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An intelligent portfolio, designed for optimal performance

Global diversification, maximum efficiency

Building on decades of Nobel-prize winning research, we aim to achieve the best investor returns possible.

Our portfolio is maximally diversified, and comprises low-cost, liquid, index-tracking, exchange-traded funds, or ETFs. We use tax-efficient algorithms and automate optimal behavior to maximize your ability to grow your money.

An optimal allocation tailored for you

When you deposit money with Betterment, every dollar is seamlessly invested in up to 12 different asset classes, optimized for your selected asset allocation.

Stock and bond ETFs are optimally weighted to provide a progressively increasing amount of risk and potential return.  Lower risk portfolios have more short-term government-backed bonds and less volatile stocks.  Short-term government bonds exit the portfolio above 42% stocks.  As you move up the allocation spectrum, we introduce bonds and stocks with higher risk but higher potential returns.

We distinguish between taxable and retirement accounts when allocating bonds for additional optimization. Taxable accounts hold federally tax-exempt municipal bonds, providing portfolios favorable after-tax return. Retirement accounts maintain exposure to U.S. investment-grade bonds.

How we picked the funds

Each ETF has been selected to balance considerations of low cost and high liquidity as a means to access each asset class. When making the selection for each ETF, we considered the following: expense ratio, bid-ask spread, assets under management, number of holdings, exchange rate hedging, and capital gains implications. Read more about our Investment Selection Methodology.

Stock ETFs


Our portfolio includes stock ETFs that efficiently capture the broad U.S. stock market, and international developed and emerging markets. Your money is invested in literally thousands of companies instantly. Exactly how much of your portfolio is made up of which stocks depends on the exact allocation you choose. Our stock ETFs include:

  • US Total Stock Market
    US Total Stock Market contains broad exposure to the entire US stock market, including growth and value companies of small, mid and large capitalizations. This asset class allows participation in the historically strong long-term growth of the US economy.

    Vanguard U.S. Total Stock Market Index ETF (VTI)

  • US Large-Cap Value Stocks
    US Large-Cap Value stocks overlap with the US Total Stock Market, but are included to tilt the portfolio toward large-size companies with low price-to-earnings ratios. Value-tilting has historically resulted in outperformance, and also increases the portfolio's dividend yield.

    Vanguard US Large-Cap Value Index ETF (VTV)

  • US Mid-Cap Value Stocks
    US Mid-Cap Value stocks overlap with the US Total Stock Market, but are included to tilt the portfolio towards companies medium size companies with low price-to-earnings ratios. Value-tilting has historically resulted in outperformance, and also increases the portfolio's dividend yield.

    Vanguard US Mid-Cap Value Index ETF (VOE)

  • US Small-Cap Value Stocks
    US Small-Cap Value stocks overlap with the US Total Stock Market, but are included to tilt the portfolio towards companies small size companies with low price-to-earnings ratios. Value-tilting has historically resulted in outperformance, and also increases the portfolio's dividend yield.

    Vanguard US Small-Cap Value Index ETF (VBR)

  • International Developed Stocks
    Developed Markets stocks provide exposure to a diverse set of companies from international developed economies including the UK, Europe, Japan, and others. It has a similar risk/return profile as broad US stocks but with lower internal correlations as compared to the US market.

    Vanguard FTSE Developed Market Index ETF (VEA)

  • Emerging Market Stocks
    Emerging Markets provide higher return potential and diversification, however it comes with higher risk compared to US or International Developed stocks. This asset helps your portfolio to grow with developing nations as they modernize and become wealthier.

    Vanguard FTSE Emerging Index ETF (VWO)

Click each ETF's ticker symbol to visit the prospectus page

Why these stock ETFs?

Our U.S. exposure covers the total U.S. market with a slight tilt towards value and small-cap stocks. The value and small-cap tilt has tended to beat the market in the long term, based on research by Nobel-prize winner Eugene Fama and Kenneth French.

By adding international stocks, we benefit from growth overseas in developed markets, including the U.K., Japan, and Europe, and achieve the same expected return with lower risk. With the emerging market stock ETF, we can capture growth in small but expanding markets such as Brazil, India, and China. This further diversifies our portfolio, and means we can reach higher expected return levels, especially at higher risk allocations.

Bond ETFs


Our portfolio includes bond ETFs that allow us to precisely manage the level of risk at every allocation, and improve the risk-adjusted performance of the portfolio at higher risk levels. The exact amounts of each bond ETF will depend on the allocation you choose. Our bond ETFs include:

  • Short-Term Treasuries
    Short-Term Treasuries have maturities between one month and one year. This extremely low-risk asset class is a cash alternative that generates nominal benefit through interest payments, and de-risks the portfolio at safer allocations.

    iShares Short-Term Treasury Bond Index ETF (SHV)

  • Inflation Protected Bonds
    Inflation Protected Bonds are issued by the US Treasury with the value of the principal (but not interest payments) indexed to inflation. This allocation serves to insulate a part of the portfolio from the depreciating effects of inflation while also having historically low correlation with other asset classes.

    Vanguard Short-term Inflation-Protected Treasury Bond Index ETF (VTIP)

  • US High Quality Bonds (IRA and 401(k) accounts)
    US High Quality Bonds provide exposure to the US investment-grade bond market, bringing stability to the portfolio with higher income levels than US Treasuries. While the credit risk is very low, the average bond maturity of 7 years means there is some interest rate risk.

    Vanguard US Total Bond Market Index ETF (BND)

  • National Municipal Bonds (Taxable accounts)
    Municipal Bonds are federally tax-exempt bonds issued by state and regional governments to finance capital expenditures. While municipal bond credit risk is slightly higher than US Treasuries, it is still quite low and coupled with favorable after-tax income makes them an excellent addition to taxable portfolios.

    iShares National AMT-Free Muni Bond Index ETF (MUB)

  • US Corporate Bonds
    US Corporate Bonds are issued by corporations to finance business activities. Corporate bonds generally offer much more attractive yields and opportunity for capital appreciation to compensate investors for default risk. They also diversify the fixed-income portfolio, resulting in higher risk-adjusted returns.

    iShares Corporate Bond Index ETF (LQD)

  • International Developed Bonds
    International Bonds are issued by non-US developed market governments and organizations. They have high credit quality and provide interest rate diversification for a bond portfolio, resulting in higher risk-adjusted returns.

    Vanguard Total International Bond Index ETF (BNDX)

  • Emerging Market Bonds
    Emerging Markets Bonds are dollar-denominated bonds issued by governments with economies that are rapidly growing and industrializing. This asset class is higher risk but also offers a higher expected return than developed markets' bonds or US Treasuries. Their unusually low correlation with other bonds result in higher risk-adjusted performance for the portfolio.

    Vanguard Emerging Markets Government Bond Index ETF (VWOB)

Click each ETF's ticker symbol to visit the prospectus page

Why these bond ETFs?

These bonds ETFs allow us to choose a precise level of risk, and then get the best possible return at that level of risk by balancing four different growth factors: U.S. interest rate risk, U.S. company credit risk, international interest rate risk, and international credit risk. When applicable, we also consider the after-tax benefits of allocating to federally tax-exempt municipal bonds.

Taking on a higher exposure to any of these factors means higher expected returns, with higher potential for short-term losses. However, by blending them together intelligently, we can maintain the return level and reduce the severity of losses.

Better Performance

Betterment would have outperformed the average private client investor in almost all periods over the last decade.

Optimal Asset Allocation

Asset allocation is the art of combining assets to achieve the highest expected return for a given level of risk. With more diversified assets at every risk level, we are able to build a portfolio that has higher expected returns regardless of how much risk you want to take on.

When crafting our portfolio, we used two techniques usually only available to high net worth individuals: the Black-Litterman expected returns model, and optimization for downside risk measures.

Black-Litterman


First, we employed the Black-Litterman model to generate forward-looking expected returns. To do this, we analyzed the global portfolio of investable assets and their proportions. The Black-Litterman model, a complex mathematical equation, allows us to use this global portfolio to generate forward-looking expected returns – for each asset class.

While many firms also use Black-Litterman to make short-term market-timing decisions by imposing their own views, we adhere to our core index-based investment philosophy and do not. We get the best possible estimates of expected returns – those aggregated from millions of investors across the globe.

Optimization for Downside Risk


Next, we optimized the portfolio for each level of expected return, mixing assets to minimize the risk taken. We considered the potential downside (drawdowns) as well as the uncertainty (or expected volatility) as risk measures, and traded them off against expected return. The result allowed us to flexibly set asset allocation at every given level of risk.

Geographic Diversification


This analysis results in a portfolio that is invested in over 100 countries and in more than 5,000 publicly traded companies across the world. This includes exposure to government debt, corporate bonds, securitized debt, and supranational bonds with a range of creditors and interest rate sensitivities. The map below shows the geographic diversification for each possible portfolio allocation from 0-100% stocks. Drag the slider to see how the diversification shifts with your risk tolerance.

You can read more about how geographic diversification informs our investment selection in this post.

A portfolio that spans over 100 countries

Instructions: Drag the slider to change the portfolio allocation, zoom and pan with your mouse, and hover for details.

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An intelligent portfolio, designed for optimal performance

Built on Nobel Prize-winning research.

The Betterment portfolio is a globally diversified mix of stock and bond index funds, chosen to help provide optimal returns at every level of risk. Read more about our selection methodology.

Smarter than your average portfolio.

  • Lower Costs


    Higher expected take-home returns over time with expense ratios well below the industry average.

  • Tax-Efficient


    Automatically get the benefits of features like Tax Loss Harvesting, once only available to the wealthiest investors.

  • Better Investment Selection


    As an independent financial advisor, we are not compensated to recommend specific investments.

Benefit from broad diversification in proven asset classes.

When you deposit money, we'll seamlessly and instantly invest every dollar in thousands of companies. See a complete list of these stock ETFs and bond ETFs.

Stocks

  • vti
  • vtv
  • voe
  • vbr
  • vea
  • vwo

US Total Stock Market

US Total Stock Market contains broad exposure to the historically strong long-term growth of the US economy.

US Large-Cap Value Stocks

US Large-Cap Value stocks overlap with the US Total Stock Market, but are included to tilt the portfolio toward large size companies with low price-to-earnings ratios.

US Mid-Cap Value Stocks

US Mid-Cap Value stocks overlap with the US Total Stock Market, but are included to tilt the portfolio towards medium size companies with low price-to-earnings ratios.

US Small-Cap Value Stocks

US Small-Cap Value stocks overlap with the US Total Stock Market, but are included to tilt the portfolio towards small size companies with low price-to-earnings ratios.

International Developed Stocks

Developed Markets stocks provide exposure to a diverse set of companies from international developed economies including the UK, Europe, Japan, and others.

Emerging Market Stocks

Emerging Markets provide higher return potential and diversification, however it comes with higher risk compared to US or International Developed stocks.

Bonds

  • shv
  • vtip
  • bnd
  • lqd
  • bndx
  • vwob

Short-Term Treasuries

This extremely low-risk asset class is a cash alternative that generates nominal benefit through interest payments, and de-risks the portfolio at safer allocations.

Inflation Protected Bonds

This allocation serves to insulate a part of the portfolio from the depreciating effects of inflation while also having historically low correlation with other asset classes.

US High Quality or Municipal Bonds

For fixed income with slightly higher risk and returns than US Treasuries, taxable accounts use Municipals and IRA and 401(k) accounts use US High Quality bonds.

US Corporate Bonds

Corporate bonds generally offer attractive yields and opportunity for capital appreciation to compensate investors for default risk.

International Bonds

International Bonds have high credit quality and provide interest rate diversification for a bond portfolio, resulting in higher risk-adjusted returns.

Emerging Markets Bonds

Emerging Markets Bonds are dollar-denominated bonds issued by governments with economies that are rapidly growing and industrializing.

An optimal allocation tailored to you.

With Betterment, choosing the right portfolio is easy, no matter your level of experience. We'll recommend an allocation for each of your goals, to help you reach them faster.

Historically better results.

We don't try to beat the market, but by lowering costs and minimizing taxes, we optimize your portfolio for the best-expected investor returns possible. Betterment would have outperformed the average private client investor in almost all periods over the last decade.

Global diversification, maximum efficiency.

Betterment portfolios benefit from growth in developed and emerging markets, meaning you're less exposed to the economy of any one country. Read more.

Frequently Asked Questions

  • What is an ETF?

    An exchange-traded fund (ETF) is a security that tracks an index, a commodity or a basket of assets just like an index fund, but trades like a stock on an exchange. Betterment uses ETFs in both our stock and bond portfolios because of the liquidity, diversification, and low management fees they offer. Read more.

  • Will my Betterment portfolio beat the market?

    Betterment is a strong believer in passive investing. The majority of the evidence shows that active management, whether by individual investors or fund managers, can cause more harm than good in net-of-fee returns. We therefore invest in low-cost, passive investments which seek to match the market's performance. Read more.

  • Will a taxable portfolio be different from a non-taxable portfolio?

    Yes—We distinguish between taxable and retirement accounts when allocating bonds for additional optimization. Taxable accounts generally hold federally tax-exempt municipal bonds, providing portfolios more favorable after-tax return. Tax advantaged retirement accounts generally maintain exposure to U.S. investment-grade bonds.

  • Will my Betterment portfolio be globally diversified?

    Yes—By using the world's markets as its baseline, the Betterment portfolio diversifies risk on a number of levels including currency, interest rates, credit risk, monetary policy, and economic growth country by country. As economic circumstances may drag down one nation, global diversification helps decrease the risk that one geographic area alone will drag down your portfolio. Read more.

  • Can my Betterment portfolio decrease in value?

    Yes—Far from unusual, downturns are a normal part of even the highest returning investments. Investors often worry and react with panic in response to market drops, even if they are invested properly for their long-term goals, but interim losses are to be expected even during the best investment periods. Read more.

  • Where can I learn more about the Betterment portfolio and investing strategy?

    You can read more about the Betterment portfolio, investment strategy, ETFs, taxes and more at our Resource Center.

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