Portfolio Solutions® and Betterment Release Industry White Paper

“A Case for Index Fund Portfolios” Finds Strong Evidence for Index-Only Portfolios

NEW YORK, June 20, 2013 – Portfolio Solutions® and Betterment today released an informative new white paper that examines the performance of diversified portfolios of index funds compared to portfolios of actively managed funds. Richard Ferri, CFA and Founder of Portfolio Solutions®, and Alex Benke, CFP® and Product Manager at Betterment, led the white paper’s research.

The report, A Case for Index Fund Portfolios has important implications for all investors who wish to accumulate and maintain wealth. The study is unique in that it looked at portfolio-level returns of actual funds available to all investors. Additionally, every portfolio compared was formed using a survivorship-bias-free mutual fund database that included funds that have failed or merged over the years. This robust database enabled the replication of the real-world experiences of investors who could not forecast which funds would survive at the time they made their investment selection.

“The success of investing in individual asset categories with market-tracking index funds over actively managed funds is no secret,” said Richard Ferri, Founder of Portfolio Solutions®. “With this new study, we’re validating the use of an all-index fund portfolio, especially as the holding period and asset allocation complexity are increased.”

According to the report, “The outcome of this study statistically favors an all-index fund strategy, all the time. The probability of outperformance using the simplest index fund portfolio started in the 80th percentile and increased over time and with additional asset classes. These results have significant and practical implications for investors who seek a strategy that can give them the highest chance of reaching their investment goals.”

“Rick and I were particularly surprised at the extent to which owning multiple funds within an asset class was detrimental to the active portfolio,” said Alex Benke, CFP® and Product Manager at Betterment. “This study further deepens the evidence that an all-index fund portfolio is difficult to beat, leaving only the task of finding a simple, low cost way to do that.”

The report identified four key findings:

  • Advanced portfolios holding 10 asset classes showed index fund portfolios outperforming comparable actively managed portfolios 90% of the time.
  • Diversification of Active Managers within asset classes (holding two or more funds of the same asset class) reduced active portfolio performance dramatically, with the passive strategy outperforming multiple active funds 90% of the time.
  • Increased holding period steadily increased the chance of index fund portfolio outperformance.
  • Low-fee actively managed fund portfolios did not meaningfully increase the chance of success.

A Case for Index Fund Portfolios is available for download here:

https://www.betterment.com/resources/BMT-PS_Whitepaper.pdf

http://www.rickferri.com/WhitePaper.pdf

About Portfolio Solutions®:

Portfolio Solutions® is a privately owned, independent, low-cost investment management firm that is SEC registered to work with clients in all 50 states, plus U.S. territories. Portfolio Solutions® specializes in creating investment strategies comprised of low-cost index funds and ETFs that give investors the highest probability of reaching their investing goals. Our long-standing and enduring commitment to indexing strategies has helped to establish our reputation as a leader in the industry. We manage more than $1.2 billion in assets for individual investors as of January, 2013. Founded in 1999, Portfolio Solutions® serves more than 600 clients throughout the United States. The firm’s headquarters are located in Troy, Michigan. Additional information can be found by visiting www.portfoliosolutions.com or calling 800-448-3550.

About Betterment:

Betterment is a goal-based online investment company delivering smart, personalized financial advice paired with low fees and a superb customer experience. Launched in 2010, Betterment’s automated platform eliminates the typical complexities and time commitment of the traditional investment account, freeing up time for other important things in life. Behavioral guardrails built into the account help users make savvy, rational decisions with their finances. For more information, please visit www.betterment.com and follow @Betterment on twitter.

Media contacts:

Joe Ziemer

Communications Manager, Betterment

212-228-1328, joe@betterment.com

Jennifer S. Hall

Director of Interactive Marketing & Sales, Portfolio Solutions®,

800-448-3550, jhall@portfoliosolutions.com

Scott Salaske

President, Portfolio Solutions®,

800-448-3550, scott@portfoliosolutions.com