used. Adding more just doesn’t add enough value for the effort. But, with the effort seamlessly taken on by Betterment, a few more provides for a bit of useful fine tuning.

E. They create stock/bond portfolios based on your goals and then maintain that allocation for you automatically. You can accept their suggested allocation or customize it to your preference. Their software will then predict your odds of success.

F. You can create multiple accounts for multiple goals.

G. Once set they also automatically adjust the allocation in each account over time and you can easily change that allocation if you choose.

H. They can handle both your taxable and IRA/Roth IRA accounts.

I. Their costs are simple, low and clearly stated on their site. Under 10k = .35%, 10-100k = .25% and over 100k = .15%. Plus, of course, the expense ratio of the underlying funds.

J. They have a cool and engaging website that allows you to track your investments and might just kindle an interest in this investing stuff.

For example, here’s a chart showing how an allocation might change for a goal with a 25 year time frame. The closer to the time the money will be used, the more conservative the allocation. The various stock funds are represented in shades of green and the bond funds in shades of blue.

Betterment chart

One of the things that most intrigues me is that idea of easily having multiple accounts each targeted at different goals and with the different allocations those goals require.

For instance, one of the questions I frequently get here on the blog is what to do with money that is going to be spent within the next five years or so. Say, money being saved for a house down payment or a vacation or to buy a car.

As I stress throughout my Stock Series, successful investing in stocks requires a long-term view and their short-term volatility makes them unsuitable for short-term goals.

The ideal solution would be a fairly complex blend of stock and bond funds balancing out the risk and adjusting as the time frame closes. I’ve never recommended this approach because implementing it was simply too cumbersome. But with Betterment this becomes easy-peasy.

Let’s suppose you plan to buy a car five years from now. Reading this blog you know paying cash is the way to go. Better to make the payments to yourself and buy when you have the money in hand.

Using Betterment you set up an account, make an initial deposit and tell it you are going to need, say, $10,000 in five years. Not only will it then sort out the most effective allocation and adjust it over time, it will tell you how much you’ll need to save/add to it each month to get there.

Of course, I’m not going to recommend this to you without trying it myself, and that example above is exactly how I’m going to use it. My initial deposit was $2500 plus the $25 they gave me for opening the account. So starting with $2525 and based on that five-year time horizon, I’ve set up the automatic monthly deposits of $100 Betterment has told me will get me to that 10k. I also chose to accept the 65%/35% stock/bond allocation they suggested. Depending on how my portfolio performs, they will also offer suggestions over time. Pretty slick.

But what is really slick is then you can begin to play. Plug in other numbers and do a little “what if” analysis. What if I funded it with an extra $1000? What if I deposited $200, $300, $500 or any other number per month? What if I let the money ride for 20 years? The software instantly shows you where you might end up.

Might not sound like a big deal, but it is surprisingly intoxicating. And very motivating. Just the thing if you are trying to inspire your children and introduce them to the magic of compounding. Or yourself.

If you want to give this a try, here’s how and what you can expect:

First, click here: Betterment

 If you then follow the steps and open an account two things with happen:

  1. This blog will earn a commission. (Not that you should do it for this reason, but in the interest of full disclosure.)
  2. Betterment will waive their fees on your new account for 3 to 6 months depending on how much you start with.

Signing up takes about ten tedious minutes, but then I find form-filling-out especially tedious. Still as such things go, it wasn’t too bad and I never threw up my hands in disgust or quit in despair. No small thing given my temperament. Heh.

Next they’ll send you a couple of emails verifying some stuff.


  1. You’ll link to your bank.
  2. They’ll make a small deposit in your bank account based on the info you gave them to verify that link works.
  3. Once linked you can with a click move money into your Betterment account and set up automatic investments if you care to.
  4. Once the money arrives in your account, Betterment sends you an email letting you know. Personally, I really liked this feature as it saved me having to log on to check.
  5. Even more importantly you can, with a click, access your funds in Betterment. Not that us long-term investors want to do much of that. But it is always good to know you can get to your dough anytime and without fuss.

You’re good to go.

Recommending these guys is a big step for a hard-core Vanguard index investor like me. It might have you wondering just how and where I see them fitting in. They, of course, would say they can and should handle everything short of your 401k/403b/TSP plans. But there are fees involved here and, modest as they are, you don’t want to pay fees unless the value added is worth the price.

I see it this way:

If you have/can read through and understand the Stock Series here on the blog you are good to go and DIY (Do It Yourself) directly with Vanguard.

But you might do well to consider Betterment if:

1. You really have little or no interest in this stuff and just want a solid plan created based on your personal goals. This is the same attitude you’d bring to an advisor but with Betterment you get the plan and results with less cost and risk.

2. You want to be invested now, but are still too early in the learning curve to DIY.

3. You are personally comfortable with investing but you also have this responsibility for your child or parent and see this as an easier, more effective tool for them. This is why I suggested Betterment to Colin in this post.

4. You are looking for an effective and efficient method of saving for short-term goals. This is how I’ll personally be using them.

5. You want to leave a financially disinterested spouse an easier way to deal with money than the DIY approach you’re comfortable with.

6. The time comes when you are no longer interested, willing or able to monitor your investments.

There could be many reasons for #6, but the one that as a geezer I’m personally starting to think about these days is aging. The harsh truth is that at some point, if we live long enough, our cognitive abilities begin to wane. Happens to all of us. And when it does, you don’t want to be hands on with your investments. Far too easy to be tempted into some wild scheme by those who specifically prey on the elderly or simply by our own delusions. When that time comes, .15% is a very small price to pay.

One final thing. If you’re like me you also like to know the people you’re dealing with.

As I said in my second to last post, I like smart people. And when it come to investing I like people who understand the key basics that lead to financial success. Jon fits the profile.

Since I can’t introduce him to you personally, this 2.5 minute video will help. In it Jon walks you thru a quick overview of the Betterment approach and how it works. He also talks a bit about how he runs the company. My guess is, like me, you’ll be impressed on both scores. But more importantly you’ll get a sense of the guy behind the company.

If I’d known him sooner I would have been an early backer. Were I younger, I’d be sending him a resume.

Addendum #1:  A note from Betterment to my International Readers…

“Betterment currently only operates in the United States, and for regulatory reasons cannot accept customers residing outside the country. A customer must have a permanent U.S. address, a U.S. Social Security Number, and a checking account from a U.S. bank.”

But the good news is, I’ve asked them personally about this and as they grow expanding internationally is definitely in the plans. I’ll keep you posted.

Addendum #2:

As of 2017, Betterment has changed its fee structure to a flat .25%


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Important Resources

  • Talent Stacker is a resource that I learned about through my work with Jonathan and Brad at ChooseFI, and first heard about Salesforce as a career option in an episode where they featured Bradley Rice on the Podcast. In that episode, Bradley shared how he reached FI quickly thanks to his huge paychecks and discipline in keeping his expenses low. Jonathan teamed up with Bradley to build Talent Stacker, and they have helped more than 1,000 students from all walks of life complete the program and land jobs like clockwork, earning double or even triple their old salaries using a Salesforce certification to break into a no-code tech career.
  • Credit Cards are like chain saws. Incredibly useful. Incredibly dangerous. Resolve to pay in full each month and never carry a balance. Do that and they can be great tools. Here are some of the very best for travel hacking, cash back and small business rewards.
  • Empower is a free tool to manage and evaluate your investments. With great visuals you can track your net worth, asset allocation, and portfolio performance, including costs. At a glance you'll see what's working and what you might want to change. Here's my full review.
  • Betterment is my recommendation for hands-off investors who prefer a DIFM (Do It For Me) approach. It is also a great tool for reaching short-term savings goals. Here is my Betterment Review
  • NewRetirement offers cool tools to help guide you in answering the question: Do I have enough money to retire? And getting started is free. Sign up and you will be offered two paths into their retirement planner. I was also on their podcast and you can check that out here:Video version, Podcast version.
  • Tuft & Needle (T&N) helps me sleep at night. They are a very cool company with a great product. Here’s my review of what we are currently sleeping on: Our Walnut Frame and Mint Mattress.


  1. Bill at FamZoo says

    Sounds like a terrific service – love the use case for shorter term goals in particular. One tiny typo I noticed: “Under 10k = .35%, 10-100k = 25% and over 100k = .15%” – that second fee should be .25% presumably. -Bill

    • David says

      Likewise! Katherine/Jon – any rough timelines for a UK expansion? I hear so many good things about Betterment, and would be very interested to hear of upcoming plans for UK expansion.

  2. Dave @ The New York says

    Looks great! I am definitely on board with any form of incentive that gets people investing, especially smartly. I think that I first started learning about investing by jumping in and doing it when I was young. If I hadn’t done that, now that I am older and more cautious, I might still be one of those people whose eyes glaze over.

    Way to deliver a nice kick in the pants!

    • jlcollinsnh says

      Thanks Dave…

      …and welcome.

      You put your finger on one of the most attractive possibilities here.

      Most of us, me included, get started jumping in and making expensive mistakes. Costly way to learn.

      But we also know the earlier we get started the longer compounding has to work its magic.

      As I said in the post, with Betterment you can get started safely and productively while you learn to DIY this stuff. And if you decide you really don’t want to bother learning all this financial stuff, you’ll still do very well.

  3. Kevin Kane says

    This is the best alternative that I’ve seen to DIY investing.

    I’m so fascinated by investing that I couldn’t imagine handing over the reigns to someone else.

    But my passion for investing might be a bit of an arbitrary personal preference: There are a tons of things — like car repairs, home renovations and repair — that it’s in my financial self-interest to learn about but my eyes just glaze over on these topics, too.

    I work with an outstanding salesperson who is helpless with computers. I show him how to download a file and add it as an email attachment about once a month. But this same guy can do things — like build his own sidewalk beside his house — that fascinate me but that I admit I couldn’t be bothered to learn how to do myself. Probably just like he can’t get around to learning how to be efficient with a computer.

    Hey, we’re both pretty successful guys and we “outsource” the stuff we’re not good at or that we’re not inclined to do.

    So maybe I’ll just recommend Betterment to those people whose eyes glaze over when my zeal for DIY investing starts to kick into overdrive on them.

    • jlcollinsnh says

      Hi Kevin…

      That was my reaction exactly. And I’m with you on home renovations and car repairs. 🙂

      Sometimes it is hard for us to fully appreciate that what is enjoyable and comes easily to us, is an unpleasant challenge for others. If we really want to help finding options that suit them rather than ourselves is key. I see Betterment as a sound option for those non-finacial geeks who visit the blog here.

      And I’m very glad to have friends who can help with the tech side of operating this blog. 😉

  4. Done by Forty says


    Do you think the automated rebalancing aspect alone might make up for the fees? I am hesitant to pay extra for funds I could acquire on my own, but I’m happy to do so if there’s a reasonable chance that Betterment would more efficiently keep me in the desired AA and rebalance in a way that might actually improve performance (either higher gains or, from being more properly allocated at all times, suffer smaller losses).

    • jlcollinsnh says

      That’s a little tough to say, but certainly it will help offset them.

      Betterment does keep your allocations in line far more efficiently than most people would do on their own. Plus it happens automatically, so you don’t have to worry about forgetting.

      Here’s something cool they do:

      Typically as a long-term investor you have your dividends, interest and capital gain distributions reinvested. But of course they get reinvested in that same fund.

      What Betterment does, is collect these payouts and reinvest them in the way that best helps maintain the chosen allocation. This in turn helps reduce the need to periodically sell shares to rebalance, something that is a taxable event.

      In short, I’m not sure I’d switch for just this reason, but if I were on the fence it could well be the tie breaker.

    • Katherine says

      Hi DbF,

      Katherine from Betterment here. As Jim mentioned, automatic rebalancing uses all inflows to customers’ accounts to maintain asset allocation. We avoid hard buys and sells to minimize capital gains. We also are able to purchase fractional shares in this process, which means every penny of your money is put to work. Our auto-rebalancing provides an incredibly efficient way to achieve optimized returns, a benefit we believe exceeds its cost.

      Let me know if you’d like more information. You can contact me at

      Take care,

  5. FloridaStache says

    I’m getting ready to start saving for a down payment on a house in three years so I’m intrigued by discussions of where to park the short-term stash. As you pointed out, cash is safe but paying nothing these days, and alternatives seem mighty risky. I’m curious, as a DIY’er, why would you be paying Betterment’s fees for your planned car purchase? Seems like you could just self-implement the stock/bond allocation in a Vanguard account and get the same result for less fee. As a DIY’er myself, is there some other advantage that’s not obvious?

    • jlcollinsnh says

      Hi FS…

      With a short term time frame I’d want a fairly broad group of funds and I’d want the allocation smoothly adjusted almost monthly to cash as the clock ran down. While I could DIY that myself, it would be fairly cumbersome.

      Using Betterment makes it effortless and that seems worth the modest fee.

      BTW, as it happens I don’t actually expect to need a car at the end of the five year run. That was more just for an illustration. Mostly I want to experience how this works in real time. What I do with the money when the time comes will be an entertaining dilemma. 🙂

      • RussellMania says

        I’m also looking at a down payment for a house in a few years. My concern, more than the fees, is the risk. I would hate to get less money out than I put in. Given that we’re talking relatively small amounts of money over a relatively short time, do the potential returns really balance out against the additional risk + fees?

        • jlcollinsnh says

          Hi Russell…

          Great question and the answer lies mostly in your personal risk tolerance.

          Investing always entails risk and the only reason to accept such risk is in the anticipation of better returns.

          As I discuss in the stock series adding bonds to an asset allocation has the effect of smoothing the ride but it doesn’t fully eliminate the bumps.

          If you want to avoid the risk of having less money than you put in, an FDIC savings account is your best bet. Of course, keep in mind that your money will lose value due to inflation over time. So other than for very short term situations (think less than 5 years) this is a poor option.

          Hope this helps.

      • Katherine says

        Hi FS,

        Our diversified bond basket provides an optimized way to manage risk for all goals, especially those classified as short-term. We use asset flexibility to allocate within the bond basket according to your time horizon. In this case, the less risk you are able to digest to be able to reach your goal, the more is allocated within the bond portion of your portfolio to the lowest risk bond ETFs. Betterment’s algorithms provide the best-expected returns across every risk level, including those time horizons under five years.

        We also provide flexibility for YOU. If you need to move more of your portfolio to a risk-free asset (SHV) at an earlier time than your initial goal, you can easily do that at no cost. If your time horizon extends and you can handle more risk that you originally thought, you can easily allocate more to the stock basket, again at no cost.

        The value of your time, no matter how long your investment horizon, should be taken into consideration. Rebalancing, reinvestment of dividends in the most efficient way, and purchasing fractional shares are things that take time and effort. Betterment takes care of all of that for you. Betterment also constantly monitors the progress of your account to make sure you have the assets to reach your investment goal. If you are off-track, Betterment offers actionable advice to get you back on. This is especially important for short-term goals, like a down payment, because the room for error is significantly smaller than investing in perpetuity.

        Let me know if you’d like to know more. You can reach me at


  6. ben says

    I think it’s worth it if you have a lower balance. but if you have 1 million invested, you are paying betterment $1500 annually for fee. I still prefer your keep it simply approach with investment.

    • jlcollinsnh says

      Hi Ben…

      and welcome!

      In general I agree and anyone who, as I said in the post, is willing and able to read thru and understand my Stock Series (and doing so is pretty simple really) should do exactly that. Teaching folks how is the mission here after all.

      Sounds like that’s what you are doing and, if so, Kudos!

      But as I also said, I’ve learned writing this blog that most people just can’t or don’t want to be bothered. For them, $1500 per year for a sound investing approach is cheap.

    • Katherine says

      Hi Ben,

      Agreed with Jim — $1,500 per year on a $1 million account for the optimization we offer is quite low. In fact, it’s the lowest in the online investment management industry. The maintenance required to efficiently manage a $1 million+ account takes time, knowledge, and leaves room for human error. For $125 per month, Betterment ensures reinvestment of dividends, automatic rebalancing, and provides a fully-diversified, recommended asset allocation appropriate for your risk tolerance, all while eliminating human time and error. When you consider all that is required to optimize a DIY account, $125 per month is quite reasonable.

      Let me know if you’d like to discuss further. You can email me at

      Take care,

  7. Helen says

    For UK readers & investors, Nutmeg ( provides a similar service based on ETFs. You specify your goals, risk, timeframe, they invest in a suitable diversified portfolio of ETFs, rebalanced monthly. Similar graphs of deposits/goals/potential future valuations as betterment. Transparent costs, fees 0.3-1.0% of annual portfolio value.
    Can be held in an ISA (UK near equivalent of IRA)
    Disclosure: I have a trial of £300 a month invested, total £4000 so far.

    • jlcollinsnh says

      Thanks Helen…

      Very interesting. Sounds a bit pricy compared to Betterment, but then most investment options on your side of the pond appear to be.

      Does Nutmeg also use index funds? How is it working out for you so far?

    • jlcollinsnh says

      Hi Nancy…

      I am unfamiliar with them, but poking briefly around their website I note that they have higher fees than Betterment and require a minimum of $500,000.

      Do you have personal experience with them? If so, what is your take?

    • Katherine says

      Hi Nancy,

      Katherine from Betterment here. We share the same investment philosophy as Rick and think he is a great thought leader in the management industry. Earlier this year, Rick co-authored a white paper with Alex Benke, CFP, a product manager here at Betterment. The topic of the white paper is “A Case for Index Fund Portfolios” and argues that investing in an all-index fund portfolio is the best way to achieve optimized returns. You can find it here on our website:

      Feel free to email me at if you’d like more information. Happy to discuss!

      Take care,

    • jlcollinsnh says

      Unfortunately not at this point.

      See Addendum #1 above.

      Also see Helen’s comment. Maybe there is a similar service there as in the UK?

  8. Big Paul says

    Looks like Ill have to keep squirreling away into my Vanguard Hi Growth Life Strategy for now until this hits Aussie shores.

      • Michael says

        I have been considering Betterment for a long time and just finished signing up a week or two before coming across this blog post.

        I very nearly invested some money there, but came across the Vanguard Lifestrategy funds and started to have second thoughts. Is there a compelling reason to use Betterment over a Lifestrategy fund, other than the ability to adjust your risk tolerance more easily? I’m not sure it is worth the added cost of their service.

        Not trying to knock Betterment here, I love the idea and have suggested to my sister that she start her investing journey with them. I’m just wary that I won’t get any benefit if I’m not planning to change the allocation percentages over time.

  9. Linda van Zyl says

    They sound brilliant! Would love for them to expand to New Zealand!

    If they make a break into Australia, they should be able to pull in New Zealanders as well. A service like this would be awesome over here – too many people burnt badly by “financial products” and dodgy “finance investment” companies, and they lump stock market investment into the same category.

  10. Bryan Jenkins says

    I seriously considered Betterment but couldn’t get over 2 objections
    1) They are their own custodian which helps with the executing trades but I like the having an outside entity
    2) Their fees are very low and it would take a tremendous inflow of money to be managed for them to be successful; which depending on your outlook on life means they will be acquired for their technology or go out of business. I think the technology would be acquired but who knows what the fees would be then.

    I’m surprised more people haven’t brought up objection 1) yet.

    If you do some simple math the amount of money they would need to manage to be profitable/successful is quite high and they could be the biggest trader of some of the etfs they own which is its own unique problem

    Obviously Jim got to see behind the curtains and I’m certain that with a face to face meeting in their office or over Skype I could be convinced.

    • Jon Stein says

      @ Bryan,

      Jon Stein, CEO of Betterment here. Thanks for your comments & questions.

      Re: #1, being our own custodian is part of our technology-driven efficiency. At Betterment, you don’t pay for legacy systems or have third-parties messing with your data. Our integrated tech saves you money, keeps your data secure, and makes opening and managing your account seamless. You have 3 layers of technology-driven transparency and protection: 1) You own ETFs, and we tell you exactly which ones you own. They’re in your name, and we’re transparent about them. 2) Your securities are cleared at Apex securities, and reconciled continuously, between us and them. 3) Your securities have SIPC protection via Betterment Securities, up to $500k, the same as any FINRA/SEC registered broker.

      Re: #2, Yes, we’re low cost as can be, thanks for noticing. We’re successful already. We are managing several hundreds of millions, and we’re growing by hundreds of customers every day.

      Re: trading ETFs: ETFs issue more units according to demand – that’s part of the brilliance of ETFs. All our ETFs are exceedingly liquid for the amounts we trade, and all are likewise growing fast because they’re the best ETFs in each asset class.

      Feel free to email me at jon@betterment if you’d like to connect.

  11. ippo says

    Registered for Betterment and tested it out. The tax harvesting is a nice feature as are the simplified low cost ETFs. My concern is Betterment does not offer a holistic view of your external accounts. Many of us have brokerage, Roth, 401k accounts all of which are not linked to Betterment. For those of us seeking Early Retirement it is prudent to have an aggregate view of our finances and I feel, especially our net worth.

    The Betterment agent I spoke with was amicable and helpful. However, I strongly feel without an holistic view there is no way for me to know how I can optimize my retirement. Additionally, I would not mind transferring some over if I knew that I was paying excessive fees and I could save much more using Betterment’s resources. Does anyone feel the same?

    • jlcollinsnh says

      Hi Ippo…

      I agree, you need to have a holistic over view of all your assets. And as you point out, most people have these spread around.

      Personally, I wouldn’t and don’t rely on any one investment firm to do this for me. I do it myself with a simple spread sheet.

      Use Betterment and Vanguard and other firms you may chose or have for your investments. But keep the holistic overview in your own hands.

      • ippo says

        Thanks Jim for replying. Really appreciate all of your dedication and helpful insights. Please keep up the great work!

        My related concern with Betterment involves how I do not know how my other accounts can be better optimized. I feel I possess an intermediate understanding of my finances and really value services that can provide comprehensive and holistic analysis/planning.

        For example I understand when potential diversification concerns might be developing, but, I may not fully comprehend, the various low cost alternatives to achieve similar or superior results. Wouldn’t “linking” external accounts directly to Betterment help address and ultimately, solve this concern?

        Another service Personal Capital offers this holistic overview and detailed technical analysis. Do you have any experience with Personal Capital? How does it compare with Betterment? Thank you!

          • Bryan Jenkins says

            Personal Capital is a free app that will give you an entire view of your financial life. It can’t handle assets like Real Estate and even some bonds or insurance but all 401Ks, trading accounts, IRA, even bank accounts in one place.

            It has fancy graphs and charts that allow you to analyze your returns and probably most importantly asset allocation.

            The way they make money is off their investment services which would be similar to Betterment but uses individual stocks to create a “personal” mutual fund versus ETFs.

          • ippo says

            Thanks Jim and Bryan Jenkins for commenting on Personal Capital.

            Has anyone else used Personal Capital and Betterment? Can you share more about your experiences? Thanks!

  12. Natalie says

    If someone were investing in TSP Lifecycle Fund 2030 or similar USAA targeted 2030 retirement mutual fund, what would Betterment do differently and/or better than these targeted retirement investment vehicles?

    Your post here on Betterment is the most helpful discussion I found in my research into Betterment, and is my first exposure to your site.

    Thank you!

    • jlcollinsnh says

      Welcome Natalie…

      Good to hear this discussion on Betterment has been helpful.

      First, let’s start with the premise that fund costs are critically important. Costs are a never ending drag on your returns and funds with high costs are almost inevitably going to under perform.

      Second, let’s consider VTSAX, a total stock market index fund and the fund I most recommend here, as our cost benchmark. It’s ER is .05%

      Now let’s consider the two funds you mentioned. Both are “funds of funds” that is they hold different stock and bond funds to achieve their goals and allocations. Since they are “lifecycle” funds their allocations will change slowly over time becoming more conservative.

      TSP funds (think 401k fund options for government employees) are index funds with the lowest ERs of which I am aware. They vary but are around ~.025%. That’s half of the super low cost of VTSAX. For anyone who has access to TSP, these should be your first choice.

      USAA targeted 2030, on the other hand, is an actively managed fund of funds and carries a high .80% ER. That’s 16 times higher than VTSAX and ~32 times higher than TSP. Yikes!

      Now let’s look at Betterment. We’ll start with costs.

      Depending on what you tell them, Betterment will create a portfolio for you made up of several index ETFs. These have ERs ranging from .13% to .16%, so an average of ~.145%
      In addition the Betterment fee adds:
      .35% for accounts under 10k
      .25% for accounts between 10-100k
      .15% for accounts over 100k

      So at the high end you have about .50% in fees and at the low end about .30%

      In exchange Betterment keeps your asset allocation on target and to your personal specs in real time. They also adjust this in the most tax efficient way possible, making them a good choice for taxable accounts.

      Hope this helps!

  13. Sean says

    What happens if the amount goes over $500K considering the limit for SIPC they offer is till $500K?

    Also, in the example you provided – if I invest in a VFORX 2040, the fees are 0.18% and the allocation readjusts itself over time. With Betterment, I would be paying this plus their annual fees. So in this case, wouldn’t it make sense for me to keep my money in VFORX? Unless, I change my mind and decide to retire earlier or later then it appears that Betterment would be able to automatically adjust my funds to match that? What am I missing?

    • jlcollinsnh says

      Hi Sean…

      For anything over 500K you are beyond the coverage provided by SIPC and thus are taking on additional risk.

      VFORX is a Target Retirement Fund and I discuss those in some detail here:

      It is not, however, one of the funds Betterment uses, so you wouldn’t have it and its .18% ER on top of Betterment’s fee.

      The ERs of the various ETFs Betterment uses will be added to their fee of course, but with the exception of a couple of the international EFTs (which are always more expensive) these are less than .18% and should average less as well.

      Still, as I say in the post, using Betterment does add their layer of fees. You need to decide if the service is worth it. Doing it for yourself with Vanguard will always be cheaper.

      VFORX 2040 is a fine choice, if it fits your needs. It uses four funds and adjusts over time at a specified rate. Betterment uses many more funds and you can customize the allocation to your needs and your timetable.

      I don’t think you are missing anything. It is just a matter of choosing which best serves your needs.

  14. Daniel says

    I am excited to see what Schwab Intelligent Portfolios is like. I received a new email from them today with a little more detail, but still pretty vague. Not sure the rules on posting links, hopefully it is ok:

    It is more appealing for me because there is no additional fee like Betterment and I already have my Traditional IRA and Roth IRA with Schwab, because at the time I signed up (and now as well) most of their funds had an ER a few basis points lower than comparable Vanguard funds.

  15. MarredCheese says

    I’m very intrigued by Betterment’s white paper on tax loss harvesting ( If they do the legwork to get me $3000 deducted from my taxable income each year, that’s totally worth the fee.

    What I’m wondering is how effective Betterment’s tax harvesting really is. For instance, the market rose in 2014, but with some good dips along the way. Was that volatility enough for Betterment to get you a good loss harvest? Was it any better than what someone would get on their own if they tried?

    • jlcollinsnh says

      Welcome Mr. Cheese…

      There has been a lot of excitement over Betterment’s new tax loss harvesting service. So much so, I have been thinking about writing another post to address some of the issues. But that will be a lot of work. 😉

      Let me see if I can provide some perspective for you in the meantime.

      1. Over all, in an up year like 2014, losses are going to be hard to come by, especially for an individual doing it on their own. Because Betterment does it relentlessly, they are likely to have better success. In a down year, or one with serious corrections, individuals can likely produce losses on their own just fine. Especially if hitting the $3000 is the goal.

      2. Tax losses are first applied to your gains, offsetting taxes due on those gains.

      3. But, in taking those losses, you are also increasing your tax basis. If you just left them alone, once the fund value rebounded, you would in effect have achieved the same thing. Illustration: You buy a fund for $10,000 and it drops to $7000. You sell, take the loss, buying a similar fund with the $7000. $7000 is now your new cost basis. When it rebounds to $10,000 you now have a pending capital gain of $3000.

      4. The sweet spot is, as you observe, if you can use the loss to access the $3000 the IRS allows you to apply to your earned income. The value of this depends on your tax-bracket and whether you live in a high tax state.

      5. You have to be very careful not to run afoul of the IRS wash rules. These say you cannot sell an asset for a loss and then immediately buy it back. Betterment will avoid this for you on the assets you hold with them. However, of course, they have no way of knowing what assets you have outside. In you 401k, for instance.

      While I think Betterment has a role to play in some cases, as I describe in the post, and while the tax-loss service can be of benefit to some, I would be very cautious in using it. You need to be very clear on how it fits your situation.

      Hope this helps!

      • MarredCheese says

        I’ll have to keep an eye out for that post. I’m sure it’ll be interesting.

        3. I was hoping that I could get my tax deduction now (25% marginal bracket), let the money compound for decades, and then gradually take the capital gains at 0% once I stop working and my income falls into the 10 or 15% bracket, assuming the tax code doesn’t change…

        5. Yeah, the wash rule is a pain since it applies to all of your spouse’s and your accounts. As you and others have already talked about, Betterment’s lack of knowledge of your funds that are held elsewhere limits its usefulness quite a bit.

      • Rob says

        This is great! I’ve really enjoyed reading your article. The main reason I’m considering switching to Betterment is for their automatic Tax Loss Harvesting services. Would you please consider writing further about that some time? I’m not sure if transitioning to this new platform exclusively for that benefit outweighs the low fees of a traditional fund/brokerage.

        Additionally, a comparison between Wealthfront and Betterment would be amazing!

  16. NYU student says

    Mr. Collins, it’s grateful NYU student here again.
    I’m considering signing up for Betterment through your blog.

    Could you please advise on the following?
    I opened up a ROTH and brokerage account(VTSAX) with Vanguard — all per your teaching 🙂

    How would I go about transferring those funds to Betterment?

    • jlcollinsnh says

      Hi NYU…

      Just hit the link in the post. It will take you to Betterment and walk you thru the process. This blog will also earn a commission.

      That said, if you’ve read thru this blog enough to open a Vanguard account and invest in VTSAX — why bother?

      Vanguard and VTSAX are the less expensive options and will serve you well over the decades.

      If you are comfortable with why I recommended Vanguard/VTSAX and why you made the choice to follow that recommendation, I’d stay the course with it.

      I’ll just have to learn to live without the commission. 🙂

      • NYU student says

        Thank you Mr. Collins for your response!

        I am worried about the asset allocation, and thought that betterment could do a better job for me, but am I overcomplicating it?

        I learned from your blog that I need to keep bonds in the tax-advantaged account, and equities in taxable. Could you kindly check my math?

        My current situation:
        -ROTH is $7,000
        -TAXABLE is $10,000

        To keep a 90/10 allocation (i am still too scared to do 100% in equities), I must then:
        1) Change my ROTH from TDF to VBMFX and I can leave the current $7000 there
        2) Add $53,000 toward my VTSAX in the taxable account?
        3) rebalance once a year

        Thank you Sir!

      • jlcollinsnh says

        Given the 17k you have to work with, Betterment would be the easier choice.

        If you want to use Vanguard:

        Taxable: $10,000 in VTSAX
        Roth: $4000 in VTSMX (same portfolio as VTSAX, but in “investor shares as it is less than 10k)
        $3000 in VBMFX. $3000 is the minimum investment.

        This would give you a ~82/18 stock/bond ratio.

        You’d then use new money to bring the stock portion to your 90% goal, and then rebalance annually.

  17. Jeremy E. says

    Hello Mr. Collins,
    Another thanks for making the BEST resource for learning about investing. You were able to make me switch entirely to Vanguard index funds, and I’m grateful, one large way you were able to do this was with your post, “What if Vanguard gets nuked?” My question is, what if Betterment gets nuked? What if they get bought out by another company, could the fees raise to above .15%? Could they add an unreasonable fee for taking your money out of Betterement? A great thing about Vanguard, it’s basically owned by the mutual funds themselves, so rather than make as much money as possible, it becomes a non-profit company giving us the best expense ratios possible. I don’t doubt that the people at Betterment are good ethical people, but I’m sure they want to make money. Vanguard also has a fancy recovery plan, does Betterment? These questions should probably be aimed at an employee of Betterment rather than you, but I just thought I’d throw them on the comments here to give other readers something to think about.

    Thank you for your time,

    Jeremy E.

    • jlcollinsnh says

      Thanks Jeremy…

      That’s high praise indeed!

      My guess is Betterment has a solid disaster recovery plan, just like Vanguard. But it is your other concerns I share.

      Unlike Vanguard, and like all other investment firms, Betterment is run on a for profit basis. This means they serve two masters: Their owners who reasonably expect to profit and their customers who expect to benefit from low costs and sound executions.

      Right now they serve the needs of their owners by putting the needs of their customers first. All the best, in my opinion, companies seek their success this way. It is a successful strategy and it serves to create companies with long, profitable lives.

      But greed is a powerful thing.

      As long as Betterment is run by its current management and for its current owners, I think its customers will be well served. But running it this way is creating growth and success. And those attract suitors.

      My guess is that, at some point Betterment will be sold to a larger entity or will go public itself.

      If the former, it will be relentlessly forced into doing business the way that entity does it. For better or worse.

      If the latter, it will be under new and relentless pressure from Wall Street to improve margins.

      It is very possible it will come thru either with its soul intact and its investors well served. But there is no guarantee.

      • Jeremy E. says

        Thanks for the speedy response Jim!
        For now I think I’ll stick with Vanguard, but I’ll keep an eye on Betterment. When I start making enough to no longer have qualified dividends, and my taxable accounts get larger, I might have to try them out. Thanks again for all you do! On top of your stock series, I also really like your post about renting vs owning, I’ve referred it to people more times than I can count. Uranium C is quite a riot too haha.

  18. Jim N. says

    At the present time, we hold all of our major holding in Vandguard. Wasn’t always the case but I’m a late bloomer!! Just curious about.

    “If Betterment were to fail for any reason, customers would receive shares of the ETFs they own in-kind through SIPC insurance.”

    If that were the case, what exactly does this entail or what would be the process? I do not expect this to occur, however, I must consider the possibility.

    Thanks- Jim
    Btw, I have opened an account with Betterment, started around $2,500, with every other week of$100 dollars. I have changed it to $200 every other week. As of today, amount invested $10,579, earned $489.85, earned 4.6%. Just chugging along with curiosity as to how it will develop. Our Vanguard holdings are the four core. Two of which in your book covers. Bought your book (Kindle Version) last night and have nearly read it in one sitting. Man, some of the mistakes I have made and only wished I had plunked down 10K on VTSAX . Can’t cry over spilled milk !! Just moving forward and onward, right. Besides, the stock market is always moving up. Thanks

    • jlcollinsnh says

      Hi Jim…

      Thanks for picking up my book. Glad you enjoyed it!

      As I’ve never really been all that concerned, I don’t know exactly how your assets would come to you in the event Betterment failed. My guess is that you would create an account with another firm and they would transfer their.

      You might want to ask Betterment directly and they should be able to lay it out for you.

  19. Dan says

    I just finished your book. Great read; I didn’t learn much new because we are of the same mind in terms of investing. I do have a greater appreciation of Vanguard and am now considering setting up a charitable foundation with them. Your book also validated much of what my father taught me about investing.

    Betterment is my primary investment vehicle. I prefer it over Vanguard for three reasons. Betterment charges 0.15% for balances over $100K compared to 0.05% for VTSAX. The three features in Betterment’s favor are a) automated portfolio rebalancing, b) automated tax loss harvesting and c) recently rolled out Tax-Coordinated Portfolio planning which does something you advocate in your book – bonds in tax advantaged plans and stocks in ordinary plans.

    These three tasks can be performed manually by the investor but Betterment is constantly looking at the asset allocation, searching for losses to harvest and considering the total tax implications across all accounts. As you say, keep it simple and hands off. By letting Betterment perform these tasks, the returns can increase by more than the 0.1% spread between Betterment & Vanguard. I was fairly “hands on” about asset reallocation but I wasn’t looking at it every day like Betterment does. I would harvest any losses I could in December every year or after a major stock market corrections but Betterment evaluates that everyday. Honestly, I was bass ackwards w.r.t. to asset location until a few years ago.

    The convenience plus the additional earning w.r.t. my status quo give Betterment the edge IMO. I suspect Vanguard will adopt these features eventually.

    • MarredCheese says

      “I was fairly ‘hands on’ about asset reallocation but I wasn’t looking at it every day like Betterment does.”

      Why would you want daily re-balancing? That sounds detrimental to me. Or am I misunderstanding what you meant?

      • Dan says

        You want to check daily if the portfolio needs rebalancing and rebalance only if it exceeds the threshold. Technically, you want to check continuously while the market is open – every second of every trade day. I was manually checking once a month on the last trade day.

    • jlcollinsnh says

      Thanks Dan…

      Glad you liked the book.

      Sounds like Betterment meets your needs perfectly. It should serve you well over the years.

  20. JP says

    Hi Jim! I enjoyed this review of Betterment as I had been considering singing up for their services for some time to address the exact scenario you discussed above – short term goals/savings growth. However, there is a new competitor in town doing essentially the same thing – WiseBanyan. The kicker is that apparently they are doing it for even less! I would love to get your thoughts on this competitor and how you feel they stand up to Betterment. Thanks!

    • jlcollinsnh says

      Hi JP…

      I’m afraid I am unfamiliar with WiseBanyan and have no plans to review them.

      But if you understand the Betterment approach, you can easily compare and decide for yourself.

      Good luck!

  21. Michelle says

    Thanks so much for this blog, I feel like I went from knowing nothing to everything I need to know in a matter of days and now I can start down the simple path to wealth.

    I recently signed up for Betterment and set my portfolio to be 100% stocks 0% bonds. I noticed that ~41% is invested in Developed Markets and 12.9% is invested in Emerging Markets. This doesn’t seem to jive with your stance on investing in international funds. Considering that this is a high percentage of my investment, I am feeling a little easy and would love to know what you or Betterment has to say!


    • jlcollinsnh says

      Glad you’ve found it helpful, Michelle.

      In my view, Betterment is best for those who value the diversification and automatic assent allocation features.

      But since you are 100% stocks, I think you’d be better and less expensively served just buying VTSAX thru Vanguard. As you know, while I’m not opposed to holding international stocks and don’t have a problem with them in the Betterment portfolios, I also just don’t see the need.

  22. Jim Nolan says


    Just wanted to touch base on your thoughts about Betterment vs. VTSAX. Not really sure this would be comparing apples to apples. A little ways back, you had wrote that you had started a Betterment account and were set up for monthly contributions. I started my Betterment back in Feb, 2015 . Initial of 2,500.00 with automatic contributions. Let me say, for our significant holdings with Vanguard, we hold 75-80 stock (VTSAX) in our tax deferred and we have approx. $17,000 in a taxable (VTSAX). As you know, VTSAX had been quite well. I am extremely fond of VTSAX !! Thanks you Sir for you advice and book on Simple Path to Wealth. A very forth right (excellent financial advice) and funny reading. So, back to Betterment.. hmm. I am trying to determine if I should continue on with this experiment of staying with Betterment or just to convert my holdings over to our VTSAX taxable account ? So, far the total with Betterment has grown to $14,618 and the amt. invest. is $13,179, Amt. earned is $1,239, earn % of 9.4 80/20.

    When I started the Betterment account, it was a total of 10 ETF funds, 6 stock and 4 Bond. Due to some tax harvesting, my holding are 11 ETF funds, 11 stock and 6 bond. So, I have 7 more funds with various cost ratios added to the portfolio.

    I am trying to determine if it is best to continue onward with Betterment 17 holdings or to convert all of the holdings to VTSAX ??

    1. Is this a fair assessment ? Am I even evaluating this correctly ?
    2. Am I throwing the baby out with the bath water and over looking the benefits of staying the course with Betterment ?

    Your thoughts would be greatly appreciated.

    Regards, Jim

    • jlcollinsnh says

      Hi Jim…

      A while back I closed my Betterment account. No problem with it, just that it was an experiment to see first hand how it worked.

      As for Betterment vs. Vanguard, my thoughts are all in the post above.

  23. JP says

    Hi again Jim! I’m just curious – why do you recommend using Betterment for short term investing as opposed to say a 70% VBTLX/30% VTSAX blend with Vanguard? It seems like you would incur less fees and you would be just as well diversified as if using Betterment. Thanks for your thoughts?

    • jlcollinsnh says

      From the post:

      “If you have/can read thru and understand the Stock Series here on the blog you are good to go and DIY (Do It Yourself) directly with Vanguard.”

    • Nice joy says

      Vanguard option gives you an option to cash either bonds or stocks based on market conditions. With betterment, when you sell it money is coming out from stocks and bonds, you cant choose what to sell.

  24. Nice Joy says

    I just finished reading your book 4 times. Thank you for your great work.
    I understand the concept of low fees and used your calculator.
    I also understand vanguard is better to hold your tax deferred funds since there is no benefit of tax lost harvesting.
    But i don’t know if betterment is better for taxable accounts since they offer TLH and tax coordinated portfolio. Betterment will cost me at least 0.20 more compared to TRF offered by vanguard. What are your thoughts about it? .

  25. Pat says

    This post really turns me off to this blog. The clear conflict of interest in which you profit from persuading readers to sign up for a financial product makes me sceptical of this and other posts. Clearly Betterment has no place in a network of frugal DIY investors who chase low fees and personal finance mastery. It is clear that you aren’t doing the pitfalls service. Betterment traps investors in an odd mix of funds through harvesting. I can’t imagine the complexity of tax planning and whether Betterment offers any tax planning resources. Would it even be feasible to transfer these complex portfolios to another custodian to escape the tack on fees, and would the inability to sell without tax consequences cause drift distortions? I would like to see a more honest critique of Betterment, and I hope this doesn’t conflict with the operation of your business.

    • Joy says

      For most people betterment is a better option. If you want to do even better then vanguard is there for you. Vanguard doesn’t have an easy platform that will turn away many beginners….. You need to understand the effects of high ER to get motivated to move from betterment to vanguard.

      For lazy people betterment
      For smart vanguard

      Failure to start invest is costing bigtime for most, so betterment is a big step forward.

      Jim clearly states that he closed Betterment account and moved money to Vanguard.

      He is not trying to cheat you nor trying to make money out of it. For that reason, I don’t support your comment. [To Pat]

  26. Jeremy E. says

    Whoa there, all of my favorite blogs have made posts about betterment… mr money mustache, mad fientist and jim here. They aren’t forcing you to use betterment but rather informing you about other options.

  27. Eliza says

    Hi Jim Collins,

    I devoured your book in a weekend. It had me laughing throughout! I since reread it several times and passed it on to family. It’s a keeper!

    I have a question about this topic. I inherited 100K (in a brokerage account-mostly single stocks). I also invested about 20K in a different brokerage account in the form of a Roth IRA (mostly in American funds!). As I understand, if I stay with the brokerage firm I will likely be paying 1% annual fee on top of the ETF fees (planning to get out of American).

    I am also thinking about Vanguard vs. Betterment. I currently have a small savings account with Betterment for a future car purchase. Just experimenting myself after I read your blog.

    I see that Vanguard offers personal advisor services for .3% for those who can invest 50K. Would this another possible route for someone who wants the best of Vanguard and the help of Betterment? Any advice for me? In my 40s just new to budgeting and investing.

    • jlcollinsnh says

      Hi Eliza…

      First thing I’d do is move that Roth to Vanguard.

      As I say in this post, if you are comfortable reading my Stock Series and book, you really don’t need Betterment. Or the advisor services of Vanguard.

  28. Adam says

    I am new to your blog and am enjoying your thoughts and insights—thanks!

    A close friend loves Betterment and has been nudging me to do it for years. Thanks for the additional nudge.

    By the way, the proofreader in me thinks paragraph 7 should read “piqued my interest” (not “peaked”) and “poring over” (not “poring”)—otherwise a GREAT post. 👍


  29. kenneth tobin says

    A flat fee is the only way to go. Investing 1 M versus 5M is the same amount of work
    Don’t be fooled to pay an AUM fee to anyone!

  30. Karl says

    Mr. Collins,
    Thank you for this and everything you’ve done, it’s been hugely impactful. Can you please clarify something? I’m in the wealth accumulation stage. If the goal was to use Betterment but e.g. also utilize a 100% stock index or 80/20 stock/bond plan like you outline in your book, should we manually customize the portfolio within betterment to select Vanguard total stock index, or just let betterment do its robo thing based on goals etc.? Any input here would be greatly appreciated.

  31. Chaim Rudolph says

    Hi JL!

    I’m at page 177 in your book and I am blown away! So many lessons my Jewish father taught me as a little boy have slipped my mind and I’m grateful to have you as a reminder of those lessons and a guide.

    I am 27 and I recently put money into a Roth ira with Betterment and after reading your book I realize that this may have been a mistake. I am in the 22% tax bracket and can be using the tax benefit of a deductible ira to invest in a taxable account. On page 150, you advise to “fund a Roth only if you are paying little or no income tax and once your income tax rate rises, fully fund a deductible IRA rather than the Roth”.

    My question is: what do you consider little tax? Is 22% little? (I’m assuming it is not, but want to confirm with you, as you do not give an example in the book)

    Additionally, I am glad to see you are a proponent of Betterment. I was kicking myself in the butt for not going with Vangaurd after reading how much you love getting away with paying a mere .04% (compared to Betterment’s .25%). So my second question is: Would you recommend transferring from betterment to the VTSAX (presumably in a deductible IRA)?

    Thank you!


  32. Blair says

    Note: Betterment is not a brokerage and will not transfer your investments in kind to a brokerage. This means if you (like me) decide to move to vanguard or IB, you will have to sell everything and repurchase your investments again. It takes time for the funds to clear, took me about 2 weeks all together. So you will be sitting out of the market for some time. Once your portfolio is large enough it makes sense to leave due to feed and particularly to simplify your taxes (betterment constantly makes trades).

  33. Heather says

    MMM is a big fan of Betterment for tax loss harvesting, I’m still having trouble wrapping my brain around why this service is needed if you’re investing in VTSAX (or similar)? Any insight on that aspect of Betterment? Thanks!

  34. Robin says

    We have been with Betterment since we found MMM. They have done right by us and the fee is very reasonable and I like tax loss harvesting. We delved into Vanguard after we found you and we enjoyed that also but Vanguard doesn’t do any tax loss harvesting that I’m aware of. It is difficult to be in two places though and try to figure out how to take your money out during retirement. Also, I believe you need to mention Jon is no longer the CEO of the company. I’m not sure if he sold it but there is a new CEO now. Great review keep it up.!!

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