Expert Insights

Making Sense of Crypto Volatility Crypto is a volatile asset class. But there are things you can do to prepare for likely losses that accompany potential gains. We’ll jump straight to the point: Crypto is definitely a volatile asset class, meaning it can have large positive and negative returns. But there are things you can do to prepare for likely losses that accompany potential gains. Your secret power: Being ready for volatility There is no sugar-coating volatility in crypto, but understanding it can help set you up for long-term success. As an investor, having a plan for how you will respond to volatility ahead of time (and sticking to it) can be your secret power. When the market falls and everyone else is panic selling, you’ll know what to do. Let’s cover the basics of volatility in crypto: Volatility refers to how much crypto prices change over time. Generally, the larger the price changes, the more risky an investment tends to be, and the greater chances of both gains and losses. Crypto has been very volatile in its short life, with prices climbing and falling regularly. For example, since 2021, the price of Bitcoin has bounced around with peaks near $70,000 and lows under $20,000—this is volatility in action. 3 steps to help coast through crypto volatility You don’t have to let volatility take you for a ride. Here are three tools that you can use to manage through volatility to help keep your investments on track over the long term: Diversify your investments. If your overall investment portfolio is diversified, crypto doesn’t have to feel as daunting if it’s only a small percent of your net worth. That’s also why we recommend only 5% or less of your investable assets in crypto. Use dollar cost averaging. One method is to use dollar cost averaging to reduce risk and build up your investment over time. Using dollar cost averaging, you would deposit a consistent amount into your crypto portfolio each month. At Betterment, you can set up a scheduled deposit into your crypto portfolio to automate dollar cost averaging. This results in buying more units when prices are low and less when they’re high. You can use this approach with stocks and bonds as well. Be intentional about monitoring your portfolio. It can feel good to log in and see gains, sure. But logging in during a down period will probably just make you feel stressed. And we don’t make good decisions when we’re stressed—like panic selling for a loss. Take a break from frequently checking your performance when markets are down.

Beyond Bitcoin: The Importance of Diversification in Crypto You should invest in more than one cryptocurrency just like you’d invest in multiple stocks and bonds. Sometimes we hear the question: Is diversification important in crypto in the same way it is with traditional investing in stocks and bonds? The short answer is: Yes, diversification is important—you should invest in more than one cryptocurrency just like you’d invest in multiple stocks and bonds. But let’s expand on this thought. Diversification beyond Bitcoin and Ethereum The general goal of diversification is to try and reduce the risk of losses while increasing your expected return. We can do this by making investments in a broad set of assets, limiting exposure to any one holding. With crypto, we recommend investing in multiple tokens, expanding beyond Bitcoin and Ethereum, to help limit exposure to any single asset. Diversification can give you wider exposure to the growing crypto landscape, including tokens in decentralized finance and the metaverse. How to diversify in crypto If you haven’t invested in crypto yet, or have only invested a little in Bitcoin or a small handful of other tokens, we recommend starting small and slow. Here are two tips to get started: Choose your overall crypto allocation Think of crypto as a small part of your larger investment strategy—not a one-off investment. Diversification matters within your crypto investment but also across all of your investments. You need to answer the question: how much of my investable assets do I want in crypto? It seems like a big question, but we try to make it easier on you. Our experts recommend no more than a 5% allocation of your total investable assets. Invest in multiple cryptocurrencies This one is important. We’re so early in the life span of crypto that picking a few winners from thousands of coins is unlikely—that’s why we offer diversified, expert-curated portfolios with multiple coins that can change over time as the crypto markets evolve.

Crypto’s Value: The Opportunity to Invest in an Unknown Future Investing in crypto could be the first opportunity that all investors have had to participate in an asset class from its origin. “Investing in the future” may sound cliche but investing in crypto could be the first opportunity that all investors, regardless of wealth, have had to participate in an asset class from its origin, shaping the future of our economy.   If you think about angel investing or startups, investing in a business during its early days is risky and often limited to a select few insiders. But with crypto, these high-risk (potentially high-reward) investment opportunities are open to everyone. It’s a way for an investor to take a piece of their portfolio and invest in an unknown future—potentially a piece of the world’s future business models. The world’s future business models Crypto means different things to different people. But at its core, many legitimate crypto initiatives are trying to build businesses of the future. That’s easy to miss with thousands of coins to choose from and too many negative news headlines about crypto. At Betterment, we’ve built diverse portfolios of crypto assets with use cases that are trying to bring wider access to digital goods and services. These business models run the gamut, including: Stores of value Financial services Digital commerce Data storage Gaming and entertainment We believe that a small, diversified investment in these innovative projects belongs in the modern investment portfolio. Where do we see crypto headed in the next 1-2 years? In one sentence: Crypto is here to stay but it likely will be a bumpy ride. Crypto is still in its early years, so a lot can change (and is changing daily). Even with the ups and downs in the market, we don’t think crypto is going anywhere based on these three measures: Increased consumer adoption. Crypto ownership has more than doubled globally since 2020. Increased institutional adoption. We’re seeing increased institutional adoption from banks to retailers which haven’t shown signs of stopping even in down markets. Increased government regulation. Regulation across the globe may help the industry mature and introduce consumer protections.

How To Manage Your Income In Retirement An income strategy during retirement can help make your portfolio last longer, while also easing potential tax burdens. Retirement planning doesn’t end when you retire. To have the retirement you’ve been dreaming of, you need to ensure your savings will last. And how much you withdraw each month isn’t all that matters. In this guide we’ll cover: Why changes in the market affect you differently in retirement How to help keep bad timing from ruining your retirement How to decide which accounts to withdraw from first How Betterment helps take the guesswork out of your retirement income Part of retirement planning involves thinking about your retirement budget. But whether you’re already retired or you’re simply thinking ahead, it’s also important to think about how you’ll manage your income in retirement. Retirement is a huge milestone. And reaching it changes how you have to think about taxes, your investments, and your income. For starters, changes in the market can seriously affect how long your money lasts. Why changes in the market affect you differently in retirement Stock markets can swing up or down at any time. They’re volatile. When you’re saving for a distant retirement, you usually don’t have to worry as much about temporary dips. But during retirement, market volatility can have a dramatic effect on your savings. An investment account is a collection of individual assets. When you make a withdrawal from your retirement account, you’re selling off assets to equal the amount you want to withdraw. So say the market is going through a temporary dip. Since you’re retired, you have to continue making withdrawals in order to maintain your income. During the dip, your investment assets may have less value, so you have to sell more of them to equal the same amount of money. When the market goes back up, you have fewer assets that benefit from the rebound. The opposite is true, too. When the market is up, you don’t have to sell as many of your assets to maintain your income. There will always be good years and bad years in the market. How your withdrawals line up with the market’s volatility is called the “sequence of returns.” Unfortunately, you can’t control it. In many ways, it’s the luck of the withdrawal. Still, there are ways to help decrease the potential impact of a bad sequence of returns. How to keep bad timing from ruining your retirement The last thing you want is to retire and then lose your savings to market volatility. So you’ll want to take some steps to try and protect your retirement from a bad sequence of returns. Adjust your level of risk As you near or enter retirement, it’s likely time to start cranking down your stock-to-bond allocation. Invest too heavily in stocks, and your retirement savings could tank right when you need them. Betterment generally recommends turning down your ratio to about 56% stocks in early retirement, then gradually decreasing to about 30% toward the end of retirement. Rebalance your portfolio During retirement, the two most common cash flows in/out of your investment accounts will likely be dividends you earn and withdrawals you make. If you’re strategic, you can use these cash flows as opportunities to rebalance your portfolio. For example, if stocks are down at the moment, you likely want to withdraw from your bonds instead. This can help prevent you from selling stocks at a loss. Alternatively, if stocks are rallying, you may want to reinvest your dividends into bonds (instead of cashing them out) in order to bring your portfolio back into balance with your preferred ratio of stocks to bonds. Keep a safety net Even in retirement, it’s important to have an emergency fund. If you keep a separate account in your portfolio with enough money to cover three to six months of expenses, you can likely cushion—or ride out altogether—the blow of a bad sequence of returns. Supplement your income Hopefully, you’ll have enough retirement savings to produce a steady income from withdrawals. But it’s nice to have other income sources, too, to minimize your reliance on investment withdrawals in the first place.  Social Security might be enough—although a pandemic or other disaster can deplete these funds faster than expected. Maybe you have a pension you can withdraw from, too. Or a part-time job. Or rental properties. Along with the other precautions above, these additional income sources can help counter bad returns early in retirement. While you can’t control your sequence of returns, you can control the order you withdraw from your accounts. And that’s important, too. How to decide which accounts to withdraw from first In retirement, taxes are usually one of your biggest expenses. They’re right up there with healthcare costs. When it comes to your retirement savings, there are three “tax pools” your accounts can fall under: Taxable accounts: individual accounts, joint accounts, and trusts. Tax-deferred accounts: individual retirement accounts (IRAs), 401(k)s, 403(b)s, and Thrift Savings Plans Tax-free accounts: Roth IRAs, Roth 401(k)s Each of these account types (taxable, tax-deferred, and tax-free) are taxed differently—and that’s important to understand when you start making withdrawals. When you have funds in all three tax pools, this is known as “tax diversification.” This strategy can create some unique opportunities for managing your retirement income. For example, when you withdraw from your taxable accounts, you only pay taxes on the capital gains, not the full amount you withdraw. With a tax-deferred account like a Traditional 401(k), you usually pay taxes on the full amount you withdraw, so with each withdrawal, taxes take more away from your portfolio’s future earning potential. Since you don’t have to pay taxes on withdrawals from your tax-free accounts, it’s typically best to save these for last. You want as much tax-free money as possible, right? So, while we’re not a tax advisor, and none of this information should be considered advice for your specific situation, the ideal withdrawal order generally-speaking is: Taxable accounts Tax-deferred accounts Tax-free accounts But there are a few exceptions. Incorporating minimum distributions Once you reach a certain age, you must generally begin taking required minimum distributions (RMDs) from your tax-deferred accounts. Failure to do so results in a steep penalty on the amount you were supposed to take. This changes things—but only slightly. At this point, you may want to consider following a new order: Withdraw your RMDs. If you still need more, then pull from taxable accounts. When there’s nothing left in those, start withdrawing from your tax-deferred accounts. Pull money from tax-free accounts. Smoothing out bumps in your tax bracket In retirement, you’ll likely have multiple sources of non-investment income, coming from Social Security, defined benefit pensions, rental income, part-time work, and/or RMDs. Since these income streams vary from year to year, your tax bracket may fluctuate throughout retirement. With a little extra planning, you can sometimes use these fluctuations to your advantage. For years where you’re in a lower bracket than usual–say, if you’re retiring before you plan on claiming Social Security benefits–it may make sense to fill these low brackets with withdrawals from tax-deferred accounts before touching your taxable accounts, and possibly consider Roth conversions. For years where you’re in a higher tax bracket, like if you sell a home and end up with large capital gains–it may make sense to pull from tax-free accounts first to minimize the effect of higher tax rates. Remember, higher taxes mean larger withdrawals and less money staying invested.

How To Plan Your Taxes When Investing Tax planning should happen year round. Here are some smart moves to consider that can help you save money now—and for years to come. Editor’s note: We’re about to dish on taxes and investing in length, but please keep in mind Betterment isn’t a tax advisor, nor should any information here be considered tax advice. Please consult a tax professional for advice on your specific situation. In 1 minute No one wants to pay more taxes than they have to. But as an investor, it’s not always clear how your choices change what you may ultimately owe to the IRS. Consider these strategies that can help reduce your taxes, giving you more to spend or invest as you see fit. Max out retirement accounts: The more you invest in your IRA and/or 401(k), the more tax benefits you receive. So contribute as much as you’re able to. Consider tax loss harvesting: When your investments lose value, you have the opportunity to reduce your tax bill. Selling depreciated assets lets you deduct the loss to offset other investment gains or decrease your taxable income. You can do this for up to $3,000 worth of losses every year, and additional losses can count toward future years. Rebalance your portfolio with cash flows: To avoid realizing gains before you may need to, try to rebalance your portfolio without selling any existing investments. Instead, use cash flows, including new deposits and dividends, to adjust your portfolio’s allocation. Consider a Roth conversion: You can convert all or some of traditional IRA into a Roth IRA at any income level and at any time. You’ll pay taxes upfront, but when you retire, your withdrawals are tax free. It’s worth noting that doing so is a permanent change, and it isn’t right for everyone. We recommend consulting a qualified tax advisor before making the decision. Invest your tax refund: Tax refunds can feel like pleasant surprises, but in reality they represent a missed opportunity. In practice, they mean you’ve been overpaying Uncle Sam throughout the year, and only now are you getting your money back. If you can, make up for this lost time by investing your refund right away. Donate to charity: Giving to causes you care about provides tax benefits. Donate in the form of appreciated investments instead of cash, and your tax-deductible donation can also help you avoid paying taxes on capital gains. In 5 minutes Taxes are complicated. It’s no wonder so many people dread tax season. But if you only think about them at the start of the year or when you look at your paycheck, you could be missing out. As an investor, you can save a lot more in taxes by being strategic with your investments throughout the year. In this guide, we’ll: Explain how you can save on taxes with strategic investing Examine specific tips for tax optimization Consider streamlining the process via automation Max out retirement accounts every year Retirement accounts such as IRAs and 401(k)s come with tax benefits. The more you contribute to them, the more of those benefits you enjoy. Depending on your financial situation, it may be worth maxing them out every year. The tax advantages of 401(k)s and IRAs come in two flavors: Roth and traditional. Contributions to Roth accounts are made with post-tax dollars, meaning Uncle Sam has already taken a cut. Contributions to traditional accounts, on the other hand, are usually made with pre-tax dollars. These two options effectively determine whether you pay taxes on this money now or later. So, which is better, Roth or Traditional? The answer depends on how much money you expect to live on during retirement. If you think you’ll be in a higher tax bracket when you retire (because you’ll be withdrawing more than you currently make each month), then paying taxes now with a Roth account can keep more in your pocket. But if you expect to be in the same or lower tax bracket when you retire, then pushing your tax bill down the road via a Traditional retirement account may be the better route. Use tax loss harvesting throughout the year Some of your assets will decrease in value. That’s part of investing. But tax loss harvesting is designed to allow you to use losses in your taxable (i.e. brokerage) investing accounts to your advantage. You gain a tax deduction by selling assets at a loss. That deduction can offset other investment gains or decrease your taxable income by up to $3,000 every year. And any losses you don’t use rollover to future years. Traditionally, you’d harvest these losses at the end of the year as you finalize your deductions. But then you could miss out on other losses throughout the year. Continuously monitoring your portfolio lets you harvest losses as they happen. This could be complicated to do on your own, but automated tools make it easy. At Betterment, we offer Tax Loss Harvesting+ at no extra cost. Once you determine if Tax Loss Harvesting+ is right for you (Betterment will ask you a few questions to help you determine this), all you have to do is enable it, and this feature looks for opportunities regularly, seeking to help increase your after-tax returns.* Keep in mind, however, that everyone’s tax situation is different—and Tax Loss Harvesting+ may not be suitable for yours. In general, we don’t recommend it if: Your future tax bracket will be higher than your current tax bracket. You can currently realize capital gains at a 0% tax rate. You’re planning to withdraw a large portion of your taxable assets in the next 12 months. You risk causing wash sales due to having substantially identical investments elsewhere. Rebalance your portfolio with cash flows As the market ebbs and flows, your portfolio can drift from its target allocation. One way to rebalance your portfolio is by selling assets, but that can cost you in taxes. A more efficient method for rebalancing is to use cash flows like new deposits and dividends you’ve earned. This can help keep your allocation on target while keeping taxes to a minimum. Betterment can automate this process, automatically monitoring your portfolio for rebalancing opportunities, and efficiently rebalancing your portfolio throughout the year once your account has reached the balance threshold. Consider getting out of high-cost investments Sometimes switching to a lower-cost investment firm means having to sell investments, which can trigger taxes. But over time, high-fee investments could cost you more than you’d pay in taxes to move to a lower cost money manager. For example, if selling a fund will cost you $1,000 in taxes, but you will save $500 per year in fees, you can break even in just two years. If you plan to be invested for longer than that, switching can be a savvy investment move. Consider a Roth conversion The IRS limits who can contribute to a Roth IRA based on income. But there’s no income limit for converting your traditional IRA into a Roth IRA. It’s not for everyone, and it does come with some potential pitfalls, but you have good reasons to consider it. A Roth conversion could: Lower the taxable portion of the conversion due to after-tax contributions made previously Lower your tax rates Put you in a lower tax bracket than normal due to retirement or low-income year Provide tax-free income in retirement or for a beneficiary Provide an opportunity to use an AMT (alternative minimum tax) credit carryover Provide an opportunity to use an NOL (net operating loss) carryover If you decide to convert your IRA, don’t wait until December—you’d miss out on 11 months of potential tax-free growth. Generally, the earlier you do your conversion the better. That said, Roth conversions are permanent, so be certain about your decision before making the change. It’s worth speaking with a qualified tax advisor to determine whether a Roth conversion is right for you. Invest your tax refund It might feel nice to receive a tax refund, but it usually means you’ve been overpaying your taxes throughout the year. That’s money you could have been investing! If you get a refund, consider investing it to make up for lost time. Depending on the size of your refund, you may want to resubmit your Form W-4 to your employer to adjust the amount of taxes withheld from each future paycheck. The IRS offers a Tax Withholding Estimator to help you get your refund closer to $0. Then you could increase your 401(k) contribution by that same amount. You won’t notice a difference in your paycheck, but it can really add up in your retirement account. Donate to charity It’s often said that it’s better to give than to receive. This is doubly true when charitable giving provides tax benefits in addition to the feeling of doing good. You can optimize your taxes while supporting your community or giving to causes you care about. To donate efficiently, consider giving away appreciated investments instead of cash. Then you avoid paying taxes on capital gains, and the gift is still tax deductible. You’ll have to itemize your deductions above the standard deduction, so you may want to consider “bunching” two to five years’ worth of charitable contributions. Betterment’s Charitable Giving can help streamline the donation process by automatically identifying the most appreciated long-term investments and partnering directly with highly-rated charities across a range of causes.

How Betterment Keeps Your Investments Safe Betterment uses a variety of protections to secure your investments and your overall account. Here’s the security you get with us. When you choose to invest it with us, that’s a responsibility we don’t take lightly. At Betterment, we’re proud to have a variety of protections in place to secure your investments and your overall account. In this guide, we’ll: Walk through our safety measures Talk about how two-factor authentication keeps your account secure Define SIPC insurance What safety measures does Betterment take? Betterment goes to great lengths to help keep your assets secure. Betterment is a regulated entity, and registered with the Securities and Exchange Commission (SEC) as an investment adviser. Many aspects of our operations, and all aspects of our advice, are subject to the SEC’s oversight. We make it easy to verify your investment holdings At Betterment, we believe in transparency. You can not only own independently-verifiable securities from companies like Vanguard and iShares, but you can view your precise positions in these investments at all times. Just log into your account from any device to view your previous day’s performance. Every day and after every trade, we disclose the precise number of shares of every ETF in which you’re invested. Our policy of transparency also extends to our dividends reports and tax statements. We not only show the transactions made on your behalf, but we also list each fractional share sold and the respective gross proceeds and cost basis for each. We regularly undergo review by the SEC and FINRA Betterment LLC, our SEC-registered investment advisor, provides investment advice and discretionary management of your account. Betterment’s affiliate, Betterment Securities, provides custody and execution services for Betterment’s client accounts. Betterment Securities is both a carrying and introducing broker-dealer registered with the Financial Industry Regulatory Authority (“FINRA”) and a member of the Securities Investor Protection Corporation (“SIPC”), whose sole purpose is to service Betterment’s clients and carry accounts that Betterment manages. Betterment Securities maintains books and records for all our customers' assets, and regulatory agencies routinely review those records. For example, Betterment is subject to rule 206(4)-2 of the Investment Advisers Act of 1940 (the “Advisers Act”), which means we receive an annual surprise exam from an independent public accountant. We never know when it’ll happen. They just show up unannounced. The auditors verify our internal books and records. They reconcile every share and every dollar we say we have against our actual holdings. They spot check several hundred random customer accounts. They contact customers to verify that the account statements we issue match our internal records. And they ask questions if anything is even a penny off. But don’t just take our word for it! You can verify their audits yourself. Our partner clearing brokerage firm also keeps its own records of all of the assets we manage for our clients, and we reconcile our records to our clearing firm’s reports on a daily basis, providing an additional independent source of verification. We also undergo regular, rigorous, independent examination, both by the SEC and by FINRA, to ensure that we properly maintain our customer records and satisfy our capital requirements. Our regulators scrutinize our revenues, expenses, and available capital on a monthly basis. Three separate annual audits by our independent public accountants verify the adequacy of our financial condition, the safety of our operational controls, and the safekeeping of customer assets we custody. Each examination ensures that our records match up with the independently available records from our clearing firm. We never commingle funds No matter what investment adviser or brokerage firm you use, they should never mix your money with their firm’s operational funds. At Betterment, our operational funds are always 100% separate from customer funds held by Betterment Securities. Customer funds are kept apart by numerous firewalls—both digital and human-supervised. We built our software from the ground up to make any sort of commingling impossible, automating all of our trading and money movement. We also avoid risky financial operations that some other retail brokers engage in, such as proprietary trading with operating capital, or lending out customer assets. We only do one thing: manage your money. How does two-factor authentication keep your account secure? One of the most important ways we protect your investments is by making it difficult for someone else to gain access to your account. Passwords are notoriously easy to crack. That’s why our Betterment engineers implemented two-factor authentication across retail client accounts, simplifying and strengthening our authentication code in the process. As a side note, certain Advised client accounts and 401(k) participant accounts through our Betterment at Work offering don’t require mandatory 2FA at this time. Two-factor authentication (2FA) adds an extra level of security by requesting two separate pieces of evidence to verify a user’s identity. You’ve likely come across it before. Have you ever entered your password in an app or website, then been instructed to type in a code that was texted to your phone? That’s one form of two-factor authentication. Such text-based verification codes are actually less secure than some other forms of 2FA, but any form of 2FA is exponentially more secure than a password alone. At Betterment, we offer two forms of 2FA: The text-based verification codes you’re likely used to More secure time-based one-time passwords (TOTP) using an authenticator app like Google Authenticator or Authy While we hope you’ll consider taking advantage of the extra security that comes with TOTP, either form of 2FA will help keep your account well-protected. What is SIPC insurance? Much like other forms of insurance, the Securities Investor Protection Corporation (SIPC) provides a safety net in case of emergency. Betterment Securities, our affiliated broker-dealer, is a member of SIPC. Health insurance exists to cover your medical needs. Car insurance helps you get you back on the road after an accident. And SIPC insurance protects your investments in the event of a worst-case scenario such as brokerage firm insolvency, covering up to $500,000 of missing assets (securities and cash), including a maximum of $250,000 for cash claims. But unlike most insurance, you don’t have to seek out and pay for SIPC on your own. All brokers—including Betterment—are required to be SIPC members. SIPC insurance only protects against missing securities. It does not cover losses due to market volatility. How SIPC Insurance Works The $500,000 coverage limit applies individually to legally distinct accounts. If you have a taxable account, an IRA, and a trust, each one is eligible for its own $500,000 of coverage. And that coverage applies to what’s missing, not to the overall balance. Let’s say you have accounts with three different brokers, and each account holds $2 million in assets. Each of those accounts is covered separately by SIPC, up to $500,000. If one of those brokerage firms were to go bankrupt, a judge would appoint a trustee to sort through the broker’s books and distribute assets back to you and other clients. Here are some possible outcomes, with specific numbers to illustrate: The trustee recovers your original assets (your $2 million) from the insolvent broker-dealer. You are made whole and experience zero loss on your account. SIPC is not involved in this scenario. The trustee only recovers $1.5 million of your assets. The remaining $500,000 is covered by SIPC insurance, and you are made whole. The trustee only recovers $1 million. You are covered by SIPC insurance for $500,000 of the missing amount, but you incur a partial loss for the remaining $500,000. Why it’s unlikely you’ll need SIPC As important as this protection is, chances are, you won’t actually need it. Custodian broker-dealers are required to undergo a series of regulatory safety checks and audits everyday and report any problems. This elaborate set of guardrails helps ensure that SIPC remains a last resort. For example, brokers must segregate their own assets from their clients’ assets. If this segregation is properly maintained, account holders should be made whole in case of firm insolvency—no matter the account size. Brokers must also closely monitor their net capital cushion, providing similar protection. Because of all this, SIPC proceedings are very rare. Since the organization was established in 1971, there have only been 330 proceedings out of approximately 40,000 SIPC brokers. In the first four years, 109 proceedings were initiated, and since then, no year has had more than 13. Secure your investments with Betterment All investing comes with some risk. But your risk should be based on the market, not your broker. We can’t control every up and down of the market, but we can and do take every precaution to keep your assets secure. Betterment employs principles of transparency, simplicity, and verification from the ground up to provide you with state-of-the-art security. As a major financial institution, we’re required to keep a large capital cushion, maintain our own records, and undergo extensive examination by regulators and public accountants. But we never put our financial cushion at risk, and we never let customer assets out of our hands. That's why you can trust us to keep your investments safe.

Why Saving for Your Kid's College isn’t a Pass-Fail Proposition Investing even a modest amount now can make a noticeable difference down the road. In the long list of priorities during the early years of parenting, saving for your kid’s college may fall somewhere between achieving rock-hard abs and learning a foreign language. It’s not usually high on the list, in other words. And while the number of 529 plans, a tax-advantaged investing account designed for education expenses, continues to grow (15.7 million), that still makes for less than 1 plan for every 4 people under the age of 18 according to the latest U.S. Census numbers. The relative lack of saving in this space should come as no surprise when you factor in the financial commitments of early childhood—daycare alone can feel like a second mortgage—but the statistic also presents an opportunity. Start saving for college a few years earlier, or even at all, and that’s more time for compound interest to potentially work its magic. The stakes are high considering the skyrocketing costs of college. Before we dive into some practical budgeting tips to address this topic, let’s pour out some whole milk for the unique struggle that is saving while also supporting a family. A financial planner’s first-person account from the parenting front lines Bryan Stiger became the proud father of a baby girl last year. He also just so happens to be a Betterment Certified Financial Planner™. So he’s uniquely situated to talk about the money management challenges facing heads of households. “Since becoming a parent, it’s been a rollercoaster for me and my wife for sure,” says Bryan. “A few other things that feel like a rollercoaster when you become a parent are your expenses and your savings.” A big part of the problem is that kids create a financial double whammy, Bryan says. They appear suddenly and start demanding, among other things, a share of your limited money supply. At the same time, they introduce a series of potential new savings goals. Think not only a college education but more immediate big ticket items like braces. When you heap these goals on top of your pre-existing ones, it can quickly feel overwhelming. So how do you save for them all? Bryan suggests you don’t. Pick and prioritize only a handful, he advises, then define those goals more clearly. While this is a personal decision, his recommended order of importance for clients usually goes something like: Retirement (contribute just enough to get your employer’s full 401(k) match, assuming they offer one) Short-term, high-priority goals High-interest debt (any loans at 8% and above) Emergency fund (3-6 months’ worth of living expenses) Retirement (come back to your tax-advantaged 401(k) and/or IRA and work to max them out) Other (home, college, etc.) Your kid’s college fund, as you can see, shouldn’t come before your personal goals. That’s because you can usually finance an education, but few banks will finance your retirement. That doesn’t mean your hopes of helping your kid with college are doomed, however. The key, according to Bryan, is to first size up your priority goals. This involves crunching some numbers and answering “How much?” and “How soon?” for each goal. In the case of college, “How much” will depend on a few factors, decisions like private vs public, in-state vs out, etc. A calculator tool such as this one from calculator.net can help you with a rough estimate. In terms of “How soon?”—or in finance-speak, your “time horizon”—we recommend using the year your kid turns 22. That’s because parents tend to continue saving for college while their kids are enrolled. Once you have a rough idea of these two numbers, Betterment’s tools can tell you how much you should contribute each month to help increase your likelihood of meeting your goal. Do this for each of your priorities, and you very well might find you don’t have enough cash flow to cover them all. This is normal! Bryan likes to remind clients in these moments that short-term goals, by nature, won’t soak up their cash flow forever, especially if they doggedly pursue them. Once met, you can redirect that money to other pursuits like a down payment on a house – or your kid’s college. Above all, forgive yourself if you fall short When it comes to saving for your child’s education, two things are true: You have precious few years from an investing perspective for compound growth to potentially work its magic. You may not be able to save as much as you’d like—or at all in the beginning—due to higher priorities. Given these realities, it’s okay to lower the bar. If you’re still working on high-interest debt and/or an emergency fund, set a goal of achieving those in 2-5 years so you can focus elsewhere afterwards. Or set up a seemingly small recurring deposit toward an education goal now. It could be $10, $25, or $50 a month. It can still make a difference down the road. If you ease your child’s student loan burden by even a little, you’ll have done them a huge favor. It’s a favor they probably won’t fully appreciate for a while, but since when was parenting anything but a thankless job?

5 Financial Steps To Take After Getting A Raise When you get a raise at work, consider how you can maximize your earnings to identify new financial opportunities. If you’ve recently received a raise, congratulations! You worked many long hours to deserve this, and now your hard work has paid off. Whether this pay increase was expected or whether it was a complete surprise, you may have many thoughts running through your mind, including calling your spouse or your Mom, deciding what restaurant you are dining at for a celebration, or how your new salary will give you more freedom to take that vacation you’ve been wanting to go on. While you should be excited, it’s important to take a step back to reassess your new pay and how it impacts your financial situation. Without doing so, you might find that your raise is more harmful than when you were making less money. To avoid having “raise regret”, consider these five tips. 5 Things To Do After Receiving A Raise 1. Understand your new salary. While you deserve to celebrate, you may want to hold off on making any large purchases that were unplanned and not saved for with your new cash flow. Unlike a bonus, where you receive a lump sum, your raise is going to be broken out across all pay periods. Additionally, your raise is going to be stated as an increase to your gross pay. In other words, if you receive a $5,000 annual raise, that does not mean that you are pocketing $5,000 over the course of the next year because we have to pay taxes. If you aren’t familiar with the amount of taxes you pay, it could be worthwhile to check your last few pay stubs to determine how much was going to taxes versus how much you were keeping. Also note that depending on the amount of your raise and the time of year, it may push you into a higher tax bracket. You may want to speak with your Human Resources and Payroll departments to discuss your tax withholding, as well as an accountant or qualified tax professional to see how your increased earnings could impact your personal tax situation. 2. Increase your retirement savings. If your employer offers a 401(k) plan and matches your contributions, you should consider contributing at least enough to get the full match amount. Even if you were already doing so, or your employer doesn't offer a match, increasing your retirement savings may still be a great option to consider. And, for those who are comfortable with their lifestyle prior to receiving a raise and don’t plan to make any changes, you can supercharge your savings rate at an equivalent rate. Determining how much you need to save for retirement will depend on several factors. Betterment offers retirement planning tools that can provide guidance on not only how much you should save, but the optimal accounts for you to do so based on your information. 3. Establish, or revisit, your emergency fund. Having an emergency fund is a very important financial savings goal, as it can help ensure a level of financial security for yourself and your family. An adequate emergency fund can help you cover truly large and unexpected expenses, and can also help cover your costs if you end up losing your job. It can even provide financial freedom in the case that you want to try your hand at a new career. Typically, Betterment advises that your emergency fund should cover three to six months’ worth of expenses. If you didn’t have one prior to your raise, now would be a great time to start. If you already have an emergency fund, you may need to reevaluate the amount needed if your spending does increase. 4. Pay off debt. If you have any debt, especially high interest debt, you may choose to use this new capital to pay off some of your loans quicker. You’d not only have the potential to shave years off the repayment process but save thousands of dollars in interest. Here’s a hypothetical to demonstrate. Let’s assume that you’re a single taxpayer, live in a state with no state income tax, and at the start of 2022 your pay went from $60,000 to $65,000. Assuming you don’t itemize, that would place you squarely in the 22% Federal tax bracket. If you get paid twice per month (24 times per year), your net paycheck would go from $1,950 to $2,112, an increase of $162. Now let’s say you put that extra cash to work on your hypothetical student loans, which total $50,000 at 7% interest paid over 10 years. Increasing your monthly loan payment by that $162 would allow you to pay off your loans almost three years faster, and also help you save almost $6,000 in interest payments! 5. Invest in yourself. Okay, let’s say you’re already on track with your retirement goals, have an emergency fund, and paid off your debt. What do you do then? Investing in yourself can have immense value. And the best part is, it can be done in many ways. Whether that’s taking a vacation to reset your mind after months of diligent work, taking a class to enhance your skills or learn a new one, or even making a material purchase that you feel will better your quality of life, investing in yourself can be a great way to reap the benefits of your hard earned work. If you plan on spending this extra money, just make sure that it’s within your means—don’t fall victim to lifestyle creep. Inherently, you may be a saver by nature. While it’s important to set goals, you may not have a specific goal for these additional savings—and that’s ok. By investing additional cash flow in a well-diversified portfolio, you give that money a chance to grow and be put to good use at some point down the line. Using a taxable investment account for a general investing goal, for example, will give you more flexibility relative to retirement investment accounts as to how and when these savings can be used.

Why Donating Shares Is A Smart Way To Give To Charity Donating shares lets you avoid paying taxes on capital gains, and you can still deduct the value of your gift on your tax return. In 1 minute There are many different ways for you to give back to your community. For example, giving directly to individuals in poverty, donating cash to charities, and volunteering your time are all well-known and worthwhile options. As an investor, you may have access to an option that comes with significant potential advantages: You can donate qualifying appreciated shares—or in other words, shares that are worth more today than when you acquired them. When you donate in the form of cash, you can deduct the value of that donation on your tax return. And that’s great! But by donating cash, you could be missing out on an additional tax incentive. Donate appreciated shares instead, and you could also avoid paying taxes on capital gains. That means your donation goes further while spending the same amount. And yes, you still get to deduct the value of those gifted shares on your tax return—as long as you’ve held them for at least a year. However, you should be aware that the deduction may not be exactly the same value. The IRS calculates the tax-deductible value of those shares as the average of the highest price and the lowest price on the day you made the transfer. Sometimes that means the deductible value ends up being slightly lower than the exact value you donated. Other times it ends up being slightly higher, giving you yet another benefit! But either way, the amount you save by avoiding the capital gains tax can exceed the differences in valuation. Boost your charitable giving by donating shares. In 5 minutes In this guide, we’ll: Explore donating shares instead of cash Explain how the IRS calculates these deductions Show you how Betterment makes donating shares easy You’ve been investing, planning for your future and becoming financially secure, and you’d like to pay it forward. That’s great! There are many ways to give back to your community. You might donate to charitable organizations. You might give cash directly to those in need. Or you might give of your time by volunteering. As an investor, you have a charitable super power. You can make your gifts go further and enjoy tax benefits at the same time. Why you should consider donating shares instead of cash When you have assets that have gained value, donating cash means you may not be making the most of your gift. Donations in the form of eligible shares offer two main advantages: You won’t pay capital gains taxes on the shares you donate You can deduct the value of your gift on your tax return Since you get more tax benefits, your money can stretch further. You have more left over to donate, invest, or use as you see fit. How the IRS calculates these deductions When you donate a share, you do so at a certain point in time, with an associated price. For greatest tax efficiency, you generally should only donate shares you’ve held for at least one year. At that point, the IRS lets you claim a deduction for the whole, appreciated value up to 30% of adjusted gross income. However, the price at the time of your gift isn’t necessarily the same value that’s deducted on your tax return. The IRS rules say the deductible amount for your tax filing must be the “fair market value.” And the IRS determines the fair market value by taking the average of the highest price and lowest price on the day of the transfer. Say you donate $1,000 worth of shares: 20 shares worth $50 each. During the day of your donation, the shares trade at a high price of $51 and a low of $47. The IRS will call the fair market value of all twenty shares $980. That $980 is the deductible value when you file your taxes for the year. So keep in mind that the value you plan to donate won’t necessarily match the exact value you can deduct on your taxes. However, while the numbers may be slightly lower or higher than you initially expect, the value of saving on capital gains tax by donating appreciated shares and then being able to deduct that value to lower your taxes even further, generally exceeds any differences in valuation during the day of transfer. Betterment makes donating shares easy We believe that donating securities should be as easy as donating cash. You’re trying to make a difference. You shouldn’t have to worry about math or forms. No snail mail. No walking into an office. So we streamlined the process. Here’s how: We track how much of your account is eligible to give to charity. Betterment automatically reports the amount eligible for donation, assessing which shares of your investments have been held for more than one year, and which of those have the most appreciation. We estimate the tax benefits of your gift. Before you complete a donation, we’ll let you know the expected deductible amount and potential capital gains taxes saved. We move assets from your account to a charitable organization’s account. No paperwork! With a traditional broker, your gift would have to move from your account to the organization’s brokerage account, which involves time and paperwork. But Betterment offers charities investment accounts with no advisory fees—on up to $1 million of assets—to make the gift process seamless. We provide a tax receipt once the donation is complete. We’ll email the receipt to you, and you’ll also be able to access it from your Betterment account at any time. Additionally, we take on most of the reporting for our partner charities, letting them devote their resources more efficiently to the causes you support, rather than to administrative tasks. We partner with highly-rated charities across a range of causes. These include nonprofits such as the World Wildlife Fund, Boys and Girls Clubs of America, and Givewell. Log in to your Betterment account to see the full list. Don’t see your preferred charity? Put in a request to add them! Gifting securities to charity, rather than donating cash, is a strategy that wealthy philanthropists have been employing for decades to save on capital gains taxes. We hope to democratize these benefits by helping everyday Americans use the same exact tax-saving method. Join our community of altruistic investors today and make the most of your charitable donations! If you’re already a Betterment customer, log in to donate your appreciated shares.

The Benefits of Rolling Over a 401(k) or 403(b) to Betterment Whether you have a single old plan or several, there are some good reasons to consider rolling them over to Betterment. When you switch jobs, your old employer-sponsored retirement plan (401(k), 403(b), etc.) still belongs to you, but it becomes inactive and you can’t continue to make contributions. So what should you do with it? Whether you have a single plan or several, there are some good reasons to consider transferring your old 401(k) or 403(b). Betterment makes it simple to roll over your old employer-sponsored retirement plan into an IRA – or a Betterment 401(k) if you’re fortunate enough to have one through your current employer. Either way, we invest your money in a low-cost, globally diversified portfolio, and we offer personalized advice while acting in your best interest. How can you know if that’s the right move for you? Let’s talk about it. In this guide, we’ll: Explain your options when dealing with an old 401(k) or 403(b). Walk through key questions you should ask when making your decision. Talk about the potential benefits that can come with rolling over your old account to Betterment. Show you how to get started. What can you do with your old 401(k) or 403(b)? Employer-sponsored accounts can be a great way to save for retirement. They have valuable tax advantages and come with higher contribution limits than an IRA. But after you leave a job, it’s important to consider what you do next with your plan. You have a few options: Keep it where it is. Roll it over to your current or future employer’s plan. Roll it over to an IRA. Take a cash distribution to your personal checking account. Keeping your 401(k) or 403(b) where it is or moving it to your new plan may result in high fees, confusing investment selections, a lack of financial planning options, or a portfolio not appropriate for your goals. And taking a cash distribution to yourself is a taxable event that can cause the IRS to hit you with early distribution fees. None of those situations are ideal. By contrast, rolling over your 401(k) or 403(b) into an IRA gives you more control over your investment options, could lead to lower fees, and can allow you to organize your funds from most previous employer-sponsored plans by combining them in one place. At Betterment, your IRA can be invested in any one of our diversified, expert-built portfolios and personalized to your own appetite for risk. How do you know if switching is right for you? Before rolling over your 401(k) or 403(b) into an IRA, you should know exactly what will happen to your money. Everyone’s situation is a little different. So, how do you know if you should switch? While not exhaustive, here are some factors to consider. Start by asking your old plan provider about fees and investment options so you can make an informed comparison. Operationally, we don’t charge for rollovers on our end, but your old 401(k) or 403(b) plan provider may charge you for closing your account with them. Next, consider taxes. When rolling over a 401(k), 403(b), or any other-employer sponsored plan, we use the direct rollover method designed to prevent any withholding or negative tax consequences. But there are two important things to remember: Be sure to designate a withdrawal from your current provider as a rollover. If you have a traditional 401(k) or 403(b), you should roll it over into a traditional IRA. If you have a Roth 401(k) or 403(b), you should roll it over into a Roth IRA. If you withdraw from a traditional 401(k) or 403(b) as a “non-rollover” before age 59 ½, you’ll face a 10% penalty for an early withdrawal. If you roll over from a traditional plan into a Roth IRA, you’ll have to pay income taxes on the money. These situations are unnecessary for investors in most circumstances. Other questions to consider include the following: What investments are currently available and how do they compare to your other options? What are your current fees and how do they compare to your other options? Will you need protections from creditors or legal judgments? Are there required minimum distributions associated with certain accounts? How does your employer plan treat employer stock? Could the rollover impact your Roth conversion strategy? When deciding whether to roll over a retirement account, you should carefully consider your unique situation and preferences. Research the details of your current account, and consult tax professionals and other financial advisors with any questions. What are the benefits of rolling over to Betterment? At Betterment, rollovers are simple, automated, and personalized. In just a short time, you can open up a Betterment IRA, receive and review personalized portfolio recommendations, and generate rollover instructions entirely online. If you’re transferring more than $100,000, you’ll have complimentary access to our Licensed Concierge team. Here’s why you should consider rolling over your 401(k) or 403(b) into an IRA with Betterment. Access more investment options IRAs can include more investment options than a 401(k) or 403(b) plan. With employer retirement plans, administrators typically only give you a few options to choose from and limited to no guidance on which options may be best for you. You might end up in a portfolio that’s not appropriate for your retirement goals, or you might have to choose from limited high-cost mutual funds. An IRA held at a brokerage or investment advisor—like Betterment—can provide you with access to a broader universe of funds. Our investment advice and portfolios are built with global diversification, relatively low costs and long-term performance in mind. Lower your investment fees IRA fees can be lower than those your plan administrator charges. In many 401(k) and 403(b) plans, the expense ratios (fees) on mutual funds and ETFs can also be much higher than those within IRAs. And depending on your plan, keeping funds within your 401(k) plan after leaving your employer may subject you to management fees. At Betterment, we charge one fee—our management fee. We don’t charge you to open or close accounts, make withdrawals, or change your allocation. The ETFs you invest in through Betterment charge a fee themselves, but we pride ourselves in picking low cost and tax efficient funds, with the goal being to maximize your take home returns. Manage your portfolio in one place Many investors appreciate the peace of mind that comes with having all their investments in one place. Understanding a fuller picture of your savings can help you make better estimates about your future budget. It can also help you to manage your overall risk and portfolio diversification more effectively to keep you on track for long-term success. Depending on your situation, moving your retirement assets to one provider may also improve the tax-efficiency of your taxable investments. How do you start the rollover? When you’re ready to rollover an account, it’s easy to get started. Sign up for Betterment and log into your account, click on “Transfer or rollover” at the top right-hand side of your home screen, then answer a few simple questions. We need to know about your 401(k) or 403(b) provider, the type of funds held in your account, and their estimated values. We’ll email you a full set of personalized instructions, including any information we need to complete the transfer. This will include your unique Betterment IRA account number, how your provider should make your rollover check payable, and where the rollover check should be mailed. Some providers mail the check directly to Betterment, others will mail the checks to you and request that you forward them to Betterment. Regardless, as long as you follow our instructions it’ll be considered a direct rollover without penalties or taxes.  Some providers may also require you to fill out their rollover paperwork, or they may ask you to give them a call. If so, there’s generally no way around it. But your email from Betterment should give you all the information they’ll ask you for. Once the check arrives, we’ll automatically invest it and send you another email confirming your rollover has completed. This process also applies to other employer-sponsored plans beyond 401(k)s and 403(b)s, including pensions, 401(a)s, 457(b)s, profit sharing plans, stock plans, and Thrift Savings Plans (TSPs). If you have any questions before or during your rollover process please reach out to rollover@betterment.com, and our customer support team is here to help.

How To Decide If You Should Switch Financial Firms Taking your assets to a different firm can have a big impact on your long-term investments. Here’s how to consider if it’s worth it. In 1 minute Thinking about switching financial firms? Whether high fees are hurting your returns or your portfolio isn’t performing as well as you hoped, there can be plenty of good reasons to consider transferring your investments to a new firm. The right financial firm can help you reach your goals and feel more comfortable with your investments. Thankfully, no matter how much you have invested, you’re never “stuck” with a strategy that isn’t a good fit or no longer appropriate for your goals. Start with your financial goals. Are they decades away, or are you going to reach them in a couple years? For short-term goals, transferring isn’t always worth it. But with long-term investments, lower costs, increased tax efficiency, and automation could have an impact on long-term returns. Before you make a decision, ask yourself these five questions: Will transferring allow you to invest in better assets? If other investment options may give you higher returns, transferring could be a smart move. Is your portfolio automated? Automation can help you avoid common investor mistakes, help keep your portfolio balanced, and may offer tools to maximize potential opportunities to save on taxes. Could you pay less in fees? Fees can be harder to notice than taxes, but they vary widely from one firm to another, and they can take a big bite out of your portfolio every year. How easy is it to adjust your asset allocation and keep your portfolio up-to-date with your goals? Your assets should fit the goals you’re trying to achieve. Some firms (like Betterment) are designed to take the guesswork out of asset allocation by recommending the appropriate risk level for your goals and keep you on track via automatic rebalancing and auto-adjust features if certain criteria are met. Do you own mutual funds in a taxable account that pay capital gain distributions? Even when a mutual fund’s performance is down, you may have to pay additional taxes from capital gain distributions. Depending on how you answer those questions, you may want to consider transferring your investments. In 5 minutes In this guide we’ll: Discuss the main concerns with switching financial firms Explain situations where it could be smart to move Help you calculate the impact of transferring your assets When you’re driving, sometimes it just makes sense to change lanes. The same can be true with investing. Sometimes the firm you’ve invested with has high fees and other costs that hold you back from reaching your financial goals. Or their guidance has led to lower performance than you expected. In the right circumstances, transferring your investments could help you reach your goals sooner. But it’s not always the best strategy. Before you transfer, it helps to think through all the variables. Let’s see if switching financial firms could be a smart move for you. What’s your timeline to reach your goals? If you plan on reaching your financial goals in the next couple years, transferring may not be the best choice. You may end up paying taxes, and your portfolio won’t be spending much time at the new firm anyway. The longer you plan to hold your assets, the more valuable a transfer could be. Which is worse: taxes or fees? While qualified retirement accounts can generally be moved to a new provider without penalties or taxes, that’s not always the case for taxable accounts. One of the main barriers that keeps investors from transferring their taxable assets is that your new provider may invest in a portfolio that has different assets in it than your old provider. This forces you to sell some or all of these assets. If these investments are trading at a large gain—way above what you originally bought them for—then there may be significant tax implications of making the switch. Over a long enough timeline, annual fees can hurt your investments more than taxes. But it can be hard to think of it that way. Some fees usually kick in before returns ever hit your accounts—you may be losing money you’ve never even seen. But when you transfer your assets, capital gains taxes put a dent in funds you already possess. The decision boils down to paying more upfront in taxes to enable a switch versus staying put in a less optimal portfolio with higher expenses. Keep in mind: unless you gift your portfolio to someone else, you have to pay capital gains taxes someday anyway. But a difference in fees could quietly shave off value from your accounts every year. Tax deferral is worth something, but how much? Could you invest in better assets? Take a hard look at your returns in your current investments. Could they be better? For example, index funds tend to perform better over time than actively-managed funds. Those better returns could increase your account balance over time. Are your investments automated? If you or someone else has to manually maintain your portfolio, you can miss opportunities to improve performance. Betterment maintains your investments with features like rebalancing, dividend reinvestment, portfolio diversification, tax-efficient options, and more, that can be automated. Automation can also help you avoid reacting to market volatility and losing sight of your goal. Could you pay less in fees? Every financial institution has a different fee structure, and some cost much more than others. Between your annual advisory fees, trading fees, and other costs, you could be losing a lot more than you have to. How easy is it to adjust your allocation? As your goals change, you get closer to reaching them, or the market becomes more volatile, you may want to adjust your asset allocation. But how that works and how easy it is to do varies from one firm to another. At Betterment, you can easily make adjustments in the app, and we’ll even help you choose an appropriate allocation for your goals. Some firms allow you to manage your account yourself and choose from thousands of investment options, but it can be challenging or time consuming to do so. Others offer managed accounts with limited options and flexibility and they may have transaction and commission fees. If your firm makes it difficult or confusing to change your allocation, you may want to consider switching to a firm that provides a better experience. Do you own mutual funds in a taxable account that pay capital gains distributions? Mutual funds invest in individual stocks and bonds. When a mutual fund manager sells investments in the fund, they may realize capital gains, which they’ll pass to individual shareholders—investors like you. You pay taxes on these distributions. Less ideal: mutual funds can pay out capital gain distributions even if the fund’s overall performance is down for a year. If the taxes you’d owe from selling your investments are lower than the taxes you’d pay on the annual, and likely ongoing, capital gain distribution from the fund, it could be wise to sell your shares before the distribution is paid out.

How To Compare Financial Advisors Think fiduciary first—and don’t settle for surface-level answers to questions on investing philosophy, performance and personalization. In 1 minute “Financial advisor” is kind of a gray area in the professional world. Many different types of professionals share this title, despite having very different qualifications, regulations, and motives. Bottom line: you want a financial advisor who is also a fiduciary. Fiduciaries are legally bound to act in your best interest and disclose conflicts of interest upfront. But even then, it’s worth taking time to learn about their approach to financial advice. What’s their philosophy? What tools do they use to help you reach your goals? How do your goals affect their decisions? Some financial advisors are more accessible than others, too. Ask what you should expect from your interactions with them. How often can you adjust your portfolio? Will they adjust your risk as you get closer to your goal? Every financial advisor should be able to talk you through how they measure performance and what you should expect from them. But don’t settle for surface-level answers. Challenge them to tell you about performance at different levels of risk, using time-weighted returns. Ultimately, you want a financial advisor you can trust to help you reach your goals. In 5 minutes In this guide, we’ll explain: Financial advisor fees Approaches to financial advice Evaluating investment performance Tax advisors You want to make the most of your finances. And you probably have some financial goals you’d like to accomplish. A financial advisor helps with both of these things. But choose the wrong advisor, and you may find yourself going backward, with your goals getting further away. (At the very least, you won’t make as much progress.) Many people focus on historical performance as they compare potential advisors. That‘s understandable. But unless you’re looking at decades of performance data and net investor returns, you’re not getting a good look at what to expect over time. And there are plenty of other factors that affect which advisor is right for you. For starters, let’s talk fees. Take a closer look at their fees Fees can have a major impact on how much money you actually take away. And it’s not just management fees that you need to consider. There could be fees for every trade. Or additional costs for trades within a fund. Plus you’ll want to look at expense ratios—the percentage of your investment that goes toward all the fund’s expenses. These costs can vary widely between robo-advisors, traditional advisors, do-it-yourself ETFs, and mutual funds. And you have to pay them every year. Basically what it comes down to is: how does your financial advisor get paid? Put another way, how will you have to pay for their services? Compare their qualifications Unfortunately, “financial advisor” is a bit of a catch-all term. It describes professionals who may have a variety of certifications and backgrounds. Not everyone who calls themselves a financial advisor has the same regulations, expertise, motivation, or approach. In fact, some aren’t even legally required to act in your best interest! They can choose the investments that benefit them the most instead of the ones that are most likely to help you reach your goals. A fiduciary, however, is a type of financial advisor that’s legally obligated to do two things: Make decisions based on what’s in your best interest Tell you if there’s ever a conflict of interest If you’re going to work with a traditional advisor, you should ask them about their qualifications. At Betterment, we recommend engaging with a fiduciary who is a Certified Financial Planner™ (CFP®), a designation that has requirements for years of experience and continuing education – and has a high standard in quality and ethical financial planning advice. Consider their approach to financial advice and investing There’s more than one school of thought when it comes to investing and financial planning. And there are many different investment vehicles a financial advisor could use to manage your money. So two excellent fiduciaries may have very different ideas of what’s in your best interest. For example, hedge funds work well for some investors, but they’re too risky and expensive for many people. The main thing is to find an advisor whose approach aligns with your goals. How do they ensure that your risk level fits your timeline? How do they diversify your portfolio to help protect your finances? How do they respond to market volatility as prices rise and fall? You want an advisor who makes decisions based on what you’re trying to accomplish, not what’s best for some cookie-cutter investment strategy. It’s also important to learn more about what working with them looks like. How often will you interact? How frequently can you review and modify your account? What ongoing actions do you need to take? The answers to these questions will vary depending on advisor service levels, so make sure they sound realistic to you. For example, Betterment recommends you check-in on your investment allocations once per quarter. If you feel more comfortable with having an in-depth relationship, you can opt for our Premium plan, which offers unlimited calls and emails with our team of CFP® professionals. Evaluate portfolio performance Financial advisors should be transparent about performance. They should have clear explanations for discrepancies between expected and actual returns of an investment. But if you only ask generic questions about what a portfolio returns, the numbers may sound better than they actually are. Ask each financial advisor to walk you through the returns associated with portfolios at various levels of risk. Additionally, consider using time-weighted return statistics when comparing investments. Time-weighted returns aren’t affected by the amount and timing of deposits and withdrawals. The harder an advisor makes it to understand performance (and your net returns), the less likely it is that your investments will meet your expectations. What about tax advisors? A good financial advisor should also be able to structure your investments in a tax-efficient manner. As a few examples, Betterment offers strategies such as tax loss harvesting, HSAs, municipal bonds, Roth IRA conversions, and more. However, there is a distinction between a tax-savvy financial advisor and an actual licensed tax professional. Most financial advisors are not trained or licensed to actually file your taxes for you, or to give advice on all areas of the tax code. For that level of detail, you would be wise to consider working with a true tax professional in addition to your financial advisor. When searching for a tax professional, the designations to look out for include a CPA, Enrolled Agent or a licensed tax attorney. Lastly, your financial advisor and your tax professional should be transparent with one another. You want to ensure both are on the same page and aren’t catching one another by surprise. For example, if your financial advisor is tax loss harvesting for you, it’s probably wise to inform your tax professional about that. Financial expertise you can trust At Betterment, our investing experts and technology help clients build a diversified portfolio that’s right for them, then keep it optimized all year long. To top it all off, we’re a fiduciary—we always focus on your best interest. While our technology combines automation with personalization, you can also get one-on-one advice from our financial experts with an advice package or our Premium plan.

The Keys to Understanding Investment Performance Ignore the headlines, think global, and crunch these three often-overlooked numbers. Regardless of how long you’ve been in the market, at some point you’ll likely want to know how your portfolio is doing and whether you’re on track to reach your goals. Or in another scenario, you may be shopping around for investment managers and comparing their portfolios. In this guide, we’ll help you think through either situation and share our philosophy on performance along the way. How to evaluate your investment performance Investors want to make wise financial decisions, and those decisions, for better or worse, tend to be influenced by media coverage of the market. So before we share some ways to more accurately crunch performance numbers, here’s a heads up on two common fallacies that might be skewing your perspective: The Dow Fallacy Benchmarks like the Dow Jones Industrial Average are popular, but they don’t actually tell you much about the stock market. The Dow only represents 30 US stocks. And even larger benchmarks like the S&P 500 don’t give you a full picture of the US market—let alone the global market. We’ll share a more comprehensive benchmark below. The Points Fallacy It’s common to hear reporters and investors talk about how many points a benchmark has dropped. Headlines like “Dow loses 500 points” sound pretty unsettling. But points alone don’t tell you much. It’s far more valuable to look at the percentage. If the Dow is at 35,000 points, a 500 point drop is less than 2 percent. That’s not something long-term investors generally need to worry about. With those out of the way, how do you actually get a clearer picture of an investment’s performance? Unfortunately, you can’t just look at your earnings. Accurately measuring your progress means adjusting for three crucial variables: Dividends, aka the earnings companies share with stockholders Inflation Taxes Reinvested dividends can make a big impact over time, so make sure you’re taking those into account. The Federal Reserve publishes inflation data, so you can adjust your total returns based on annual inflation. And taxes vary by individual and account type. All these factors make a big difference when it comes to measuring performance. If you want to know how you’re performing relative to the market, that begs the question, “Which market?” Many of our portfolios are globally-diversified. In that case, your best bet is to benchmark against the MSCI All Country World Index. It’s a much better representation of how the entire market is doing. How Betterment simplifies performance Manually crunching the numbers in your portfolio/s can be a hassle. As a Betterment customer, we simplify the process by showing you: The sum of the parts. We pull together all the accounts inside a specific goal and show their performance as one number. Zooming in to the account level, we also summarize the value of the portfolio itself. Your total returns. These include price changes and dividends together, instead of breaking them out separately. Changes in the prices of assets in your portfolio are more volatile than total returns and don’t show the overall picture. The big picture. We show your performance over as long a period as possible to help keep you focused on the long-term and minimize short-term stress. We don’t encourage frequent monitoring of performance, but if you do want to review performance, you have the tools necessary to do so. Two of those tools are time-weighted return (TWR) and individual rate of return (IRR). Time-Weighted Return When you invest, you often do it a little bit at a time. A contribution here, a contribution there – or even better, contributions made on a consistent schedule via auto-deposit. The time-weighted return imagines that all the contributions you’ve made to date happened all at once on Day 1. This way of crunching returns takes deposits and withdrawals out of the equation when evaluating your portfolio performance. Why would you want to do this? Because cash coming in and out of your portfolio at different times can distort and complicate your returns due to the nature of the constantly-fluctuating stock market. Also, if you were comparing returns across two different accounts with two different cash flow patterns, you couldn’t be sure if the difference was due to the investments or due to the timing of the cash flows. The time-weighted return can refer to a price-only return, or a total return. Price return reflects only the change in price of the asset, while total return reflects both price and reinvested income. By default, Betterment displays total return for a more comprehensive view of performance. Individual Rate of Return The individual rate of return, on the other hand, is affected by each and every instance of cash flow that goes in and out of your portfolio. Cash flows at Betterment can include deposits, withdrawals, dividends, and fees. IRR does a better job of answering the question, “What are the average returns on the dollars I personally deposited into Betterment?” as opposed to “How well does Betterment design and manage the portfolios I have with them?” Look beyond performance when sizing up investment managers Make no mistake, the construction and performance of a portfolio is important, but it’s not the only thing you should consider when sizing up the services of an investment manager. We recommend a more comprehensive set of criteria: Monetary costs such as commissions, trade fees, and assets under management (AUM) fees. These can create a drag on your returns. Non-money costs like the amount of time and effort required of you. Does a service come with a high time or stress cost for you to get the most out of it? Investing philosophy and whether it aligns with your values. Some funds, for example, try to deviate from an index and may cost more as a result. Tax efficiencies such as tax loss harvesting and asset location. Your stated returns likely won’t take into account any potential value these tools may have added. When choosing an investment manager, the key isn’t to focus solely on investment performance; it’s to focus on service, fit, and investor returns.

3 Low-Risk Ways To Earn Interest Earning interest usually means taking on risk. But with bonds and cash accounts—and investing’s potential for compound interest—you can minimize that risk. In 1 minute When you don’t have much time to reach your goal, you can’t afford to make a risky investment. Thankfully, you can earn interest without putting everything on the line. Here’s how. Bonds Bonds are one of the most common types of financial assets. They represent loans, which a business or the government uses to pay for projects and other costs. Just as you pay interest when you take out a loan, bonds pay investors interest. You’ll typically see lower returns than you might with stocks, but the risk is generally lower, too. Cash accounts Cash accounts are similar to traditional savings accounts, only they are typically designed to earn more interest (and may come with more restrictions). These are great when you need your money to be readily available to you, but still want to earn some interest. And to top it off, many cash accounts are offered at or through banks so your deposits are FDIC insured, so there’s minimal risk. Compound interest In addition to bonds and cash accounts, there’s one more way to earn interest—investing and earning compound interest, which is the interest generated from previous rounds of interest itself. That’s right. As you accrue interest on your underlying investing funds, that interest makes money and that money in turn makes more money. The longer and more frequently your interest compounds, the more you can earn. In 5 minutes Want to earn interest? You usually have to take some risk which means you could lose some money. Financial assets can gain or lose value over time. And investments that have the potential to earn greater interest often come with the risk of greater losses. But there are ways to lower your risk. If you have a short-term financial goal or you’re just cautious, you can still earn interest. It might not be much, but it will be more than you’d get keeping cash under your mattress (don’t do that). In this guide, we’ll look at: Bonds Cash accounts Compound interest Bonds Bonds are basically loans. Companies and governments use loans to fund their operations or special projects. A bond lets investors help fund (and reap the financial benefits of) these loans. They’re known as a “fixed income” asset because your investment earns interest based on a schedule and matures on a specific date. Bonds are generally lower-risk investments than stocks. The main risks associated with bonds are that interest rates can change, and companies can go bankrupt. Still, these are typically fairly stable investments (depending on the type of bond and credit quality of the issuer), making them a good option for short-term goals. With municipal bonds, you can earn tax-free interest. These bonds fund government projects, and in return for the favor, the government doesn’t tax them. Invest in your own state, and you could avoid federal and state taxes. Even when your goal is years away, including bonds in your investment portfolio can be a smart way to lower your risk and diversify your investments. Cash accounts Cash accounts seek to earn more interest than a standard savings or checking account, and they’re federally insured by the FDIC or NCUA. (This is usually the case but depends on the institution housing your deposits (i.e., banks or credit unions). Check to make sure your account is insured before depositing any money.) In most cases, there’s little risk of losing your principal. Your interest is based on the annual percentage yield (APY) promised by the bank or financial institution you open the account with. One of the great perks of a cash account is that it’s highly liquid—so you can use your money when you want. It won’t earn as much interest as an investment, but it won’t be as tied up when you need it. For short-term financial goals, a cash account works just fine. The key is to choose an account that meets your needs. Pay attention to things like minimum deposits, transaction limits, fees, and compound frequency (that’s often how it accrues interest). These differences affect how fast your savings will actually grow and how freely you can use it. Compound interest Compound interest refers to two things: The interest your investments or savings earn The interest your interest earns It’s your money making more money. If you want to build wealth for the long-term, investing and allowing your interest to compound is one of the smartest moves you can make. The sooner you invest and put your money to work, the more opportunity your money has to earn compound interest. Compound interest starts small, but can grow exponentially. Your investment has the potential to grow faster because your interest starts earning interest, too. If you start young, you have a huge advantage: time is on your side! While compound interest accrues with minimal risk, investing in the market involves varying levels of risk.

How to Build an Emergency Fund An emergency fund keeps you afloat when your regular income can’t. Learn how to start one and grow it. In 10 seconds An emergency fund keeps you afloat when your regular income can’t. Try saving at least three months’ worth of expenses, so your finances can handle a sudden job loss or medical emergency. In 1 minute An emergency fund helps protect you from the most common financial crises. It helps cover unexpected expenses that don’t fit into your regular budget, and buys time to find a new job or manage a transition. For most people, the goal is to have enough funds set aside to pay for at least three months of living expenses, including food, housing, and other essential costs. But exactly how much you need depends on your situation. If you have more dependents or greater risks, you may need more than that to feel comfortable. Ideally, you should automate deposits into your emergency fund to make sure it grows each month until it reaches an appropriate size. You may also want to put this money into a cash account or low-risk investment account to help it grow faster, as long as you are ok with taking on this risk. Betterment makes both of these options easy, and with recurring deposits, you can make steady progress toward your goal. In 5 minutes In this guide we’ll cover: Why you should build an emergency fund How much you should save How to grow your emergency fund You can’t anticipate every financial disaster. But with an emergency fund, you can reduce their impact on your life. It’s a special account you don’t touch until you absolutely need to. If you’re like most people, this is one of your first and most important financial goals. Without an emergency fund, you could find yourself taking on high-interest debt to avoid losing your home. Or unable to meet basic needs, you may have to make hard choices about which necessities to live without.  So, how much should you save? What should you do with the money you set aside? And what counts as “an emergency”? Your emergency fund is personal. It needs to fit your life, your needs, and your risks. Some may only need a few thousand dollars. Others may need tens of thousands. It all depends on your regular expenses and how prepared you want to be. How large should your emergency fund be? For most people, the goal is to have enough to cover at least three months of expenses. That’s rent or mortgage, utilities, food, and anything else you pay every month. If you unexpectedly lost your job or had a medical crisis, your emergency fund should be enough to help you through most transitions.  Some folks should save more. If you’re a single parent or the only person with income in your household, a sudden loss of income would have a greater impact. If you work in an industry with high turnover, or you have a serious medical condition, you’re more likely to need these funds, so you may want to save more, such as six months of your monthly expenses. It may help to think of your emergency fund as time. This isn’t just a target dollar amount. It’s months of time. How long would you like to keep the bills paid without a job? How much would it take to do that? That’s the amount you should save. There’s no magic number that’s right for every person. And since it’s based on your current cost of living, the amount you’ll want to save will change with your expenses. Live more frugally, and you may be more comfortable with a smaller emergency fund. Get a bigger house or apartment, add a family member, or spend more on basic needs, and you’ll need a bigger emergency fund. How to build an emergency fund The hardest part of building an emergency fund is figuring out how saving fits into your life. It helps to work backward from your goal. Once you know how much you need to save, decide when you want to save it by. The sooner the better, but choose a timeline that makes sense for you. Then break your goal into chunks—how much do you need to save each month or each paycheck to get there on time? The last part is easy. Make your savings automatic with recurring deposits. You make the commitment once, then see steady progress toward your goal. You don’t have to think about it anymore. Set up a Safety Net goal with Betterment, and we’ll take care of this for you. Set how much you want to save and when you want to save it by, then decide how much you can put toward that goal each month. Create a recurring deposit, and you’ll start saving automatically. This video sums it all up. Where should you put your emergency fund? A lot of people put their emergency fund in a savings account at a bank. It keeps their money liquid, and it’s federally insured by the FDIC. So there’s little risk of losing what you’ve saved. Obviously, you want your emergency fund to be there when you need it, so it’s understandable why so many people are drawn to savings accounts. But it may not be the best way to grow your fund, either. Most savings accounts generate so little interest that they’re basically cash. It’s a step above putting money under your mattress. And like cash, savings accounts will usually lose value over time due to inflation. Thankfully, you have options. You can generate more interest without taking on much more risk. Here are some alternative places to put your emergency fund. High Yield Cash Account Like a regular savings account, most cash accounts are federally insured. But unlike a traditional savings account, these can generate meaningful interest. A high yield account takes your money further, and it’s still highly liquid. Certificate of Deposit (CD) A certificate of deposit, or CD, is basically a short-term investment. It lasts for a fixed duration, such as 12 months or 5 years. At the end of this period, the CD “matures,” and you typically earn more interest than you would with a high yield cash account. CDs are federally insured and still low-risk, but until your CD matures, it’s not liquid unless you pay a penalty to get out of the CD early. This makes it a little riskier for an emergency fund, since you never know when you’ll find yourself in a crisis. Low-Risk Investment Account Investment accounts can offer greater growth potential in exchange for taking on more risk. While stocks are considered volatile because they frequently change in value, bonds are generally more stable. An investment portfolio consisting of all bonds can still outpace a CD, a high yield account, and inflation, while putting your emergency fund at significantly less risk when compared to a portfolio consisting entirely of stocks. If you feel investing is the right move for you, Betterment recommends giving yourself a bigger buffer, adding 30% to your target amount. That way your money can grow faster, but it’s also protected against potential losses.

Retail Investors and ESG: Assessing the Landscape Individuals are increasingly examining every aspect of their civic and financial lives for opportunities to play a role in shaping the world of tomorrow.  As climate change and its implications for the future of the economy and society continues its rise as the dominant issue of our time, individuals are increasingly examining every aspect of their civic and financial lives for opportunities to play a role in shaping the world of tomorrow.  Betterment surveyed 1,000 U.S. investors to examine their level of understanding and interest in environmental, social and corporate governance (ESG) investments, what might make them interested in learning more or investing, as well as the role employers and advisors play in educating individuals on ESG. 

Should You Create a Trust Fund? It Could Help You Preserve Wealth Weigh the costs and benefits of establishing a trust as part of your estate planning. For those who have assets to leave as a legacy, a trust can be a strategic part of estate planning. Trust assets can include everything from a life insurance settlement and real estate to investments and cash. However, not all trusts are the same—there are many variations, each with specific benefits and restraints. In the past, establishing a trust was largely viewed as a tool for very high net worth individuals looking to preserve wealth across generations. But these days, easily accessible low-cost investing accounts help us all take advantage of the value that creating a trust can provide for our assets. One of the benefits of trusts is that they can shield assets from lawsuits and probate costs. Many are interested in these benefits regardless of their net worth. With the emergence of automated investing services, like Betterment, setting up and managing a trust account of any size is easier than ever. Selecting the right type of trust for your needs will be something to discuss with an estate planning specialist, such as a financial advisor, accountant, or estate planning attorney.1 However, there are some general benefits that most trusts offer. Below is a summary to help you decide whether a trust may be right for you. Privacy and Protection After an individual’s death, an estate typically goes through probate, where the will is open for public scrutiny and assets may be used to pay off creditors. If assets are held in multiple states (real estate, for example), probate will take place in every state—adding substantial costs to settling an estate. The costs associated with probate could reduce the estate by 3% to 7% on average—and that’s not including additional estate taxes and income taxes that may be due. These additional costs mean significantly less assets are given to the intended beneficiaries. With certain types of trusts, all assets that have been placed in the trust are considered property of that trust, and thus they are off limits to creditors, they’re kept out of public record, and they can avoid probate. Trusts are also a useful way to shield and protect assets for people who are at higher risk of litigation, such as doctors. Placing assets in a trust may also reduce the potential for lawsuits between heirs. Taxes Different types of trusts provide different tax advantages. For example, an irrevocable life insurance trust shelters any life insurance death benefit proceeds from estate taxes. The most popular type of trust is a revocable living trust, which is a trust that can be modified once it is established. It’s created during the grantor’s (the person who funds the trust) lifetime. On its own, a revocable living trust doesn’t provide specific tax benefits, but additional provisions can be added to these trusts to help reduce estate taxes. There are about nine commonly used trust types. Speaking with an estate planner and tax advisor will help you determine how to maximize tax advantages and establish the right type of trust for your needs. Distribution Control Not all beneficiaries need the same thing. A trust can establish guidelines for how and when funds are distributed. Rather than simply naming the person who will inherit your assets, you can add provisions that specify how the trust assets can be used. By adding these provisions to your trust, you can help your assets last longer, since you decrease the risk of a beneficiary draining the account for frivolous expenses. For example, funds might be earmarked for education, for special medical needs, or for distribution only after the beneficiary has reached a certain age. In addition, a trust can ensure—through its guidelines—that money is distributed in a specific way to a specific entity, rather than an individual. This might mean a charity, a religious institution, or your alma mater. Sound Investment Strategy A trustee is the person(s) named in a trust document who is responsible for making decisions regarding the trust. By law, a trustee has a fiduciary responsibility to oversee the funds entrusted to them. Regulation, such as the Uniform Prudent Investor Act, states that a trustee must act “prudently” when administering a trust, which means holding the investments in a sound interest-bearing account, as well as assessing the risk, return, and diversification of assets. Trustees can be an investment firm or an individual. Trustees should ensure trust assets are invested wisely to fulfil the specific aims of the trust.  Automated investment services like Betterment provide trustees with an easy, low-cost way to manage a trust. Consider the Benefits Whether you are looking for asset protection, privacy, tax minimization, control over how your beneficiaries use their inheritance, or a combination of each of these things—establishing and managing a trust has never been easier. After speaking with your estate planning specialist and determining which type of trust is best for you, check out our FAQ on what we offer for trust accounts here at Betterment. 1Note that Betterment is not a tax advisor and nothing in this blog post should be construed as specific advice—please consult a tax advisor regarding your specific circumstances.