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The Role Of Life Insurance In A Financial Plan Mar 28, 2022 6:35:33 PM Life insurance helps loved ones cover expenses and progress toward financial goals after you’re gone. In 10 seconds In the event of your death, life insurance helps loved ones cover expenses and progress toward financial goals. In 1 minute If you have dependents, life insurance should be strongly considered in many cases. You don't want financial ruin to add to your loved ones' grief in a time of tragedy. A term life insurance policy gives you temporary coverage for a low monthly or annual premium. You decide how long you want coverage, then lock in your rates. When you pay off your debts and reach other financial goals, you can then reassess your life insurance needs. Alternatively, permanent life insurance policies ensure your loved ones will receive a payout, regardless of at what age you pass away. One of the biggest challenges is deciding how much coverage you need. One thing to consider is how much it would take to pay off any debts you and your dependents owe and how much they might need for future expenses, like college. Replacing the loss of income from a breadwinner is another consideration. It may seem complicated, but applying for life insurance is pretty straightforward. Consider the steps outlined below, and you can help protect your loved ones from the financial pain of an untimely death. In 5 minutes In this guide, we’ll cover: Life insurance basics How to decide if you need life insurance How to apply for life insurance When you’re making a financial plan, life insurance probably isn’t the first thing that comes to mind. But if you pass away, life insurance helps take care of your loved ones when you can’t. It helps your beneficiaries stay on track to pay off your mortgage, pursue secondary education, retire on time, and reach the other financial goals you’ve made together. It protects them from the sudden loss of income they could experience. Life insurance won’t help you reach your goals, but it ensures that your loved ones still can when you’re gone. But not all life insurance policies are the same. And if you’re considering this financial move, it’s worth understanding the basics. Life insurance basics Whatever policy you buy, life insurance has five main components: Policyholder: The person or entity who owns the life insurance policy. Usually, this is the person whose life is insured, but it’s also possible to take out a policy on someone else. The policyholder is responsible for paying the monthly or annual insurance premiums. Insured: Also known as the life assured, this is the person whose life the policy covers. The cost of life insurance heavily depends on who it covers. Beneficiary: The person, people or institution(s) that receive money if the insured dies. There can be more than one beneficiary named on the policy. Premium: This is what you pay monthly or annually to keep a policy active (or “in-force”). Stop paying premiums, and you could lose coverage. Death benefit: This is what the insurance company pays the beneficiaries if the insured person passes away. As soon as the policy is in force, the beneficiaries are usually eligible for the death benefit. In some circumstances, insurance companies aren’t obligated to pay the death benefit. This includes when: The insured outlives the policy term The policy lapses or gets canceled The death occurs within two years of the policy being in-force and the insurance company finds evidence of fraud on the application Term life insurance vs. permanent life insurance Term life policies last for a set period of time. When the term is up, the policy expires. This is usually the most affordable type of life insurance. And since it’s not permanent, you can let it expire once you reach your financial goals and have other means of providing for your loved ones. You’re not stuck paying for protection you no longer need. In fact, the premiums are so low that you can even abandon your policy later without losing much money. Permanent life insurance policies don’t have an expiration date. They last for as long as the policyholder pays the premiums. Since they’re permanent, these policies also have a cash-value component that can be borrowed against. These policies have higher premiums than term policies. Permanent life insurance policies include whole, variable, universal and variable universal life. So, should you sign up for life insurance? If you have financial dependents, and you don’t have enough money set aside to provide for them in the event of your passing, then life insurance should be considered. Here are some cases where buying life insurance might not be beneficial: You have neither a spouse nor dependents You don’t have any debt You can self-insure (you have enough saved to cover debts and expenses) Unless that describes you, getting life insurance should probably be on your To-Do list. How much coverage do you need, though? That depends. If you’re married, you want to leave a financial cushion for your spouse. You also want to make sure that they can continue to pay off the loans you co-signed. For example, your spouse could lose your house if they are unable to keep up with the mortgage payments. Consider choosing a policy that will cover any debts your spouse may owe and the loss of your income. A common rule of thumb for an amount is 10x the insured's income. If you have kids, consider getting a policy big enough to cover all childcare costs, including everything you pay now and what you may pay in the future, such as college tuition. You may wish to leave enough behind for your spouse to cover your kids’ education expenses. Your death benefit should usually cover the entire amount of all these expenses, minus any assets you already have that your family can use to make up some of the financial shortfall. This could be as little as $250,000 or as much as several million dollars. How to apply for life insurance Applying for life insurance usually takes four to eight weeks, but you can often complete the process in just seven steps: Compare quotes from multiple companies Choose a policy Fill out an application Take a medical exam Complete a phone interview Wait for approval Sign your policy And just like that, you have life insurance—and your dependents have a little more peace of mind. Don’t let death derail your financial plan Life insurance is about preparing for the unexpected. As you set financial goals and plan for the future, it’s important to consider what your family’s finances would look like without you. This is your fail-safe. In the worst case scenario, life insurance prevents financial loss from adding to your loved ones’ grief. Please note that Betterment is not a licensed estate planning professional.

What’s an IRA and How Does It Work? Mar 25, 2022 10:10:57 AM Learn more about this investment account with tax advantages that help you prepare for retirement. An Individual Retirement Account (IRA) is a type of investment account with tax advantages that helps you prepare for retirement. Depending on the type of IRA you invest in, you can make tax-free withdrawals when you retire, earn tax-free interest, or put off paying taxes until retirement. The sooner you start investing in an IRA, the more time you have to accrue interest before you reach retirement age. But an IRA isn’t the only kind of investment account for retirement planning. And there are multiple types of IRAs available. If you’re planning for retirement, it’s important to understand your options and learn how to maximize your tax benefits. If your employer offers a 401(k), it may be a better option than investing in an IRA. While anyone can open an IRA, employers typically match a portion of your contribution to a 401(k) account, helping your investment grow faster. In this article, we’ll walk you through: What makes an IRA different from a 401(k) The types of IRAs How to choose between a Roth IRA and a traditional IRA Timing your IRA contributions IRA recharacterizations Roth IRA conversions Let’s start by looking at what makes an Individual Retirement Account different from a 401(k). How is an IRA different from a 401(k)? When it comes to retirement planning, the two most common investment accounts people talk about are IRAs and 401(k)s. 401(k)s offer similar tax advantages to IRAs, but not everyone has this option. Anyone can start an IRA, but a 401(k) is what’s known as an employer-sponsored retirement plan. It’s only available through an employer. Other differences between these two types of accounts are that: Employers often match a percentage of your contributions to a 401(k) 401(k) contributions come right out of your paycheck 401(k) contribution limits are significantly higher If your employer matches contributions to a 401(k), they’re basically giving you free money you wouldn’t otherwise receive. It’s typically wise to take advantage of this match before looking to an IRA. With an Individual Retirement Account, you determine exactly when to make contributions. You can put money into an IRA at any time over the course of the year, whereas a 401(k) has to come from every paycheck. Note that annual IRA contributions can be made up until that year’s tax filing deadline, whereas the contribution deadline for 401(k)s is at the end of each calendar year. Learning how to time your IRA contributions can significantly increase your earnings over time. Every year, you’re only allowed to put a fixed amount of money into a retirement account, and the exact amount often changes year-to-year. For an IRA, the contribution limit for 2022 is $6,000 if you’re under 50, or $7,000 if you’re 50 or older. For a 401(k), the contribution limit for 2022 is $20,500 if you’re under 50, or $27,000. These contribution limits are separate, so it’s not uncommon for investors to have both a 401(k) and an IRA. What are the types of IRAs? The challenge for most people looking into IRAs is understanding which kind of IRA is most advantageous for them. For many, this boils down to Roth and/or Traditional. The advantages of each can shift over time as tax laws and your income level changes, so this is a common periodic question for even advanced investors. As a side note, there are other IRA options suited for the self-employed or small business owner, such as the SEP IRA, but we won’t go into those here. As mentioned in the section above, IRA contributions are not made directly from your paycheck. That means that the money you are contributing to an IRA has already been taxed. When you contribute to a Traditional IRA, your contribution may be tax-deductible. Whether you are eligible to take a full, partial, or any deduction at all depends on if you or your spouse is covered by an employer retirement plan (i.e. a 401(k)) and your income level (more on these limitations later). Once funds are in your traditional IRA, you will not pay any income taxes on investment earnings until you begin to withdraw from the account. This means that you benefit from “tax-deferred” growth. If you were able to deduct your contributions, you will pay income tax on the contributions as well as earnings at the time of withdrawal. If you were not eligible to take a deduction on your contributions, then you generally will only pay taxes on the earnings at the time of withdrawal. This is done on a “pro-rata” basis. Comparatively, contributions to a Roth IRA are not tax deductible. When it comes time to withdraw from your Roth IRA, your withdrawals will generally be tax free—even the interest you’ve accumulated. How to choose between a Roth IRA and a Traditional IRA For most people, choosing an Individual Retirement Account is a matter of deciding between a Roth IRA and a Traditional IRA. Neither option is inherently better: it depends on your income and your tax bracket now and in retirement. Your income determines whether you can contribute to a Roth IRA, and also whether you are eligible to deduct contributions made to a Traditional IRA. However, the IRS doesn’t use your gross income; they look at your modified adjusted gross income, which can be different from taxable income. With Roth IRAs, your ability to contribute is phased out when your modified adjusted gross income (MAGI) reaches a certain level. If you’re eligible for both types of IRAs, the choice often comes down to what tax bracket you’re in now, and what tax bracket you think you’ll be in when you retire. If you think you’ll be in a lower tax bracket when you retire, postponing taxes with a Traditional IRA will likely result in you keeping more of your money. If you expect to be in a higher tax bracket when you retire, using a Roth IRA to pay taxes now may be the better choice. The best type of account for you may change over time, but making a choice now doesn’t lock you into one option forever. So as you start retirement planning, focus on where you are now and where you’d like to be then. It’s healthy to re-evaluate your position periodically, especially when you go through major financial transitions such as getting a new job, losing a job, receiving a promotion, or creating an additional revenue stream. Timing IRA contributions: why earlier is better Regardless of which type of IRA you select, it helps to understand how the timing of your contributions impacts your investment returns. It’s your choice to either make a maximum contribution early in the year, contribute over time, or wait until the deadline. By timing your contribution to be as early as possible, you can maximize your time in the market, which could help you gain more returns over time. Consider the difference between making a maximum contribution on January 1 and making it on December 1 each year. Then suppose, hypothetically, that your annual growth rate is 10%. Here’s what the difference could look like between an IRA with early contributions and an IRA with late contributions: This figure represents the scenarios mentioned above.‘Deposit Early’ indicates depositing $6,000 on January 1 of each calendar year, whereas ‘Deposit Late’ indicates depositing $6,000 on December 1 of the same calendar year, both every year for a ten-year period. Calculations assume a hypothetical growth rate of 10% annually. The hypothetical growth rate is not based on, and should not be interpreted to reflect, any Betterment portfolio, or any other investment or portfolio, and is purely an arbitrary number. Further, the results are solely based on the calculations mentioned in the preceding sentences. These figures do not take into account any dividend reinvestment, taxes, market changes, or any fees charged. The illustration does not reflect the chance for loss or gain, and actual returns can vary from those above. What’s an IRA recharacterization? You might contribute to an IRA before you have started filing your taxes and may not know exactly what your Modified Adjusted Gross Income will be for that year. Therefore, you may not know whether you will be eligible to contribute to a Roth IRA, or if you will be able to deduct your contributions to a traditional IRA. In some cases, the IRS allows you to reclassify your IRA contributions. A recharacterization changes your contributions (plus the gains or minus the losses attributed to them) from a Traditional IRA to a Roth IRA, or, from a Roth IRA to a Traditional IRA. It’s most common to recharacterize a Roth IRA to a Traditional IRA. Generally, there are no taxes associated with a recharacterization if the amount you recharacterize includes gains or excludes dollars lost. Here are three instances where a recharacterization may be right for you: If you made a Roth contribution during the year but discovered later that your income was high enough to reduce the amount you were allowed to contribute—or prohibit you from contributing at all. If you contributed to a Traditional IRA because you thought your income would be above the allowed limits for a Roth IRA contribution, but your income ended up lower than you’d expected. If you contributed to a Roth IRA, but while preparing your tax return, you realize that you’d benefit more from the immediate tax deduction a Traditional IRA contribution would potentially provide. You cannot recharacterize an amount that’s more than your allowable maximum annual contribution. You have until each year’s tax filing deadline to recharacterize—unless you file for an extension or you file an amended tax return. What’s a Roth conversion? A Roth conversion is a one-way street. It’s a potentially taxable event where funds are transferred from a Traditional IRA to a Roth IRA. There is no such thing as a Roth to Traditional conversion. It is different from a recharacterization because you are not changing the type of IRA that you contributed to for that particular year. There is no cap on the amount that’s eligible to be converted, so the sky’s the limit for those that choose to convert. We go into Roth conversions in more detail in our Help Center.

An Investor's Guide To Market Volatility Mar 23, 2022 3:30:07 PM Knowing what to do during a market downturn can be especially difficult in the moment. Here’s how to plan ahead. In 10 seconds Market volatility refers to how much investment prices change over time. The more volatile a market is, the more risky it tends to be to invest in. But even in a volatile market, you usually don’t need to adjust your portfolio to see growth. In 1 minute When the prices in financial markets change, that’s market volatility. More volatility means greater potential for both gains or losses. In investing, market volatility comes with the territory. Some days the market is up, and other days it’s down. It’s OK to be anxious during a dip, but preparing for market volatility can help you avoid making decisions out of fear. Two of the biggest ways you can prepare for volatility: Diversify your portfolio Build an emergency fund Diversification helps protect your portfolio by spreading out your risk. A diversified portfolio may not gain as much as some individual assets, but it likely won’t lose as much as others. An emergency fund is a financial safety net. If market volatility negatively impacts your investments, your emergency fund can help cover your expenses until the economy recovers. During a downturn, we recommend resisting the urge to change your investments. Give your portfolio time to recover. But if you can’t do that, try to keep changes small, like lowering your stock allocation so that it’s more consistent with a more conservative risk tolerance level. In general, you should invest for the long-term, but at the same time you’ll likely want a diversified portfolio that you’re comfortable holding on to even when things in the market get bad. This can increase the odds you remain in the market when it ultimately recovers and continues on its path of expected long-term growth. Still not satisfying the itch to act? High management fees or capital gains distributions (from a mutual fund) could make that market volatility more uncomfortable. Or perhaps your financial advisor isn’t sticking to your target allocation as your portfolio experiences gains and losses. In these situations, a lower-fee robo-advisor like Betterment can help alleviate that discomfort. In 5 minutes In this guide, we’ll cover: What market volatility is How to prepare for it What to do about it Nobody likes to see their finances take a nosedive. But in a volatile market, dips happen often. Market volatility refers to fluctuations in the price of investments. Some markets—like the stock market—fluctuate more than others. And in times of economic stress, markets tend to be even more volatile, so you might see some big ups and downs. It’s tempting to sell everything and bail out during dips, but that often does more harm than good. Selling your assets could lock-in losses before they have a chance to rebound from the dip, and it’s nearly impossible to predict the market’s high points and low points. Reacting to market drawdowns by moving to cash is like selling your clothes because you gained a few pounds. Sure, they may feel a little snug, but you could find yourself with a bare closet if and when your weight fluctuates the other way. Historically, the stock market has had plenty of bad days. In any given decade, you’re bound to see many drawdowns, where investment values dip frightfully low. But when you step back and look at the big picture, the market has trended upward over time. So far, the global stock market, and by extension the U.S. stock market, has always recovered from economic downturns. And while nothing in life is guaranteed, those are some pretty good odds. History shows us that experiencing short-term losses is part of the path to long-term gains. The key for investors is to expect market volatility. It’s inevitable. And that means you need to prepare for it—not simply react to it. How to prepare for market volatility Market volatility can occur at any time. So you want to be ready for it now and in the future. The main thing you can do to prepare is diversify your portfolio. Having a balance of different assets decreases your overall level of risk. While some of your assets momentarily struggle, for example, others may hold steady or even thrive. The goal is your portfolio will hopefully feel less like a rollercoaster and more like a fun hike up wealth mountain. Beyond that, you’ll want to strongly consider building an emergency fund. A good starting point is having enough to cover three to six months of expenses. Put it in a Cash Reserve account or set up a Safety Net goal with us, which lowers the risk relative to longer-term investments while also providing enough potential upside to counteract inflation over time. This is money you want on hand if market volatility takes a turn for the worse. Even if you don’t depend on your investments for income, major economic downturns can affect your life in other ways. The poor economy could lead to layoffs, bankruptcies, and other situations that impact your job stability. Or if you have rental properties, the real estate market could be adversely affected as well. All the more reason to have an emergency fund and ride out that turbulence if the need arises. What investors should do during downturns Caught in a downturn? Don’t panic. Seriously, when the market looks grim, the best reaction is usually to do nothing. Selling off your portfolio to prevent further losses is a common investor mistake that does two things: It locks-in those losses It takes away your chance to rebound with the market Scratching an itch usually won’t prevent it from recurring. The same goes for reacting to short-term losses in your portfolio. As much as you can, you want to resist the urge to react. Still, sometimes you may feel like you have to make a change. If that’s you, the first thing to do is make sure you’re comfortable with the level of risk you’re taking. Some asset classes, like stocks, are more volatile than others. The more weighted your portfolio is toward these assets, the more vulnerable it is to changes in the market. You’ll also want to confirm that your time horizon (when you need the money) is still correct. Think of this like checking your pulse, or taking a few deep breaths. You’re making sure your investments look right—that everything is working like it’s supposed to. If you’re still feeling tempted to do something drastic like withdraw all your investments, you probably should reduce your level of risk. Even if everything looks right for your goals, making a small adjustment now could prevent you from making a bigger mistake out of panic later. Your pulse is too high. Your breaths are too rapid. Sitting at 90% stocks and 10% bonds? You might try dialing it down to 75% stocks and 25% bonds. Depending on your situation, another option might be to shift your investments to a financial institution like Betterment. This could save you money in other ways, which might make your current risk level feel more comfortable. Some signs this might be the right move for you: 1. Your accounts have higher management fees You can’t control how the market performs, but you don’t have to be stuck with higher fees. Switching to a lower-fee institution like Betterment could lead to less of a drag on your long-term returns. 2. Your allocation is incorrect The sooner you need to use your money, the less risk you should take. Not sure what level of risk is right for you? When you set up a financial goal with Betterment, we’ll recommend a risk level based on your time horizon and target amount. 3. You own mutual funds that pay capital gains distributions When a mutual fund manager sells underlying investments in the fund, they may make a profit (capital gains), which are then passed on to individual shareholders like you. These distributions are taxable. Even worse: mutual funds can pay out capital gain distributions even if the fund’s overall performance is down for a year. So in a volatile market, your portfolio could lose value and you may still pay taxes on gains within the fund. In contrast, most exchange traded funds (ETFs) are more tax efficient.

Navigating Market Volatility Mar 23, 2022 10:43:20 AM Volatile markets can cause investors to panic. Learn how Betterment helps you stay focused on your long-term goals. Rising geopolitical risk The invasion of Ukraine by Russia has caused a humanitarian crisis and has driven many countries to impose sanctions on Russia. This has resulted in heightened volatility in global markets that has manifested in soaring commodity prices, elevated default risk for Russian debt, and the halting of trading on Russian stocks. These geopolitically-driven market events are also happening at a time when the global economy is recovering from a pandemic and facing elevated inflation. Betterment’s exposure to Russian securities Betterment constructs globally diversified portfolios using exchange traded funds (ETFs) as building blocks. For that reason, Betterment portfolios did not have significant exposure to Russian securities prior to the crisis. Our exposure was through allocations in broad emerging markets and international ETFs, which were not heavily concentrated in a specific country. Within the Core portfolio and a 90% stocks/10% bonds allocation, our most commonly held portfolio, the exposure was less than 1% as of Jan. 31, 2022. Our Socially Responsible Investing (SRI) portfolios had even less exposure. How is Betterment helping me navigate the current environment? Through our investment selection framework, we select ETFs that meet certain requirements such as liquidity. These ETFs invest in the underlying holdings of the indices that they track. A majority of index providers have already made the decision to remove Russian securities from their indices, deeming them uninvestable. ETF providers will likely follow suit to remove the allocations of their funds to Russia and exit positions when possible. No action is required by Betterment or our clients. Portfolios may drift due to market fluctuations. Our automated rebalances will therefore realign portfolios back to their target weights by buying underweight positions and selling the overweight ones (buying low, selling high), an important strategy in volatile markets. Our auto-adjust feature creates a glidepath to automatically de-risk your portfolio exposure over time. As you get closer to that major purchase or retirement, you have less exposure to more volatile investments like stocks and more in relatively safer investments like bonds. Other strategies include tax loss harvesting and tax-coordination. What should I do as an investor? In periods of heightened volatility, do not react to short-term volatility especially with uncertain geopolitical events. The last thing you’d want to do is sell-off in a panic, lock in losses, and miss the opportunity of a market recovery. This is not the first time we’ve experienced volatility or a crisis, and it certainly will not be the last. We all remember the pandemic, financial crisis, and tech bubble, just to name a few. Market crises, however, have often been followed by double-digit returns a year later. In the onset of the pandemic, markets declined more than 30% only to recover more than 77% a year later. Instead of attempting to time the market, continue to invest regularly to have a dollar cost average experience. Increase your time in the market, investing through the ups and downs. Betterment’s platform is built with a focus on the long-term. Remember that investing is a marathon, not a sprint. It’s crucial in these moments to practice good financial habits and stay the course amidst uncertainty.

What the Russia-Ukraine Conflict and Inflation Mean for the Market’s Future Mar 23, 2022 10:26:37 AM Just like during the good periods, Betterment is practicing good housekeeping. Russia, Ukraine, and your portfolio Betterment’s portfolios had minimal direct exposure to Russian equity, debt, and currency. Our 90% Core IRA portfolio, for example, had less than 1% Russian exposure, and our Socially Responsible Investing (SRI) portfolios were even lower. Russian exposure is now effectively zero due to asset freezes and sanctions. Similarly, there was negligible direct exposure to Ukrainian investments. What we’re doing (as usual) Just like during the good periods, Betterment is practicing good housekeeping: rebalancing, tax-loss harvesting, glide-pathing your goals, and performing asset-location rebalances. We’ll continue to look for ways to improve your portfolio and financial plan intelligently. We’re tracking what slower portfolio growth might mean for goal confidence and updating our guidance. We’re looking carefully at market forecasts of inflation, interest rates, and macroeconomics to understand how the situation might develop from here. Learning from history Taking a step back, market drops from geopolitical upheaval and supply chain shocks like this tend to be moderate in magnitude (about 10% on average) and short-lived (lasting less than 12 months). They are not a good reason to delay investing. If anything, they can be the opposite; if you’ve been looking for a dip to buy, this is the biggest one since 2020 so far. Short-term to long-term Indirect impacts on Americans such as higher commodity prices (wheat and gas) will have short-term spikes, but likely be blunted in the medium- to long-term by domestic resources, policy tools and the adaptability of supply chains and trade partners. In the long run, this will push countries to reduce reliance on petro-dollars, spurring investment into energy tech/processes. The Russian economy has been set back roughly 30 years, is losing young cohorts to military service or emigration, and is seeing necessary trade evaporate. Helping, tax efficiently Donations to humanitarian aid platforms such as UNICEF, Save the Children, and Medicine San Frontiers can be made from your taxable Betterment account. Gifting appreciated shares is one of the most tax-efficient ways to donate money, as you avoid capital gains tax. Setting yourself up for good decisions As with any concerning and sensational market moves, give yourself time and space to make considered forward-looking decisions, and not react impulsively to minute-by-minute headlines. If you want to take action, make it surgical (smaller) rather than extreme. Consider what decisions you’ll wish you had made 10 years from now, not 10 minutes. Consider putting yourself on a social media diet to avoid doom-scrolling – or avoiding the news at night to protect your sleep. Bad decisions tend to be made when you’re tired and anxious. Only look at your portfolio when markets are closed for the day to avoid knee-jerk responses. Keep your natural resources up: exercise, go for walks outside, meet up with friends, meditate, and avoid drinking excessively.

What Is A Fiduciary, And Do I Need One for My Investments? Mar 18, 2022 2:11:42 PM When it comes to getting help managing your financial life, transparency is the name of the game. In 10 seconds A fiduciary is a person or institution that is legally required to act in your best interest when managing your finances. Working with a fiduciary helps ensure that the financial advice you receive is transparent. In 1 minute A fiduciary is legally obligated to put your financial interests ahead of their own. They have a duty to eliminate or disclose potential conflicts of interest whenever possible. Betterment holds itself to this high standard, which in turn gives our customers peace of mind. Non-fiduciary advisors, on the other hand, can legally prioritize investments that pad their own pockets more than yours. A common conflict of interest involves commissions. Many investment professionals primarily rely on commissions to make money. They can be motivated to have you invest in assets that give them the biggest commissions, rather than what will provide the most expected benefit to you. If you want to try and ensure the financial advice you receive is transparent, consider working with a fiduciary. In 5 minutes In this guide we’ll: Define what a fiduciary is Explain how they differ from other financial advisors Consider when it can be important to work with a fiduciary Learn how to be a proactive investment shopper What is a fiduciary? When you seek out financial advice, it’s reasonable to assume your advisor would put your best interests ahead of their own. But the truth is, if the investment advisor isn’t a fiduciary, they aren’t actually required to do so. A fiduciary is a professional or institution that has the power to act on behalf of another party, and is required to do what is in the best interest of the other party to preserve good faith and trust. What is the fiduciary duty? An investment advisor with a fiduciary duty to its clients is obligated to follow both a duty of care and a duty of loyalty to their clients. The duty of care requires a fiduciary to act in the client’s best interest. Under the duty of loyalty, the fiduciary must also attempt to eliminate or disclose all potential conflicts of interest. Not all advisors are held to the same standards when providing advice, so it’s important to know who is required to act as a fiduciary. Are all financial advisors fiduciaries? Short answer: No. Financial advisors not acting as fiduciaries operate under a looser guideline called the suitability standard. Advisors who operate under a suitability standard have to choose investments that are appropriate based on the client’s circumstances, but they neither have to put the clients’ best interests first nor disclose or avoid conflicts of interest so long as the transaction is considered suitable. What are examples of conflicts of interest? When in doubt, just follow the money. How do your financial advisors get paid? Are they incentivised to take actions that might not be in your best interest. Commissions are one of the most common conflicts of interest. At large brokerages, it’s still not uncommon for investment professionals to primarily rely on commissions to make money. With commission-based pay, your advisor might receive a cut each time you trade, plus a percentage each time they steer your money into certain investment companies’ financial products. They can be motivated to recommend you invest in funds that pay them high commissions (and cost you a higher fee), even if there’s a comparable and cheaper fund that benefits your financial strategy as a client. When is it important to work with a fiduciary? When looking for an advisor to trade on your behalf and make investment decisions for you, you should strongly consider choosing a fiduciary advisor. This should help ensure that you receive suitable recommendations that will also be in your best interest. If you want to entrust an advisor with your financials and give them discretion, you may want to make sure they’re legally required to put your interests ahead of their own. On the other hand, if you’re simply seeking help trading securities in your portfolio, or you don’t want to give an advisor discretion over your accounts, you may not need a fiduciary advisor. How to be a proactive investment shopper Hiring a fiduciary advisor to manage your portfolio is one of the best ways to try and ensure you are receiving unbiased advice. We highly recommend verifying that your professional is getting paid to meet your needs, not the needs of a broker, fund, or external portfolio strategy. Ask the tough questions: “I’d love to learn how you’re paid in this arrangement. How do you make money?” “How do you protect your clients from your own biases? Can you tell me about potential conflicts of interest in this arrangement?” “What’s the philosophy behind the advice you give? What are the aspects of investment management that you focus on most?” “What would you say is your point of differentiation from other advisors?" Some of these questions may be answered in a Form CRS, which is a relationship summary that advisors and brokers are required to give their clients or customers as of summer 2020. You should also know the costs of your current investments and compare them with other options in the marketplace as time goes on. If alternatives seem more attractive, ask your advisor why they haven’t suggested making a switch. And if the explanation you get seems inadequate, consider whether you should continue working with your investment professional. Why is Betterment a fiduciary? A common point of confusion is whether or not robo-advisors can be fiduciaries. So let’s clear up any ambiguities: Yes, they certainly can be. Betterment is a Registered Investment Advisor (RIA) with the SEC and is held to the fiduciary standard as required under the Investment Advisers Act. Acting as a fiduciary aligns with Betterment’s mission because we are committed to helping you build a better life, where you can save more for the future and can make the most of your money through our cash management products and our investing and retirement products. I, as well as the rest of Betterment’s dedicated team of human advisors, are also Certified Financial Planners® (CFP®, for short). We’re held to the fiduciary standard, too. This way, you can be sure that the financial advice you receive from Betterment, whether online or from our team of human advisors, is in your best interest. Like what you hear? You can get started with an investing portfolio today.

How To Manage Your Income In Retirement Mar 18, 2022 1:27:08 PM An income strategy during retirement can help make your portfolio last longer, while also easing potential tax burdens. In 10 seconds How you manage your retirement income can have a significant impact on how long your savings last. Adjust your asset allocation over time and withdraw from your accounts in the right order to help stretch your money further. In 1 minute 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. If you’re not careful, market downswings can dramatically lower the value of your portfolio—and once you start making withdrawals, it’s much harder to rebound with the market. It’s important to prepare for the risk. As retirement draws nearer, you should consider adjusting your asset allocation to take on less risk. During retirement, you may gradually shift to an allocation of just 30% stocks, with the remainder going toward less volatile assets, like bonds. As you make withdrawals and earn dividends, you’ll likely want to rebalance your portfolio, either manually or through automated services like those at Betterment, based on the market and your target allocation. Even though you're retired, a financial safety net is still essential. You should strongly consider maintaining enough funds for three to six months of expenses in a low-risk, accessible account, so if things take a turn for the worse, you have something to fall back on. Supplemental income helps, too. Social Security, rental income, a part-time job, or pension withdrawals can help you maintain your lifestyle in retirement and leave more of your nest egg in growth mode. It’s also a good idea to withdraw from your accounts in the right order. Generally you should consider starting with taxable accounts first, then tax-deferred accounts, and save the tax-free accounts for last. One exception is when you have Required Minimum Distributions (RMDs). In that case, you can withdraw your RMDs first, then take anything else you need from your taxable accounts, then tax-deferred, and finally tax-free accounts. Another exception is when your tax bracket is higher/lower than usual. Sound complicated? Betterment can help you decide exactly how much to withdraw based on your timeline and portfolio. In 5 minutes In this guide we’ll cover: Why changes in the market affect you differently in retirement How to keep bad timing from ruining your retirement How to decide which accounts to withdraw from first 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 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, low-risk 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. Here’s how taxes work with each of these account types. 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. Withdrawing from your taxable accounts first usually gives your portfolio more time to grow. This is because you only pay taxes on the capital gains, so more money stays in your account. With a tax-deferred account like a 401(k), you 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 the ideal withdrawal order is generally: Taxable accounts Tax-deferred accounts Tax-free accounts But in abnormal years, where you find your tax bracket either higher or lower than usual, you likely will want to deviate from this strategy, and attempt to “smooth” out your tax bracket. This is more advanced, but can help you take advantage of lower tax years and minimize the impact of higher tax years. There’s just one other thing to consider: Required Minimum Distributions (RMDs). When you reach a certain age, you’re required to take a certain amount from your tax-deferred accounts each month—or else you’ll lose 50% of the required amount. If that applies to you, you’ll want to take out your RMD first, then follow the order above. So it goes: Required Minimum Distributions, taxable accounts, tax-deferred accounts, tax-free accounts. Withdraw your retirement income from your accounts in that order, and you’ll likely help your savings last as long as possible. Take the guesswork out of your retirement income Sometimes it’s hard to decide how much to withdraw from your retirement savings. And as you enjoy years of retirement, when and how should you adjust your asset allocation? Betterment helps you with both of these decisions. As a Betterment investor, when you designate yourself a retiree, you can set up a goal called “Retirement Income.” Our algorithm will automatically calculate a safe withdrawal amount and recommend an asset allocation based on where you’re at and what you have to work with. You can set up automatic withdrawals from your Betterment account to your checking account, helping you maintain a personalized payment schedule. Ready to get started? Set up a Retirement Income goal today. Or, see the rest of our retirement advice. Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a qualified tax professional.

What You Should Know About Financial Markets Mar 15, 2022 6:03:03 PM Let time work in your favor. Let the market worry about itself. Financial markets are unpredictable. No matter how much research you do and how closely you follow the news, trying to “time the market” usually means withdrawing too early and investing too late. Most investors see better performance by focusing on the long game. With a diversified portfolio and a patient and disciplined approach, the more time you give your investments in the market, the better your portfolio performs. When you try to time the market, you also risk short-term capital gains taxes. Even if you make a profit with constant buying and selling, these taxes quickly eat into your gains. Hold your assets for over a year, and you’ll avoid these short-term taxes. If you do need to make adjustments, try to keep them to a minimum. The best way to adjust your asset allocation is to look at how much time you have to reach your goal. The closer it gets, the less risk you’ll want to take. Got more time? There’s more to unpack about financial markets. In 5 minutes In this guide, we’ll explain: Why a long-term strategy is often the best approach The problems with trying to time the market How to accurately evaluate portfolio performance How to make adjustments when you need to Why a long-term strategy is often the best approach Watch the market closely, and you’ll see it constantly fluctuate. The markets can be sky high one day, then come crashing down the next. Zoom in close enough on any ten-year period, and you’ll see countless short-term gains and losses that can be large in magnitude. Zoom out far enough, and you’ll see a gradual upward trend. It’s easy to get sucked into market speculation. Those short-term wins feel good, and look highly appealing. But you’re not trying to win the lottery here—you’re investing. You’re trying to reach financial goals. At Betterment, we believe the smartest way to do that is by diversifying your portfolio, making regular deposits, and holding your assets for longer. Accurately predicting where the market is going in the short-term is extremely difficult, but investing regularly over the long-term is an activity you can control that can lead to far more reliable performance over time. The power of compounding is real. By regularly investing in a well-diversified portfolio, you’re probably not going to suddenly win big. But you’re unlikely to lose it all, either. And by the time you’re ready to start withdrawing funds, you’ll have a lot more to work with. The basics of diversification Diversification is all about reducing risk. Every financial asset, industry, and market is influenced by different factors that change its performance. Invest too heavily in one area, and your portfolio becomes more vulnerable to its specific risks. Put all your money in an oil company, and a single oil spill, regulation, lawsuit, or change in demand could devastate your portfolio. There’s no failsafe. The less you lean on any one asset, economic sector, or geographical region, the more stable your portfolio will likely be. Diversification sets your portfolio up for long-term success with steadier, more stable performance. The problems with trying to time the market There are two big reasons not to try and time the market: It’s extremely difficult to consistently beat a well-diversified portfolio Taxes Many investors miss more in gains than they avoid in losses by trying to time a dip. Even the best active investors frequently make “the wrong call.” They withdraw too early or go all-in too late. There are too many factors outside of your control. Too much information you don’t have. To beat a well-diversified portfolio, you have to buy and sell at the perfect time. Again. And again. And again. No matter how much market research you do, you’re simply very unlikely to win that battle in the long run. Especially when you consider short-term capital gains taxes. Any time you sell an asset you’ve held for less than a year and make a profit, you have to pay short-term capital gains taxes. Just like that, you might have to shave up to 37% off of your profits. With a passive approach that focuses on the long game, you hold onto assets for much longer, so you’re far less likely to have short-term capital gains (and the taxes that come with them). You don’t just have to consistently beat a well-diversified, buy and hold portfolio. In order to outperform it, you have to blow it out of the water. And that’s why you may want to rethink the way you evaluate portfolio performance. How to evaluate portfolio performance Want to know how well your portfolio is doing? You need to use the right benchmarks and consider after-tax adjustments. US investors often compare their portfolio performance to the S&P 500 or the Dow Jones Industrial Average. But that’s helpful if you’re only invested in the US stock market. If you’re holding a well-diversified portfolio holding stocks and bonds across geographical regions, the Vanguard LifeStrategy Funds or iShares Core Allocation ETFs may be a better comparison. Just make sure you compare apples to apples. If you have a portfolio that’s 80% stocks, don’t compare it to a portfolio with 100% stocks. The other key to evaluating your performance is tax adjustments. How much actually goes in your pocket? If you’re going to lose 30% or more of your profits to short-term capital gains taxes, that’s a large drain on your overall return that may impact how soon you can achieve your financial goals. How to adjust your investments during highs and lows At Betterment, we believe investors get better results when they don’t react to market changes. On a long enough timeline, market highs and lows won’t matter as much. But sometimes, you really do need to make adjustments. The best way to change your portfolio? Start small. Huge, sweeping changes are much more likely to hurt your performance. If stock investments feel too risky, you can even start putting your deposits into US Short-Term Treasuries instead, which are extremely low risk, highly liquid, and mature in about six months. This is called a “dry powder” fund. Make sure your adjustments fit your goal. If your goal is still years or decades away, your investments should probably be weighted more heavily toward diversified stocks. As you get closer to the end date, you can shift to bonds and other low-risk assets. Since it’s extremely hard to time the market, we believe it’s best to ride out the market highs and lows. We also make it easy to adjust your portfolio to fit your level of risk tolerance. It’s like turning a dial up or down, shifting your investments more toward stocks or bonds. You’re in control. And if “don’t worry” doesn’t put you at ease, you can make sure your risk reflects your comfort level.

Welcome to Student Loan Management by Betterment Feb 23, 2022 9:55:50 AM Manage your student loans right alongside your 401(k) with this step-by-step guide. We’re excited you’re here and ready to tackle student loans! You now have access to our Student Loan Management tool through your employer and will be able to connect and view your student loans and make additional payments within the Betterment app, all alongside your Betterment 401(k). Watch the demo video or follow the step-by-step guide below to get started.   Connect your student loans Log in to your account and navigate to add a new account/goal. Click on the ‘Manage student loans' goal in order to start connecting your loan (see preview above). Click through and continue until you are able to identify your loan servicer. Enter your username and password in order to finalize connecting your loan. Click on ‘View my account’ in order to ensure you can see the new Student Loan Management goal. In order to connect additional loans, click on the ‘Connect new loan’ button on the top right corner and follow the instructions. Set up a recurring payment Navigate to the ‘Recurring payment’ section. Click on ‘Set up recurring payment.’ Similar to how you set up a contribution rate for your Betterment 401(k), decide on a percentage or dollar amount deduction from your paycheck to be contributed as an additional monthly payment toward your student loans (see preview below). If you are not eligible for a student loan match through your employer, you also have the option to set up your payments to be paid from a bank account. Identify which loan you’d like to have the recurring payment contribute toward. Betterment will provide you with an allocation recommendation here on which loan the payment will have the most impact towards. Set up a one-time payment Navigate to the ‘Make payment’ button and click on ‘Make a one-time payment.’ Follow the same instructions for setting up a payment as above. Dashboard overview Don’t forget to take advantage of all the resources available to you with the Student Loan Management tool. In the ‘Overview’ tab, you’ll be able to see your recurring payment, debt projections and payment history. If you are eligible for a match through your employer, you’ll be able to ensure you’re making progress against the eligible amount. In the ‘Loans’ tab, you will find a holistic overview of your connected student loans and financial advice from Betterment based on an analysis of interest rates and loan amounts. And lastly, in the ‘Settings’ tab, you will be able to customize your Student Loan Management goal. Here you will be able to change the picture, name or delete the goal entirely.

How To Manage Debt And Invest At The Same Time Feb 18, 2022 10:44:27 AM With the right strategy, it's possible to make progress on both goals. In 1 minute Managing debt and investing is a tricky balancing act, but they're both vital to your financial future. At Betterment, we recommend you focus on your high-interest debt first. Anything over 5% should be prioritized, starting from the highest-interest debt and working your way down the list. You shouldn’t let this grow, or it might get out of hand. For your other debts, you may be able to get by with minimum payments. If your employer offers to match your contributions to a retirement plan, get on that! An employer match is one of the fastest ways to maximize the value of your investments. You don’t want to waste the opportunity for free money. And a 401(k) comes with tax advantages to boot! You’ll also want to protect yourself from unexpected expenses by saving up a safety net. When a surprise bill shows up, you want cash on hand to prevent you from going further into debt. Other than that, treat your debt payments and investments as part of your fixed monthly expenses. Don’t let working toward your goals feel optional. Managing debt and investing can feel overwhelming. But our step-by-step guide below will walk you through it. In 5 minutes In this guide, we’ll explain how to manage debt and invest in six steps: Account for your spending Make minimum debt payments Contribute to an employer-matched retirement plan (if you can) Build a Safety Net Fund Focus on high-interest debt Invest for the long-term First, let’s talk about your debt, your goals, and your repayment strategy. Planning around your debt. Debt can completely derail your financial goals. It eats through your savings and can offset the gains you make through investing. Repaying major debt like student loans can feel like climbing a mountain. For Black and Latino folks, that mountain tends to be higher as the need for student loans is often greater and the interest rates often higher than non-Black or Latino students. But not all debt is the same. High-interest credit card debt will quickly outpace your investment earnings. Ignore it, and it will consume your finances. Debt with lower interest rates, like some student loans or your mortgage, can be much less of a priority. If you put off investing in favor of attacking this debt, you may not have time to reach your goals. It is possible to pay debt and invest at the same time—the key is to create a strategy based on your debt and your financial goals. At Betterment, we recommend focusing on the debt with the highest interest first. The more time you give this debt to grow, the harder it becomes to pay off. Now let's walk through Betterment’s six steps to manage your debt and invest. Step 1: Account for your spending. Your finances are finite. You have a limited amount of money to pay down debt, invest, and cover your expenses. The first step is to learn what comes in and goes out each month. How much do you have to work with after rent, food, utilities, and other fixed expenses? Are there expensive habits you can eliminate to free up more money? Don’t plan to make changes you can’t stick to. The goal here is to establish a monthly budget, so you have enough to cover your bills and know how much you can save or put towards debt. We also recommend keeping enough in your checking account to act as a small buffer—three to five weeks of living expenses is generally a good rule of thumb—as even the best laid plans (or budgets) are derailed at times. Step 2: Make minimum payments. You really don’t want to miss your minimum payments. Fees and penalties make your debt hit harder, and they’re usually avoidable. Think of your minimum debt payments as fixed expenses. After your regular living expenses, minimum debt payments should be a top priority. Step 3: Contribute to an employer-matched retirement plan. If your employer offers to match contributions to a 401(k), that’s free money! Don’t leave it on the table. A 401(k) also comes with valuable tax benefits. Even if it under performs, the match program allows your contributions to grow faster. It’s like your employer is giving your financial goals a boost. And that’s why this is almost always one of the smartest investment moves you can make. Step 4: Focus on high-interest debt. When it comes down to it, high-interest debt is your biggest enemy. It’s a festering financial wound that grows faster than any interest you’re likely to earn. Left unchecked, credit card debt can easily cost you thousands of dollars in interest or more. And that’s money you could’ve invested, applied to other debt, or saved. Step 5: Build a Safety Net Fund. Without a financial safety net, you’re one unexpected medical bill, car accident, or surprise expense away from even more debt. Generally we encourage you to pay off your high interest debt before fully funding a three to six month emergency fund. However, some people, particularly those who are worried about income loss, prefer building a large cushion of cash for emergencies first over paying down extra debt Step 6: Invest for the long-term. Once you’ve paid down your high-interest debt, you can begin investing for the long-term. With a diversified portfolio, your investments can outpace your lower-interest debt. So you can work toward financial goals while making minimum payments. Using automatic deposits, you can create an investment plan and stick to it over time, treating your investments as part of your fixed budget. Your safety net will give you some financial breathing room, and before you know it, you’ll be making progress toward retirement, a downpayment on a house, college for your kids, or whatever your goal is.

Tax-Coordinated Portfolio: Tax-Smart Investing Using Asset Location Feb 16, 2022 12:00:00 AM Betterment’s Tax Coordination feature can help shelter retirement investment growth from some taxes. At Betterment, we’re continually improving our investment advice with the goal of maximizing our customers’ take-home returns. Key to that pursuit is minimizing the amount lost to taxes. Now, we’ve taken a huge step forward with a powerful new service that can increase your after-tax returns, so you can have more money for retirement. Betterment’s Tax Coordination service is our very own, fully automated version of an investment strategy known as asset location. Automated asset location is the latest advancement in tax-smart investing. Introducing Tax Coordination Asset location is widely regarded as the closest thing there is to a “free lunch” in the wealth management industry. If you are saving in more than one type of account, it is a way to increase your after-tax returns without taking on additional risk. align Millions of Americans wind up saving for retirement in some combination of three account types: 1. Taxable, 2. Tax-deferred (Traditional 401(k) or IRA), and 3. Tax-exempt (Roth 401(k) or Roth IRA). Each type of account has different tax treatment, and these rules make certain investments a better fit for one account type over another. Choosing wisely can significantly improve the after-tax value of one’s savings, when more than one account is in the mix. However, intelligently applying this strategy to a globally diversified portfolio is complex. A team of Betterment quantitative analysts, tax experts, software engineers, designers, and product managers have been working for over a year building this powerful service. Today, we are proud to introduce Tax Coordination, the first automated asset location service, now available to all investors. How Does Tax Coordination Work? What is the idea behind asset location? To simplify somewhat: Some assets in your portfolio (bonds) grow by paying dividends. These are taxed annually, and at a high rate, which hurts the take-home return. Other assets (stocks) mostly grow by increasing in value. This growth is called capital gains, and is taxed at a lower rate. Plus, it only gets taxed when you need to make a withdrawal—possibly decades later—and deferring tax is good for the return. Returns in Individual Retirement Accounts (IRAs) and 401(k)s don’t get taxed annually, so they shelter growth from tax better than a taxable account. We would rather have the assets that lose more to tax in these retirement accounts. In the taxable account, we prefer to have the assets that don’t get taxed as much.1 When investing in more than one account, many people select the same portfolio in each one. This is easy to do, and when you add everything up, you get the same portfolio, only bigger. Here’s what an asset allocation with 70% stocks and 30% bonds looks like, held separately in three accounts. The circles represent various asset classes, and the bar represents the allocation for all the accounts combined. Portfolio Managed Separately in Each Account But as long as all the accounts add up to the portfolio we want, each individual account on its own does not have to have that portfolio. Asset location takes advantage of this. Each asset can go in the account where it makes the most sense, from a tax perspective. As long as we still have the same portfolio when we add up the accounts, we can increase after-tax return, without taking on more risk. Here’s a simple animation solely for illustrative purposes: Asset Location in Action Here is the same overall portfolio, except TCP has redistributed the assets unevenly, to reduce taxes. Note that the aggregate allocation is still 70/30. Same Portfolio Overall—with Asset Location The concept of asset location is not new. Advisors and sophisticated do-it-yourself investors have been implementing some version of this strategy for years. But squeezing it for more benefit is very mathematically complex. It means making necessary adjustments along the way, especially after making deposits to any of the accounts. Our software handles all of the complexity in a way that a manual approach just can’t match. We offer this service to all of our customers. Who Can Benefit? To benefit from from Tax Coordination, you must be a Betterment customer with a balance in at least two of the following types of Betterment accounts: Taxable account: If you can save more money for the long-term after making your 401(k) or IRA contributions, that money should be invested in a standard taxable account. Tax-deferred account: Traditional IRA or Betterment for Business 401(k). Investments grow with all taxes deferred until liquidation, and then taxed at the ordinary income tax rate. Tax-exempt account: Roth IRA or Betterment for Business Roth 401(k). Investment income is never taxed—withdrawals are tax-free. Note that you can only include a 401(k) in a goal using Tax Coordination if Betterment for Business manages your company’s 401(k) plan. If you want to learn more about how your employer can start offering a Betterment for Business 401(k), visit Betterment at Work. If you have an old 401(k) with a previous employer, you can still benefit from TCP by rolling it over to Betterment. Higher After-Tax Returns Betterment’s research and rigorous testing demonstrates that accounts managed by Tax Coordination are expected to yield meaningfully higher after-tax returns than uncoordinated accounts. Our white paper presents results for various account combinations. Get Started with Tax Coordination Ready to take advantage of the benefits of Tax Coordination? Here’s how to set it up in your Betterment account. After logging in, go to the top right side of your account in the header of your Summary tab and click "Set up" next to Tax-Coordinated Dividends. Then, follow the steps to set up your new portfolio. Sample Account: Set Up Your New Tax Coordination Once you’ve set up TCP, Betterment will manage your assets as a single portfolio across all accounts, while also looking to increase the after-tax return of the entire portfolio, using every dividend and deposit to optimize the location of the assets. The Tax-Coordinated Dividends module will show you how many dividends were paid in a tax-advantaged account due to TCP, which otherwise would have been paid in your taxable account—and taxed annually. This service is available to all Betterment customers at no additional cost. Learn more about asset location and Betterment’s Tax Coordination feature by reading our white paper. 1All of this is very simplified, actually. Reality is far more complex, and TCP’s algorithms manage that complexity. If you want the whole story, you’ll have to read our white paper. All return examples and return figures mentioned above are for illustrative purposes only. For much more on our TCP research, including additional considerations on the suitability of TCP to your circumstances, please see our white paper. For more information on our estimates and Tax Coordination generally, see full disclosure. When deciding whether to roll over a retirement account, you should carefully consider your personal situation and preferences. The information on this page is being provided for general informational purposes and is not intended to be an individualized recommendation that you take any particular action. Factors that you should consider in evaluating a potential rollover include: available investment options, fees and expenses, services, withdrawal penalties, protections from creditors and legal judgments, required minimum distributions, and treatment of employer stock. Before deciding to roll over, you should research the details of your current retirement account and consult tax and other advisors with any questions about your personal situation.

6 Tax Strategies That Will Have You Planning Ahead Feb 16, 2022 12:00:00 AM Here are six tax tips you can follow now to help save money on your taxes now—and for years to come. Most people tend to think about taxes just once a year—usually March or April. But investors can save more in taxes each year by thinking ahead and strategizing about their taxes on an ongoing basis. Today, savvy investors aren’t beating the market day-to-day; instead, they’re focused on taking home more of their earnings by lowering taxes and fees across their portfolio. That means thinking about all of your tax-advantaged options—accounts you have now and selections you’ll make in the future—to make every move as tax-efficient as possible. You can think of accounts like IRAs, 401(k)s, 529 accounts, and HSAs as unique opportunities that if implemented strategically, can help you earn more over time. In this article, we’ll introduce six tax strategies that require ongoing planning, but if taken into consideration, can help you keep more of what you earn. 1. Shelter dividends in retirement accounts. By reorganizing your investments, you can shelter many dividends from being taxed. This strategy, called asset location, can not only reduce your annual tax bill, but also help to increase your after-tax investment returns. At Betterment, we have a service called Tax Coordination that does this automatically. It works by placing investments that are taxed more into traditional and Roth IRA accounts, which have big tax advantages. It places investments that are taxed less, such as municipal bonds, in your taxable accounts. This is a great way you can use your current investments to help reduce your taxes. Here’s a simple animation solely for illustrative purposes: Asset Location in Action 2. Start tax loss harvesting earlier. Another way to use your investments to help reduce your taxes is through tax loss harvesting. By selling investments at a loss, you can generate a tax deduction. You can use this deduction to offset other investment gains you earned during the year, or even to decrease your taxable income by up to $3,000. Most investors only view tax loss harvesting as a year-end strategy to get some last-minute deductions, and thus won’t be able to benefit from any other losses throughout the year. A better strategy to consider is monitoring your portfolio throughout the entire year for opportunities to harvest losses. This is especially effective if you are in a high tax bracket or have large capital gains this year.  We automatically monitor for you on a daily basis here at Betterment if you use our Tax Loss Harvesting+ feature. 3. Contribute earlier to retirement accounts. It’s true that you have until each year’s tax filing date to contribute to your IRA for the previous year. However, if you’ve already maxed out your the previous year’s IRA contributions, consider maxing out this year’s IRA contributions as early in the year as possible—this can give you up to 15 extra months (January of this year to April of next year) in the market. Waiting until the last minute could cost you more than you think. In fact, funding your IRA in January every year could provide you with an average of $8,800 more over a ten-year period. So if you still haven’t funded your IRA for last year, consider doing it now instead of waiting until mid-April. 4. Execute Roth conversions in January, not December. A Roth conversion moves money from your traditional IRA to your Roth IRA and is sometimes referred to as a backdoor Roth IRA conversion. You may pay taxes when converting, but once inside your Roth IRA, future earnings and qualified withdrawals will be tax-free. You can convert your IRA at any point throughout the year, but most people wait until the last minute. Just like with procrastinating on your retirement account contributions, by waiting until December to convert, you’ll miss out on 11 months of potential tax-free growth. For this reason, consider doing your conversions early in the year to help maximize your tax-free growth. It may be worth speaking with a tax advisor if you’re worried about converting in January because you don’t have a clear enough picture of what your taxes for the year will look like, as the IRS recently removed the ability to undo Roth conversions. The tax code has been updated to reflect this change, which became effective January 1, 2018. This information is for educational purposes only and is not a substitute for the advice of a qualified tax advisor. Roth conversions can have significant tax implications and you should consult a tax professional to discuss any questions about your personal situation and whether a Roth conversion is right for you. 5. Put your tax refund to good use. If you’re like 72% of Americans, you receive a tax refund averaging around $2,825. That refund may sound great, but really that means, in this example, that you overpaid your taxes each month by about $236. That is money that could have been invested and growing for you throughout the year. To adjust how much money is withheld from each paycheck for taxes for the following year, you could consider resubmitting your Form W-4 to your employer. Making the change early in the year will allow it to take full effect, and filling it out properly can ensure the correct amount is taken out. The IRS has provided a Tax Withholding Estimator to help you set or adjust your W-4 to get your refund closer to $0 (meaning you aren’t giving Uncle Sam an interest free loan).  Then, consider putting that money to work throughout the year. After adjusting your W-4, consider increasing your 401(k) contribution by that same amount. You won’t notice a difference in your paycheck, and that money will go toward your retirement instead of loaning it to the IRS. 6. Make tax-smart investment switches. You can likely benefit from reviewing your investment portfolio, but it’s important to minimize the tax consequences of making any adjustments. Rebalance your portfolio tax-efficiently. One example of a change you might consider is rebalancing your portfolio. Here’s how it works: As markets move up and down, your portfolio can drift away from its target allocation. Rebalancing allows you to realign the weight of stocks and bonds so that your asset allocation is appropriate for your goal’s time horizon. However, rebalancing by selling existing investments should generally be a last resort because this can cost you in taxes. Instead, consider using cash flows to rebalance; use new deposits, dividends you earn, and proceeds from tax loss harvesting to rebalance your portfolio on an ongoing basis. This will minimize the need to sell investments and thus can help reduce your taxes. At Betterment, we automate this entire process to help keep your portfolio properly balanced with every cash flow. Get out of high-cost investments. Another tax-smart change you might consider is getting out of high-cost investments. Look for losses you can use to offset any gains associated with swapping a high-cost fund for a low-cost one. Even if switching out of the high-cost fund will cause you taxes, consider doing a breakeven analysis to see if it still makes sense. For example, if selling a fund will cost you $1,000 in taxes, but you will save $500/year in fees, you can break even in just two years. If you plan to be invested for longer than that, it can still be a savvy investment move. Our calculator can help you with this decision. Rebalancing and reducing fees are both important, but make sure you don’t ignore taxes while executing these strategies. Think About It Now—And Later We all talk about tax season, but really, taxes are a topic we should think about throughout the year as we invest our savings. Sheltering your tax-inefficient investments in your retirement accounts can reduce dividend taxes and help keep more money in your pocket. Tax loss harvesting throughout the year, not just in December, can reduce your taxes and help increase your after-tax investment returns. Retirement contributions and conversions done early in the year are more effective because they allow your investments to grow for longer. Correcting your tax withholdings can allow you to save more throughout the year, instead of having to wait for your tax refund. Lastly, don’t ignore possible tax implications while rebalancing or adjusting your investment portfolio. Together, these strategies may significantly reduce your tax bill. And by automating them by using a service like Betterment, you can take advantage of these strategies without adding stress during tax season. Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a qualified tax professional.

Your Guide to Betterment Rollovers Feb 16, 2022 12:00:00 AM Moving your money to a new financial institution can be tedious and complicated. At Betterment, our goal is to make it easy and automatic. Here, we break down each rollover method and explain which might be right for you. We’ve talked before about why we believe Betterment is a better place to put your money if you’re investing for the long term: our globally diversified portfolio, low fees, personalized advice, and tax-efficient services. Read about all the benefits. Once you’ve made the decision to move your money to Betterment, there are a few different ways you can do so. Based on your account type and provider, we will automatically select an appropriate transfer method for you. If you’re ready to get started now, click the “Transfer” button from the Summary tab of your account. From the Transfer tab, click “Roll over an IRA or 401(k)” to begin moving your money to Betterment. Or, if you'd first like to learn more about each method, read our guide below. A Guide to Moving Your Money to Betterment: 2 Transfer Methods Direct IRA Transfer or Direct 401(k) Rollover via Check Moving money through ACATS is usually ideal because it’s a more efficient process, but in some cases, it’s not an option. To start, both firms must support ACATS transfers. Second, you must move funds between matching account types (i.e., IRA to IRA). Therefore, moving retirement money from an employer-sponsored account, such as a 401(k) or 403(b), into an IRA is generally not an option via ACATS. It’s also worth noting that if you own a mutual fund IRA account and not a brokerage IRA account, you cannot use the ACATS system. There may be other reasons why ACATS is not available for your specific account. In that case, we will automatically provide you everything you need to do a direct transfer or rollover via check. While there are a few more steps required, this method maintains many of the advantages that are tied to direct transfers. Not only can you complete as many direct transfers or rollovers via check as you would like in any given year, it’s considered to be a direct exchange between providers, meaning there are no tax penalties involved and generally no withholding. Read about how to roll over a 401(k) to Betterment. Indirect Rollover As a last resort, completing an indirect rollover is another way to move retirement funds between institutions. However, the many IRS rules and restrictions attached typically make it a last-resort choice. Not only are you limited to one indirect rollover per 365 days, but you must also distribute all or part of your account, take possession of the funds, and then redeposit the cash proceeds into a new IRA within 60 days. What’s more, it’s potentially reportable on your federal tax return. In addition, generally, the original firm withholds on the distribution, meaning you must make up the difference from your own funds, or else it may count as a taxable distribution. This can leave a lot of room for error, not to mention it requires a lot of manual work for you. If you have any questions about moving your retirement money to Betterment, we have experts on hand to assist. Ready to make the move to Betterment? Get started today. Betterment is not a tax advisor, nor should any information contained in this article be considered tax advice. Please consult a tax professional. When deciding whether to roll over a 401(k) account or another retirement account, you should carefully consider your personal situation and preferences. Relevant factors may include that: (i) 401(k) accounts may offer greater protection from creditors than IRAs. (ii) In some cases, the ability to take penalty-free distributions at an earlier age or to defer minimum required distributions. (iii) Some 401(k) accounts may also allow for loans or distributions in a broader set of circumstances than IRAs. (iv) Some 401(k) plans may also offer specific educational and advisory services to participants that are unavailable to some IRAs. (v) Some 401(k) plans may have lower fees and expenses than some IRAs. (vi) Some IRAs may offer a broader range of investment options that some 401(k) plans. (vii) Special tax rules may apply to the rollover of employer securities. You should research the details of your 401(k) and speak to a tax and other advisors about whether the features of your 401(k) are relevant to your personal situation. The rollover process is currently automated for rollovers from select providers. If you have a provider that is not part of our automated process, you will receive an email with a checklist for completing your rollover to Betterment. In processing you rollover request, Betterment will be acting at your direction.

The Best of Both Worlds: Smart Technology + Financial Experts Feb 16, 2022 12:00:00 AM We’re confident we’ve long had one of the best ways to invest for those in the know. Now, our financial experts are going to play an even bigger role in our story, giving our customers the best of both worlds. I’m going to let you in on a Betterment secret. People are always asking me for our secret sauce—read on and you’ll learn about a key ingredient. From the beginning, technology has been a big part of the story behind our mission. It’s a critical part of how we’ve built our company—to do the things we do for customers requires better technology than what the incumbents can offer. Our technology is why the term “robo-advisor” has pervaded the space we created, and why stock photos of literal robots appear in just about every article that mentions our name. Unbeknownst to those who would portray us as robots (often disparagingly), we’ve always had a secret powering our success, the less-talked-about reason for our recognized, industry-leading service: our people. (Shhh, don’t share it, everyone will want them.) Yes, our living, breathing human experts. While our shiny tech pleases crowds and wins awards, over the years, our human Investment Committee has carefully personalized our investment portfolios, our Investment and Advice teams have written algorithms and moonlighted by counseling tens of thousands of customers, and our Customer Support team is available to talk. Real people, real talk. Now you know. Starting Jan. 31, we’ll be offering access to our team of CFP ® professionals and licensed financial experts to help customers monitor their accounts, answer their financial questions, and give them advice. Now, our financial experts are going to play an even bigger role in our service for customers. Starting Jan. 31, we’ll be offering access to our team of CFP ® professionals and licensed financial experts to help customers monitor their accounts, answer their financial questions, and give them advice.   For all of us who work here, Betterment has always been a no-brainer. We believe, and vote with our livelihoods, that Betterment is the right place to invest your money if you care most about long-term returns. Our digital advice has made us the largest independent automated advisor—and now we are proud to launch our digital advice with access to our advisors, who have always been the driving force behind Betterment. There has never been anything like this in financial services. There have been brokers, who have wanted to sell something. There have been advisors, who haven’t always had the best technology or capabilities (and were often expensive, given these limited capabilities). We believe we are the only company you can be sure is constantly working to make the most of your money. Now, we’ve brought together technology and unbiased human advice, because sophisticated investors require both high-tech and high-touch forms of advice to satisfy their increasingly complex financial needs. We believe we are the only company you can be sure is constantly working to make the most of your money. Betterment gives customers the best of both worlds: modern investment technology, plus the reassurance of a trusted financial expert who can help them plan and keep an eye on their money. Now, our customers can have peace of mind knowing there’s a financial expert who is looking out for them—monitoring their money and ready to talk about it. Read about all of the offerings. Customer-First, Always: A Brief History We’ve always built what our customers have asked us to prioritize, and what would have the biggest impact for them. We believe we’ve crushed that, and then some—every feature we've built has been designed to put even more money back in your pocket. We built Tax Loss Harvesting+™ as well as tools, which advise you on your family’s holistic retirement picture, including how much to invest and what types of accounts to open. We started to hear that our customers wanted to see their wealth in one place, so we gave them the ability to sync their non-Betterment financial accounts. This enabled us to give our customers even better advice, because we were able to identify high fees and idle cash that was losing the long-term potential of being invested in the market. Then, most recently, came Tax Coordination— the most important breakthrough in investing since the index fund. We built this to be the most advanced money management system available on the market. It automatically shields your dividends from taxes. Experts have called it the “closest thing to a free lunch” in investing. As we’ve improved our customers’ net returns with these new features, we’ve started to attract a more diverse set of customers, who have financial situations in all shapes and sizes, with varying levels of complexity. We’ve learned that many customers want to talk to an advisor. At first, we let them call us ad-hoc, and we allowed our advisor partners to add their clients to the Betterment for Advisors platform. We heard from some customers that they wanted more, and we want to give them the flexibility to manage their money as they want. We Can Manage Your Money How You Want It To Be Managed For many customers, that means continuing to use our digital-only platform, which will now be called Betterment Digital. It’s for customers who want to continue connecting with Betterment primarily through our website and mobile apps. Betterment Digital includes all of the investing strategies and account services that make Betterment the better way to invest today: our intelligent investment portfolio, automatic rebalancing, Tax-Loss Harvesting+, Tax Coordination, retirement planning tools, the ability to sync external financial accounts, and excellent customer service. For other customers, who want a partner to help proactively review their accounts, help answer their questions, and act as another set of eyes to make sure their money is in order, we’ll have a new offering: Betterment Premium will include unlimited access to our team of CFP® professionals and licensed financial experts. Of course, each of the new options will be rooted in our self-service, personalized advice, available 24/7 through our digital tools. See more details about each of the offerings. Your Satisfaction—Guaranteed Everything we do is for you, our customers, so it’s important to us that you’re happy with our service. If for any reason you are not completely satisfied with your Betterment account, we will do everything we can to make it right, up to and including waiving Betterment’s management fees for the next 90 days. I’ve never been more excited about the future of Betterment. As we look to the next five, 10, or even 50 years, we’ll always continue working for you. We’ll evolve as you evolve. We’ll grow as you grow. And we’ll always empower you to do what’s best for your money, so you can live better.

The Betterment Rollover: A Fast Track to a Better Financial Future Feb 16, 2022 12:00:00 AM Roll over a Traditional, Roth, or SEP IRA—and start yourself on the path to a better financial future. At Betterment, we’ll manage your account for you, without the hidden fees that you may be used to from other providers. We invest your money in a low-cost, globally diversified portfolio, and we offer personalized advice with your best interests in mind. Before us, there wasn’t an easy, automatic way for people to get advice and invest their money. We built our platform from the ground up to give customers an intuitive interface, designed to lead to better behavior and better expected returns. Take advantage of the benefits we offer by rolling over your old 401(k)s and other retirement accounts into an Individual Retirement Account (IRA) here at Betterment. Our Mission: Low-Cost Investing and Personalized Advice for Everyone We believe that everyone has the right to both low-cost investing as well as advice that is tailored to their situation. We offer services that we believe will help make everyone a smarter investor—and help them ultimately reach their goals. Personalized advice keeps you on track. Our retirement advice shows you how much to save for retirement based on your current age, your desired retirement age, where you plan to retire, and how much you’re saving across all of your retirement accounts—even those that are held somewhere other than Betterment. You can even include your spouse’s accounts in order to plan more accurately. Our globally-diversified portfolio balances risk and reward. Rollovers and deposits into IRAs at Betterment are instantly diversified across our global portfolio. We carefully select Exchange Traded Funds (ETFs) across 12 types of asset classes, which are invested in more than 36,000 stocks and bonds, which represent companies and governments in over 100 countries. Because no one can predict how each asset class, country, or company will perform in a given month or year, it’s often best to diversify across them all. This helps to balance out your returns over time. Tax-smart automation boosts your returns. While IRAs already offer many great tax benefits, our Tax Coordination feature helps take it a step further. TCP optimizes and automates a strategy called asset location. It starts by placing your assets that will be taxed highly in your IRAs, which have big tax breaks. Then, it places assets taxed at lower rates into your taxable retirement account. Save money with our low fees. Our fees are a fraction of the cost of other services because of our cutting-edge technology. We are vertically integrated, meaning we are the registered investment advisor (RIA) and the broker-dealer through our affiliated entity, Betterment Securities. That means we handle the investment process from beginning to end, which allows us to charge lower fees than other investment services, which have to work with and pay third-party custodians. Additionally, all of our fees are completely transparent—we have no hidden costs. Fast track your 401(k) rollover. Ready to get on the path to a better financial future? When deciding whether to roll over a 401(k) account or other retirement accounts, you should carefully consider your personal situation and preferences. Relevant factors may include that: (i) 401(k) accounts may offer greater protection from creditors than IRAs. (ii) In some cases, the ability to take penalty-free distributions at an earlier age or to defer minimum required distributions. (iii) Some 401(k) accounts may also allow for loans or distributions in a broader set of circumstances than IRAs. (iv) Some 401(k) plans may also offer specific educational and advisory services to participants that are unavailable to some IRAs. (v) Some 401(k) plans may have lower fees and expenses than some IRAs. (vi) Some IRAs may offer a broader range of investment options that some 401(k) plans. (vii) Special tax rules may apply to the rollover of employer securities. You should research the details of your 401(k) and speak to a tax and other advisors about whether the features of your 401(k) are relevant to your personal situation. The rollover process is currently automated for rollovers from select providers. If you have a provider that is not part of our automated process, you will receive an email with a checklist for completing your rollover to Betterment. In processing you rollover request, Betterment will be acting at your direction.

Setting and Prioritizing Your Financial Goals Feb 9, 2022 12:35:19 PM When you have more than one, think in terms of importance, timeline, and the amount you need In 1 minute Saving for big financial goals like retirement doesn’t have to mean letting go of your other goals. But prioritizing them is tough. How are you supposed to weigh something like a distant retirement versus a more immediate financial goal, like a honeymoon? Or a down payment on a home? Start by identifying all of the things you’d like to achieve. They might be big-ticket items you want to buy, experiences you want to have, or expenses you want to be prepared for. Once you’ve named them, estimate how much you’d need to reach each goal, and how soon you’d like to reach them. After you’ve clearly defined the goals you could save for, it’s time to choose which ones matter most to you. You might rank every goal or just narrow the list down to your top five to ten. Then you can calculate how much you’d have to save each month to reach these goals based on your timeline. From there, turn to your budget. Decide how much you can afford to save each month and apply it to your biggest goals first. We highly recommend turning on auto-deposit so you won’t be tempted to stop working toward your goals. Your financial goals don’t have to be set in stone, and neither does your plan. Over time, you may find that you can save more—or that you can’t save as much as you thought. Maybe it’ll take more or less to reach your goal. Or your priorities might change. That’s OK. With Betterment, it’s easy to set, automate, and adjust your goals. In 5 minutes In this guide, we’ll cover: Defining your financial goals Prioritizing your goals Deciding how to allocate your money Adjusting goals as needed Financial goals help you plan for the things you’d like to do with your money, but can’t afford to do right now. Like retiring. Buying a house. Sending your kids to college. Getting that dream car. Remodeling your kitchen. When you know what you want to do, you can estimate how much you need and when you need it. Knowing your goals also helps you choose the right financial accounts, so you can reach them sooner. But what happens when you have multiple financial goals? All of a sudden, it’s harder to know how much to put toward each goal. Thankfully, working toward one goal doesn’t mean you can’t reach another. Here’s how to set and prioritize your financial goals. Define your financial goals If you sit down and think about all of the things you’d like to do with your money, you can probably create a much longer list than you’d expect. Do it. It’s worth taking the time to write down every goal—because you might be forgetting something important! Some of your goals could be as simple as saving up for holiday gifts, as important as building a safety net, or as big as planning for retirement or long-term care. If it’s on your mind, put it on the list.  Part of this process should involve estimating how much you’d need to save to reach each goal and when you’d like to reach it. Is it months away? Years? Decades? Will it take hundreds of dollars or hundreds of thousands? Each goal should have a timeline and amount. At Betterment, it’s easy to add this information every time you set up a goal. (And you can change it at any time.) Prioritize what matters to you Your financial goals are yours. This isn’t about what your parents want or what your friends expect from you. Whatever your goals are, prioritize them based on how important they are to you. Remember that ranking your goals doesn’t mean you won’t reach the ones on the bottom. For example, you shouldn’t be afraid to pay down debt and invest at the same time. This is just to help you think about which goals you care about the most. Once you’ve ranked your goals, your list might look like this: Pay off medical debt Build emergency fund Save for retirement Put a down payment on a house Remodel the bathroom You can include as many goals as you want. And in Betterment, you can add each goal to your account, whether you put anything toward it or not. Apply your budget to your list Now that you know how much you need to save, when you need to save it by, and which goals are most important to you, it’s time to see what you can actually accomplish.  Using your estimated amount and your timeline (in investing, this is called your “time horizon”), calculate how much you need to save each month to reach each goal. It’s OK if this is more than you can afford to save right now. Putting the numbers in front of you with an ordered list helps you ask questions like, “Can I reach all of these goals on these timelines?” and “Which goal(s) am I willing to delay in order to make progress on the others? If you plan on investing to reach your goal, you should also consider how much you can expect to earn toward these goals with an investment account. Every time you set up a goal in Betterment, we’ll handle this part for you. You can see how achievable your goal is based on how much you put toward it. Here's a hypothetical example: Automate your financial goals The best way to make sure you reach your goals? Automate them. Don’t make the mistake of putting your goals on pause. Set up recurring deposits for each goal with the amount you’ve set aside for them, and the right amount automatically goes to the right goal. This makes it easy to budget around your goals, and you won’t accidentally miss a month. The strategy is often called “paying yourself first” because you’re putting money toward your highest priorities before spending it on anything else. Want to start working toward your financial goals? Set up a goal with Betterment, and see what you can achieve.

Financing An Education: A Guide For Students And Parents Feb 9, 2022 10:52:38 AM Learn more about two common vehicles: 529 plans and student loans In 1 minute There’s more than one way to finance your education. A 529 plan is like a retirement account—but for education. It comes with tax benefits and can grow over time. Just keep in mind that each state has its own 529 plan, and the investment choices, rules and benefits vary. Some states match whatever you put into the account, or let you pay for tuition credits now (with today’s prices). Performance, contribution limits, and usage rules can also vary from plan to plan. You’re not limited to the 529 plan offered by your state. So don’t assume your state’s plan is right for you. As you compare plans, focus on tax benefits, fees, and investment choices. You can also pay for school with student loans. Most students have to take out at least some loans to fund their education. As long as you choose your loans wisely and have a strategy for paying them off, borrowing can make sense. You may not even have to repay all of your loans if you qualify for loan forgiveness after you graduate. And if you need to, you can usually consolidate or refinance your loans to make repayment simpler or lower your interest rate. Whether by borrowing, saving, or some combination of the two, an early emphasis on how to fund your studies helps set you up for academic success once class is in session. In 5 minutes In this guide, we’ll cover: Investing in a 529 plan Financing responsibly with student loans Whether you’re looking at university or trade school, education is expensive. And if you’re like most people, you probably don’t have that kind of cash on hand. Some manage to work their way through college, but depending on the school, even a full-time job will barely put a dent in your expenses.  So how should you pay for school? The answer depends on how much time you have, where you live, and where you want to go. If you have money to set aside for school, a 529 plan might be your best bet. Student loans are always an option, too—you just have to be careful. What’s a 529 plan? How do you choose one? A 529 plan is a specialized investment account with tax benefits. It works similarly to a Roth IRA or Roth 401(k). You put money into the account and pay taxes up front, and if you withdraw for education expenses, you usually don’t have to pay taxes on anything you earned. While IRAs and 401(k)s help you plan for retirement, 529 plans help you plan for education expenses. Oh, and every state has its own plan. There are two types of 529 plans: Prepaid tuition plans Education savings plans Prepaid tuition plans With a prepaid tuition plan, you pay for tuition credits upfront, using today’s tuition rates. These plans are not very popular, and most states don’t offer these plans anymore, but since tuition costs are always increasing, this can be a good option. Who knows how much tuition will cost in the coming years! The downside is that this money can only be used for tuition, and there are plenty of other education expenses. Education savings plans An education savings plan is more like a traditional investment account. You invest in funds, stocks, bonds, and other financial assets, and your account has the potential to grow through compound interest. You can also use this money on more than just tuition. Depending on your state, you could use your account for education fees, living expenses, technology, school supplies, or even student loan payments. Use it on anything else, and there’s a 10% penalty. 529 plan limitations Every 529 plan needs a specific beneficiary. It could be yourself, your child, a grandkid, a friend—whoever. Their age doesn’t matter. The only limitations are what the funds can be used for and how much you can contribute. Everything you put into a 529 plan is considered “a gift” to the beneficiary. And there are limits to how much you can gift to a person each year before being subject to gift tax rules. But you also have a lifetime limit in the millions of dollars. After that, there’s a gift tax. Gift tax rules are complex, so we recommend consulting a tax professional. Every state is different 529 plans can vary widely from state-to-state. And since you can choose plans from other states, it’s worth shopping around. While some plans let you apply your account to in-state or out-of-state education, others don’t. If you’re looking at a plan you can only use in-state, make sure you’re comfortable with the available schools.  Some states offer a match program, where they’ll match a percentage of 529 plan contributions from low- and middle-income families. This could substantially boost your savings. Your state might also offer a full or partial tax break on your contributions—but that usually only applies if you live in state. And of course, each 529 plan is an investment account, so you’ll also want to review the investment choices and consider the cost of fees. For every plan, the account’s total worth can only be equal to the “expected amount” of future education expenses for each beneficiary. But that’s going to vary widely from state to state. The exact limit depends on which 529 plan you choose, but it’s typically a few hundred thousand dollars for each beneficiary. If you’re wanting to save for a private college or grad program, that may not be enough. And if your state’s limit is lower than what you think you’ll need, that may offset the benefit of a state tax break or match program. And according to Federal law, you can use up to $10,000 from a 529 plan to pay for “enrollment or attendance at an eligible elementary or secondary school.” It also lets you apply $10,000 toward student loans. But some states don’t follow these federal laws. If they don’t, and you use your funds like this anyway, you’ll have to pay a 10% penalty. Bottom line: do your research, and make sure you’re familiar with the specifics of your 529 plan. How to choose a 529 plan The best 529 plan for you depends on: Where you live Where you or your beneficiary will go to school How much you want to save What you want to spend this money on But if you’re wondering how to tell which plan is likely to make the most of your money, it really comes down to just three things: tax benefits, fees, and investment choices. Be sure to look at all plan details and compare these factors before choosing one. Student loan basics Student loans have a bad reputation. And it’s understandable. About 43 million Americans owe an average of $39,000 in student loans. The average student needs to borrow about $30,000 to earn their bachelor’s degree. But when it comes down to it, if you don’t have money to contribute to a 529 plan or investment account (or your account doesn’t have enough money), your options are: Work your way through college Take out student loans Even with a job, you may need to take student loans. Used wisely (and sparingly), student loans don’t have to consume your finances or derail your other goals. But as with 529 plans, you can’t assume every loan is the same. Types of student loans There are two main types of student loans to consider: Federal Private Federal student loans often (but not always) have the lowest interest rates, don’t require credit checks, and come with benefits like pathways to loan forgiveness. You don’t need a cosigner to get most federal loans, and nearly all students with a high school diploma or GED are eligible for them. However, there’s a cap on how much money you can take out in federal loans, and some types of federal loans require you to demonstrate financial need. Financial institutions like banks can also provide private student loans. These typically require a good credit score, and you can take out as much as you need (as long as you’re approved for it).  Another big difference: with private loans, you typically start making payments immediately and have a fixed repayment schedule set by your lender. With federal loans, you may not have to pay while you’re in school, you get a six-month grace period after you graduate, and you can choose from four repayment plans. Federal loan repayment options Federal loans give you flexibility with repayment. If you’re struggling to make monthly payments, you can choose one of four Income-Driven Repayment (IDR) plans that may work better for your situation. Each of these plans allows for payments based on your income, usually 10-20% of it with a few exceptions, which makes individual payments more manageable. Unfortunately, this usually also means you’ll be making payments for longer. Check out the Federal Student Loan website for more detailed information on each plan. If you want to pay off your loans faster, you can also select a Graduated Repayment Plan, which increases your payments periodically, ensuring you pay off your loans in 10 years. There’s also another way to ditch your federal loan payments ahead of schedule: loan forgiveness. Student loan forgiveness With federal loans, there are two pathways to loan forgiveness: Public service Income-Driven Repayment Go into the right line of work after college, and you could be eligible for Public Student Loan Forgiveness (PSLF). This is available to students who pursue careers with nonprofits, government agencies, and some public sectors. If you make monthly qualifying payments for 10 years, then you can apply for forgiveness. If you don’t qualify for PSLF, but you’re on an IDR plan, you have another potential pathway to forgiveness. After 20-25 years of monthly payments, you may qualify for forgiveness, too. Unfortunately, on this path, you have to pay income taxes on the amount that was forgiven. (This is referred to as a “tax bomb.”) Consolidating and refinancing student loans Sometimes it’s tough to juggle multiple repayment schedules, interest rates, and payment amounts. If you’re having a hard time keeping track of your student loans, you may want to consider consolidating them so you have one monthly payment. Consolidating through a private institution could also give you a new interest rate (the average of your old ones) and let you adjust your payment time horizon. The federal consolidation program won’t change your interest rate, but it will still group your loans into a single payment for you. Whatever loans you wind up with and whatever your repayment plan, make sure you stay on top of your minimum payments. Fees and penalties can significantly increase your debt over time.

Should You Invest in Crypto? Q&A with Makara Co-founder Jesse Proudman Feb 8, 2022 9:38:29 AM We asked Makara co-founder and CEO, Jesse Proudman, a few questions about why he believes in crypto and how it compares to traditional markets. Crypto can democratize finance by removing gatekeepers and intermediaries present in the existing financial system. Crypto is intended to have no central approver, no hidden fees, and be completely transparent. Given the proliferation of the internet and the digitization of everyday life, cryptocurrency's transformative potential is clear. We see crypto as an investment, of course, but also as a way to redefine the future of money and what can be done with it. Our co-founder, Jesse Proudman, has been involved in digital assets since 2017. First it was as an investor, then systematically trading cryptocurrency as the founder of the quantitative hedge fund Strix Leviathan, and finally as a co-founder behind the launch of Makara. We asked him a few questions about why he believes in crypto, how it compares to traditional markets, and why, if you’re on the fence, he may not try to convince you to join him. What is it that you like so much about crypto? This is seemingly the first opportunity that all investors have had to participate in an evolving asset class from its inception. If you think about angel investing, startups, or real estate deals, participation is often reserved for a select few—these are selective investment opportunities and you usually have to be an insider to be a part of them. But with crypto, the same technology that makes it so innovative also is designed to make it open to all. With global liquidity, likely anyone on earth can invest across a breadth of offerings at any time and be a part of this innovative, evolving new technology. How does it compare to traditional markets? When you’re buying stocks, you’re buying equity in a company, equity that is reflective of ownership with specific and defined rights. In this landscape, you’re not buying equity in a company. You are instead buying participation in a network. You’re potentially buying the direct ability to influence that network via governance tokens. Investing in this asset class is akin to being part of a community. It’s a fundamentally different type of investment with its own risks. At the end of the day, these are behavioral markets, which makes it hard to say, “Bitcoin at $60,000 is expensive or reasonable.” That almost seems like it would make people more nervous. When you buy into a company, you can judge based on performance indicators. It’s true. In the stock market, there are valuation models that investors generally agree upon. There are understood ways, like price per earnings, to value a specific stock. While there are valuation models for crypto, they are still early and evolving. They’re not shared among enough market participants to have material weight. That means the reason you value Bitcoin at a certain level and the reason I do are probably very different. In our eyes, that’s simply an argument for long-term investing and diversification. Long-term investing gets a little harder during a bull market though, doesn’t it? If you bought Bitcoin at the top of 2017 and held it, certainly you went through a long and painful drawdown. It wasn’t until the fall of 2020 that your investment was back in the green. But if you did hold on to everything, between then and now, the value has almost doubled. These markets go through cycles, and the potential for recovery is always there. The general historical trend demonstrates that. What do you tell people about the value of altcoins, or anything that isn’t Bitcoin or Ether? There are a portion of crypto market participants that like to argue that Bitcoin is the only asset that matters and the rest are worthless. I think Bitcoin absolutely has systemic advantages as a function of being the first, the largest, the most well-known token. But to some extent, by that logic, as the first big search engine, Yahoo! would be the only one that matters. We’re so early in the life span of crypto that picking a singular winner based on its existing network feels like a weak argument to me. Of course there are different risks associated with Bitcoin, Ethereum, and the thousands of tokens, but the truth is we simply don’t know what will be the winners a decade from now. Does that mean you recommend investing in those other coins too? If you believe this asset class will continue to exist (and you have to believe that, if you’re willing to put your money into it), for the long-term horizon, I believe you have to diversify. If you do that well, you may be able to reduce your overall portfolio risk. How do you recommend people learn about all of the other coins? It seems like a daunting task.  It is, and while we do advocate for people learning about crypto, we don’t think you need to become an expert to invest. There are currently 17,000 tokens in existence. You can’t learn about all of them—and many aren’t worth learning about—but what you can do is check out our guide to the 54 (and growing) tokens we currently invest in. For each one, we give you a brief background and tell you why we think they matter. It’s our way of simplifying the learning process and helping you decide what to invest in. We also publish blogs covering crypto investing topics that only take a few minutes to read. How do you respond to people who are negative about crypto, or those who call it a bubble? It’s a speculative and emerging asset class that’s only existed for a decade, but that doesn't necessarily make it a bubble. That can create opportunity with commensurate risk. In some regard, all assets are speculative in nature. You wouldn’t buy stocks if you didn’t think they were going to appreciate, would you? The market goes through cycles. It has boom and bust cycles that repeat just like they do in any other market. But also, look at the debate that took place over the Senate Infrastructure Bill. If this is only a bubble, the Senate wouldn’t have argued so much about it, holding up more than $3 trillion in spending. Crypto is no longer “fake” internet money. This is a real thing with tangible markets, and it’s not going away. It’ll still be volatile, of course, but it’s not going away. Is crypto for everyone? I don’t think so. Like I said, it’s a volatile asset class, and if you expect it to consistently go up month after month and quarter after quarter, that’s just not what this is. It’s not a get rich quick opportunity either (although it certainly has been lucrative for some investors). Investing in crypto is investing in emerging technology. It has market cycles that you need to be aware of. You participate knowing that’s part of the experience. Some people aren’t into that, and that’s okay. Do you need a strong stomach for crypto? If you go into this with a diversified portfolio and the knowledge that a small percent of your net worth can experience outsize gains—and you also are in a position that losing your investment isn’t catastrophic—crypto shouldn’t feel nauseating. If it does, you maybe shouldn’t be in it, and that’s ok. How long did it take you to understand the market? It’s hugely complicated. It took me three months of full-time work before I had a general baseline understanding of everything. Even now, I’m in this all day and I still don’t understand everything that’s happening. That’s why it’s an intellectually engaging industry to work in.

Crypto Investing 101 Feb 8, 2022 9:38:28 AM Three questions to ask yourself before you invest in crypto. If you’re taking your first steps into the world of cryptocurrency investing, we recommend asking three questions to gain your footing. Don’t worry, we have some answers to get you moving when you’re ready. And remember, to invest in crypto you don’t have to be an expert. We’re here to be your guide so you can make the best decision for you. Question 1: What is crypto? A simple question with a not so simple answer. To date, there are over 17,000 types of crypto in existence.1 Bitcoin and Ethereum may be household names but the world of crypto extends far beyond their influence. In order to understand crypto, it helps to understand its underlying technology: blockchain. Blockchain is a technology that, in the context of crypto, provides recordkeeping through five foundational features:  Immutable: The data can’t be changed. Decentralized: Controlled by a large network of computers instead of a central authority. Distributed: Many parties hold public copies of the ledger. Cryptographically Secure: Makes tampering or changing the data basically impossible. Permissionless: Open to anyone to participate. If you don’t remember any of the five features above, here’s the big idea: The internet enabled the digital flow of information. Blockchain technology enables the digital flow of almost anything of value. What does that mean? It means we can create systems to record ownership without the need for third parties. And we can transfer ownership—using blockchain—between each other without a third party. This creates potential for new economic and business models, which is why there are more than 17,000 types of crypto. Crypto use cases span from art (for example, you can bid on a bored looking ape for only a few hundred thousand dollars) to banking (making financial services available to marginalized groups) to gaming (better grab that plot of land in the metaverse before Snoop Dogg does). All of this is made possible because crypto, built on blockchains, creates new ways to transact in a growing digital economy. Question 2: Why should I invest in crypto? If you want to invest in crypto, reflecting on why can help guide your investments. Crypto is an emerging asset class and is transforming the financial industry. However, you should be careful to understand the risks of cryptocurrency, which can be highly speculative and volatile and can experience sharp drawdowns. Like all investing, this is personal and not without risk, and we encourage you to invest in crypto only when you are comfortable bearing the risk of loss.  One of the things that excites us about crypto is the diversity of the ecosystem that is being created. Crypto is far more than simply a digital currency used to buy NFT art or “digital gold” as we see in the headlines. The use cases are creating global investment opportunities available to anyone who chooses to participate. Keep in mind, across the thousands of crypto projects, you do have to look out for scams and fraud. For example, Squid Game may have been a TV show worth binge watching but ended up being a crypto worth almost nothing. But that’s not to say that crypto can’t be used for good. (Fun Fact: Did you know that you can donate crypto to charity? GiveWell, one of Betterment’s partner charities, accepts many different types of crypto!) Here are a few common reasons people invest in crypto: Make Money Crypto investing comes with risks. There can be extreme price fluctuations compared to traditional asset classes. With that said, there is the potential for crypto to rapidly increase in value both over short and long periods of time. Based on Betterment’s research, this is the #1 reason people invest in crypto. And that’s perfectly fine—we invest to create wealth for ourselves and loved ones. Decentralization Many of the projects that create crypto tokens are considered decentralized, which means they aim to remove the control banks and large institutions have on financial services and other business models such as advertising. When applied to traditional finance, this sector of crypto is called Decentralized Finance, or DeFi. Blockchain technology, including digital wallets and smart contracts, can be used to replace banks and other third parties. In theory, this can put users in control, reduce fees, and speed up transactions. (You can send crypto almost instantly to another digital wallet.) Oh, and did we mention that crypto transactions can occur 24/7/365? Another benefit of its decentralized nature. Invest in the Future As we’ve mentioned, crypto spans a broad spectrum of our lives, and it's changing the future, even if we don’t know how yet. By now, you’ve likely heard the term metaverse being casually used, whether by Facebook’s (sorry, we mean Meta’s) CEO Mark Zuckerberg or by a family member at a holiday dinner. It’s everywhere we look. And one way or another, many investors believe the metaverse will be part of our future. Similarly, the concept of Web 3.0, which is a broader evolution of the internet, offers investors many forward thinking investments to consider. The best part? It’s generally accessible to anyone, not just angel investors and venture capitalists. Stepping back, a more general reason for investing in crypto, especially if you are completely new to it, is diversifying your broader investment portfolio. If done correctly, including a small amount of crypto in your overall portfolio may help prevent you from being overly exposed to concentrated risks. Depending on what crypto investments you select, you’ll gain exposure to advancements in the metaverse, decentralized finance, and Web 3.0 technologies, among others.  Question 3: How should I invest in crypto? There are many ways to invest in crypto but we’ll boil this down to two categories for you to choose from: Do-It-Yourself Crypto and Managed Crypto Portfolios. Do-It-Yourself Crypto DIY crypto investing involves navigating digital wallets, selecting crypto exchanges, and safekeeping keys (so important!). Before you do any of that, don’t forget you need to research which of the 17,000-plus cryptos you want to invest in while navigating the crypto ecosystem yourself 24/7/365. Particularly because cryptocurrency is so varied and prone to speculation, DIY crypto involves significant upfront research to understand which crypto is the right fit for you. Managed Crypto Portfolios Crypto managed portfolios function similarly to managed equity portfolios. The technology and investment experts that manage the crypto portfolio do much of the heavy lifting (the nitty gritty research of which cryptocurrencies may be appropriate for you based on your financial situation and preferences, the rebalancing and reallocation, and the managing of your account, including wallets/keys) while you can focus on the bigger picture like creating the life you want through your investments. There is still risk with this method of investing in that the underlying cryptocurrencies may experience losses, but it can help you invest in crypto based on your needs and interests, creating a personalized crypto investing experience. Plus, you’ll save time and not have to stress about remembering your digital wallet’s password for fear of losing your Bitcoin forever.  Are you ready to invest in crypto? Before you step into crypto investing, make sure you know what you are investing in and why it’s important to you, and try to understand the risks involved. Remember, you don’t have to be an expert. If you reserve the term DIY for weekend trips to the Home Depot, not crypto investing, consider a managed crypto investing portfolio. 

What’s The Best Crypto to Buy Now? (Hint: There’s Not One) Feb 8, 2022 9:38:27 AM Here are three reasons why you shouldn't try to find the “best” cryptocurrency to buy now. (And what you can do instead.) If you decide to go on a Google search hunt for the best cryptocurrency to buy this year, you may find yourself down a rabbit hole in an unfamiliar and uncomfortable part of the internet. (Don’t worry, we’ve all been there at some point.) And if you don’t end up there, you may find yourself on one of the many generic investing websites, all offering you similar “top cryptocurrencies to buy in 2022” lists. You’ll find the usual suspects here, mostly based on market capitalization or even personal preference of the writer. It’s common for these lists to include Bitcoin, Ether, Solana, Cardano, Binance Coin, Polkadot, and Avalanche. All fair examples but no need to do a Google search at this point.  Instead of attempting to discover the next best cryptocurrency or token, we favor a different mental model. Ask yourself this question: What’s the best area of crypto to invest in, not now, but over the next three years? (Or whatever time horizon you are investing within.) You’ll see that trying to find the needle in the haystack—and it’s an incredibly large haystack—is probably not the best route to take. Rather, we recommend a more long-term, wide-reaching approach to selecting your investments. Three Reasons Not to Find the "Best" Crypto To sum it up, here are three reasons why you shouldn't try to find the “best” cryptocurrency to buy now. (And what you can do instead.) 1. You’re probably not a professional crypto investor. (And that’s perfectly OK.) If you are like nearly everyone, you’re not a professional crypto investor. Absolutely fine. Similar to any other asset class, non-professional crypto investors are at a disadvantage when it comes to technical resources, market data, and general industry knowledge. For example, at Makara, we have people whose job it is to research individual crypto assets and analyze the pros and cons of including them on our platform.  So instead of pretending to be a crypto day trader in search of a new token that’ll take you to the moon, we recommend staying on planet earth. One way to do this is to learn about broad sectors in crypto and decide for yourself which areas you think may have the most growth potential. Among other things, we’re talking about the metaverse, decentralized finance, and Web 3.0. You could take it a step further and read up on NFTs but you may just be tempted to right-click-save on a picture of an ape that for some strange reason you can’t stop staring at—avoid the temptation, for now. Read up on crypto sectors, and if you’re feeling up to it, try explaining them to your friends or family to see if you grasp the important notes. This approach will give you a wider understanding of the crypto industry and pairs well with our next two recommendations.  2. You don’t have enough time. (Join the club!) Making wise investment decisions takes time. One of the best investors to ever live, Warren Buffet, reads 80% of his day. We’re going to guess you can’t spend 80% of your day reading about crypto. So how do you make up for this? As we said, educate yourself about crypto industry sectors instead of searching for individual assets. But don’t stop once you can explain what the metaverse is and why it could change the future. Yes, you are short on time, but if you have done the work to understand sectors in crypto and are interested in investing, you have two very important questions to ask yourself: How much do I want to allocate into crypto? And what is my time horizon? These are very personal questions. And with the little time you do have, ones worth thinking about. Knowing the amount you are comfortable investing and when you need to withdraw the funds will help you better understand the risks and make a decision that lets you sleep at night. We like sleep. 3. You’re increasing your risk. (Not a good thing.) Investing in one cryptocurrency is not quite comparable to putting all of your eggs in one basket. It’s more like having one egg. One cryptocurrency, like one egg, can be fragile, or in financial language, volatile and prone to losses. It lacks any diversification within the crypto asset class. Diversification is a complex subject, but generally speaking, the goal of diversification is to invest in uncorrelated assets to reduce the risk of losses in a portfolio while enhancing its expected return. Moral of the story: we recommend diversification. Consider how your crypto investments fit into your larger diversified portfolio of uncorrelated assets. Within crypto, you can consider spreading your investments across multiple assets and even multiple sectors within crypto. One way of thinking about it is since predicting the future is near impossible, diversification sets you up for various outcomes. We built crypto baskets at Makara to give you the choice to invest across the crypto asset class in the metaverse, Web 3.0, or decentralized finance. We even have a basket encompassing all assets on the platform called the Universe Basket.  Your To-Do List for Finding the Best Crypto Assets Step 1: Read up on broad crypto sectors. Step 2: Know how much you want to invest and for how long.  Step 3: Select diversified investments. Rinse and repeat.

How To Use Your Health Savings Account (HSA) For Retirement Feb 7, 2022 11:05:50 AM Once you turn 65, you can use them for anything you want—without incurring penalties. In 1 minute Like IRAs and 401(k)s, health savings accounts provide tax benefits. Your contributions to an HSA are tax-free, and if you use this money to cover qualified medical costs, your withdrawals are tax-free, too. With the right HSA, you can even invest these funds and earn interest on your contributions. Unfortunately, there’s a couple of catches. You can read more detail here, but the key highlights are below. For starters, you’re only eligible to contribute to an HSA if you’re currently enrolled in a high deductible health plan (HDHP) and meet a few other conditions: You are not enrolled in Medicare You are not someone else’s dependent You do not have other health coverage And just as importantly, if you use HSA funds on unqualified expenses before you turn 65, there’s a steep 20% penalty. Many people should expect to have more medical costs during retirement, and since withdrawals for qualified medical expenses are tax-free, it’s usually best to delay using your HSA until retirement. And since the penalty disappears after 65, HSAs can be a great tool to save for general retirement, too. Especially if you’re already maxing out your contributions to other retirement accounts! If you’re thinking about switching health plans to open an HSA, make sure you consider whether an HDHP is right for you and your family. Your HSA won’t help you plan for retirement if you have to use it all on medical expenses each year. That’s why it’s usually smart to have a fully-funded emergency fund before or soon after signing up for an HDHP. You’ll also want to choose an HSA with investment options that fit your goals. Decades away from retirement? An HSA that only lets you invest in short-term money market funds probably isn’t ideal. As long as the health plan is a good fit and you find the right opportunity, an HSA can be a smart investment in your future. In 5 minutes In this guide, we’ll cover: HSA eligibility The benefits of HSAs HSA withdrawal rules Using an HSA for retirement Health Savings Accounts (HSAs) are designed to cover future medical expenses. But that’s not the only way to use them. Thanks to their tax benefits and withdrawal rules, HSAs can make a valuable addition to your retirement plan. As long as you’re eligible, you can make tax-deductible contributions to an HSA. The balance on this account rolls over every year, so there’s no pressure to “use it or lose it.” But you can’t just dump all your extra money into an HSA to avoid taxes, either. Your contribution limit depends on your age and who your health plan covers. If you’re 55 or over, you can make additional “catch-up” contributions. And if your family is covered by your health plan, it effectively doubles your limit. HSA Contribution Limits   Contribution Limits Catch-up Contribution Limits (for individuals 55 and above) HSA 2021 2022 2021 2022 Self-only coverage $3,600 $3,650 $1,000 $1,000 Family coverage $7,200 $7,300 $1,000 $1,000 Want to take advantage of an HSA? First you need to find out if you’re eligible. Am I eligible for an HSA? To be eligible for an HSA, you have to: Be covered under a high deductible health plan (HDHP). Not be enrolled in Medicare. Not be claimed as a dependent on someone else’s tax return. Have no other health coverage except what the IRS covers under “Other Employee Health Plans”. Your employer may have information on HSA providers available to you. The expanded IRS rules can provide more detailed eligibility information. What are the benefits of an HSA? Health Savings Accounts have a couple tax benefits that help you make the most of your assets. Your contributions are pre-tax, meaning you can deduct them from your income taxes. You can use these funds at any time to pay for qualified medical expenses without paying taxes or penalties. And when you turn 65, you can use your HSA for anything without incurring a penalty. While you must have a high deductible health plan in order to contribute to your HSA, your HSA isn’t tied to a specific employer. It stays with you when you change jobs or retire. The money doesn’t leave the account until you use it. Also, your employer may contribute to your HSA—and since the contribution is pre-tax, it doesn’t count toward your gross income. Some HSAs are specialized savings accounts. But some are actually investment accounts. Any interest and earnings that come from these HSAs are tax-free provided you don’t use them on unqualified expenses before you turn 65. So HSAs can rank amongst the best ways to save for retirement, on par with some 401(k)s and IRAs depending on factors such as an employer match, fees, and/or investment choices. HSA withdrawal rules Need some money to cover unexpected medical costs? Make a tax-free withdrawal. Don’t need it? Save it for your retirement. Withdrawing from an HSA for non-medical expenses comes with a 20% penalty . . . unless you’re over 65. Once you turn 65, withdrawals from an HSA work a lot like withdrawals from a traditional IRA or 401(k). Your withdrawals count toward your annual income, so you’ll pay income taxes based on your tax bracket. However, if you use your withdrawal to pay for medical expenses, it’s still tax-free. Basically, there are three possible outcomes when you withdraw from an HSA—and it all comes down to your age and what you use the money for. Your age Qualified Medical Expenses Other Expenses Less than 65 years old No taxes, no penalty Taxes are applicable, 20% penalty 65 years old or older Taxes are applicable, no penalty How to use your Health Savings Account for retirement When you reach retirement age, medical bills can start to add up quickly. Use your HSA to cover these expenses, and you’re triple-dipping on the tax benefits! Your contributions are tax free, your interest and earnings are tax free, and so are your withdrawals. From a financial planning perspective, that’s hard to beat. And it can make expenses like long-term care a lot less frightening. But an HSA is also a great supplement to your IRA or 401(k). Since the 20% penalty disappears when you turn 65, you won’t have to worry about whether an expense is qualified—just use your money as you see fit. Before you choose an HSA ... An HSA is like a financial Swiss Army Knife. But while it’s highly versatile, it’s not the right choice for everyone. So, before you switch health plans and open an HSA, there are a few things to consider. Know the fees When it comes to fees and other costs, HSAs are often less transparent than accounts like 401(k)s. Look at the full fee schedule for your HSA before contributing. Also, sometimes your employer will cover all, or a portion, of your fees—so find out about that, too. Explore the investment options Ideally, you want an HSA with investment options that fit your goals. Some providers only allow investments with low risk and low returns, like money market funds. Other HSAs offer multiple mutual fund listings with higher returns and more risk exposure. Some HSAs have minimums before you can start investing. For example, you might only be able to invest your money once you’ve contributed $1,000 to the HSA. Stay current on withdrawal rules Withdrawal rules around taxes and penalties can change with new regulations, so it’s important to stay up-to-date with any new changes that take place. Don’t just switch to an HDHP A high-deductible health plan isn’t right for everyone. Before switching to an HDHP so you can use an HSA to save for retirement, make sure that works for you and your family. A high-deductible health plan brings with it the potential for higher out-of-pocket medical costs.

Using Investment Goals At Betterment Feb 3, 2022 10:00:00 AM Goal-based saving. The idea is prized among financial advisors—and our team at Betterment—but to the everyday investor, it can be difficult to put into practice. TABLE OF CONTENTS What is a goal? What does a goal look like at Betterment? Retirement Saving Goals Retirement Income Goals Safety Net Goals Major Purchase Goals General Investing Goals How To Set Effective Goals  Conclusion Why not just spend all your money today?  Well, probably because you’ll need to spend it in the future.  Most people envision things they want or need in order to be happy in the future. Things like having money just in case something happens, buying a house, having a kid (or two), sending your kids to college, and then finally, retiring. And amidst all of that, you’ll probably take some vacations, buy some cars, celebrate some anniversaries, etc.  These are all examples of what we, at Betterment, loosely call “goals.” A goal is a way to set aside money for a specific purpose and track its progress. Some goals are big, some are small. Some are soon, some are far away. Some are non-negotiable, some are just nice-to-have.  At Betterment, we help your money reflect your life goals. When you open an account with us, you can set up multiple goals to save into, track their progress, and we’ll provide guidance for each of them.  In this article, we’ll go through how goals work at Betterment, different account types (IRA vs 401(k)), asset types (stocks vs bonds), and how to set effective financial goals.  What is a goal?  Goals are one of the best ways to set a personalized, reasonable financial plan for yourself. When you set up a goal, you’re identifying the purpose you have for your money and what you want to achieve with it.  Betterment uses details about your goals to recommend the right account types, savings rates, and investments. The strongest financial plans consist of a set of prioritized, personal goals with the aim of helping you achieve the goals most important to you.  When you provide a target date (when you expect to spend the money) and target amount (how much you think you will want to spend), we use a technique called “asset-liability management,” which aims to match future balances with future spending. In other words, we try to ensure that you have enough money for when you plan to spend it in the future. It’s ok if your goals aren’t clearly defined today or if they need to change in the future. As your goal becomes more refined, you can update it in your account. Since we know goals and priorities change over time, we make it easy for you to edit them.    What does a goal look like at Betterment? One component of a financial goal is how much you want to spend, and when. For example, let’s say that you want a house downpayment and you think it would take about $50,000. Or, $120,000 for your child’s college tuition. Or $60,000 of annual retirement income for the 30 to 40 years you’ll spend in retirement. Any purpose you have for your money can be a goal, but they are most useful when you have an idea about the amount and timing. You can also personalize the name, cover image, and details of each goal.  Goal Types You Can Open At Betterment Retirement (Saving): for those still working and saving towards retirement. Retirement (Income): for retirees taking withdrawals from accumulated money in retirement. Safety Net: an accessible emergency or rainy day fund to cover a gap in income or unexpected expenses. Major Purchase: a one-time big purchase, like house downpayment or a new car purchase. General Investing: for when you don’t have anything you want to plan for. Cash Goals: for specific goals held in Cash Reserve. At Betterment, you can set up as many of these goals as you want, and can change the goal type if the purpose for your money changes. You can also easily move money between goals.  Once you’ve set up your goals, we’ll advise you on the right account types and investments you should use to help reach your goals.  Each goal type comes with differentiated advice. For example, here’s a breakdown of the stock allocation advice, by goal type: Type of investing goal Most Aggressive Recommended Allocation (typical start of term, depending on age) Most Conservative Recommended Allocation (typical end of term, depending on age) Anticipated term Cash-out assumptions Retirement 90% Stocks, 10% Bonds 56% Stocks, 44% Bonds Up to 50 years Shift to a Retirement Income goal at the target date Retirement Income 56% Stocks, 44% Bonds 30% Stocks, 70% Bonds Up to 30 years Steady drawdown with dynamic withdrawal rate until target date Safety Net 30% Stocks, 70% Bonds 30% Stocks, 70% Bonds Targets date of achieving desired balance Up to full liquidation at any time General Investing 90% Stocks, 10% Bonds 55% Stocks, 45% Bonds Recommendation is based on investor age No liquidation Major Purchase (House, Education, Other) 90% Stocks, 10% Bonds 0% Stocks, 100% Bonds Between 1 and 35 years Full liquidation at target date Each of these goal types requires a different strategy to reflect how it will be spent and what accounts are available. Betterment’s advice and technology builds a different investment portfolio for each type of goal, based on its details as well as your financial circumstances. The risk level for each type of goal is a customized stock, bond and cash allocation recommendation, which is designed to automatically reduce risk as your remaining time horizon falls.  For each goal type, we provide a maximum and minimum recommended stock allocation, based on your term, while making some assumptions about how you'll spend money from the goal. For example, whether you’ll spend it all at once for a Major Purchase goal or over time for a Retirement goal. You can choose a more aggressive or more conservative allocation in any goal type, including outside our recommendations. You can also select from a variety of portfolio strategies to reflect your personal investing views, such as our Socially Responsible Investing portfolios, or tailor your portfolio using our Flexible portfolio tool.  Retirement Saving Goals If you are saving toward your future retirement, our retirement planning advice helps you make progress on your goal by using multiple accounts—including those held outside of Betterment (such as your spouse’s accounts) but synced into the retirement goal.  Almost every future retiree will have multiple accounts—IRAs, 401(k)s, 403(b)s, HSAs, and/or taxable investment accounts—that help contribute to their retirement savings goal. So, we developed our methodology to match reality as closely as possible. In addition, retirement savings goals can utilize Tax Coordination™, Betterment’s approach to asset location. This increases your retirement spending by intelligently matching each asset class with the account that minimizes total tax drag costs—which are the lower take-home return you make once annual income taxes, capital gain taxes, and IRA/401(k) withdrawal taxes are taken into account—across all your funded accounts. Our retirement goals use a glidepath, reducing risk as your retirement date nears. When you have 20 or more years until you retire, we recommend 90% stocks. We also recommend you reduce your risk level over time, targeting a 56% stock allocation on retirement day. Once retired, you can shift to the next goal type, Retirement Income, which is optimized to provide paycheck-like distributions in retirement. Figure above shows a hypothetical example of a client who lives until they’re 90 years old. It does not represent actual client performance and is not indicative of future results. Actual results may vary based on a variety of factors, including but not limited to client changes inside the account and market fluctuation.  Retirement Income Goals Once you retire, you’ll probably start taking withdrawals or distributions from your retirement goal. Betterment will recommend an appropriate allocation considering your age and years in retirement, and also recommend a regular distribution or withdrawal amount from your goal and retirement accounts.  Our advice takes into account a variety of factors to suggest a safe target amount or withdrawal amount: Current balance Desired monthly income amount Minimum acceptable income level Desired certainty about not falling beneath minimum income level Remaining life expectancy For example, a 65-year-old person has a remaining life expectancy of nearly 21 years, according to projections used by the Social Security Administration. That is 21 years in which they will be both liquidating their portfolio but also investing their assets to support future years of consumption. With regards to the stock allocation, we seek to: Continue to generate above-inflation returns from your portfolio while in retirement Lower portfolio risk as you are further into retirement Safety Net Goals It’s almost certain that at some point, we’ll all experience a financial setback.  A Safety Net goal is a high priority for everyone. It’s there to protect you if you experience a gap in income or a large unexpected expense. It also helps you not feel guilty about withdrawing money if something unfortunate happens—that’s what it’s there for!  In crafting guidance for a Safety Net, we consider the possibility that you may not need to withdraw from it for a substantial period of time, and that we don’t want it losing buying power to inflation. When you do need it, it should be easily accessible and not significantly less than what you might need.  We start by finding the safest allocation that will match or just beat inflation. This can depend on both inflation forecasts and risk-free rates, but it usually ranges from Cash (if interest rates are high enough), to 90% bonds (10% stocks) to 70% bonds (30% stocks). This sets the Safety Net goal apart in that the recommended allocations are not based on your goals time horizon, but just inflation.  Since those allocations may come with some principal risk, we recommend considering a slight buffer in your Safety Net to ensure you have as much or more money as desired at all times. If you invest in Cash for your Safety Net, you won’t need the buffer, but you might not keep pace with inflation.  Major Purchase Goals For a major purchase such as buying a car, a house, or even your child’s education, we usually anticipate spending the balance all at once, at a specific target date when you reach your goal.  As the time of your desired target date approaches, our recommended stock allocation will become more conservative to ensure you don’t experience large losses close to the finish line. This de-risking will happen automatically unless you set your own allocation or turn off our auto-adjust feature. General Investing Goals It may be that you don’t have a specific planning purpose that matches the goal types we’ve listed above. In that case you can use a general investing goal. You can still personalize the name, allocation, and portfolio strategy in these goals, and we still recognize them as goals in your account.  Since general investing goals have no specific spending plans, we consider them long-term goals where the balance might be used in retirement, to transfer wealth to the next generation, or convert your assets into a trust account at a later date. You can have multiple general investing goals for different purposes open at the same time.  Our stock recommendation is based on your age and will glide from a maximum of 90% stocks to a minimum stock allocation of 55% stocks when you turn 65.  We should note that by using a general investing goal, you could be exposed to unnecessary risk compared to using a more focused goal type. How To Set Effective Goals Our technology will work hard to help you set goals in realistic ways that match your financial situation. To align with our research on goal-based investing, it’s important to understand what makes for an effective goal. One framework to thoughtfully determine a prioritized set of goals is called the S.M.A.R.T. approach, which stands for: Specific Measurable Attainable Realistic Time-limited Make your goal specific. A specific goal is one with a clear description and a well-articulated set of circumstances. For example, if you’re saving for a child’s college education, a goal that is specific might look like the following on paper: “My goal is to pay for my child’s total higher education costs at a public university, including room and board, social events/clubs, and any other fees.” By stating how many of the possible education costs you’re planning to pay for (i.e. “total”), the goal statement above provides much more information about the size and shape of the future expenditure. Make your goal measurable. Making a goal measurable means that you can tell how close you are to achieving the goal using numbers. Generally, this means quantifying the specific information you know about—setting an accurate estimate of the total of the expenditure you expect to make. Here’s what a measurable goal looks like using our example: “My goal is to save a total of $800,000 to pay for all three of my children’s total higher education costs.” The total expenditure should account for all the factors that went into making your goal specific, but it should turn the various social and philosophical decisions you’ve made about your goal into a numerical sum. A savvy goal-setter will also account for taxes in setting the target amount.  Ensure your goal is attainable. As you define a goal, you should make sure it’s attainable. Attainable goals are future expenditures you actually have the capability to achieve. For instance, if you make $80,000 in a year, saving $800,000 over five years is likely not attainable because even if you could save 100% of your income, you’d still come up short of your goal amount. We can make goals attainable by giving ourselves more time to save, lowering the target, or earning more money each year.  Consider whether your goal is realistic. A goal is realistic if you have the time, resources, and discipline to achieve it. Generally, your goals will only be realistic if you take into account the other goals you have in your life. For example, when saving for college education, you probably will also need to invest for your retirement. If you don’t prioritize your goals, you may end up being less able to save as regularly or as much as you’d like—which lowers your chances of achieving either goal. Any goal should be time-limited. The last step in developing a S.M.A.R.T. goal is to make sure the goal is time-limited—i.e. Every goal should have a target date.  Just as measurable goals quantify the total expenditure you expect to make, time-limited goals quantify the time you have to reach that expenditure amount. In most cases, you should try to set goals as far in advance as possible. For instance, rather than waiting until you have three children that will be going to college, it’s a good idea to start saving as soon as you start planning a family. A time-limited goal should also consider how frequently you can plan to contribute to the goal. Will you save a portion of every paycheck? Or will you save just once a year? An effective time-limited goal might read like the following: “My goal is to save a total of $800,000 over 18 years (by due date) to pay for all three of my children’s total higher education costs by putting aside at least $1,500 per paycheck per month.” A Map Of Your Financial Picture It’s totally okay to use estimated amounts and dates when creating goals you’re not quite sure of. In many cases, such as retirement or college savings, you might need additional research and external resources to predict how much money you’ll actually need to reach all the specific criteria of your goal. In getting started saving for a goal, it’s often better to be approximately right than to have no goal at all. By using a financial goals framework, you’ll push yourself to think broadly about all the factors of life that affect your financial future while balancing the joys of today with the hopes of tomorrow.

How We Can Do Better at Building Black Wealth Feb 3, 2022 10:00:00 AM In honor of Black History Month, we reflect on the past, present and future state of Black wealth. We at Betterment dedicate our time and energy with the goal to make people’s lives better through investing. So when deciding how best to join the chorus of Black empowerment that builds each February during Black History Month, we decided to focus on generational wealth. At the end of the day, we believe that wealth-building is one of the most powerful tools to live a better life and lead a path for generations to come.  The uncomfortable truth behind the racial wealth gap We can’t fully appreciate the importance of creating generational wealth for Black people without acknowledging our collective past and examining where it has left us. It’s no secret that rising out of slavery did not create equality for Black Americans in 1865. Over a century and a half later, there are still enormous wealth disparities between Black and non-Black households. According to the 2019 Survey of Consumer Finances, the average wealth of a White family is over 7x than that of a Black family.  Many factors have contributed to this gap–and continue to persist–including years of housing discrimination, credit inequality, mass incarceration, inaccessible healthcare and education, and lower paying jobs. The domino effect of these factors leaves Black families with little to inherit and often less to pass on. Tania Brown, an Army veteran, Certified Financial Planner®️, and owner of FinanciallyConfidentMom.com guest authored an article for us with more about this. So now what? The racial wealth gap is clearly not just a Black problem, nor can it be solved by individual actions alone. Organizations like the National Advisory Council on Eliminating the Black-White Wealth Gap are at the forefront of developing proposals to address the issue systemically. Ideas range from job creation to baby bonds to reparations. Ultimately, we all have a part in building strong Black financial futures. Here at Betterment, we’re committed to supporting individuals through our investing products and our voices. In that spirit, we’ve gathered resources in the section below to help chip away at the gap through personal finance decisions.  Personal steps to building Black wealth Despite systemic barriers, there are still tangible strategies that Black Americans can apply to help boost their wealth: Make the most of your savings Before parking your cash in a standard savings account (or worse…your mattress), consider a Cash Reserve account. Think of it as an alternative option with none of the common drawbacks like transfer limits, minimums, and fees.1 Create multiple streams of income You can reward yourself for the hard work at your day job by letting your money work for you. Passive income is earned through sources like interest and dividends from stocks with minimal effort. Automated investing can make earning passive income even simpler. Align your investments to your goals Whether you’re an expert or completely new to investing, a goal-based approach can help you personalize your financial plan. Once you’ve thought about your short-term and long-term needs, you can set an investment strategy that aligns with your values and risk tolerance.  Here are articles written by our own Bryan Stiger, CFP®, that can also help you get your financial house in order: How to Build an Emergency Fund An Investor’s Guide to Diversification Setting and Prioritizing Your Financial Goals How to support or invest in organizations working to improve Black lives Centuries of racism, institutional discrimination and lack of wealth building opportunities still impact the Black community today. Here are five organizations you can donate to today who are working to address these social and economic gaps: Center for Black Equity: Improving the lives of Black LGBTQ+ Black people globally Black Girls Code: Fighting to establish equal representation in the tech sector Black Organizing for Leadership and Dignity (BOLD): Training Black organizers in the US  National Fair Housing Alliance: Working to eliminate housing discrimination Equal Justice Initiative: Fighting to end mass incarceration and racial inequality  If you’re a Betterment customer, you have two additional avenues for empowering like-minded organizations: Donate eligible shares to any of our partner charities through our Charitable Giving feature. Here are three of those partner charities working to improve Black lives: NAACP Empowerment Programs Envision Freedom Fund  American Civil Liberties Union (ACLU) Invest in companies actively working toward minority empowerment through our Socially Responsible Investing portfolios.  What does Black wealth look like? We recognize that wealth is different for everyone. For Black communities, we believe wealth looks like empowerment, equity and the means to pass something meaningful from one generation to the next. We hope that you’ll join us this month to celebrate Black excellence and get involved in building Black wealth.

Save Taxes When Withdrawing in Retirement Feb 1, 2022 9:00:00 AM A smart withdrawal strategy during retirement can help make your portfolio last longer, while also easing potential tax burdens. When you retire, you can no longer count on a paycheck to fund your lifestyle. Though you may have some sources of fixed income, such as from Social Security or defined benefit pension plans, the income from these sources may not be enough to cover all of your regular expenses. That can leave you relying on the money from your investment portfolio to maintain your expenses and lifestyle. As a smart investor, you probably already have an idea of how much money you can safely spend during each year of retirement. But still, one important question remains: In which order should you withdraw from your accounts? While the true answer to this question depends largely on your individual circumstances, your actions can have a huge impact on both your tax bill and the longevity of your portfolio. Taxes will likely be one of your largest expenses in retirement (on par with healthcare), so a smart withdrawal strategy is crucial to your retirement success. Luckily, you often have more control over your taxes in retirement than at any other point in your life. While there are common strategies to follow, there are other more advanced strategies that could lead to substantial tax savings. At Betterment, we’ve established some guidelines to not only help build a smart retirement income plan, but to also try to save on taxes by establishing an order in which you should withdraw from your various investment accounts in retirement. But first, let’s examine how your money is taxed when withdrawn in retirement. How Withdrawals Are Taxed Before creating your retirement income strategy, you must first understand how withdrawals from your various accounts are taxed. We’ll explain the typical tax consequences by taxable, tax-deferred, and tax-free accounts. Taxable Accounts (individual, joint, and trusts): Investment income, such as dividends or interest income, is generally taxed in the year it is received. Any withdrawals are subject to capital gains tax, but only on the growth of the investment—not the principle. Tax-Deferred Accounts (Individual Retirement Accounts (IRAs), 401(k)s, 403(b)s, and Thrift Savings Plans): Unlike taxable accounts, no taxes are due on investment income or growth—until you make a withdrawal. When you do take money out, that full amount is subject to ordinary income tax. You are essentially delaying the payment of taxes. Tax-Free Accounts (Roth IRAs or Roth 401(k) plans): All investment income, growth, and withdrawals are tax-free, if meeting the requirements for a qualified distribution. Taxes on Withdrawals Vary By Account Type As you can see, pulling money from each of these account types (taxable, tax-deferred, and tax-free) can have very different tax consequences.   A Withdrawal Strategy for Tax Efficiency The ideal order for withdrawing money from your various accounts during retirement is as follows: First, pull money from your taxable accounts. Once those accounts are depleted, begin withdrawing money from tax-deferred accounts. Lastly, take money out of tax-free accounts. The reason that this strategy is generally most tax-efficient is the power of tax deferral and the compound growth that it provides. The longer you can shelter your tax-deferred and tax-free accounts, the better. That means more money stays in your accounts and can grow over time. Let’s look at how this order of operations works in more detail. Example: Why You Should Withdraw From Taxable Accounts First If you decide to withdraw money from your Traditional 401(k), every dollar will be taxed as ordinary income, which is the highest tax rate to which you could be subjected. In this hypothetical example, let’s say you need $1,000 and you are in the 24% marginal tax bracket. To end up with a net of $1,000, you would actually have to withdraw $1,316, because of the additional tax liability: $1,316 (amount withdrawn) x 24% (marginal tax bracket) = $316 (taxes owed) However, if instead you first pull money out from your taxable individual account, two things happen. First, as long as the money has been invested for over one year, the tax rate on your sold assets is lower. Long-term capital gains taxes are generally 15%.1 Second, you don’t pay taxes on the full withdrawal, only on the growth. If you bought the investment for $600, you only have to withdraw $1,071 to end up with a net of $1,000: $1,071 (amount withdrawn) – $600 (your basis) = $471 (capital gain) x 15% = $71 (taxes owed) A $1,316 withdrawal versus a $1,071 withdrawal results in a difference of $245 that gets to stay invested and potentially grow for a longer period of time. The benefit of tax deferral is clear. With Roth accounts, it gets even better. Money inside a Roth will never be taxed again if you meet the qualified distribution rules, so you keep 100% of all growth or income you earn. This is why tax-free accounts should generally be the last accounts you touch. Incorporating Minimum Distributions Generally, once you reach age 72, you must begin taking Required Minimum Distributions (RMDs) from your tax-deferred (non-Roth IRA) accounts. Not doing so will result in a 50% penalty on the amount you were supposed to take. This changes things—but only slightly. At this point, you’d want to follow these new steps: First, withdraw your RMDs. If you still need more, then you can pull from taxable accounts. Once depleted, start withdrawing from your tax-deferred accounts. Lastly, pull money from tax-free accounts. Supercharge Your Withdrawal Strategy You’ve seen the power of tax deferral, but if you’re a Betterment customer, there are other ways in which we help make your retirement income plan even more effective. Specific Lot Selection: When you make a withdrawal, we automatically sell investments that are at a loss first, which helps minimize your current tax hit. Account Specific Asset Allocation: We put tax-efficient asset classes (such as municipal bonds) in your taxable accounts, rather than in your tax-sheltered accounts. Both of these strategies seek to further optimize your tax withdrawal strategies. We execute on these tactics for you so that you can keep more money inside your accounts where it is able to grow. The Problem of Roller Coaster Income Unfortunately, putting a plan into action is always more complicated than in theory. In retirement, you will likely have multiple sources of non-investment income coming from Social Security, defined benefit pensions, rental income, part-time work, and/or RMDs. However, these fixed income streams do not all begin or end at the same time, and some can vary from year to year, just as a roller coaster goes up and down. This can cause your tax bracket and your spending needs to fluctuate throughout retirement, adding a layer of complexity to your retirement income plan. At first glance, these fluctuations seem to make creating a retirement income plan more difficult. Does the recommended strategy stated above, then, still apply? In most cases, yes. And with a little extra planning, you may actually be able to use these swings to your advantage. Smooth Out Bumps in Your Tax Bracket For most years, Betterment recommends pulling from taxable accounts first, then tax-deferred accounts, and tax-free accounts last. However, you should look for abnormal years of high and low income fluctuations and their associated tax brackets, then plan accordingly. By temporarily altering the above strategy, you can “smooth” out your tax bracket throughout retirement and reduce taxes. Lower Income, Lower Tax Bracket Some years you may find yourself in a lower bracket than usual. During these years, 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. Common examples of low-bracket years may occur when: You retire before you plan on claiming Social Security benefits. You have large balances in your IRA/traditional 401(k) that will cause future RMDs to bump you into higher brackets. Higher Income, Higher Tax Bracket On the other hand, you may have years where you are in an abnormally high tax bracket. In this case, 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. Common examples of high-bracket years occur when: You sell a home or rental property and end up with large capital gains. You are working part-time in retirement and have a good year financially. You lose a large deduction, for example, perhaps you pay off your mortgage. Federal Income Tax Brackets (2022) Tax Rate Single Married 10% $0 – $10,275 $0 – $20,550 12% $10,276 - $41,775 $20,551 - $83,550 22% $41,776 - $89,075 $83,551 - $178,150 24% $89,076 - $170,050 $178,151 - $340,100 32% $170,051 - $215,950 $340,101 - $431,900 35% $215,951 - $539,900 $431,901 - $647,850 37% $539,901 + $647,851 + Source: Internal Revenue Service Tax Diversification The ability to pull from different accounts and smooth out your tax bracket requires having money invested in at least two, but ideally three tax pools, which are taxable, tax-deferred, and tax-free. We call this tax diversification, and it gives you the flexibility you need in retirement. Many customers have the majority of their savings in Traditional 401(k)s and IRAs, and little to no money in Roth accounts. That means you have no choice as to the order in which you withdraw from your investments, and you will pay taxes accordingly. Most retirees should seek to have some money in all three tax pools. The benefits of investment diversification are well known and often talked about, but tax diversification is not something that is often discussed. Generally, the only way to get money into each tax pool is by making direct contributions. However, a Roth conversion can be a powerful strategy to move money between tax pools. Building a tax-efficient retirement income plan is one of the main reasons tax diversification is so important. Extend The Life Of Your Portfolio Having a retirement income plan that incorporates taxes can extend the life of your portfolio. In general, we recommend you withdraw from your taxable accounts first, then your tax-deferred accounts, and lastly from your tax-free accounts. Implementing strategies such as Tax Loss Harvesting+, specific lot selection, and account specific asset allocation can further reduce or delay taxes. You should also smooth out any bumps in your tax bracket during retirement by accelerating tax-deferred withdrawals during low tax years and choosing tax-free withdrawals during high tax years. To do this, you must have money in all three “tax pools” (taxable, tax-deferred and tax-free). We call this tax diversification. Please note that Betterment is not a tax advisor. While we suggest everyone consult a tax professional to discuss their particular situation, those with more complicated situations such as complex estate planning or charitable giving may also want to consult an estate planning attorney. Even in such cases, we hope that these guidelines will still provide a solid foundation for your retirement income strategy. This article is intended to be educational in nature, and not meant to be relied upon as tax or investment advice. 1 As of the date published, long-term capital gains are generally taxed at 15%. However, if your taxable income is greater than $459,750 ($517,200 married filing jointly), you will pay 20% on long-term capital gains. An additional 3.8% Medicare Surtax also applies to those whose MAGI is above $200,000 single/$250,000 married filing jointly. Still, the tax rate on these long-term capital gains will be lower than your tax rate on ordinary income, so the reasoning still applies. Conversely, taxpayers with taxable income below $41,675 ($83,350 married filing jointly) pay 0% tax on long-term capital gains, making this strategy even more appealing.

How to Build an Emergency Fund Jan 14, 2022 1:52:31 PM 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 very 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.

What’s An Investment Portfolio? Jan 14, 2022 10:24:23 AM And why it's best to choose one suited to your goals and appetite for risk. In 10 seconds An investment portfolio is a collection of financial assets like stocks, bonds, and funds built around your goals and the level of risk you’re comfortable with. In 1 minute The investment portfolio that’s right for you depends on your goals and the level of risk you’re comfortable with. What do you want to accomplish? How fast do you want to reach your goals? What timeline are you working with? Your answers guide which kinds of assets might be best for your portfolio—and where you’ll want to put them. When choosing or constructing an investment portfolio, you’ll need to consider: Asset allocation: Choose the types of assets you want in your portfolio. The right asset allocation balances risk and reward according to your goals. Got big long-term plans? You may want more stocks in your portfolio. Just investing for a few years? Maybe play it safe, and lean more on bonds. In 5 minutes In this guide, we’ll: Explain what an investment portfolio is Explore the types of assets you can put in your portfolio Discuss how risk and diversification influence your portfolio Explain how to choose the right investment portfolio What’s an investment portfolio? When it comes to your financial goals, you don’t want your success or failure to depend on a single asset. An investment portfolio is a collection of financial assets designed to reach your goals. The portfolio that can help you reach your goals depends on how much risk you’re willing to take on and how soon you hope to reach them. Whether you’re planning for retirement, building generational wealth, saving for a child’s education, or something else, the types of assets your portfolio includes will affect how much it can gain or lose—and how long it takes to achieve your goal. What assets can your portfolio include? Investment portfolios can include many kinds of financial assets. Each comes with its own strengths and weaknesses. How much of each asset you include is called asset allocation. Cash can be used right away and carries very little risk when compared to other asset classes. But unlike most other assets, cash won’t appreciate more than inflation. Stocks represent shares of a company, and they tend to be more volatile. Their value fluctuates significantly with the market. More stocks means more potential gains, and more potential losses. Bonds are like owning shares of a loan whether made directly to companies or governments. They tend to be more stable than stocks. There’s less potential for gain over time, but less risk, too. Commodities like oil, gold, and wheat are risky investments, but they’re also one of the few asset classes that typically benefit from inflation. Unfortunately, inflation is pretty unpredictable, and commodities can often underperform compared to other asset classes. Mutual funds are like bundles of assets. It’s a portfolio-in-a-box. Stocks. Bonds. Commodities. Real estate. Alternative assets. The works. For a fee, investors like you can buy into a professionally managed portfolio. Exchange traded funds (ETFs) are similar to mutual funds in composition–they’re both professionally-curated groupings of individual stocks or bonds–but ETFs have some key differences. They can be bought and sold throughout the day, just like stocks—which often makes them better for tax-loss harvesting. They also typically have lower fees as well. ETFs are an increasingly popular portfolio option. Why diversification is key to a strong portfolio. Higher levels of diversification in your investment portfolio allow you to reduce your exposure to risk that hopefully will result in achieving your desired level of return. Think of your assets like legs holding up a chair. If your whole portfolio is built around a single asset, it’s pretty unstable. Regular market fluctuations could easily bring its value crashing to the floor. Diversification adds legs to the chair, building your portfolio around a set of imperfectly correlated assets. With a diverse portfolio, your gains and losses are less sensitive to the performance of any one asset class and your overall portfolio becomes less volatile. Price volatility is unavoidable, but with the right set of investments, you can lower the overall risk of your portfolio. This is why asset allocation and diversification go hand-in-hand. As you consider your goals and the level of risk you're comfortable with, that should guide the assets you choose and the ratio of assets in your portfolio. How to align your portfolio with your goal. Since some asset classes like stocks and commodities have greater potential for significant gains or losses, it’s important to understand when you might want your portfolio to take on more or less risk. Bottom line: the more time you have to accomplish your goal, the less you should worry about risk. For goals with a longer time horizon, holding a larger portion of your portfolio in asset classes more likely to experience loss of value, like stocks, can also mean greater potential gains, and more time to compensate for any losses. For shorter-term goals, a lower allocation to volatile assets like stocks and commodities will help you avoid large drops in your balance right before you plan to use what you’ve saved. Over time, your risk tolerance will likely change. As you get closer to reaching retirement age, for example, you’ll want to lower your risk and lean more heavily on asset classes that deliver less volatile returns—like bonds.

What Are The Most Common Asset Classes For Investors? Jan 11, 2022 12:09:05 PM Every type of asset gains or loses value differently, so it helps to know what those types are and how they work. In 1 minute Asset classes are investments that share the same risk factors, influences, and regulations. The most common asset classes are stocks, bonds, and cash. Stocks: Stocks are shares of a company, and they gain or lose value based on the company’s performance and potential. Bonds: Bonds are like loans—usually loans to a company or government—which accrue interest over time.  Cash: Think bank accounts. Cash investments are usually short-term loans with low risk and low returns. They’re also federally insured. Betterment helps you automatically select the mix of assets that can help you meet your goals, and bundles them into funds. Tell us about your financial goals, and we’ll show you a roadmap for  how to reach them. Got more time? Keep learning about asset classes below. In 5 minutes In this guide, we’ll: Explain what an asset class is Explore the most common asset classes Look at mutual funds and ETFs What is an asset class? An asset class is a name for a group of assets that share common qualities and behave similarly in the market. They’re governed by the same rules and regulations, and gain or lose value based on the same factors and circumstances. Different asset classes have relatively little in common, and tend to have fluctuations in value that are imperfectly correlated. There are eight main asset classes:  Equities (stocks) Fixed income (bonds) Cash Real Estate Commodities Cryptocurrencies Alternative investments Financial Derivatives Within these groups, there are several assets people commonly invest in. The most common types of assets for investors. The three financial assets you may hear about the most are stocks, bonds, and cash. A strong investment portfolio likely often includes a balance of these assets, or combines them with others.  Let’s take a closer look at each of these. Stocks A stock is a type of equity. It’s basically a tiny piece of a company. When you invest in stocks, you become a partial “owner” of the companies that issued those stocks. You don’t own the building, and you can’t go bossing around the employees, but you’re a shareholder. Your stock’s value is directly tied to the company’s profits, assets, and liabilities. And that means you have a stake in the company’s success or failure. Stocks are volatile assets—their value changes often—but over time they tend to perform better than other assets (such as bonds and cash). Choosing stocks from a wide range of companies in different industries is one of the smartest ways to diversify your portfolio. Bonds A bond represents a share of a loan. Its value comes from the interest on the loan. Bonds are typically more stable than stocks. Lower risk, lower reward. Bonds belong to the “fixed income” asset class, and tend to depend on different risk variables than stocks. If a company has a bad quarter, that’s probably not going to affect the value of your bond. Unless they have a really bad quarter, and default on their loan. When stock markets have a bad month, investors tend to flock to safer asset classes and bonds therefore will likely outperform.   Other than that, the main things to consider with bonds are interest rates and inflation. When interest rates increase or decrease, it directly affects how much interest you accrue. And since bonds generate lower returns than stocks, they leave you more vulnerable to inflation, too. Cash With cash investments, you’re basically loaning cash (often to a bank) in exchange for interest. This is usually a short-term investment, but some cash investments like certificates of deposit (CDs) can last for a few years. These investments are pretty low-risk because you can be confident they will generate a return, and they’re actually insured by the FDIC.  Cash investments offer higher liquidity meaning you can more quickly sell these assets when you need the money. As such, the return you get is typically lower than what you’d achieve with other asset classes. Investors therefore tend to park the money they need to spend in the near-term in cash investments.  Other common assets Those are the big three. But investors also invest in real estate, commodities, alternative asset classes, financial derivatives, and cryptocurrencies. Each of these asset classes come with their own set of risk factors and potential advantages. What about investment funds? An investment fund is a basket of assets that can include stocks, bonds, and other investments. The most common kinds of funds you can invest in are mutual funds and exchange-traded funds (ETFs).  Mutual funds and ETFs are similar, but there’s a reason ETFs are gaining popularity: they’re usually cheaper. ETFs tend to be less expensive to manage and therefore typically have lower expense ratios. Additionally, mutual funds charge a fee to cover their marketing expenses. ETFs don’t. Mutual funds are also more likely to be actively managed, so they can have more administrative costs. Most ETFs are funds that simply track the performance of a specific benchmark index (e.g., the S&P 500), so there’s less overhead to manage ETFs.  ETFs have another advantage: you can buy and sell them on the stock exchange, just like stocks. You can only sell a mutual fund once per day, at the end of the day. That’s not always the best time. Being able to sell at other times opens the door to other investment strategies, like tax-loss harvesting. Want to learn more about investment strategies? Check out the ones we use at Betterment. [Button] Go How to choose the right assets When you start investing, it’s hard to know what assets belong in your investment portfolio. And it’s easy to make costly mistakes. But if you start with a goal, choosing the right assets is actually pretty easy.  Say you want $100,000 to make a down payment on a house in 10 years. You have a target amount and a deadline. Now all you have to do is decide how much risk you’re willing to take on and choose assets that fit that risk level. For most investors, it’s simply a matter of balancing the ratio of stocks and bonds in your portfolio.

3 Low-Risk Ways To Earn Interest Jan 7, 2022 7:36:35 PM Earning interest usually means taking on risk. But with bonds, cash accounts, and compound interest, you can keep that risk as low as possible. 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 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 The longer you invest, the more time you have to earn compound interest. This is the interest you earn and the interest your interest earns. That’s right. As you accrue interest, that interest makes money and that money in turn makes more money. The 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 ideal for a short-term goal. 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. Learn more about how earning interest and bond income works at Betterment. 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 you can expect to have down the road. Compound interest starts small, but it grows exponentially. Over the course of decades, it can easily become hundreds of thousands of dollars depending on how much you invest upfront. Your investment grows faster because your interest starts earning interest, too. If you start young, you have a huge advantage: time is on your side! The graph below shows that if you invest over time, compound interest can grow your portfolio much quicker than just saving cash over time. With interest, you need to know how often it compounds. There’s a huge difference between interest that compounds daily, monthly, and annually. The more frequently it compounds, the more interest you earn.

What Is a Tax Advisor? Attributes to Look For Jan 3, 2022 8:44:00 AM Since Betterment isn't a tax advisor, we often suggest that customers see a tax advisor regarding certain issues or decisions. Who exactly is a tax advisor and how should you think about picking one? Tax season is now upon us. Now that you’ve probably received all of your tax forms, you may be facing a choice for how to proceed with filing: do it yourself with tax software or hire a professional tax advisor? Although it certainly will be more expensive than using tax software, hiring a tax advisor makes sense for certain individuals, depending on their financial circumstances. Here are two important factors to consider when deciding if a tax advisor is right for you: Time: Even with tax software guiding you, filing your taxes yourself can be time consuming. You’ll need to make sure that you’ve entered or imported the data from your tax forms correctly, which often takes at least several hours, and your time is worth something. Complexity: The more complicated your financial situation, the more a tax advisor may be able to help you. Have partnership income, or income from an S corporation? Been subject to alternative minimum tax in past years? Received or exercised stock options this year? Tax software can handle these issues, but it will take time, and the risk of mistakes (and even an audit) increases. If you decide that your situation warrants professional assistance, some further questions are worth exploring: what exactly is a tax advisor and how should you think about picking one? Who counts as a tax advisor? Anyone with an IRS Prepare Tax Identification number (a “PTIN” for short) can be paid to file tax returns on behalf of others. But merely having a PTIN doesn’t tell you much about the tax preparer; tax preparers have different experience, skills, and expertise. What you really want is a tax advisor, a professional with a certification and experience level that qualifies her not only to prepare your return, but to use her knowledge of the tax code to provide advice on your financial situation. There are three different professional certifications to consider, each of which qualifies a tax advisor to practice with unlimited representation rights before the IRS. This means that in addition to preparing returns, they also are licensed to represent their clients on audits, payments and collection issues, and appeals. Certified Public Accountants (CPAs) CPAs have completed coursework in accounting, passed the Uniform CPA Examination, and are licensed by state boards of accountancy (which require that they meet experience and good character standards). Some, but not all, CPAs specialize in tax preparation and planning. You can find complaints about CPAs either by searching records with state boards of accountancy and at Better Business Bureaus. Enrolled Agents Enrolled agents are licensed by the Internal Revenue Service after they have passed a three-part examination and a background check. The IRS maintains complaints about enrolled agents on the website of its office for enrollment, and you can also find complaints on the National Association of Enrolled Agents website. Licensed Tax Attorneys Licensed attorneys have graduated from law school, passed a state bar exam, and are admitted to the bar in at least one state. Some, but not all, attorneys specialize in tax preparation and planning. Many tax attorneys have completed an additional year of law school study in a master’s program in tax (called a Tax LL.M. degree). Disciplinary actions against attorneys can be found by searching the state bar associations with which the attorney is registered. How to Select a Tax Advisor or Tax Consultant No tax advisor with one of the certifications described above is necessarily better than any of the others in all situations. Rather, what matters most is: How the advisor approaches the tax preparation process, including the specific experience the tax advisor has with issues relevant to your particular financial situation. Whether you feel comfortable with the tax advisor. How the advisor structures their fees. You may be able to screen potential advisors along several of these dimensions based on information you can find about them online; for others, an initial meeting will be critical to determine if the advisor is right for you. 1. Assess your confidence in the quality of a tax advisor's recommendations, as well as their experience. Here are a few specific factors to consider carefully when assessing the potential quality of a tax advisor's work. First, you should try to identify a tax advisor who will act ethically and with integrity. Before scheduling a meeting with a potential tax advisor, check to see if the advisor has been subject to any complaints, disciplinary actions, or other ethical infractions. When meeting with the advisor, be on the lookout for outlandish promises: if an advisor guarantees you a certain refund without having first looked at your returns, you should be wary (any promise that sounds too good to be true probably is). If the advisor suggests taking a position on a tax return that strikes you as overly aggressive (because it is not grounded in your actual financial situation) or if you simply do not understand something the advisor is saying, make sure to ask, and keep asking until you are satisfied with the answer. Having a tax advisor prepare your returns does not take away your responsibility for the accuracy of your tax return. Of course, an advisor who knowingly takes an improper position on a tax return will face consequences, but it is your return, and you can too. A good tax advisor also should provide more value than simply filling out your returns. She should help you to structure your finances in an optimal way from a tax perspective. Not every tax advisor has expertise with every nuance of the tax code, and so you’ll want to make sure that the advisor you select has significant experience with the particular issues for which you’re seeking expert advice. Of course, there are certain common issues that every good advisor should know: for example, how to maximize the value and efficacy of your charitable contributions, how to weigh the tax tradeoffs between renting and owning a home, or how to save money for or gift money to family members. For other less common situations, however, you’ll want an advisor with specific experience. If you own a business or are self-employed, if you work for a startup and own a significant number of stock options, or if some portion of your income is reported on a K-1 (because you are a partner in a business or own shares in an S corporation), you likely will be best served by finding an advisor who has worked with a significant number of clients with these tax issues. Finally, maintaining the security of your personal information is more important than ever these days, and the inputs for your taxes is some of the most sensitive information you have. There will always be some risk of data breaches, but a good tax advisor will take steps to safeguard your information. Make sure that you ask about how the tax advisor stores your personal information and what methods she uses to communicate with you regarding sensitive topics. You also should ask about whether the advisor has ever been subject to a data breach and what steps the advisor is taking to protect against future ones. 2. Assess your comfort level with the working relationship. You want to make sure you have a good rapport with your tax advisor, and that you feel like you understand each other. At your first meeting, make sure to bring three years’ worth of old tax returns for your advisor to review. Ask if you missed any deductions, and if your old returns raise any audit flags. Consider the advisor’s responses. Does the advisor seem willing to spend time with you to ask thorough questions to fully understand your situation? Or does she rush through in a way that makes you feel like she might be missing certain issues or nuances? Does the advisor explain herself in a way that is understandable to you, even though you don’t have a tax background? Or does the advisor leave you confused? A tax advisor may work by herself or be a member of a larger organization or practice. Each approach has its benefits and drawbacks. You can be sure that a solo practitioner will be the one who actually prepares your returns, but it may be harder to reach the advisor during the height of tax season, and the advisor may find it difficult to get a second opinion on tricky issues or issues outside her core areas of expertise. On the other hand, although the collective expertise of a larger practice may exceed that of even a very talented advisor practicing on her own, it may be more difficult to ensure that your return is prepared personally by your advisor. Finally, think about whether you want to work with a tax advisor who is already part of your social network, or who has been referred by a trusted family member or friend. On the one hand, having the seal of approval of someone you know and trust may help to assure you that the advisor is right for you. On the other hand, consider whether it will be harder to part ways with the advisor down the road if she fails to meet your standards. 3. Evaluate the cost of the tax advice. The final issue you’ll want to think about is cost. Tax preparation services are a low margin business (particularly with the competition that tax preparers face from low cost software), but you can expect to pay more for tax planning services or advice. The best cost structure is one where the tax advisor charges for her time or for the specific forms that the advisor completes and files. By paying for the advice itself and not a particular outcome, this cost arrangement properly aligns the incentives between your tax advisor and you. Be wary of compensation structures that create the potential for conflicts of interest between you and and your tax advisor. For example, some tax advisors may try to earn additional revenue from you by selling other services or financial products along with tax preparation. Ultimately, when it comes to cost, your goal should not be solely to minimize your combined out of pocket cost to the IRS and your advisor for this year’s tax return. Rather, you should take a longer term view, recognizing that good, personalized tax advice can help you to structure your financial life in a tax-efficient way that can pay dividends for years to come.

An Investor’s Guide To Diversification Dec 29, 2021 12:42:35 PM In 10 seconds Diversification is a risk management strategy. By spreading your investments across multiple financial assets, you can lower your exposure to any single risk and decrease the volatility of your investment portfolio. In 1 minute When you invest too heavily in a single asset, type of asset, or market, your portfolio is more exposed to the risks that come with it. That’s why investors diversify. Diversification means spreading your investments across multiple assets, asset classes, or markets. This aims to do two things: Limit your exposure to specific risks Make your performance more consistent As the market fluctuates, a diverse portfolio generally remains stable. Extreme losses from one asset have less impact—because that asset doesn’t represent your entire portfolio. Maintaining a diversified portfolio forces you to see each asset in relation to the others. Is this asset increasing your exposure to a particular risk? Are you leaning too heavily on one company, industry, asset class, or market? A diversified portfolio usually performs better over time, and typically comes with less extremes in fluctuating markets. In 5 minutes In this guide, we’ll: Define diversification Explain the benefits of diversification Discuss the potential disadvantages of diversification What is diversification? Financial assets gain or lose value based on different factors. Stocks depend on companies’ performance. Bonds depend on the borrower’s (companies, governments, etc.) ability to pay back loans. Commodities depend on public goods. Real estate depends on property. Entire industries can rise or fall based on government activity.  What’s good or bad for one asset may have no effect on another. If you only invest in stocks, your portfolio’s value completely depends on the performance of the companies you invest in. With bonds, changing interest rates or loan defaults could hurt you. And commodities are directly tied to supply and demand. Diversification works to spread your investments across a variety of assets and asset classes, so no single weakness becomes your fatal flaw. The more unrelated your assets, the more diverse your portfolio. So you might invest in some stocks. Some bonds. Some fund commodities. And then if one company has a bad quarterly report, gets negative press, or even goes bankrupt, it won’t tank your entire portfolio. You can make your portfolio more diverse by investing in different assets of the same type—like buying stocks from separate companies. Better yet: companies in separate industries. You can even invest internationally, since foreign markets can potentially be less affected by local downturns. What are the benefits of diversification? There are two main reasons to diversify your portfolio: It can help reduce risk It can provide more consistent performance Here’s how it works. Lower risk Each type of financial asset comes with its own risks. The more you invest in a particular asset, the more vulnerable you are to its risks. Put everything into bonds, for example? Better hope interest rates hold. Distributing your assets distributes your risk. With a diversified portfolio, there are more factors that can negatively affect your performance, but they affect a smaller percentage of your portfolio, so your overall risk is much lower. If 100% of your investments are in a single company and it goes under, your portfolio tanks. But if only 10% of your investments are in that company? The same problem just got a whole lot smaller.  Consistent performance The more assets you invest in, the less impact each one has on your portfolio. If your assets are unrelated, their gains and losses depend on different factors, so their performance is unrelated, too. When one loses value, that loss is mitigated by the other assets. And since they’re unrelated, some of your other assets may even increase in value at the same time. Watch the value of a single stock or commodity over time, and you’ll see its value fluctuate significantly. But watch two unrelated stocks or commodities—or one of each—and their collective value fluctuates less. They can offset each other. Diversification can make your portfolio performance less volatile. The gains and losses are smaller, and more predictable. Potential disadvantages of diversification While the benefits are clear, diversification can have a couple drawbacks: It creates a ceiling on potential short-term gains Diverse portfolios may require more maintenance Limits short-term gains Diversification usually means saying goodbye to extremes. Reducing your risk also reduces your potential for extreme short-term gains. Diverse portfolios tend to perform better over time, but investing heavily in a single asset can mean you’ll see bigger gains over a short period.  For some, this is the thrill of investing. With the right research, the right stock, and the right timing, you can strike it rich. But that’s not how it usually goes. Diversification is about playing the long game. You’re trading the all-or-nothing outcomes you can get with a single asset for steady, moderate returns. Over time, this typically produces better results. May require more maintenance As you buy and sell financial assets, diversification requires you (or a broker) to consider how each change affects your portfolio’s diversity. If you sell all of one asset and re-invest in another you already have, you increase the overall risk of your portfolio. Maintaining a diversified portfolio adds another layer to the decision-making process. You have to think about each piece in relation to the whole. A robo advisor or broker can do this for you, but if you’re managing your own portfolio, diversification may take a little more work.

What To Expect When You Interview With Betterment Dec 22, 2021 10:00:42 AM Interviewing can be a long, stressful, and sometimes confusing process. We strive to make the experience as meaningful and enjoyable as possible. Transparency and inclusivity are the heart of everything we do, especially our hiring process. We want every candidate to have access to the information they need and to feel welcomed by everyone they interact with throughout our interview process. If you are interested in working at Betterment, keep reading for an in-depth look at what to expect during the process. For engineering roles, take a look at our Engineering Interviewing with Betterment post for specific details on that process. Finding the best Betterment role for you. The very first step when interviewing with Betterment is finding an open role that fits what you’re looking for in your next career move. The best place to view current openings is the Betterment Careers page. We are constantly updating it as new roles become available. You can also find openings on LinkedIn and Built In NYC. Once you’ve found a role, read through the job description carefully. If it aligns with your skills, experiences, and goals, we encourage you to apply. Because we know the job post is only the beginning of the journey, we aim to include the most relevant information to help you decide if you should apply. For example, we do not include years of experience on our job posts, but instead work to define the exact responsibilities in detail. If you sense that you're capable of what we've outlined, and energized by our job post, you should apply! Don't let a confidence gap get in the way of submitting your application. Join our Talent Community If you do not see the right match for you at this time, don’t worry! We recommend joining our Talent Community. Our hiring needs are always changing and we would be happy to keep you in mind once a role that better aligns with your skills and interests opens in the future. Our hiring process in depth. Once you submit your application, you have officially kicked off the hiring process with us. A member of the Betterment Recruiting team will review it and be in touch. Although you will likely hear back from us sooner, we ask that you give us up to a few weeks to thoroughly review your application given the high volume of applications we receive. If we would like to spend more time with you, the following steps outline the full interview process. While the interview process may vary depending on which role you are applying for, most will look similar to this. Recruiter Interview - A recruiter will reach out to set up time for a phone call to discuss your experiences, skills, and motivations. We will also cover the interview process timeline and compensation expectation details. Hiring Manager Phone Interview - The hiring manager for the role will give you a call to further discuss your background and share in depth details about the role and the team. Round 1 Virtual Interview - This is an opportunity to meet virtually with members of the team you’ll be working closely with Technical Exercise - Across all roles, we may look to evaluate job specific skills in the form of a written exercise or pair programming. We seek to collect a robust set of data points, and find that these exercises can round out what we learn about you from behavioral interviews. If it’s a take home test, you will be given 2-3 days to complete. If not, you will complete this exercise during your scheduled interviews and be instructed on how to prep. Final Round Virtual Interview - This is an opportunity to meet virtually with members of the team, and may include leadership and cross functional stakeholders. Offer - If you make it to this step, that means you thoroughly impressed us and we would be thrilled to have you join us! Please Note: We are conducting all interviews virtually until further notice. The full interview process will take one to two weeks to complete depending on your availability to interview. If you need to expedite the process for any reason, please let your recruiter know so they can work with you to meet your timelines. While we would love to have every candidate reach the offer stage, we often only have one position available. At any stage, if we don’t plan to move forward with your candidacy, you’ll hear from a member of our Recruiting team letting you know. If you need to withdraw from the process, please inform your recruiter at your earliest convenience. We value a fair, inclusive and consistent process. No matter which role you’re interviewing for, you can expect to have the same experience as other candidates who are interviewing for the same role. We run a structured, competency based interview process at Betterment to ensure a fair and inclusive process. Consistency is key to ensure we have the insights we need to make evidence based hiring decisions for every candidate. Furthermore, we're committed to seeing a robust slate of candidates before we make a hiring decision. If you have any timeline constraints, we recommend discussing them with your recruiter. We’re committed to Diversity, Equity, Inclusion and Belonging. It’s important that our employees reflect the diversity of our customers as we’re building a service that’s for everyone. A diverse internal culture encourages innovation so much more than a homogeneous one. We want each candidate to have a pleasant and welcoming experience at every point of the interview process. It is our goal to have those values of inclusion shine during every candidate interaction. We hope all candidates feel welcomed, valued, and included no matter the outcome of their candidacy. On our applications, you will find a field asking you to share your preferred pronouns. While this section is optional, it is our goal to make sure we are being respectful to all candidates by knowing and addressing them by the pronouns of their choice. We are also dedicated to providing accommodations to candidates with disabilities. If you need accommodations at any point throughout the interview process, please reach out to interview.accommodations@betterment.com.

How Robo-Advisors Guide Your Investing Dec 17, 2021 4:35:46 PM Here’s everything you need to know In 10 seconds A robo-advisor is a digital investment platform. Using algorithms, it automatically manages your investments according to your goals. In 1 minute Robo-advisors like Betterment use formulas to make smart investment decisions, lowering your cost and seeking to reduce human error in comparison to traditional financial advisors. This approach can give you some unique advantages. Here are the five principles that drive robo-advisors’ approach to investing. Personalization. You’re the most important part of the equation. We adjust our algorithms to fit your goals and circumstances. Automation and discipline. Avoid some common investor mistakes by automating your deposits and resisting the urge to meddle with your portfolio. Robo-advisors aim to make this easy, with the hope that you can reach your goals sooner and keep more in your pocket. Diversification. Robo-advisors set up your portfolio for long-term success by investing in a wide range of assets. Diversification prevents you from being overly exposed to concentrated risks. Lower fees and costs. Algorithms don’t have salaries. It takes a lot less overhead to automate portfolio management.  Manage taxes. Taxes are often unavoidable. But with savvy investment moves, you may be able to offset them. Robo-advisors like Betterment can do this automatically if you choose, with features like Tax Loss Harvesting.  If you have more time, we can unpack these principles in more detail. In 5 minutes In this article, we’ll: Explain what robo-advisors are Walk you through our five principles of investing What are robo-advisors? A robo-advisor is basically an automated financial advisor. Just like a human financial advisor, a robo-advisor gives recommendations based on your personal financial goals and circumstances. But instead of having a human manage your investment portfolio, a robo-advisor uses algorithms designed to find the optimal investment approach and maximize your returns. It’s technology that helps you manage your money. You can have as much or as little responsibility as you like. The robo-advisor gives you the data-driven insights you need to make wise choices or fully automate your investments. The biggest difference from a human financial advisor? A robo-advisor can cost you far less.  Bottom line: Robo-advisors are able to give you similar performance to a financial advisor, but without the steep fees. So you can keep more of what your investments earn. So what guides a robo-advisor’s recommendations? There are five key principles.  1. Personalization We want you to reach your financial goals. So, we start by learning about you. What do you want to achieve? How soon do you want to achieve it? The right investment depends on how much you need to earn and how much time you have to earn it.  Not sure how much you need to reach your goal? Or how much you can even invest? We can help with that, too. We explore how things like your income, where you live, and your tax bracket affect what your goal looks like and how fast you can reach it. The result is clear, achievable goals that fit your life and help you get the most from your accounts. 2. Automation and discipline With automatic deposits and decisions based on algorithms, it’s easy to make steady progress toward your goals. It’s also easier to avoid common investor mistakes. Your portfolio will likely experience short-term losses here and there. It’s part of investing. And your reactions to these losses can have a huge impact on your long-term success. You can’t let emotions get in the way of your goals. By automating your portfolio and staying disciplined about investing, you’re better equipped to ride out the short-term losses and enjoy long-term gains. 3. Diversification We’re not here to help you pick the perfect stock. Investing in a single financial asset leaves you vulnerable to that asset’s risks. With a single stock, you could lose everything if a company goes bankrupt, performs poorly, or gets some bad press.  Instead, we help you build a well-diversified portfolio. Diversification spreads your investments across assets, asset classes, and even markets, lowering your overall risk. We automatically diversify your portfolio based on your goals and desires.  Through socially responsible investing (SRI), you can even diversify your portfolio according to your values.  Want to invest in environmentally-conscious companies? Done. How about businesses that demonstrate a commitment to social values? Check. Want to have the broadest positive impact you can? Easy. We have three SRI portfolios to choose from. Note that higher bond allocations in your SRI portfolio decrease the percentage attributable to socially responsible ETFs. However you diversify, this strategy helps you make steady progress toward your goal.  4. Lower fees and costs A robo-advisor can save you a lot of money in fees and ongoing costs. We remove human advisors from the equation—unless you want them. When you have Assets Under Management (AUM) with a robo-advisor, the fees are typically a fraction of what you’d pay for a financial advisor. Our fees are just 0.25% annually. With a financial advisor, you’re looking at more like 1% to 2%. And since everything is based on algorithms, you won’t pay extra for rebalancing and making other changes to your portfolio. 5. Manage taxes Taxes are one of the trickiest parts of investing. Sell for a profit at the wrong time, and you’ll be on the hook for short-term capital gains taxes. Sell the right asset for a loss at the right time, and you can offset taxes through tax-loss harvesting. Managing taxes wisely helps keep your gains consistent and maximize what you get to keep. With a robo-advisor like Betterment, this can happen automatically if you elect this feature. The algorithm optimizes your portfolio to try and keep you from being hit hard by taxes. A financial advisor can do this too, but will usually charge an additional fee. Put your financial goals on cruise control. Investing doesn’t have to be difficult. And reaching your financial goals doesn’t have to take all your time and attention. With a robo-advisor and a smart strategy, you can create your plan and let the algorithms do the rest.

How To Avoid Common Investor Mistakes Dec 17, 2021 3:51:01 PM People often make financial decisions based on impulses and market shifts In 10 seconds Want to invest wisely? Start with why you’re saving and investing: A goal. Don’t overreact to short-term gains and losses. And keep your cost-of-living low, even when your income increases. In 1 minute Even savvy investors can let their impulses get the best of them. By understanding how our natural tendencies can cause poor financial decisions, we can teach ourselves to make wiser choices. Goal-based investing means identifying what you need money for in the future, and aligning investments around a tangible outcome. Having a goal helps you decide:  Where to invest How much to invest How long to invest Short-term losses are part of the process. If you constantly check your portfolio’s performance and react to short-term losses, you’ll likely hold yourself back. Instead, focus on the process that can yield long-term gains, and give your investments time to grow. “Lifestyle creep” can easily throw off your plans for the future. As your income increases, try to keep your cost of living about the same. If your regular spending increases, you’ll need to save and invest more to maintain your new lifestyle. That’s the short version. Learn more about common investor mistakes below. In 5 minutes In this guide we’ll: Explain how biases lead to bad financial decisions Look at common mistakes investors make Show you how to avoid these investing mistakes The source of common investor mistakes. Investing mistakes are often rooted in our natural reactions. Let’s face it: We don’t always react the right way to information. And when enough investors have poor reactions, it can affect the entire market.  Behavioral finance is a field of study that looks at how psychology affects financial decisions. It helps us understand why investors make common mistakes, so it’s easier to avoid them. But don’t worry—it doesn’t have to be complicated. Some of the most important lessons from this field are surprisingly simple. Try to invest with a goal in mind. Investing is one of the smartest financial decisions you can make. But a lot of investors start without knowing what they’re working toward—and that’s, well, less smart. When you don’t know why you’re building a financial portfolio, it’s a lot harder to know things like: What account types to use  How much risk to take on How much to invest each month How much you can spend without feeling guilty How much total money you’ll need to save How long you need to invest Instead, start with why. What do you want to be able to spend money on in the future? When are you going to use that money? These aren’t just stocks and bonds. Your investment is a future downpayment on a house. Your dream car. Retirement. College. Real things and experiences you want to be able to afford. Having a goal takes the guesswork out of investing. You can calculate exactly how much you need to invest based on the range of potential outcomes. It’s also easier to decide where to put your investments. Retiring in 40 years? Take more risk and put more in stocks. Hitting your goal next year? Play it safe. When you know how much you need to invest, break it into monthly chunks and automate your deposits. With recurring deposits, you're basically “paying yourself first” before worrying about other expenses. That way, you won’t talk yourself into skipping a month. (Which turns into two months, then three, and—oops, it’s been a year.) Focus on the long-term. When you invest, you’ll have short-term losses here and there. It’s inevitable. And most times, it’s a mistake to make adjustments when your portfolio loses value. You can’t predict tomorrow’s performance based on yesterday’s. Even during the last ten years of steady growth, investors had to endure short-term losses at some point every year. Given enough time, the market trends upwards. And investments that perform poorly one day can easily make up for it the next. But that’s not what most people think about when they see their portfolio lose 15% of its value. They panic. They make sweeping changes, reinvesting in funds and stocks that had short-term gains. And those big emotional decisions often do more harm than good. Investing is about long-term gains. Short-term losses are simply part of the process. Don’t panic every time there’s a loss, and you’ll likely see bigger long-term gains. Watch out for “lifestyle creep.” You don’t have to live frugally to be a successful investor. It helps, but the bigger issue is making sure that as your income increases, you stay in control of your lifestyle and spending. Most people see small pay increases over the course of their lives. 3% here. 8% there. When your regular spending increases with your income, it’s known as “lifestyle creep.” It can easily get in the way of saving enough to achieve your goals. If you have a lower income, it makes sense that more of your money goes toward basic necessities. But lifestyle creep happens when you gradually spend more on things you don’t need. Entertainment. Hobbies. Take out.  Every time you increase your regular spending, your lifestyle costs more to maintain. You’ll likely need to save more for retirement. Your emergency fund may need to grow, too. Lifestyle creep is an even bigger problem if you started investing with the expectation that you’d invest more later. Some people feel intimidated by their goals, so they plan to increase the amount they invest when they start making more money. That’s fine—as long as you actually do it. Temporary increases in spending are OK. But as you make more money, don’t let a more extravagant lifestyle sabotage your goals. Mistake-free investing You want to invest because you want to use your money wisely. At Betterment, we help you do that by building your portfolio around your goals and setting you up to play the long-game. Right from the start, you’ll know our suggested allocation for your portfolio, how much to invest each month, and what outcomes you can expect based on your input. Schedule recurring deposits to help you stay on track, check your progress, and make adjustments at any time.

The Pandemic is Redefining Company Perks Dec 15, 2021 8:15:00 AM Our latest research shows workers value financial wellness support over benefits like extra vacation and office luxuries Amid the pandemic and “Great Resignation” of 2021, many workers have been seeking greater financial stability and support, particularly as they face rising healthcare costs, towering student debt, and uncertainty around retirement. This is one among several findings from new research by our 401k team. The new report, titled "The Impact of The Great Resignation on Benefits Needs and Expectations," polled 1,000 full-time U.S. employees to better understand their current financial situations, how they prioritize financial wellness benefits, and how those perks might impact talent acquisition and employee retention. Other highlights include: More than a year and a half into the pandemic, workers’ financial situations have yet to fully recover. More than half (54%) are more stressed about their finances than they were before the pandemic. Against this backdrop, financial wellness offerings have become more coveted. 401(k) plans and matching programs still take top billing, but employees are also seeking benefits like wellness stipends and student loan repayment programs. Expectations are rising. Nearly 3 in 4 of polled employees (74%) would likely leave their job for an employer that offered better financial benefits — a number that jumps to 85% for student loan borrowers. “Faced with new realities and shifting work environments, employers are reconsidering what provides value to their employees,” says Kristen Carlisle, general manager of our 401(k) team. She sees interest in student loan repayment benefits, for example, only growing once the freeze on federal student debt repayments ends this upcoming January 31. Employers can also do more in the meantime, Carlisle says, to help employees take advantage of the benefits they already have. Our research finds roughly 1 in 3 employees (36%) surveyed aren’t sure what financial wellness benefits their employer currently offers.

Introducing the Innovative Technology Portfolio Dec 9, 2021 9:59:49 AM If you believe in the power of tech to blaze new trails, you can now tailor your investing to track the companies leading the way. The most valuable companies of today aren’t the same bunch as 20 years ago. With each generation comes new challengers and new categories (Hello, Big Tech). And while we can’t predict the next class of top performers exactly, innovation will likely come from parts of the economy that use technology in new and exciting applications, industries like: semiconductors clean energy virtual reality artificial intelligence nanotechnology This dynamic led us to create and add the Innovative Technology portfolio to our group of low-cost, diversified, and managed portfolios. What is the Innovative Technology Portfolio? The portfolio increases your exposure to companies pioneering the technology mentioned above and more. These innovations carry the potential to reshape the way we work and play, and in the process shape the market’s next generation of high-performing companies. Using the Core portfolio as its foundation, the Innovative Technology portfolio is built to generate long-term returns with a diversified, low-cost approach, but with increased exposure to risk. It contains many of the same investments as Core, but swaps specific exposures to value stocks with an allocation to the SPDR S&P Kensho New Economies Composite ETF (Ticker: KOMP). For a more in-depth look at the portfolio’s methodology, skip over to its disclosure. How are pioneering companies selected? The Kensho index that KOMP tracks uses a special branch of artificial intelligence called Natural Language Processing to screen regulatory data and identify companies helping drive the Fourth Industrial Revolution. After picking companies across 22 categories, each is combined into the overall index and weighted according to their risk and return profiles. Why choose this portfolio over Betterment’s Core portfolio? We built the Innovative Technology portfolio to perform more or less the same as an equivalent stock/bond allocation of the Core portfolio. It may, however, outperform or underperform depending on the return experience of KOMP and the companies this fund tracks. So, if you believe the emerging tech of today will drive the returns of tomorrow—and are willing to take on some additional risk to make that bet— this is a portfolio made with you in mind. Risk and early adoption go hand-in-hand, after all. Why invest in innovation with Betterment? Full disclosure: we’re a little biased when it comes to making bets on new frontiers and the plucky companies exploring them. We may be the largest independent digital investment advisor now, but the category barely existed when we opened shop in 2008. Innovative tech is in our DNA, so when you invest in it with Betterment, you not only get our professional portfolio management tools, you get an advisor with first-hand experience in the field of first movers.

Addressing Tax Impact with Our Improved Cost Basis Accounting Method Dec 2, 2021 12:00:00 AM Selecting tax lots efficiently can address and reduce the tax impact of your investments.  We use advanced tax accounting methods to help make your transactions more tax-efficient. When choosing which lots of a security to sell, our sophisticated method factors in both cost basis as well as duration held. When you make a withdrawal for a certain dollar amount from an investment account, your broker converts that amount into shares, and sells that number of shares. Assuming you are not liquidating your entire portfolio, there's a choice to be made as to which of the available shares were sold. Every broker has a default method for choosing those shares, and that method can have massive implications for how the sale is taxed. Betterment's default method seeks to reduce your tax impact when you need to sell shares. In the chart below, you can see the tax impact of an actual $150,000 withdrawal made by a Betterment customer with New Jersey listed as their state of residence. The withdrawal sold some of several ETF positions in a $1,000,000+ portfolio. Assuming tax rates consistent with their input income, Betterment saved this customer $11,122 in state and federal taxes, just by having a better default selling method. Betterment saves a customer $11,122   Typical FIFO selling Betterment's TaxMin selling Ticker Gain/Loss Short or Long Term Gain/Loss Short or Long Term VTI $23,639 Long $11,771 Long VEA $10,378 Long $4,410 Long VWO $7,472 Long $2,628 Long MUB $7 Long -$3 Short EMB -$10 Long -$20 Short VTV $6,193 Long $2,130 Long VOE $5,571 Long $2,714 Long VBR $6,704 Long $4,144 Long Total ST Gain/Loss $0   -$22   LT Gain/Loss $59,955   $27,797   Tax Owed: $20,714 $9,592 *Actual customer withdrawal of $150k in April 2021 as a resident of New Jersey, with input annual income of $220,000 and single tax-filing status with no dependents. This calculation assumes that this customer takes the standard deduction when filing taxes, a state capital gains rate of 10.75%, and federal tax rates on short and long term gains of 40.8% and 23.8%, respectively, both inclusive of the net investment income tax of 3.8%. State of residence and other client information may materially affect the outcome or projection of tax minimization technology. The real life scenario listed in this example may not apply to all clients and is not a guarantee of similar results. Tax savings are net of Betterment’s fee of 25 BPS. Basis reporting 101 What's going on here? How can internal accounting result in such a drastic difference? First, some background. The way investment cost basis is reported to the IRS was changed as a result of legislation that followed the financial crisis in 2008. In the simplest terms, your cost basis is what you paid for a security. It’s a key attribute of a so-called “tax lot”—a new one of which is created every time you buy into a security. For example, if you buy $450 of Vanguard Total Stock Market ETF (VTI), and it’s trading at $100, your purchase is recorded as a tax lot of 4.5 shares, with a cost basis of $450 (along with date of purchase.) The cost basis is then used to determine how much gain you’ve realized when you sell (and the date is used to determine whether that gain is short or long term). However, there is more than one way to report cost basis, and it’s worthwhile for the individual investor to know what method your broker is using—as it will impact your taxes. Brokers report your cost basis on Form 1099-B, which Betterment makes available electronically to customers each tax season. Better tax outcomes through advanced accounting When you buy the same security at different prices over a period of time, and then choose to sell some (but not all) of your position, your tax result will depend on which of the shares in your possession you are deemed to be selling. The default method stipulated by the IRS and typically used by brokers is FIFO (“first in, first out”). With this method, the oldest shares are always sold first. This method is the easiest for brokers to manage, since it allows them to go through your transactions at the end of the year and only then make determinations on which shares you sold (which they must then report to the IRS.) FIFO may get somewhat better results than picking lots at random because it avoids triggering short-term gains if you hold a sufficient number of older shares. As long as shares held for more than 12 months are available, those will be sold first. Since short-term tax rates are typically higher than long-term rates, this method can avoid the worst tax outcomes. However, FIFO's weakness is that it completely ignores whether selling a particular lot will generate a gain or loss. In fact, it's likely to inadvertently favor gains over losses; the longer you've held a share, the more likely it's up overall from when you bought it, whereas a recent purchase might be down from a temporary market dip. Clearly, the ability to identify specific lots to sell regardless of when they were purchased could get you a better result, and the rules allow an investor to do so. Yet having to identify specific shares every time you sell is tedious at best, and incomprehensible at worst. Fortunately, the IRS allows brokers to offer investors a different default method in place of FIFO, which selects specific shares by applying a set of rules to whatever lots are available whenever they sell. The problem is that many investors are not even aware there's something they should be overriding, much less which alternative to choose. Upgrading the default method can be a multi-step process through a clunky and confusing interface. While Betterment was initially built to use FIFO as the default method, specific share identification can have such a positive impact on your tax bill that we’ve doubled down to improve our methods. We upgraded our algorithms to support a more sophisticated method of basis reporting, which aims to result in better tax treatment for securities sales in the majority of circumstances. Most importantly, we’ve structured it to replace FIFO as the new default—Betterment customers don’t need to do a thing to benefit from it. Betterment’s TaxMin method When a sale is initiated in a taxable account for part of a particular position, a choice needs to be made about which specific tax lots of that holding will be sold. Our algorithms select which specific tax lots to sell, following a set of rules which we call TaxMin. This method is more granular in its approach, and will improve the tax impact for most transactions, as compared to FIFO. How does this method work? As a general principle, realizing taxable losses instead of gains and allowing short-term gains to mature into long-term gains (which are generally taxed at a lower rate) whenever possible should result in a lower tax liability in the long run. Instead of looking solely at the purchase date of each lot, TaxMin also considers the cost basis of the lot, with the goal of realizing losses before any gains, regardless of when the shares were bought. Lots are evaluated to be sold in the following order: Short-term losses Long-term losses Long-term gains Short-term gains Generally, we sell shares in a way that is intended to prioritize generating short term capital losses, then long term capital losses, followed by long term capital gains and then lastly, short term capital gains. The algorithm looks through each category before moving to the next, but within each category, lots with the highest cost basis are targeted first. With a gain, the higher the basis, the smaller the gain, which results in a lower tax burden. In the case of a loss, the opposite is true: the higher the basis, the bigger the loss (which can be beneficial, since losses can be used to offset gains).1 A simple example If you owned the following lots of the same security, one share each, and wanted to sell one share on July 1, 2021 at the price of $105 per share, you would realize $10 of long term capital gains if you used FIFO. With TaxMin, the same trade would instead realize a $16 short term loss. If you had to sell two shares, FIFO would get you a net $5 long term gain, while TaxMin would result in a $31 short term loss. To be clear, you pay taxes on gains, while losses can help reduce your bill. Purchase Price ($) Purchase Date Gain or Loss ($) FIFO Selling order TaxMin Selling order $95 1/1/20 +10 1 4 $110 6/1/20 -5 2 3 $120 1/1/21 -15 3 2 $100 2/1/21 +5 4 5 $121 3/1/21 -16 5 1 What can you expect? TaxMin automatically works to reduce the tax impact of your investment transactions in a variety of circumstances. Depending on the transaction, the tax-efficiency of various tax-lot selection approaches may vary based on the individual’s specific circumstances (including, but not limited to, tax bracket and presence of other gains or losses.) However, we feel that TaxMin serves the typical Betterment customer far better than FIFO, the default used by most brokers. Note that Betterment is not a tax advisor and your actual tax outcome will depend on your specific tax circumstances—consult a tax advisor for licensed advice specific to your financial situation. This is just one more way we continue to innovate under the hood to maximize your investor returns: net of transaction costs, net of behavior, and net of tax. Footnote 1 Note that when a customer makes a change resulting in the sale of the entirety of a particular holding in a taxable account (such as a full withdrawal or certain portfolio strategy changes), tax minimization may not apply because all lots will be sold in the transaction.

How Betterment Anticipates Market Volatility—So You Don’t Have To Nov 2, 2021 12:00:00 AM It’s difficult to endure volatile markets when it affects your investment portfolio. Betterment has automated features in place to address volatile markets when they occur. If you’ve ever been told to “sit tight and stay the course” when the market is dropping and your investment account is worth less than it was just moments ago, you’re not alone. Financial advisors, including Betterment, love this mantra and repeat it anytime there’s a market downturn—which every investor should be prepared to navigate at some point. But being told to do nothing when your account balance is dropping can feel like an inadequate response. And, unless your investment strategy has been designed from the ground up to anticipate and react to market volatility, you may be right. The reason Betterment can confidently advise our customers not to react or adjust their investment strategy during a market downturn is because our entire platform was designed with inevitable downturns of the market in mind. In this article, I’ll cover how our investment portfolio creation process, ongoing automated account management system, and dynamic advice, are designed with market fluctuations in mind, so that you can “sit tight and stay the course” and feel confident it’s actually the right thing to do. Our portfolios are constructed with market volatility in mind. Betterment’s portfolio construction process strives to design a portfolio strategy that is diversified, increases value by managing costs, and enables good tax management. Ultimately, our goal is to help you build wealth. This means: Our intent is to create portfolios designed to have a better chance of making money and also not losing it. At a baseline, our allocation recommendations are based on various assumptions, including a range of possible outcomes, in which we give slightly more weight to potential negative ones, by building in a margin of safety—otherwise known as ‘downside risk’ or uncertainty optimization. So, even before you’ve invested your first dollar, your portfolio has already been designed to account for the market fluctuations you will inevitably experience throughout the course of your investment journey, even the big downturns like 2008 and the more recent market crash in 2020. Furthermore, our risk recommendations consider the amount of time you’ll be invested for. For goals with a longer time horizon, we advise that you hold a larger portion of your portfolio in stocks. A portfolio with greater holdings in stocks is more likely to experience losses in the short-term, but is also more likely to generate greater long-term gains. For shorter-term goals, we recommended a lower stock allocation. This helps to avoid large drops in your balance right before you plan to withdraw and use what you’ve saved. All you have to do is: Tell us what you are saving for (your investing goal). Let us know how long you plan to be invested (your time horizon). We take care of the rest. By using your personal assumptions, in conjunction with our general downside risk framework, we’re able to recommend a globally diversified portfolio of stock and bond ETFs that has an initial risk level recommended just for you. And because we weigh investment time horizon and below-average market performance more heavily, our algorithm allows for some breathing room. If you wish to deviate from our advice— like increasing or decreasing your exposure to stocks or bonds, slightly beyond our default recommendation but still within a reasonable bound—we’ll still maintain the integrity of a properly diversified portfolio and investment strategy designed to meet your specific objective. After all, the chance of reaching any investing goal increases when the investor is comfortable committing to their strategy and staying the course in both good and bad markets. Our automated portfolio management features keep you on track during downturns. How we construct our globally diversified portfolios and the risk framework we apply to each investor’s specific allocation recommendation is just the starting point. It’s our ongoing and automated portfolio management that provides the additional value-add that's hard to replicate elsewhere, especially in times of heightened volatility. Our automated features like allocation adjustments over time, portfolio rebalancing, tax loss harvesting for those who select it, and updated advice when you need it, are what help most. Automated Allocation Adjustments When we ask you to tell us about your investment objective, including how long you plan to be invested for, it helps us choose the appropriate asset allocation for you throughout the course of your investment timeline, not just in the beginning. For most Betterment goals, we recommend that you scale down your risk as your goal’s end date gets closer, which helps to reduce the chance that your balance will drastically fall if the market drops. This is an especially important consideration for an investor who plans to use their funds in the near term. We call this recommendation of a gradual reduction of stocks in favor of bonds, a goal’s glidepath. And instead of leaving this responsibility up to you, you can opt into our “auto-adjust” feature, which means our system monitors your account and adjusts your portfolio’s allocation automatically over time. Automated Portfolio Rebalancing The allocation that we choose for you, at any given time, is our best estimate of the combination of assets that will help you reach your goal by the date you’re aiming for. But, unless each asset you are invested in has the same exact returns, normal stock market fluctuations will likely cause your actual allocation to drift away from your portfolio target, which is calculated to be the optimal level of risk you should be taking on. We call this process portfolio drift, and though a small amount of drift is perfectly normal—and a mathematical certainty—a large amount of drift could expose your portfolio to unwanted risks. When the market fluctuates, not all of your investments are dropping to the same exact degree. For example, stocks are generally more volatile than bonds. As you can imagine, a period of sustained volatility could mean a significant shift in how your portfolio is actually allocated, relative to where it should be. Left unchecked, this drift could be especially harmful to your portfolio’s performance, which is why at Betterment, our portfolio management system provides ongoing monitoring of your portfolio in order to determine whether rebalancing is needed. While we generally use any cash inflows, like deposits or dividends, and outflows, like withdrawals, to help rebalance your portfolio organically over time, when a significant market drop occurs, there can be a need to sell investments in order to adjust your portfolio back to its optimal allocation. Consider an instance where the value of your stock investments has dropped significantly and now your bond investments are overweighted relative to your stocks. Our rebalancing system might be triggered to correct the drift. Not only would our automated rebalancing seek to ensure your portfolio’s allocation is realigned relative to its target, it would also mean buying stocks at their currently cheaper price point, setting you up nicely for any market recovery. Furthermore, if effective rebalancing does require selling investments in a taxable account, the specific shares to be sold are selected tax-efficiently using our TaxMin method. This is designed to ensure that no short-term gains are realized. We never want the tax impact of maintaining proper diversification to counter the benefits of applying our risk framework. Automated Tax Loss Harvesting Tax Loss Harvesting is a feature that may benefit you most when the market is volatile. After all, if there aren’t any losses in your account, we can’t harvest them. Our automated TLH software monitors your account for opportunities to effectively harvest tax losses that can be used to reduce capital gains that you have realized through other investments in the same tax year. This can potentially reduce your tax bill, thereby increasing your total returns, especially if you have a lot of short-term capital gains, which are taxed at a higher rate than long-term capital gains. And, if you’ve harvested more losses than you have in realized capital gains, you can use up to an additional $3,000 in losses to reduce your taxable income. Any unused losses from the current tax year can be carried over indefinitely and used in subsequent years. Our dynamic financial advice works for you during market fluctuations. Much like the automated features described in the section above, the advice we give our customers is dynamic and updates automatically based on many factors, including market performance. Just as your car’s GPS recommends the best route to take to reach your destination, Betterment recommends a tailored path toward reaching your financial goals. And just as the GPS updates its recommended route based on road conditions and accidents, we update our advice based on various circumstances, such as a market downturn. In addition to recommending a starting risk level tied to your specific objective, we also estimate how much you need to save. In the case of a really big market drop, we might advise you to do something about it, such as make a single lump-sum deposit, which will help keep your portfolio on track. Recognizing that coming up with sizable excess cash can be tough to do, we’ll also suggest a recurring monthly deposit number that may be more realistic. And, if it’s early on in a long-term goal, it’s unlikely you’ll need to change anything significantly, because you still have a lot of time on your side. Conclusion The path to investment growth can be bumpy, and negative or lower than expected returns are bound to make an investor feel uncertain. But, staying disciplined and sticking to your plan can pay off. Betterment has been purpose-built with all the worst and the best the market may throw at us in mind, by focusing on three key elements: intentional portfolio construction, automated portfolio features, and advice that reacts to market conditions. Feel confident that Betterment’s hard at work, for you, so that you can truly “sit tight and stay the course.”  

How to Make a Tax-Smart Investment Switch Nov 1, 2021 12:00:00 AM Calculate the value of realizing gains to move to a potentially better investment. A customer once called us to discuss moving significant assets from another provider to Betterment. He asked if he would have to pay a one-time tax cost to liquidate, and considering that cost, would the switch still be worth it? We thought we'd share with everyone a way to figure out the cost and benefits of switching. Depending on your particular circumstances, the answer is likely yes to both questions—selling off a long-established portfolio may trigger taxes, but in the long term, it can be worth it. As an example, you might want to move out of an actively managed mutual fund. Research has shown that a portfolio of actively managed funds is expected to underperform by 1.01% a year on average, after fees, compared to an all index-fund portfolio. Or perhaps you're interested in lowering your fees over the long term or diversifying your investments from a single stock to a multi-asset class portfolio. While nothing in this piece should be construed as tax advice, since individual circumstances can vary greatly, the following should serve as a general illustration of the cost and benefit of transitioning to a potentially better investment. Informed Trade-Offs The key here is making an informed trade-off—you may trigger a tax bill today by selling your current holdings, but if you're in it for the long haul, moving to a better portfolio consisting of all index ETFs should make up for that tax cost. The real question to ask yourself when looking to move your investments to Betterment is: How long do I intend to hold this investment for? If you’re a short-term investor and plan to hold assets for a couple of years, or less, there's not much to gain from transitioning to a more efficient portfolio (although it should be noted that under this scenario, you'll realize the capital gains very soon in any case.) And as a general rule, you should only consider moving appreciated investments that you've held for more than a year in order to qualify for long-term capital gains on liquidation. If your investments have not appreciated since you bought them, or if they are held in an IRA or 401(k), you can generally transition them tax-free.1 Tax Cost vs. Excessive Fees The process by which we pay tax versus fees on our investments subtly biases us to overestimate the impact of taxes, and underestimate the impact of fees. Fees are generally taken out of returns before they ever hit our accounts—it's money we never even see. Tax on realized capital gains is assessed for an entire year, and results in a clear and visible liability, paid out of funds that are already in your possession. It's no wonder that irrational tax aversion is a well-documented, widespread phenomenon, whereas millions of people unwittingly go on paying unnecessarily high fees year after year. Your key decision boils down to comparing the long-term benefit of switching to a potentially better investment and paying more upfront tax, versus staying put in a portfolio of less optimal investments with higher expenses (that might also be a drain on your time, which is worth something). It's also important to keep in mind that unless you gift or bequeath your portfolio, you will one day pay tax on these built-in gains. Tax deferral is worth something, but how much? The 3 Key Financial Drivers to Consider 1. You could be invested in better assets. Take a hard look at your investor returns in your current investments. Could they be better? If you’re invested in actively managed funds, you may be losing, on average, 1.01% in returns, compared to an all index-fund portfolio, research shows. Betterment’s portfolio is made up entirely of index-tracking ETFs. 2. Automation and good behavior drive returns. We automatically take care of maintaining your investments for you—including rebalancing, dividend reinvestment, diversifying, tax efficiency, free trades and more. If you’re handling your own investments, consider what you're missing (and also how you're spending your time.) We perform automatic, regular rebalancing, which is expected to add 0.4% to returns, on average; a global, diversified portfolio is expected to add 1.44% in returns as compared to a basic two-fund portfolio and the average Betterment customer has enjoyed a behavior gap that's narrower by 1.25% as compared to the average investor. All told, including the demonstrated benefit of index funds—these advantages are expected to contribute to returns over the long run. 3. If you're paying what a typical mutual fund charges, you could be paying much less in fees. The average expense ratio for a hybrid (stock and bond) mutual fund is 0.79%.2. Betterment’s underlying ETF portfolios have an average expense ratio of 0.06% to 0.17%, depending on your allocation. Note that the range is subject to change depending on current fund prices. Our management fee is either .25% or .40%, depending on your plan. Your all-in cost at Betterment is between 0.31% and 0.57%. As smart investors know, every basis point matters.3 Taxes are a cost, but generally a cost you'll eventually pay anyway. Meanwhile, the cost of being in a sub-optimal investment over the years can far outweigh any benefit of tax deferral. Need a second opinion? If you’re still not sure if transferring your taxable portfolio is worth the upfront costs, we can weigh in. If your taxable portfolio holds more than $250,000 in assets, stop stressing and simply reach out to our licensed transfer specialists at concierge@betterment.com. The team can review the specifics of your portfolio and provide you with a recommendation on how to best move—or not move—your assets to Betterment. 1 The discussion here only applies to taxable investment accounts. All types of IRAs (traditional and Roth) and 401(k)s don’t typically trigger taxes when rolling over from one provider to another. (An exception is converting from a traditional IRA to a Roth, which will trigger taxes. However, there are smart ways to lower these, too.) 2 2021 Investment Company Fact Book 3 We've updated our pricing structure since this article was published. Learn more at betterment.com/pricing.

9 Tax Planning Moves to Consider Before 2021 Ends Oct 27, 2021 12:00:00 AM As we approach the end of the year, keep in mind year-end financial opportunities, especially tax-smart moves that could help you keep more of what you’ve earned. As we approach the end of the year, many people think about the holidays and year-end family gatherings. While I enjoy seeing my family and eating peanut butter sugar cookies, I also try to keep in mind all of my year-end financial opportunities—especially those that could shape my taxes for 2022. While your December may be bustling with merriment, consider the numerous actions you can take to help make your experience of filing taxes a little sweeter—and the amount you take home after taxes potentially a little higher. Turn on Tax Loss Harvesting+ by Dec. 30. In 2021, stock and bond markets have seen both ups and downs. These fluctuations are part of the pursuit for potential higher long-term returns. When assets fall in value, Betterment can take advantage of it by capturing losses that you may be able to use against gains on other investments (or offset $3,000 in other income). Tax Loss Harvesting+ is a one-time decision for you to turn on and Betterment takes care of the rest. Even if you do not use all the losses currently, no worries, you can carry them forward into future years. See if TLH+ is right for you. Make a 2021 IRA contribution by Dec. 30. Saving in an IRA can be a powerful way to help meet your retirement goals. These tax-advantaged accounts can potentially provide a tax deduction (Traditional IRA) or tax-free withdrawals (Roth IRA). The 2021 IRA contribution deadline is April 15, 2022, but maxing out by the end of 2021 will help you start making 2022 IRA contributions right after the new year. For 2021, contribution limits for IRAs are $6,000 if you’re under age 50, and $7,000 if you’re over 50. Max out your 2021 IRA here. Donate to charity—ideally, your appreciated shares. If you’re like me, you’ve come to realize giving can mean more than receiving. Charitable giving is one approach to supporting your community and our broader society. It’s also a way to optimize your taxes. We at Betterment suggest that a tax-smart way to make charitable donations is by giving away appreciated investments, rather than cash. We help you do this by automatically identifying the most appreciated long-term investments and partnering with charities you can donate to. This strategy allows you to avoid capital gains taxes and potentially deduct more on your taxes. To have deductions that count, you’d have to itemize your deductions above the standard deduction (which is $12,550 for individuals), so you may want to consider “bunching” a couple years’ worth of charitable contributions. Start a donation here. IRA’s Required Minimum Distributions (RMDs). IRS rules require that traditional IRA owners start withdrawing a certain portion of their account every year once they attain age 72. If the distribution is not taken by the deadline, the IRS imposes a 50% penalty on any shortfall. If the deadline is missed, the withdrawal still needs to be taken and the regular taxes still need to be paid. For some high income individuals, the penalty plus the taxes could exceed the required distribution. If you are not sure what your RMD is for 2021, you can review your 2020 Form 5498 or FMV statement if you had a December 31, 2020 account balance. You can find your Betterment tax statements here. Adjust your last 401(k) contributions to max out for the year. IRAs are great savings vehicles, but your 401(k) can be an even more powerful tool in enhancing retirement security as 401(k) plans have substantially higher contribution limits. For 2021, the 401(k) contribution limit is $19,500 with a catch up contribution limit of an additional $6,500 for individuals age 50 and up. These limits apply on a combined basis for the Traditional and Roth 401(k). Consider seizing on the opportunity to maximize these contributions by increasing your 401(k) payroll percentage today. You may need to speak to your payroll department to make the change. If your company’s 401(k) is managed by Betterment, max out your 401(k) here. Review withholding for remaining 2021 paychecks. Taxpayers have to meet certain withholding requirements to avoid paying a penalty for underpaying on taxes during the year. You may want to consider doing a tax projection for all of your income and withholding for 2021 before the year ends. You can check yourself using the IRS’ official withholdings calculator. If you are not expecting to meet the safe harbor requirements, you may want to increase your withholding at your job by adjusting your W-4 election for your remaining 2021 paychecks. Convert your Traditional IRA into a Roth IRA in 2021. Did you know there is no income limit for converting a traditional IRA into a Roth IRA? 2021 might be the year to do it. While it’s not the right choice for every person, you may have one of these compelling reasons to do so: Capturing the benefit of tax rates that are lower due to 2017 tax legislation. Being in a lower bracket than normal due to retirement or low income year. Gaining the benefits of tax-free income in retirement or for a beneficiary. Capture the benefit of an unused AMT (alternative minimum tax) credit carryover. Capture the benefit of a NOL (net operating loss) carryover. The taxable portion of the conversion may be lower due to after-tax contributions made previously. Remember, Roth conversions are permanent, so you should be certain about the decision before making a change. You can discuss the complicated choice of making a Roth conversion in a retirement planning advice package with one of our licensed professionals. Think twice about selling a large taxable investment or making a big portfolio allocation change. The bull market for the last 10 years has left some investors with enviable gains on their investments. However, any substantial appreciation does come with significant tax risks upon a withdrawal or a significant rebalancing. Capital gains are realized and can increase your tax liability. Some investors may have losses to offset the gains while others may be forced to pay taxes currently. While Betterment’s tax-smart technology sells the most tax-efficient investments first on partial withdrawals, if you remove an entire balance, all of your gains will be taxable income. Before you pull the trigger on an investment sale, consider if you need your invested money now or if you can draw down a balance over time. Even spreading withdrawals over multiple tax years could be more advantageous in terms of taxes. Capture the benefit of 0% long-term gains tax rates. If you have an income below $40,400 (single) or $80,800 (married filing jointly) for the year, you may benefit from the 0% long term capital gains tax rate. This means that you can sell capital gains (held more than one year) for any amount less than the gap between your regular income and those limits without getting taxed by the IRS. However, you should know that using this tax advantage could impact other positive tax moves, like qualifying for the Retirement Savings Contribution Credit (which has similarly low income limits). Also, most state taxes will still tax your long-term gains. Additional rules apply, so this move may be one to talk over with a qualified tax professional.

4 Ways Betterment Can Help Limit the Tax Impact Of Your Investments Oct 22, 2021 5:45:00 PM Betterment has a variety of processes in place to help limit the impact of your investments on your tax bill, depending on your situation. Let’s demystify these powerful strategies. In the US, approximately 33% of households have a taxable investment account—often referred to as a brokerage account—and approximately 50% of households also have at least one retirement account, like an IRA or an employer-sponsored retirement account. We know that the medley of account types can make it challenging for you to decide which account to contribute to or withdraw from at any given time. Let’s dive right in to get a further understanding of: What accounts are available and why you might choose them. The benefits of receiving dividends. Betterment’s powerful tax-sensitive features. How Are Different Investment Accounts Taxed? Taxable Accounts Taxable investment accounts are typically the easiest to set up and have the least amount of restrictions. Although you can easily contribute and withdraw at any time from the account, there are trade-offs. A taxable account is funded with after-tax dollars, and any capital gains you incur by selling assets, as well as any dividends you receive, are taxable on an annual basis.  While there is no deferral of income like in a retirement plan, there are special tax benefits only available in taxable accounts such as reduced rates on long-term gains, qualified dividends, and municipal bond income. Key Considerations  You would like the option to withdraw at any time with no IRS penalties. You already contributed the maximum amount to all tax-advantaged retirement accounts. Traditional Accounts Traditional accounts include Traditional IRAs, Traditional 401(k)s, Traditional 403(b)s, Traditional 457 Governmental Plans, and Traditional Thrift Savings Plans (TSPs). Traditional investment accounts for retirement are generally funded with pre-tax dollars. The investment income received is deferred until the time of distribution from the plan. Assuming all the contributions are funded with pre-tax dollars, the distributions are fully taxable as ordinary income. For investors under age 59.5, there may be an additional 10% early withdrawal penalty unless an exemption applies. Key Considerations  You expect your tax rate to be lower in retirement than it is now. You recognize and accept the possibility of an early withdrawal penalty. Roth Accounts Includes Roth IRAs, Roth 401(k)s, Roth 403(b)s, Roth 457 Governmental Plans, and Roth Thrift Saving Plans (TSPs) Roth type investment accounts for retirement are always funded with after-tax dollars. Qualified distributions are tax-free. For investors under age 59.5, there may be ordinary income taxes on earnings and an additional 10% early withdrawal penalty on the earnings unless an exemption applies. Key Considerations You expect your tax rate to be higher in retirement than it is right now. You expect your modified adjusted gross income (AGI) to be below $140k (or $208k filing jointly). You desire the option to withdraw contributions without being taxed. You recognize the possibility of a penalty on earnings withdrawn early. Beyond account type decisions, we also use your dividends to keep your tax impact as small as possible. Four Strategies Betterment Uses To Help You Limit Your Tax Impact 1. We use any additional cash to rebalance your portfolio. When your account receives any cash—whether through a dividend or deposit—we automatically identify how to use the money to help you get back to your target weighting for each asset class. Dividends are your portion of a company’s earnings. Not all companies pay dividends, but as a Betterment investor, you almost always receive some because your money is invested across thousands of companies in the world. Your dividends are an essential ingredient in our tax-efficient rebalancing process. When you receive a dividend into your Betterment account, you are not only making money as an investor—your portfolio is also getting a quick micro-rebalance that helps keep your tax bill down at the end of the year. And, when market movements cause your portfolio’s actual allocation to drift away from your target allocation, we automatically use any incoming dividends or deposits to buy more shares of the lagging part of your portfolio. This helps to get the portfolio back to its target asset allocation without having to sell off shares. This is a sophisticated financial planning technique that traditionally has only been available to larger accounts, but our automation makes it possible to do it with any size account. Beyond dividends, Betterment also has a number of features to help you optimize for taxes. Let’s demystify these three powerful strategies. Performance of S&P 500 With Dividends Reinvested Source: Bloomberg. Performance is provided for illustrative purposes to represent broad market returns for the U.S. Stock Market. The performance is not attributable to any actual Betterment portfolio nor does it reflect any specific Betterment performance. As such, it is not net of any management fees. The performance of specific U.S. Stock Market funds in the Betterment portfolio will differ from the performance of the broad market returns reflected here. 2. Tax loss harvesting. Tax loss harvesting can lower your tax bill by “harvesting” investment losses for tax reporting purposes while keeping you fully invested. When selling an investment that has increased in value, you will owe taxes on the gains, known as capital gains tax. Fortunately, the tax code considers your gains and losses across all your investments together when assessing capital gains tax, which means that any losses (even in other investments) will reduce your gains and your tax bill. In fact, if losses outpace gains in a tax year you can eliminate your capital gains bill entirely. Any losses leftover can be used to reduce your taxable income by up to $3,000. Finally, any losses not used in the current tax year can be carried over indefinitely to reduce capital gains and taxable income in subsequent years. How do I do it? When an investment drops below its initial value—something that is very likely to happen to even the best investment at some point during your investment horizon—you sell that investment to realize a loss for tax purposes and buy a related investment to maintain your market exposure. Ideally, you would buy back the same investment you just sold. After all, you still think it’s a good investment. However, IRS rules prevent you from recognizing the tax loss if you buy back the same investment within 30 days of the sale. So, in order to keep your overall investment exposure, you buy a related but different investment. Think of selling Coke stock and then buying Pepsi stock. Overall, tax loss harvesting can help lower your tax bill by recognizing losses while keeping your overall market exposure. At Betterment, all you have to do is turn on Tax Loss Harvesting+ in your account. 3. Asset location. Asset location is a strategy where you put your most tax-inefficient investments (usually bonds) into a tax-efficient account (IRA or 401k) while maintaining your overall portfolio mix. For example, an investor may be saving for retirement in both an IRA and taxable account and has an overall portfolio mix of 60% stocks and 40% bonds. Instead of holding a 60/40 mix in both accounts, an investor using an asset location strategy would put tax-inefficient bonds in the IRA and put more tax-efficient stocks in the taxable account. In doing so, interest income from bonds—which is normally treated as ordinary income and subject to a higher tax rate—is shielded from taxes in the IRA. Meanwhile, qualified dividends from stocks in the taxable account are taxed at a lower rate, capital gains tax rates instead of ordinary income tax rates. The entire portfolio still maintains the 60/40 mix, but the underlying accounts have moved assets between each other to lower the portfolio’s tax burden. Here’s what asset location looks like in action: 4. We use ETFs instead of mutual funds. Have you ever paid capital gain taxes on a mutual fund that was down over the year? This frustrating situation happens when the fund sells investments inside the fund for a gain, even if the overall fund lost value. IRS rules mandate that the tax on these gains is passed through to the end investor, you. While the same rule applies to exchange traded funds (ETFs), the ETF fund structure makes such tax bills much less likely. In fact, most of the largest stock ETFs have not passed through any capital gains in over 10 years. In most cases, you can find ETFs with investment strategies that are similar or identical to a mutual fund, often with lower fees. We go the extra mile for your money. Following these four strategies can help eliminate or reduce your tax bill, depending on your situation. At Betterment, we’ve automated these and other tax strategies, which means tax loss harvesting and asset location are as easy as clicking a button to enable it. We do the work, and your wallet can stay a little fuller. Learn more about how Betterment helps you maximize your after-tax returns.

You Can Now Skip Individual Recurring Deposits Oct 8, 2021 12:00:00 AM Managing your Betterment auto-deposits just got easier. Now you can skip any individual auto-deposit in just a few easy steps. It gives me great joy to announce that you can now skip any individual recurring deposit before it happens. You can now skip any recurring deposit you’ve set up before it happens from a link in the email sent before your recurring deposit occurs. We’ve heard scenarios like this many times: I have an unusually high credit card bill I want to pay off (rather than save). I need to put a deposit down on my kids’ school tuition and need to skip this month. I need to pay taxes but otherwise want to continue saving regularly. Until today, if you had set up a recurring deposit with Betterment and didn’t want it to proceed, you needed to turn off your recurring deposit completely. This not only meant you needed to remember to come back and turn it on later, it also meant your plan would (incorrectly) be off track simply because you don’t want to save for one deposit. One of the cardinal rules of behavioral finance is never make someone make more decisions than necessary. If clients want to skip just one deposit, they should be able to do it. So from now on, you can skip any individual recurring deposit, so long as it is before 4 PM EST on the scheduled deposit date. How To Skip An Individual Deposit There are two places you can go to skip a recurring deposit. First, Betterment sends you an email a day before your scheduled recurring deposit takes place. In this email, you’ll find a link directly taking you to Betterment’s site where you can skip your upcoming deposit. Just click on it, sign in, and confirm. Second, you can see all pending recurring deposits on the “Transfer” tab of your Betterment homepage. So long as it is before 4PM EST on the deposit initiation date, you will have the option to hit the “skip” button on the right. Then, you'll see: Too many skips can knock you off track. For the vast majority of goals, missing one deposit won’t be enough to knock you off track. Our advice will automatically update to consider your new balance and the skipped deposit, and may slightly increase the recommendation for remaining recurring deposits (as you’d expect). But it is possible that skipping many recurring deposits will reduce the confidence that you’ll reach your target balance on the target date. However, you can always defer the goal a bit in order to make up for your current circumstances.

Betterment Raises $160 Million in Growth Capital Sep 29, 2021 12:00:00 AM Today, we're announcing that Betterment has secured $160 million in growth capital comprised of a $60 million Series F equity round and a $100 million credit facility. This moment comes as Betterment is the largest independent digital investment advisor with $32 billion in assets under management and nearly 700,000 clients. The Series F round was led by Treasury, with participation from existing investors, including Kinnevik, Bessemer Venture Partners, Francisco Partners, Menlo Ventures, Anthemis Group, Globespan Capital Partners, Citi Ventures, and The Private Shares Fund, as well as new investors Aflac Ventures and ID8 Investments. The financing valued the company at nearly $1.3 billion. The $100 million credit facility was established with ORIX Corporation USA’s Growth Capital group and Runway Growth Capital. ORIX’s Growth Capital group acted as lead arranger and agent. The additional funding will be used to accelerate the record growth Betterment has delivered year-to-date across its core retail investment products and advisor solutions, and particularly its rapidly growing 401(k) offering for small and medium sized businesses. “From day one, Betterment’s mission has been to make people’s lives better with easy-to-use, personalized investment solutions. The record growth and demand for Betterment products and services proves how well we deliver,” said Sarah Levy, Betterment's CEO. “We are thrilled to have the support of new and existing investors who believe in our business model and are excited by the opportunity to support our growth. We’re using these funds to further cement our category leadership with rapid innovation on top of our already differentiated product suite and unique, multi-pronged distribution model that serves retail investors, advisors and small businesses.” “I’ve seen first hand the strength of Betterment’s business model since its founding over a decade ago,” said Eli Broverman, a co-founder of Betterment and a founder of Treasury. “I believe in Betterment’s team and vision, and we are thrilled to support the company’s future success.” To all of our customers, we couldn't have achieved this without you. Thank you!

Tax Loss Harvesting+ Methodology Sep 7, 2021 2:19:00 AM Tax loss harvesting is a sophisticated technique to get more value from your investments—but doing it well requires expertise. TABLE OF CONTENTS Navigating the Wash Sale Rule The Betterment Solution TLH+ Model Calibration TLH+ Results Best Practices for TLH+ Conclusion Disclosure Tax loss harvesting is a sophisticated technique to help you get more value from your investments—but doing it well requires expertise. There are many ways to get your investments to work harder for you—better diversification, downside risk management, and the right mix of asset classes for your risk level. Betterment does all of this automatically via its low-cost index fund ETF portfolio. But there is another way to get even more out of your portfolio—using investment losses to improve your after-tax returns with a method called tax loss harvesting. In this white paper, we introduce Betterment’s Tax Loss Harvesting+™ (TLH+™): a sophisticated, fully automated service for Betterment customers. Betterment’s TLH+ service scans portfolios regularly for opportunities (temporary dips that result from market volatility) to realize losses which can be valuable come tax time. While the concept of tax loss harvesting is not new for wealthy investors, TLH+ utilizes a number of innovations that typical implementations may lack. It takes a holistic approach to tax-efficiency, seeking to optimize every user-initiated transaction in addition to adding value through automated activity, such as rebalances. TLH+ not only improves on this powerful tax-saving strategy, but also makes tax loss harvesting available to more investors than ever before. What is tax loss harvesting? Capital losses can lower your tax bill by offsetting gains, but the only way to realize a loss is to sell the depreciated asset. However, in a well-allocated portfolio, each asset plays an essential role in providing a piece of total market exposure. For that reason, an investor should not want to give up the expected returns associated with each asset just to realize a loss. At its most basic level, tax loss harvesting is selling a security that has experienced a loss—and then buying a correlated asset (i.e. one that provides similar exposure) to replace it. The strategy has two benefits: it allows the investor to “harvest” a valuable loss, and it keeps the portfolio balanced at the desired allocation. How does it lower your tax bill? Capital losses can be used to offset capital gains you’ve realized in other transactions over the course of a year—gains on which you would otherwise owe tax. Then, if there are losses left over (or if there were no gains to offset), you can offset up to $3,000 of ordinary income for the year. If any losses still remain, they can be carried forward indefinitely. Tax loss harvesting is primarily a tax deferral strategy, and its benefit depends entirely on individual circumstances. Over the long run, it can add value through some combination of these distinct benefits that it seeks to provide: Tax deferral: Losses harvested can be used to offset unavoidable gains in the portfolio, or capital gains elsewhere (e.g., from selling real estate), deferring the tax owed. Savings that are invested may grow,  assuming a conservative growth rate of 5% over a 10-year period, a dollar of tax deferred would be worth $1.63. Even after belatedly parting with the dollar, and paying tax on the $0.63 of growth, you’re ahead. Pushing capital gains into a lower tax rate: If you’ve realized short-term capital gains (STCG) this year, they’ll generally be taxed at your highest rate. However, if you’ve harvested losses to offset them, the corresponding gain you owe in the future could be long-term capital gain (LTCG). You’ve effectively turned a gain that would have been taxed up to 50% today into a gain that will be taxed more lightly in the future (up to 30%). Converting ordinary income into long-term capital gains: A variation on the above: offsetting up to $3,000 from your ordinary income shields that amount from your top marginal rate, but the offsetting future gain will likely be taxed at the LTCG rate. Permanent tax avoidance in certain circumstances: Tax loss harvesting provides benefits now in exchange for increasing built-in gains, subject to tax later. However, under certain circumstances (charitable donation, bequest to heirs), these gains may avoid taxation entirely. Navigating the Wash Sale Rule Summary: Wash sale rule management is at the core of any tax loss harvesting strategy. Unsophisticated approaches can detract from the value of the harvest or place constraints on customer cash flows in order to function. If all it takes to realize a loss is to sell a security, it would seem that maintaining your asset allocation is as simple as immediately repurchasing it. However, the IRS limits a taxpayer’s ability to deduct a loss when it deems the transaction to have been without substance. At a high level, the so-called “wash sale rule” disallows a loss from selling a security if a “substantially identical” security is purchased 30 days after or before the sale. The rationale is that a taxpayer should not enjoy the benefit of deducting a loss if he did not truly dispose of the security. The wash sale rule applies not just to situations when a “substantially identical” purchase is made in the same account, but also when the purchase is made in the individual’s IRA/401(k) account, or even in a spouse’s account. This broad application of the wash sale rule seeks to ensure that investors cannot utilize nominally different accounts to maintain their ownership, and still benefit from the loss. A wash sale involving an IRA/401(k) account is particularly unfavorable. Generally, a “washed” loss is postponed until the replacement is sold, but if the replacement is purchased in an IRA/401(k) account, the loss is permanently disallowed. If not managed correctly, wash sales can undermine tax loss harvesting. Handling proceeds from the harvest is not the sole concern—any deposits made in the following 30 days (whether into the same account, or into the individual’s IRA/401(k)) also need to be allocated with care. Avoiding the wash The simplest way to avoid triggering a wash sale is to avoid purchasing any security at all for the 30 days following the harvest, keeping the proceeds (and any inflows during that period) in cash. This approach, however, would systematically keep a portion of the portfolio out of the market. Over the long term, this “cash drag” could hurt the portfolio’s performance. More advanced strategies repurchase an asset with similar exposure to the harvested security that is not “substantially identical” for purposes of the wash sale rule. In the case of an individual stock, it is clear that repurchasing stock of that same company would violate the rule. Less clear is the treatment of two index funds from different issuers (e.g., Vanguard and Schwab) that track the same index. While the IRS has not issued any guidance to suggest that such two funds are “substantially identical,” a more conservative approach when dealing with an index fund portfolio would be to repurchase a fund whose performance correlates closely with that of the harvested fund, but tracks a different index.¹ Selecting a viable replacement security, however, is just one piece of the accounting and optimization puzzle. Manually implementing a tax loss harvesting strategy is feasible with a handful of securities, little to no cash flows, and infrequent harvests. However, assets will often dip in value but recover by the end of the year, so annual strategies leave many losses on the table. The wash sale management and tax lot accounting necessary to support more frequent (and thus more effective) harvesting quickly become overwhelming in a multi-asset portfolio—especially with regular deposits, dividends, and rebalancing. Software is ideally suited for this complex task. But automation, while necessary, is not sufficient. The problem can get so complex that basic tax loss harvesting algorithms may choose to keep new deposits and dividends in cash for the 30 days following a harvest, rather than tackle the challenge of always maintaining full exposure at the desired allocation. An effective loss harvesting algorithm should be able to maximize harvesting opportunities across a full range of volatility scenarios, without sacrificing the investor’s precisely tuned global asset allocation. It should reinvest harvest proceeds into closely correlated alternate assets, all while handling unforeseen cash inflows from the investor without ever resorting to cash positions. It should also be able to monitor each tax lot individually, harvesting individual lots at an opportune time, which may depend on the volatility of the asset. And most of all, it should do everything to avoid leaving a taxpayer worse off. TLH+ was created because no available implementations seemed to solve all of these problems. Existing strategies and their limitations Every tax loss harvesting strategy shares the same basic goal: to maximize a portfolio’s after-tax returns by realizing built-in losses while minimizing the negative impact of wash sales. Approaches to tax loss harvesting differ primarily in how they handle the proceeds of the harvest to avoid a wash sale. Below are the three strategies commonly employed by manual and algorithmic implementations. After selling a security that has experienced a loss, existing strategies would likely have you… Existing strategy Problem Delay reinvesting the proceeds of a harvest for 30 days, thereby ensuring that the repurchase will not trigger a wash sale. While it’s the easiest method to implement, it has a major drawback: no market exposure—also called cash drag. Cash drag hurts portfolio returns over the long term, and could offset any potential benefit from tax loss harvesting. Reallocate the cash into one or more entirely different asset classes in the portfolio. This method throws off an investor’s desired asset allocation. Additionally, such purchases may block other harvests over the next 30 days by setting up potential wash sales in those other asset classes. Switch back to original security after 30 days from the replacement security. Common manual approach, also used by some automated investing services. A switchback can trigger short-term capital gains when selling the replacement security, reducing the tax benefit of the harvest. Even worse, this strategy can leave an investor owing more tax than if it did nothing. The hazards of switchbacks In the 30 days leading up to the switchback, two things can happen: the replacement security can drop further, or go up. If it goes down, the switchback will realize an additional loss. However, if it goes up, which is what any asset with a positive expected return is expected to do over any given period, the switchback will realize short-term capital gains (STCG)—kryptonite to a tax-efficient portfolio management strategy. To be sure, the harvested loss should offset all (or at least some) of this subsequent gain, but it is easy to see that the result is a lower-yielding harvest. Like a faulty valve, this mechanism pumps out tax benefit, only to let some of it leak back. An algorithm that expects to switch back unconditionally must deal with the possibility that the resulting gain could exceed the harvested loss, leaving the taxpayer worse off. An attempt to mitigate this risk could be setting a higher threshold based on volatility of the asset class—only harvesting when the loss is so deep, that the asset is unlikely to entirely recover in 30 days. Of course, there is still no guarantee that it will not, and the price paid for this buffer is that your lower-yielding harvests will also be less frequent than they could be with a more sophisticated strategy. Examples of negative tax arbitrage Let’s look at how an automatic 30-day switchback can destroy the value of the harvested loss, and even increase tax owed, rather than reduce it. Below is actual performance for Emerging Markets—a relatively volatile asset class that’s expected to offer some of the biggest harvesting opportunities in a global portfolio. We assume a position in VWO, purchased prior to January 1, 2013. With no harvesting, it would have looked like this: No Tax Loss Harvesting Emerging Markets, 1/2/2014 – 5/21/2014 See visual of No Tax Loss Harvesting A substantial drop in February presented an excellent opportunity to sell the entire position and harvest a $331 long-term loss. The proceeds were re-invested into IEMG, a highly correlated replacement (tracking a different index). By March, however, the dip proved temporary, and 30 days after the sale, the asset class more than recovered. The switchback sale results in STCG in excess of the loss that was harvested, and actually leaves the investor owing tax, whereas without the harvest, he would have owed nothing. TLH with 30-day Switchbacks Emerging Markets, 1/2/2014 - 5/21/2014 See TLH with 30-day Switchbacks visual Under certain circumstances, it can get even worse. Due to a technical nuance in the way gains and losses are netted, the 30-day switchback can result in negative tax arbitrage, by effectively pushing existing gains into a higher tax rate. When adding up gains and losses for the year, the rules require netting of like against like first. If any long-term capital gain (LTCG) is present for the year, you must net a long-term capital loss (LTCL) against that first, and only then against any STCG. In the scenario above, the harvested $331 LTCL was used to offset the $360 STCG from the switchback; long can be used to offset short, if we assume no LTCG for the year. Negative tax arbitrage when unrelated long-term gains are present Now let’s assume that in addition to the transactions above, the taxpayer also realized a LTCG of exactly $331 (from selling some other, unrelated asset). If no harvest takes place, the investor will owe tax on $331 at the lower LTCG rate. However, if you add the harvest and switchback trades, the rules now require that the harvested $331 LTCL is applied first against the unrelated $331 LTCG. The harvested LTCL gets used up entirely, exposing the entire $360 STCG from the switchback as taxable. Instead of sheltering the highly taxed gain on the switchback, the harvested loss got used up sheltering a lower-taxed gain, creating far greater tax liability than if no harvest had taken place. Tax Strategy STCG Realized LTCG Realized Taxes Owed No TLH $0 $331 $109 TLH with 30-day switchbacks $360 ($331-$331) $0 net $187 Tax Strategy STCG Realized LTCG Realized Taxes Owed No TLH $0 $331 $109 TLH with 30-day switchbacks $360 ($331-$331) $0 net $187 In the presence of unrelated transactions, unsophisticated harvesting can effectively convert existing LTCG into STCG. Some investors regularly generate significant LTCG (for instance, by gradually diversifying out of a highly appreciated position in a single stock). It’s these investors, in fact, who would benefit the most from effective tax loss harvesting. However, if their portfolios are harvested with unconditional 30-day switchbacks over the years, it’s not a question of “if” the switchbacks will convert some LTCG into STCG, but “when” and “how much.” Negative tax arbitrage with dividends Yet another instance of negative tax arbitrage can result in connection with dividend payments. If certain conditions are met, some ETF distributions are treated as “qualified dividends”, taxed at lower rates. One condition is holding the security for more than 60 days. If the dividend is paid while the position is in the replacement security, it will not get this favorable treatment: under a rigid 30-day switchback, the condition can never be met. As a result, up to 20% of the dividend is lost to tax (the difference between the higher and lower rate). The Betterment Solution Summary: Betterment believes TLH+ can substantially improve upon existing strategies by managing parallel positions within each asset class indefinitely, as tax considerations dictate. It approaches tax-efficiency holistically, seeking to optimize every transaction, including customer activity. The fundamental advance of Betterment’s TLH+ is that tax-optimal decision making should not be limited to the harvest itself—the algorithm should remain vigilant with respect to every transaction. An unconditional 30-day switchback, whatever the cost, is plainly suboptimal, and could even leave the investor owing more tax that year—unacceptable for an automated strategy that seeks to lower tax liability. Intelligently managing a bifurcated asset class following the harvest is every bit as crucial to maximizing tax alpha as the harvest itself. The innovations TLH+ seeks to deliver, include: No exposure to short-term capital gains in an attempt to harvest losses. Through our proprietary Parallel Position Management system, a dual-security asset class approach enforces preference for one security without needlessly triggering capital gains in an attempt to harvest losses, all without putting constraints on customer cash flows. No negative tax arbitrage traps associated with less sophisticated harvesting strategies (e.g., 30-day switchback), making TLH+ especially suited for those generating large long-term capital gains on an ongoing basis. Zero cash drag at all times. With fractional shares and seamless handling of all inflows during wash sale windows, every dollar is invested at the desired allocation risk level. Dynamic trigger thresholds for each asset-class, ensuring that both high- and low-volatility assets can be harvested at an opportune time to increase the chances of large tax offsets. Tax loss preservation logic extended to user-realized losses, not just harvested losses, automatically protecting both from the wash sale rule. In short, user withdrawals always sell any losses first. No disallowed losses through overlap with a Betterment IRA/401(k). We use a tertiary ticker system to eliminate the possibility of permanently disallowed losses triggered by subsequent IRA/401(k) activity.² This makes TLH+ ideal for those who invest in both taxable and tax-advantaged accounts. Harvests also take the opportunity to rebalance across all asset classes, rather than re-invest solely within the same asset class. This further reduces the need to rebalance during volatile stretches, which means fewer realized gains, and higher tax alpha. Through these innovations, TLH+ creates significant value over manually-serviced or less sophisticated algorithmic implementations. TLH+ is accessible to investors —fully automated, effective, and at no additional cost. Parallel securities To ensure that each asset class is supported by optimal securities in both primary and alternate positions, we screened by expense ratio, liquidity (bid-ask spread), tracking error vs. benchmark, and most importantly, covariance of the alternate with the primary.³ While there are small cost differences between the primary and alternate securities, the cost of negative tax arbitrage from tax-agnostic switching vastly outweighs the cost of maintaining a dual position within an asset class. For a 70% stock portfolio composed only of primary securities, the average underlying expense ratio is 0.075%. If each asset class consisted of a 50/50 split between primary and alternate, that cost would be 0.090%—a difference of less than two basis points. Of the 13 asset classes in Betterment’s core taxable portfolio, nine were assigned alternate tickers. Short-term Treasuries (GBIL),Inflation-protected Bonds (VTIP), U.S. Short-term Investment Grade Bonds (JPST), U.S. High Quality Bonds (AGG), and International Developed Bonds (BNDX)  are insufficiently volatile to be viable harvesting candidates. Take a look at the primary and alternate securities in the Betterment portfolio. Additionally, TLH+ features a special mechanism for coordination with IRAs/401(k)s that required us to pick a third security in each harvestable asset class (except in municipal bonds, which are not in the IRA/401(k) portfolio). While these have a higher cost than the primary and alternate, they are not expected to be utilized often, and even then, for short durations (more below in IRA/401(k) protection). Parallel Position Management As demonstrated, the unconditional 30-day switchback to the primary security is problematic for a number of reasons. To fix those problems, we engineered a platform to support TLH+, which seeks to tax-optimize every user and system-initiated transaction: the Parallel Position Management (PPM) system. PPM allows each asset class to be comprised of two closely correlated securities indefinitely, should that result in a better after-tax outcome. Here’s how a portfolio with PPM looks to a Betterment customer. PPM provides several improvements over the switchback strategy. First, unnecessary gains are minimized if not totally avoided. Second, the parallel security (could be primary or alternate) serves as a safe harbor to minimize wash sales—not just from harvest proceeds, but any cash inflows. Third, the mechanism seeks to protect not just harvested losses, but losses realized by the customer as well. PPM not only facilitates effective opportunities for tax loss harvesting, but also extends maximum tax-efficiency to customer-initiated transactions. Every customer withdrawal is a potential harvest (losses are sold first). And every customer deposit and dividend is routed to the parallel position that would minimize wash sales, while shoring up the target allocation. PPM has a preference for the primary security when rebalancing and for all cash flow events—but always subject to tax considerations. This is how PPM behaves under various conditions: Transaction PPM behavior Withdrawals and sales from rebalancing Sales default out of the alternate position (if such a position exists), but not at the expense of triggering STCG—in that case, PPM will sell lots of the primary security first. Rebalancing will always stop short of realizing STCG. Taxable gains are minimized at every decision point—STCG tax lots are the last to be sold on a user withdrawal. Deposits, buys from rebalancing, and dividend reinvestments PPM directs inflows to underweight asset classes, and within each asset class, into the primary, unless doing so incurs greater wash sale costs than buying the alternate. Harvest events TLH+ harvests can come out of the primary into the alternate, or vice versa, depending on which harvest has a greater expected value. After an initial harvest, it could make sense at some point to harvest back into the primary, to harvest more of the remaining primary into the alternate, or to do nothing. Harvests that would cause more washed losses than gained losses are minimized if not totally avoided. PPM eliminates the negative tax arbitrage issues previously discussed, while leaving open significantly more flexibility to engage in harvesting opportunities. TLH+ is able to harvest more frequently, and can safely realize smaller losses, all without putting any constraints on user cash flows. Let’s return to the Emerging Markets example from above, demonstrating how TLH+ harvests the loss, but remains in the appreciated alternate position (IEMG), thereby avoiding STCG. Smarter Harvesting - Avoid the Switchback Emerging Markets, 1/2/2014 - 5/21/2014 See TLH Switchbacks visual Better wash sale management Managing cash flows across both taxable and IRA/401(k) accounts without needlessly washing realized losses is a complex problem. TLH+ operates without constraining the way that customers prefer contributing to their portfolios, and without resorting to cash positions. With the benefit of parallel positions, it weighs wash sale implications of every deposit and withdrawal and dividend reinvestment, and seeks to systematically choose the optimal investment strategy. This system protects not just harvested losses, but also losses realized through withdrawals. IRA/401(k) protection The wash sale rule applies when a “substantially identical” replacement is purchased in an IRA/401(k) account. Taxpayers must calculate such wash sales, but brokers are not required to report them. Even the largest ones leave this task to their customers.⁴ This is administratively complicated for taxpayers and leads to tax issues. At Betterment, we felt we could do more than the bare minimum. Being equipped to perform this calculation, we do it so that our customers don’t have to. Because IRA/401(k) wash sales are particularly unfavorable—the loss is disallowed permanently—TLH+ goes another step further, and seeks to ensure that no loss realized in the taxable account is washed by a subsequent deposit into a Betterment IRA/401(k). In doing so, TLH+ always maintains target allocation in the IRA/401(k), without cash drag. No harvesting is done in an IRA/401(k), so if it weren’t for the potential interaction with taxable transactions, there would be no need for IRA/401(k) alternate securities. However, on the day of an IRA/401(k) inflow, both the primary and the alternate security in the taxable account could have realized losses in the prior 30 days. Accordingly, each asset class supports a third correlated security (tracking a third index). The tertiary security is only utilized to hold IRA/401(k) deposits within the wash window temporarily. Let’s look at an example of how TLH+ handles a potentially disruptive IRA inflow when there are realized losses to protect, using real market data for the Developed Markets asset class. The customer starts with a position in VEA, the primary security, in both the taxable and IRA accounts. We then harvest a loss by selling the entire taxable position, and repurchase the alternate security, SCHF. Loss Harvested in VEA Two weeks pass, and the customer makes a withdrawal from the taxable account (the entire position, for simplicity), intending to fund the IRA. In those two weeks, the asset class dropped more, so the sale of SCHF also realizes a loss. The VEA position in the IRA remains unchanged. Customer Withdrawal Sells SCHF at a Loss A few days later, the customer contributes to his IRA, and $1,000 is allocated to the Developed Markets asset class, which already contains some VEA. Despite the fact that the customer no longer holds any VEA or SCHF in his taxable account, buying either one in the IRA would permanently wash a valuable realized loss. The Tertiary Ticker System automatically allocates the inflow into the third option for developed markets, IEFA. IRA Deposit into Tertiary Ticker Both losses have been preserved, and the customer now holds VEA and IEFA in his IRA, maintaining desired allocation at all times. Because no capital gains are realized in an IRA/401(k), there is no harm in switching out of the IEFA position and consolidating the entire asset class in VEA when there is no danger of a wash sale. The result: Customers using TLH+ who also have their IRA/401(k) assets with Betterment can know that Betterment will seek to protect valuable realized losses whenever they deposit into their IRA/401(k), whether it’s lump rollover, auto-deposits or even dividend reinvestments. Smart rebalancing Lastly, TLH+ directs the proceeds of every harvest to rebalance the entire portfolio, the same way that a Betterment account handles any incoming cash flow (deposit, dividend). Most of the cash is expected to stay in that asset class and be reinvested into the parallel asset, but some of it may not. Recognizing every harvest as a rebalancing opportunity further reduces the need for additional selling in times of volatility, further reducing tax liability. As always, fractional shares allow the inflows to be allocated with perfect precision. TLH+ Model Calibration Summary: To make harvesting decisions, TLH+ optimizes around multiple inputs, derived from rigorous Monte Carlo simulations. The decision to harvest is made when the benefit, net of cost, exceeds a certain threshold. The potential benefit of a harvest is discussed in detail below (“Results”). Unlike a 30-day switchback strategy, TLH+ does not incur the expected STCG cost of the switchback trade. Therefore, “cost” consists of three components: trading expense, execution expense, and increased cost of ownership for the replacement asset (if any). All trades are free for Betterment customers. TLH+ is engineered to factor in the other two components, configurable at the asset level, and the resulting cost approaches negligible. Bid-ask spreads for the bulk of harvestable assets are extremely narrow. Expense ratios for the major primary/alternate ETF pairs are extremely close, and in the case where a harvest back to the primary ticker is being evaluated, that difference is actually a benefit, not a cost. A harder cost to quantify could result from what can be thought of as an “overly itchy TLH trigger finger.” Without the STCG switchback limitation, even very small losses appear to be worth harvesting, but only in a vacuum. Harvesting a loss “too early” could mean passing up a bigger (temporary) loss—made unavailable due to wash sale constraints stemming from the first harvest. This is especially true for more volatile assets, where a static TLH trigger could mean that the asset is being harvested at a fraction of the benefit that could be achieved by harvesting just a few days later, after a larger decline. Optimizing the thresholds to maximize loss yield becomes a statistical problem, ripe for an exhaustive simulation. There are two general approaches to testing a model’s performance: historical backtesting and forward-looking simulation. Optimizing a system to deliver the best results for only past historical periods is relatively trivial, but doing so would be a classic instance of data snooping bias. The maturation of the global ETF market is a relatively recent phenomenon. Relying solely on a historical backtest of a portfolio composed of ETFs that allow for 10 to 20 years of reliable data when designing a system intended to provide 40 to 50 years of benefit would mean making a number of indefensible assumptions about general market behavior. The superset of decision variables driving TLH+ is beyond the scope of this paper—optimizing around these variables required exhaustive analysis. TLH+ was calibrated via Betterment’s rigorous Monte Carlo simulation framework, spinning up thousands of server instances in the cloud to run through tens of thousands of forward-looking scenarios testing model performance. Best Practices for TLH+ Summary: Tax loss harvesting can add some value for most investors, but high earners with a combination of long time horizons, ongoing realized gains, and plans for some charitable disposition will reap the largest benefits. This is a good point to reiterate that tax loss harvesting delivers value primarily due to tax deferral, not tax avoidance. A harvested loss can be beneficial in the current tax year to varying degrees, but harvesting that loss generally means creating an offsetting gain at some point in the future. If and when the portfolio is liquidated, the gain realized will be higher than if the harvest never took place. Let’s look at an example: Year 1: Buy asset A for $100. Year 2: Asset A drops to $90. Harvest $10 loss, repurchase similar Asset B for $90. Year 20: Asset B is worth $500 and is liquidated. Gains of $410 realized (sale price minus cost basis of $90) Had the harvest never happened, we’d be selling A with a basis of $100, and gains realized would only be $400 (assuming similar performance from the two correlated assets.) Harvesting the $10 loss allows us to offset some unrelated $10 gain today, but at a price of an offsetting $10 gain at some point in the future. The value of a harvest largely depends on two things. First, what income, if any, is available for offset? Second, how much time will elapse before the portfolio is liquidated? As the deferral period grows, so does the benefit—the reinvested savings from the tax deferral have more time to grow. While nothing herein should be interpreted as tax advice, examining some sample investor profiles is a good way to appreciate the nature of the benefit of TLH+. Who benefits most? The Bottomless Gains Investor A capital loss is only as valuable as the tax saved on the gain it offsets. Some investors may incur substantial capital gains every year from selling highly appreciated assets—other securities, or perhaps real estate. These investors can immediately use all the harvested losses, offsetting gains and generating substantial tax savings. The High Income Earner Harvesting can have real benefit even in the absence of gains. Each year, up to $3,000 of capital losses can be deducted from ordinary income. Earners in high income tax states (such as New York or California) could be subject to a combined marginal tax bracket of up to 50%. Taking the full deduction, these investors could save $1,500 on their tax bill that year. What’s more, this deduction could benefit from positive rate arbitrage. The offsetting gain is likely to be LTCG, taxed at around 30% for the high earner—less than $1,000—a real tax savings of over $500, on top of any deferral value. The Steady Saver An initial investment may present some harvesting opportunities in the first few years, but over the long term, it’s increasingly unlikely that the value of an asset drops below the initial purchase price, even in down years. Regular deposits create multiple price points, which may create more harvesting opportunities over time. (This is not a rationale for keeping money out of the market and dripping it in over time—tax loss harvesting is an optimization around returns, not a substitute for market exposure.) The Philanthropist In each scenario above, any benefit is amplified by the length of the deferral period before the offsetting gains are eventually realized. However, if the appreciated securities are donated to charity or passed down to heirs, the tax can be avoided entirely. When coupled with this outcome, the scenarios above deliver the maximum benefit of TLH+. Wealthy investors have long used the dual strategy of loss harvesting and charitable giving. Even if an investor expects to mostly liquidate, any gifting will unlock some of this benefit. Using losses today, in exchange for built-in gains, offers the partial philanthropist a number of tax-efficient options later in life. Who benefits least? The Aspiring Tax Bracket Climber Tax deferral is undesirable if your future tax bracket will be higher than your current. If you expect to achieve (or return to) substantially higher income in the future, tax loss harvesting may be exactly the wrong strategy—it may, in fact, make sense to harvest gains, not losses. In particular, we do not advise you to use TLH+ if you can currently realize capital gains at a 0% tax rate. Under 2021 tax brackets, this may be the case if your taxable income is below $40,400 as a single filer or $80,800 if you are married filing jointly. See the IRS website for more details. Graduate students, those taking parental leave, or just starting out in their careers should ask “What tax rate am I offsetting today” versus “What rate can I reasonably expect to pay in the future?” The Scattered Portfolio TLH+ is carefully calibrated to manage wash sales across all assets managed by Betterment, including IRA assets. However, the algorithms cannot take into account information that is not available. To the extent that a Betterment customer’s holdings (or a spouse’s holdings) in another account overlap with the Betterment portfolio, there can be no guarantee that TLH+ activity will not conflict with sales and purchases in those other accounts (including dividend reinvestments), and result in unforeseen wash sales that reverse some or all of the benefits of TLH+. We do not recommend TLH+ to a customer who holds (or whose spouse holds) any of the ETFs in the Betterment portfolio in non-Betterment accounts. You can ask Betterment to coordinate TLH+ with your spouse’s account at Betterment. You’ll be asked for your spouse’s account information after you enable TLH+ so that we can help optimize your investments across your accounts. The Portfolio Strategy Collector Electing different portfolio strategies for multiple Betterment goals may cause TLH+ to identify fewer opportunities to harvest losses than it might if you elect the same portfolio strategy for all of your Betterment goals. The Rapid Liquidator What happens if all of the additional gains due to harvesting are realized over the course of a single year? In a full liquidation of a long-standing portfolio, the additional gains due to harvesting could push the taxpayer into a higher LTCG bracket, potentially reversing the benefit of TLH+. For those who expect to draw down with more flexibility, smart automation will be there to help optimize the tax consequences. The Imminent Withdrawal The harvesting of tax losses resets the one-year holding period that is used to distinguish between LTCG and STCG. For most investors, this isn’t an issue: by the time that they sell the impacted investments, the one-year holding period has elapsed and they pay taxes at the lower LTCG rate. This is particularly true for Betterment customers because our TaxMin feature automatically realizes LTCG ahead of STCG in response to a withdrawal request. However, if you are planning to withdraw a large portion of your taxable assets in the next 12 months, you should wait to turn on TLH+ until after the withdrawal is complete to reduce the possibility of realizing STCG. Other Impacts to Consider Investors with assets held in different portfolio strategies should understand how it impacts the operation of TLH. To learn more, please see Betterment’s SRI disclosures, Flexible portfolio disclosures,  the Goldman Sachs smart beta disclosures, and the BlackRock target income portfolio disclosures for further detail. Clients in Advisor-designed custom portfolios through Betterment for Advisors should consult their Advisors to understand the limitations of TLH with respect to any custom portfolio. Additionally, as described above, electing one portfolio strategy for one or more goals in your account while simultaneously electing a different portfolio for other goals in your account may reduce opportunities for TLH to harvest losses due to wash sale avoidance. Due to Betterment’s new monthly cadence for billing fees for advisory services, through the liquidation of securities, tax loss harvesting opportunities may be adversely affected for customers with particularly high stock allocations, third party portfolios, or flexible portfolios. As a result of assessing fees on a monthly cadence for a customer with only equity security exposure, which tends to be more opportunistic for tax loss harvesting, certain securities may be sold that could have been used to tax loss harvest at a later date, thereby delaying the harvesting opportunity into the future. This delay would be due to avoidance of triggering the wash sale rule, which forbids a security from being sold only to be replaced with a “substantially similar” security within a 30-day period. See Betterment’s TLH disclosures for further detail. Conclusion Summary: Tax loss harvesting can be a highly effective way to improve your investor returns without taking additional downside risk. Tax loss harvesting may get the spotlight, but under the hood, our algorithms labor to minimize taxes on every transaction, in every conceivable way. Historically, tax loss harvesting has only been available to extremely high net worth clients. Betterment is able to take advantage of economies of scale with technology and provide this service to all qualified customers while striving to: Do no harm: we regularly work to avoid triggering short-term capital gains (others often do, through unsophisticated automation). Do it holistically: we don’t just look for opportunities to harvest regularly—we seek to make every transaction tax efficient—withdrawals, deposits, rebalancing, and more. Coordinate wash sale management across both taxable and IRA/401(k) accounts as seamlessly as possible.

Buying A Home: Down Payments, Mortgages, And Saving For Your Future Sep 7, 2021 12:00:00 AM Your home may be the largest single purchase you make during your lifetime. That can make it both incredibly exciting and nerve wracking. Purchasing a primary residence often falls in the grey area between a pure investment (meant to increase one’s capital) and a consumer good (meant to increase one’s satisfaction). Your home has aspects of both, and we recognize that you may purchase a home for reasons that are not strictly monetary, such as being in a particular school district or proximity to one’s family. Those are perfectly valid inputs to your purchasing decision. However, as your financial advisor, this guide will focus primarily on the financial aspects of your potential home purchase: We’ll do this by walking through the five tasks that should be done before you purchase your home. 1. Build your emergency fund. Houses are built on top of foundations to help keep them stable. Just like houses, your finances also need a stable foundation. Part of that includes your emergency fund. We recommend that, before purchasing a home, you should have a fully-funded emergency fund. Your emergency fund should be a minimum of three months’ worth of expenses. How big your emergency fund should be is a common question. By definition, emergencies are difficult to plan for. We don’t know when they will occur or how much they will cost. But we do know that life doesn’t always go smoothly, and thus that we should plan ahead for unexpected emergencies. Emergency funds are important for everyone, but especially so if you are a homeowner. When you are a renter, your landlord is likely responsible for the majority of repairs and maintenance of your building. As a homeowner, that responsibility now falls on your shoulders. Yes, owning a home can be a good investment, but it can also be an expensive endeavor. That is exactly why you should not purchase a home before having a fully-funded emergency fund. And don’t forget that your monthly expenses may increase once you purchase your new home. To determine the appropriate size for your emergency fund, we recommend using what your monthly expenses will be after you own your new home, not just what they are today. Open your Safety Net Get Started 2. Choose a fixed-rate mortgage. According to 2020 survey data by the National Association of Realtors®, 86% of home buyers took out a mortgage. This means that most people have to choose which type of mortgage is appropriate for them, and one of the key factors is deciding between an adjustable-rate mortgage (ARM) and a fixed-rate mortgage (FRM). Betterment generally recommends choosing a fixed-rate mortgage. Here’s why: As shown below, ARMs usually—but not always—offer a lower initial interest rate than FRMs. Source: Federal Reserve Bank of St. Louis. Visualization of data by Betterment. But this lower rate comes with additional risk. With an ARM, your monthly payment can increase over time, and it is difficult to predict what those payments will be. This may make it tough to stick to a budget and plan for your other financial goals. Fixed-rate mortgages, on the other hand, lock in the interest rate for the lifetime of the loan. This stability makes budgeting and planning for your financial future much easier. Locking in an interest rate for the duration of your mortgage helps you budget and minimizes risk. Luckily, most home buyers do choose a fixed-rate mortgage. According to 2020 survey data by the National Association of Realtors®, 89% of home buyers who financed their home purchase used a fixed-rate mortgage, and this was very consistent across all age groups. Research by the Urban Institute also shows FRMs have accounted for the vast majority of mortgages over the past 2 decades. Source: National Association of Realtors®, 2020 Home Buyers and Sellers Generational Trends. Visualization of data by Betterment. 3. Save For The Upfront Costs: Down Payment And Closing You’ll need more than just your emergency fund to purchase your dream home. You’ll also need a down payment and money for closing costs. Betterment recommends making a down payment of at least 20%, and setting aside about 2% of the home purchase for closing costs. A 2020 National Association of Realtors® survey shows the median down payment amount for home purchases is 12%. As the chart below shows, younger buyers tend to make smaller down payments than older buyers. Source: National Association of Realtors®, 2020 Home Buyers and Sellers Generational Trends.  Visualization of data by Betterment. But is making an average down payment of only 12% a wise decision? It is true that you are often allowed to purchase a home with down payments far below 20%. For example: FHA loans allow down payments as small as 3.5%. Fannie Mae allows mortgages with down payments as small as 3%. VA loans allow you to purchase a home with no down payment. However, Betterment typically advises putting down at least 20% when purchasing your home. A down payment of 20% or more can help avoid Private Mortgage Insurance (PMI). Putting at least 20% down is also a good sign you are not overleveraging yourself. Lastly, a down payment of at least 20% may help lower your interest rate. This is acknowledged by the CFPB and seems to be true when we compare interest rates of mortgages with Loan-to-Values (LTVs) below and above 80%, as shown below. Source: Federal Reserve Bank of St. Louis. Visualization of data by Betterment. Depending on your situation, it may even make sense to go above a 20% down payment. Just remember, you shouldn’t put every spare dollar you have into your home, as that will likely mean you don’t have enough liquid assets elsewhere for things such as your emergency fund and other financial goals like retirement. Closing Costs In addition to a down payment, buying a home also has significant transaction costs. These transaction costs are commonly referred to as “closing costs” or “settlement costs.” Closing costs depend on many factors, such as where you live and the price of the home. ClosingCorp, a company that specializes in closing costs and services, conducted a study that analyzed 2.9 million home purchases throughout 2020. They found that closing costs for buyers averaged 1.69% of the home’s purchase price, and ranged between states from a low of 0.71% of the home price (Missouri) up to a high of 5.90% of the home price (Delaware). The chart below shows more detail. Source: ClosingCorp, 2020 Closing Cost Trends. Visualization of data by Betterment. As a starting point, we recommend saving up about 2% of the home price (about the national average) for closing costs. But of course, if your state tends to be much higher or lower than that, you should plan accordingly. In total, that means that you should generally save at least 20% of the home price to go towards a down payment, and around 2% for estimated closing costs. With Betterment, you can open a Major Purchase goal and save for your downpayment and closing costs using either a cash portfolio or investing portfolio, depending on your risk tolerance and when you think you’ll buy your home. 4. Think Long-Term We mentioned the closing costs for buyers above, but remember: There are also closing costs when you sell your home. These closing costs mean it may take you a while to break even on your purchase, and that selling your home soon after is more likely to result in a financial loss. That’s why Betterment doesn’t recommend buying a home unless you plan to own that home for at least 4 years, and ideally longer. Unfortunately, closing costs for selling your home tend to be even higher than when you buy a home. Zillow, Bankrate, NerdWallet, The Balance and Opendoor all estimate them at around 8% to 10% of the home price. Betterment’s research analyzed closing costs for both buying and selling, the opportunity costs of potentially investing that money, and more. It shows that the average expected breakeven time is about 4 years as shown below. Of course, this will depend on many factors, but is helpful as a general guide. Thus, if you do not plan to own your home for at least 4 years, you should think carefully on whether buying a home is a smart move at this point in your life. Source: Betterment, Is Buying A Home A Good Investment? Visualization of data by Betterment. Luckily, it appears that most home buyers stay in their homes beyond our 4-year rule of thumb. The chart below is built from 2020 survey data by the National Association of Realtors®. It shows how long individuals of various age groups stayed in their previous homes before selling them. Across all age groups, the median length of time was 10 years, which is more than double our 4-year rule of thumb. That’s excellent. However, we can see that younger buyers, on average, come in well below the 10-year median, which indicates they are more at risk of not breaking even on their home purchases. Source: National Association of Realtors®, 2020 Home Buyers and Sellers Generational Trends. Visualization of data by Betterment. Some things you can do to help ensure you stay in your home long enough to at least break even include: If you’re buying a home in an area you don’t know very well, consider renting in the neighborhood first to make sure you actually enjoy living there. Think ahead and make sure the home makes sense for you 4 years from now, not just you today. Are you planning on having kids soon? Might your elderly parents move in with you? How stable is your job? All of these are good questions to consider. Don’t rush your home purchase. Take your time and think through this very large decision. The phrase “measure twice, cut once” is very applicable to home purchases. 5. Calculate Your Monthly Affordability The upfront costs are just one component of home affordability. The other is the ongoing monthly costs. Betterment recommends building a financial plan to determine how much home you can afford while still achieving your other financial goals. But if you don’t have a financial plan, we recommend not exceeding a debt-to-income (DTI) ratio of 36%. In other words, you take your monthly debt payments (including your housing costs), and divide them by your gross monthly income. Lenders often use this as one factor when it comes to approving you for a mortgage. Debt Income Ratios There are lots of rules in terms of what counts as income and what counts as debt. These rules are all outlined in parts of Fannie Mae’s Selling Guide and Freddie Mac’s Seller/Servicer Guide. While the above formula is just an estimate, it is helpful for planning purposes. In certain cases Fannie Mae and Freddie Mac will allow debt-to-income ratios as high as 45%-50%. But just because you can get approved for that, doesn’t mean it makes financial sense to do so. Keep in mind that the lender’s concern is your ability to repay the money they lent you. They are far less concerned with whether or not you can also afford to retire or send your kids to college. The debt to income ratio calculation also doesn’t factor in income taxes or home repairs, both of which can be significant. This is all to say that using DTI ratios to calculate home affordability may be an okay starting point, but they fail to capture many key inputs for calculating how much you personally can afford. We’ll outline our preferred alternative below, but if you do choose to use a DTI ratio, we recommend using a maximum of 36%. That means all of your debts—including your housing payment—should not exceed 36% of your gross income. In our opinion, the best way to determine how much home you can afford is to build a financial plan. That way, you can identify your various financial goals, and calculate how much you need to be saving on a regular basis to achieve those goals. With the confidence that your other goals are on-track, any excess cash flow can be used towards monthly housing costs. Think of this as starting with your financial goals, and then backing into home affordability, instead of the other way around. Wrapping Things Up If owning a home is important to you, you can use the five steps in this guide to help you make a wiser purchasing decision. Have an emergency fund of at least three months’ worth of expenses to help with unexpected maintenance and emergencies. Choose a fixed-rate mortgage to help keep your budget stable. Save for a minimum 20% down payment to avoid PMI, and plan for paying ~2% in closing costs. Don’t buy a home unless you plan to own it for at least 4 years. Otherwise, you are not likely to break even after you factor in the various costs of homeownership. Build a financial plan to determine your monthly affordability, but as a starting point, don’t exceed a debt-to-income ratio of 36%. If you’d like help saving towards a down payment or building a financial plan, sign up for Betterment today. Save for your home with Betterment Get Started

Three LGBTQ+ Influencers Share Tips For Successful Financial Planning Aug 23, 2021 12:00:00 AM LGBTQ individuals and same-sex couples face unique financial challenges when it comes to family planning, healthcare, and more. Here’s how three individuals are preparing for a secure and meaningful financial future. We sat down with three influencers to pull back the curtain on some of the unique factors of LGBTQ+ financial planning, and what that planning, saving, and investing actually looks like. CHRISTOPHER RHODES What’s a financial goal that you’re currently working towards? Or, what’s a financial goal you’re proud of achieving? Saving for top surgery was probably the largest financial goal I've achieved thus far in my life. Top surgery is a huge part of many trans masculine people's lives, and that surgery was incredibly affirming for me and life changing. My insurance did not cover the procedure so I was left with the full amount to cover on my own, which can be quite daunting. What tools and habits helped you reach that goal? I am self-employed and so saving money can be difficult, but the company I run helps trans folks afford gender-affirming surgeries. By the time I was saving money for top surgery we had partnered with five individuals before me to help them reach their financial goals. My brand helped raise about half of the funds I needed for my surgery, and besides that I used my skills to help raise the funds—I did custom art, tattoo designs, and social media work for money. I also was just a lot more conscious about what I was putting away in savings at the time and for what. Nowadays, my biggest goal is saving for the future: Hopefully saving to buy a house, and I do so by having a specific goal and timeline for the amount of savings I have in my account. By dedicating certain paychecks specifically to paying off debt or savings, versus for spending. What would you tell your younger self about money? Money is stressful, and a little bit complicated. I don't think anyone when they're younger quite comprehends how expensive being an adult is. But I think I'd tell myself that it's possible to do what you love and still be able to afford a living— you just have to figure out how to make that work for you, and be responsible and smart about where and how and why you spend your money. Has your identity influenced your relationship with money in any way? Why or why not? I do think that in some aspects my relationship with money is definitely different than it would be if I wasn't trans. The costs of transitioning add up, between doctor's visits, blood work, weekly testosterone injections, surgeries, the legal costs of changing my name and gender marker, not even to mention the costs of family planning one day, etc. I had to account for saving up for things that felt very "adult" starting when I was in my young 20's. ZOE STOLLER What's a financial goal you are currently working towards, or what's one that you've already achieved and are really proud of? I’m officially going to graduate school! I’ve left my 9 to 5 marketing job, and am working more fully as a content creator. I’m saving for graduate school and it’s a lot of work, but I’m confident that I’ll achieve my financial goal. I had known before I decided to enroll that my full time job wasn’t as fulfilling as I wanted it to be, and I recently started making enough money as a content creator to leave. So all the stars aligned, where I was able to leave my job, do content creation full time, and go back to school for my graduate degree. What habits or tools are helping you reach that goal? I’ve gotten very into spreadsheets lately—even though I’m not confident with numbers or money. It’s been a year of transition for me to figure out exactly how to keep meticulous track of my income, my big expenses, and my savings. I’ve been trying to be really proactive, financially. What would you tell your younger self about money? I was very clueless about money, but I have a lot more knowledge now. Growing up, I didn’t understand saving, investing, or general money management. I’d tell my younger self that it’s okay not to know those things, but life is about learning and growing, and going on different journeys. Just because younger me wasn’t very financially aware, doesn’t mean that it’s always going to be that way. And now, I feel much more knowledgeable about money—I’m still learning a lot, but I’m much more confident. Has your identity influenced your relationship with money? Why or why not? As I’ve discovered my lesbian and non-binary identities, I’ve definitely thought about how money will play a role in my future. There are so many more expenses that come with having a family or getting pregnant when you’re LGBTQ. I want a family, but I’ll probably have to do fertility treatments or maybe adoption. There are so many added obstacles that require money when you can’t conceive with a partner, so I’ve been thinking about how to best prepare for that in my future. I want to be able to afford that, should I decide it’s in my future. Anything else you’d like to share with us? Wherever you are in your money and identity journeys, I have full confidence that you will make it through and achieve the goals you’ve set for yourself. GENVIEVE JAFFE What’s a financial goal that you’re currently working towards? Or, what’s a financial goal you’re proud of achieving? My wife and I are hoping to build our dream home next year, in 2022. We want to buy in a community around my home, and we want to be able to put down a lot of money. When we bought our first house, we only put down 10% and had to get a PMI. We’d like to not do that this time, so that’s a big financial goal right now. What tools and habits helped you reach that goal? We have two different investment accounts that we use for the house fund. One is super safe - not risky at all, because we want to be safe if anything should happen. I also have a moderately aggressive portfolio that I don’t manage myself. When COVID hit, it did take a downturn, so it’s important for us to have half in a safer type of investment. In terms of allocating my money, any time I have money coming in from my business, I put some aside into these accounts. My wife and I also have a 529 plan that we put money in for our kids at the end of every year. Additionally, my wife is very on top of our expenses and keeping track of our books. Almost every day she goes into all of our accounts to check balances, check for invoices, and double check our credit cards, student loans, etc. What would you tell your younger self about money? I grew up with working class parents. They traded money for hours, and that’s not a bad thing, but it’s not the way I wanted to live my life. So I actually got a job as a corporate lawyer and was miserable, but had a really great paycheck. I’d always learned that you work until you can retire and live off your 401K, and it wasn’t until I met my wife, who was an entrepreneur, that I realized that’s not how I had to live my life. So I’ve done a lot of mindset work around money, and getting rid of that old school belief that money doesn’t grow on trees. I try to really have a good relationship with money and remember that money is also an exchange of energy. I also just wanted to share that in 2015, I almost had to file for bankruptcy. I was not smart with my money at all. I’d been a corporate lawyer making a very nice, steady paycheck, and when I quit my job, the business that I started actually did very well. But it wasn’t this consistent substantial paycheck I was used to, and I hadn’t changed my habits or my lifestyle. SO I really had to learn quickly to be cognizant of the money that I have, and not rely on the money that I could potentially earn. I did not have to file bankruptcy, thank goodness. But, that fear is something that still lives within me—and now it’s really about being conscious of the money we have and the money we’re spending. Has your identity influenced your relationship with money in any way? Why or why not? We spent $50K+ having our children. I don't say this to freak anyone out but to help prepare you for potential costs that you could incur growing your family as an LGTBQ+ individual / couple / throuple, etc. We had no idea how much money we were about to drop when we started to grow our family. Our path to pregnancy wasn't super straightforward—we ended up doing 3 intrauterine inseminations (IUI), two egg retrievals, and three embryo transfers. Insurance didn't cover in vitro fertilization (IVF), stimulation meds (about $5K), egg retrieval ($11K), or transfer ($3K). We also had to buy sperm (they're about $1,000 per vial), go through tons of testing, and we each had to have surgery. Financially planning for a family is something that I stress people should start early. Seriously, ask for people to contribute to a baby fund for your engagement and wedding. Trust me, no one needs fancy dish-ware. Everyone loves babies and it's an incredible way to make everyone feel part of your journey!

How You Benefit Your Community By Investing Responsibly Aug 23, 2021 12:00:00 AM Betterment’s new Broad Impact Portfolio lets you invest in your community and the values you care about, while maintaining a diversified portfolio with low expenses. Most of the time, investing is talked about as an act of self-interest. “Earn more.” “Retire comfortably.” “Build your wealth.” But where does the money go? Those dividends and gains come from somewhere, don’t they? When you entrust your money to any bank or investment fund, it’s used to generate more value—either loaned out or invested in different companies, governments and other entities. The question for us as people who own those loans and investments is: Do those companies’ activities benefit our world and local communities or do they have a negative net impact? Investing responsibly is about steering cash to companies whose business practices are sustainable. Will you be giving your money to companies that extract profits from a community without benefiting society positively? Or, will you be fueling companies that have a positive social or environmental impact, that perhaps will help change our world for the better? We all know of companies we respect. Whether it’s the small construction firm that has grown with the small city it helped to build, or the Silicon Valley tech company that’s changing how we grow fruits and vegetables sustainably, socially responsible investing is about choosing these kinds of companies on a broader scale. How do you know companies are having a positive net impact? What’s challenging about building a sustainable investment portfolio is the reality that a large company’s impact on society is multi-faceted. One company may have excellent management, prioritizing diversity and giving back to their community, but whose operations still harm the environment. Another might be carbon neutral but has a poor record when it comes to how it treats its workers. That’s where targeting a broad impact can be a strong, balanced approach to socially responsible investing. Rather than prioritizing any one value over another, Betterment’s Broad Impact portfolio assembles funds with an ESG mandate (environmental, social, and governance) which equally weighs a company’s profile along all three pillars of ESG, and tilts towards companies with the best overall scores in each sector. We aim for the investments in your Broad Impact portfolio to represent the companies that have a broad positive impact across the global market. Cool, right? Having a broad impact is a way of accounting for the pros and cons of many different companies and making a balanced choice, while maintaining a diversified portfolio with low expenses. Start with the Broad Impact Portfolio to help grow your money responsibly. Regardless of how you choose to invest, Betterment aims to help you align your money with your values. That means not only offering a socially responsible investing portfolio, but also helping you identify your goals and invest for them appropriately. Learn more about our guidance and get started saving for your future. Higher bond allocations in your portfolio decreases the percentage attributable to socially responsible ETFs.

Why Exercising Your Power As An Investor Can Impact Climate Change Aug 23, 2021 12:00:00 AM Betterment’s new Climate Impact Portfolio lets you support areas of the economy that are working to mitigate climate change, while maintaining a diversified portfolio with low expenses. Climate change is arguably the paramount problem of our time. It can be overwhelming to think about how we, as individuals, can contribute to a solution beyond going to the polls. The reality is that we don’t have to rely solely on political figures to influence change: by being intentional about where we place our money, we collectively have a lot more power than we think. The purpose of climate-aware investing is to support areas of the economy that are working to mitigate climate change. That includes investing in companies with low carbon footprints, relative to their peers, and investing in global green bonds, which fund projects that advance alternative energy, energy efficiency, pollution prevention and control, sustainable water, green building, and climate adaptation. How Climate Investing Makes An Impact A financial plan with high investing fees and an undiversified portfolio isn’t a plan worth settling for. Nor is a plan that doesn’t align with your ideals. Today, the movement to combat climate change is no longer limited to public protests and petitions. Sustainable investing is a grassroots effort, driven by consumers who are steering support away from companies that aren’t part of the solution, in favor of ones that do. As more and more choose to invest this way, the collective effort can help accelerate the transition to a clean energy economy—not just in the U.S.—but worldwide. Here’s how: What does climate impact look like? Try reduced emissions and reliance on fossil fuels. Climate impact looks like offering more climate-aware alternatives. We know that increased carbon emissions caused by human activity directly contribute to global warming. Compared to the 100% stock Betterment Core portfolio, carbon emissions per dollar of revenue in the 100% stock Climate Impact portfolio are reduced by half. That means that our investment into portfolios with a climate focus helps grow companies committed to a low carbon economy, which can influence other companies to follow suit. By investing in the Climate Impact portfolio, you are actively divesting from some of the companies most reliant on fossil fuel, while actively favoring those who are best at cutting their carbon emissions. That’s why we at Betterment are building a future where investors don’t have to choose between their values and their performance goals of globally diversified market returns. Now, they can have both. Start with the Climate Impact Portfolio to help grow your money responsibly. Regardless of how you choose to invest, Betterment aims to help you align your money with your values. That means not only offering a socially responsible investing portfolio, but also helping you identify your goals and invest for them appropriately. Learn more about our guidance and get started saving for your future. Higher bond allocations in your portfolio decreases the percentage attributable to socially responsible ETFs.

How Investing In Gender and Racial Equity Is A Step Towards Social Change Aug 23, 2021 12:00:00 AM Betterment’s new Social Impact Portfolio lets you support companies who promote gender and racial equity, while maintaining a diversified portfolio with low expenses. When Breonna Taylor and George Floyd were murdered earlier this year, the U.S. entered a period of mourning and social reckoning not felt since the murder of Michael Brown and subsequent rise of the Black Lives Matter movement in 2014. Amidst the clamor for justice and accountability, there arose another distinct call-to-action for corporations to invest more in their Black and brown employees, to call out racism and discrimination, and commit funds to organizations working for social justice. Here at Betterment, we quickly realized that our highest impact action might be to allow investors to use their dollars to effect change. Investing in companies that care about equality, made easy. In light of this, we asked ourselves how we could create a new portfolio with equality for women and Black and brown Americans at the heart of its mandate, while also staying true to our fiduciary duty of low costs and global diversification. We found the answer by augmenting our Broad Impact portfolio to include two additional funds: Impact Shares' NAACP Minority Empowerment ETF (NACP) and State Street Global Advisors' Gender Diversity Index ETF (SHE). NACP allocates money towards companies that rank highly on their diversity policies and on how they engage with communities of color. SHE selects companies who lead their peers in terms of women in senior leadership positions. These two funds, alongside the other funds with an ESG mandate in our Broad Impact portfolio (applying Environmental, Social, and Governance scoring criteria), now make up Betterment’s new Social Impact portfolio. Sounds great, right? Wrong. Because believe it or not, these two ETFs are some of the only ones of their kind. In fact, the NACP fund is the only ETF of its kind. How can investing in these funds lead to gender and racial progress with such a limited sphere of influence? Using capital to influence positive social outcomes is vital to our democracy. Part of the answer to change lies in our collective, continued contribution, which can grow the relative power these leading companies have over time. By investing in NACP, investors are putting more of their money in companies with a proven track record of minority empowerment and diversity policies. By investing in SHE, investors are placing more of their money in companies that have demonstrated more of a commitment to gender diversity within senior leadership than other firms in their sector. As Betterment’s SVP of Operations & Legal Counsel, Boris Khentov says, we can “work to erase the gap by incorporating this focus into our investment strategy now. As our dollars flow into the funds, they’ll get bigger. This raises awareness of the funds, while driving down costs thanks to economies of scale, which will bring along even more investors.” Now more than ever—when the number of female CEOs has actually decreased over time and when there are only three Black Fortune 500 CEOs—we need to send a signal that there is demand for a variety of lower cost funds that focus on social equity, so that investors can increase their impact along the values that matter most to them. Ultimately, this is an aspirational portfolio. In the same way we want to see change in the world, change that will take time, the Social Impact Portfolio is a step towards aligning ourselves to that ultimate goal, and that of our customers. Start with the Social Impact Portfolio to help grow your money responsibly. Regardless of how you choose to invest, Betterment aims to help you align your money with your values. That means not only offering a socially responsible investing portfolio, but also helping you identify your goals and invest for them appropriately. Learn more about our guidance and get started saving for your future. Higher bond allocations in your portfolio decreases the percentage attributable to socially responsible ETFs.

Our Customers Donated Over $2 Million Dollars To Charity in 2020 Aug 19, 2021 12:00:00 AM In 2020, our customers donated over $2 million dollars to charity through their appreciated shares. Let’s aim for even more in 2021. 2020 was an unprecedented year in many regards, with the COVID-19 pandemic leaving millions of Americans out of work as businesses were forced to close and many states issued shelter in place orders and other restrictive measures. It was also an unprecedented year for Betterment’s Charitable Giving feature, with new records in both the number of donations and the amount donated by our customers who chose to give back to those who are most in need. Many of our customers make generous gifts to charities in a variety of ways—whether it’s by spending their precious time, or by donating their hard-earned money. Our customers also have the choice to donate their invested securities to charities through their Betterment accounts. When securities are donated, the value of those assets is transferred directly to the charity. This is advantageous because the donor doesn’t pay taxes on the gain, and the recipient organization generally doesn’t pay taxes on the gain, either. In 2020, our customers donated over $2 million dollars to charity through their appreciated shares. Let’s aim for even more in 2021. Skip to the instructions for how to donate. Since launching our Charitable Giving feature in 2017, our customers have donated over $7.5 million dollars in appreciated shares to support causes near and dear to them. We are proud to support a community of smart investors with big hearts. This year, consider a smart giving strategy that can help you maximize your gifts while minimizing your tax liability. We’ll walk you through how it works. Donating securities should be as easy as donating cash. You’re trying to make a positive difference, so we believe you shouldn’t have to do any math or sign any forms. We want to keep it easy—as easy as giving cash. No snail mail, and no walking into an office. Here is a behind-the-scenes look at how we help make it easy. On your behalf, we track how much of your account is eligible to give to charity. You typically should only donate assets that you’ve held for more than one year, but we don’t expect you to sort through all the assets and pick which ones you can give. We’ll track those assets for you. We’ll estimate the tax benefits of your gift. Before you complete your gift, we’ll let you know the estimated tax benefits, including the expected deductible amount and potential capital gains taxes saved. We move assets from your account to a charitable organization’s account without any paperwork. With a traditional broker, a charitable gift has to move from your account to the organization’s brokerage account, which can take time and paperwork. Betterment is offering charities investment accounts without any advisory fees—on up to $1 million of assets—to make the gift process seamless. After the donation is complete, we provide a tax receipt. The receipt is emailed to you, and it will also be available in your Betterment account at all times. What’s more, we take much of the heavy lifting in reporting off of our partner charities. This means they can devote their resources more efficiently to the causes you are supporting, rather than to administrative tasks. Donating securities helps maximize your charitable impact. There are two tax advantages investors may be able to take advantage of when donating eligible shares. Eliminate capital gains taxes on donated shares. Deduct the value of the gift on your annual tax return. As long as you itemize your deductions, the entire value of your donated securities is deductible on your income tax return, just like any cash donation would be—as long as you’ve held the securities for more than one year. As an example, let’s say you make $150,000, are single, and live in New York. Your income places you into the current (2021) 15% long-term capital gains bracket, the 24% federal bracket, and the 6.41% state bracket.  If you donate $3,000 worth of shares to a charitable organization, and you bought those shares two years ago for $2,100, then you would save $192.69 in capital gains taxes. The full $3,000 could then be deducted on your tax return, saving you an additional $912.30. Overall, you end up with $1,104.99 in tax savings, which is about 21% more than if you had just donated the cash and taken the deduction. You can then use the extra tax savings towards future donations, helping to further maximize your impact. Value now Purchase value, two years ago Capital gains tax saved Deductible amount on tax return Total potential tax savings Donating shares $3,000 $2,100 $192.69 $3,000 $1,104.99 This is 21% more than a cash donation. Donating cash $3,000 n/a n/a $3,000 $912.30 The table above assumes the following about a hypothetical person donating to a charity: (1) The person itemizes the deductions on their tax return, and (2) The federal Alternative Minimum Tax does not apply to the person. Charitable giving works in tandem with our other tax-smart strategies. Our charitable giving capabilities automatically work in tandem with our other tax-smart strategies, such as Tax Loss Harvesting+. Imagine you started using Betterment two years ago. If any holdings in your portfolio took a loss in the first year—which is common—Tax Loss Harvesting+ (TLH+) would kick in, if you have it turned on. TLH+ would benefit you by harvesting those losses and selling the assets, which allows you to deduct up to $3,000 from your income at tax time. This practice essentially defers the tax liability from any future gains to a later date. If by the calendar year after the harvest, those same shares appreciated above the original purchase price, then they would be eligible to donate to charity. You could then avoid the taxes altogether because you will not owe the standard capital gains taxes you would otherwise be subject to. Donate while also keeping your financial goals on track. Once you donate shares from an investing goal, your goal’s overall account balance will naturally be lower. Immediately after you donate, we will ask you if you’d like to make a new cash deposit to promptly replenish your investment goal. If you redeposit, we can smartly rebalance your portfolio and help keep it on track to meet its goal. If you think of your replenishing deposit as the cash you otherwise would have given to charity, the process of giving and then redepositing ends up serving as a tax-optimized and cost-efficient cycle for transferring funds to charity. The graphic below, which visually represents this cycle, is for illustrative purposes only. If you do not redeposit after your donation, your account balance will, of course, remain lower—and we may rebalance your account as usual. Smart Investors + Big Hearts = Effective Altruism. You may already be familiar with effective altruism, which is the simple idea that you can increase how much value you create when you help others if you more thoughtfully apply your resources.   We offer access to a dozen charities, including GiveWell.org which carefully vets and directs donations to the most impactful causes, and Against Malaria Foundation, which protects low-income families from one of the largest killers in the world—mosquitos that carry malaria. See a full list of supported charities. Please note that we give no special preference to or endorse any one charity in particular, and the activities of each charity are not directly associated with or connected with Betterment. How to Donate Shares From Your Betterment Account To donate shares from your Betterment account, simply navigate to “Transfers” on the left and select “Give to Charity” under “Transfers from Betterment.” If your account has appreciated shares that have been held for more than a year, you can specify an amount to give, and then select which charitable organization(s) will receive your donation. Shortly after the transfer completes, you’ll receive a tax receipt via email. You can choose from the following charities: Against Malaria Foundation Big Brothers Big Sisters of NYC Boys and Girls Clubs of America Breast Cancer Research Foundation Brooklyn Community Bail Fund DonorsChoose.org Feeding America GiveWell Hour Children NAACP Empowerment Programs Save The Children The Trevor Project UNICEF USA World Wildlife Fund Wounded Warriors Family Support Don’t see your charity? See below... If you don’t currently see a charity you’d like to donate to, you can request a new charity be added. When you’re instructed to select a charity, there is an option to request a new one at the bottom of the page. In time, we will work with the requested charities to try to add them as an option.  Qualified Charitable Distributions Qualified charitable distributions can be made from most IRAs (excluding SEP and SIMPLE) if the owner is age 70½ or over. These distributions can be used to satisfy part or all of your required minimum distribution and these donations will not be counted as taxable income. Betterment can support QCDs from IRAs if you meet certain criteria. Please reach out to our team for further instructions. 2021, Here We Come Let’s maximize our ability to give back together, and help support those who are most in need this year. Our altruistic and tax-smart customers have donated over $7 million dollars to charity, with over $2 million dollars donated in 2020 alone. Can we beat that for 2021? For more information, see IRS Information for Charitable Contributions. Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a qualified tax professional.

Funding a Safety Net: Calculate Your Target Amount Aug 17, 2021 12:00:00 AM Don’t know how much to set aside for emergencies? Don’t let uncertainty stop you from saving. We’ll help you figure out how much you should save so that you can feel more prepared. How much do you actually need to set aside for emergencies? No one can predict the exact timing or cost of future emergencies any of us will face. However, we’ll provide recommendations to help you be as prepared as possible, based on what we know about you. How much do you need? Calculating how much you’ll likely need in your Safety Net might seem difficult. Luckily, we can help. We’ll recommend a target savings amount for you when you set up your Safety Net goal in your account, based on the formula below. You can also use this formula on your own to determine a target amount for your emergency funds. 1. Estimate your monthly expenses. Your expenses are the starting point of our calculation. Unfortunately, many individuals are unaware of their average monthly spending. That’s why we use research from the American Economic Association and the National Bureau of Economic Research to estimate your average monthly spending based on your gross income. The data shows that, on average, lower income households tend to spend a higher percentage of their income. As your income increases, both your taxes and savings will generally increase. Even though you will now likely spend a higher dollar amount, that amount represents a smaller percentage of your overall income. The graph below shows how the percentage of your spending generally decreases as your income increases. Data: Betterment analysis of self-reported income and estimated tax rates; American Economic Association; National Bureau of Economic Research. The chart shows assumed rates of spending, savings, and effective taxes for a single individual with no additional information about location, actual savings, or Social Security benefits. The default location is Colorado, which is roughly equivalent to the U.S. national average for cost of living and state taxes. Knowing this information, we can easily estimate your monthly expenses as a percentage of your income. For example, if your gross income is $100,000, we can estimate that your expenses will be about $55,000 per year, or in other words, $4,600 per month. 2. Decide how many months you want to cover. Once we estimate how much money you spend per month, the next question is—how many months of expenses should your emergency fund be able to cover? One of the reasons to build a Safety Net is to prepare for the chance that you may unexpectedly lose your job. We looked at data from the United States Bureau of Labor Statistics, which shows that the median duration of unemployment is about three months. This is why we recommend that you save enough to cover expenses for at least three months. Continuing our above example, $4,600 of monthly expenses x three months = $13,800. Of course, there are other potential uses for your Safety Net aside from just losing your job—such as medical bills, auto repairs, etc.—but this provides us with a reasonable baseline number. 3. Last but not least—add a buffer. The third and final step in our Safety Net formula is adding a buffer for market downturn protection. Rather than holding on to cash, we believe you should invest your Safety Net in a low-risk, globally-diversified portfolio of 30% stocks and 70% bonds. The reason behind this is that holding too much cash usually means your money isn’t working as hard for you as it could be. And because the national average interest rate for savings accounts is only 0.04%, holding too much cash could mean you’re actually losing money because of inflation, which generally can be around 2% per year. Investing always comes with risk, and that means your Safety Net could fluctuate up and down in value. To account for this known fact, we recommend that you add a buffer to the target amount you’re trying to reach in your Safety Net. Our recommended buffer amount is 30% above your original target amount. Continuing the same example from above, if three months of expenses = $13,800, then you would take $13,800 x 130%, which would give you a final target amount of $17,940 for your Safety Net. Reasons to Adjust Your Safety Net Target Amount For many customers, the above formula is more than detailed enough to meet their needs. However, we allow you to adjust your Safety Net target amount, if you choose to do so. Below are a few reasons for why you may consider adjusting our default Safety Net target amount recommendation. You don’t want to invest your Safety Net. Some investors may not be comfortable with our advice to invest emergency funds. Instead, you may prefer to keep your Safety Net in cash, or a savings account alternative like Betterment’s cash account, Cash Reserve. Choosing to keep your Safety Net in cash or in Cash Reserve may reduce the need for the 30% buffer amount we discussed earlier, but remember that it might also mean lower expected returns over the long run. Whether you choose to invest your emergency funds or keep them in cash is up to you. The most important thing is that you are working towards having any type of emergency savings at all. Your income isn’t stable. Our default calculation uses three months of expenses because that’s the average length of unemployment in the U.S. However, sometimes you may need to dip into your emergency fund, even if you haven’t lost your job. If your income varies and isn’t the same from month to month, it’s possible that even though you’re still employed, you need to use your emergency savings due to a rough month or two. This may be the case for those who work in sales or another commission-based type of job. An unsteady income stream may cause you to tap into your Safety Net more often than someone who is a salaried employee with paychecks that occur regularly. This can be particularly tough if a few bad months occur close together, before you have time to refill your Safety Net. This is why, if your income is unstable, you may want to increase your Safety Net to cover 5 or 6 months worth of expenses. You are the sole/primary income earner. If you are the sole breadwinner in your family, losing your job could be catastrophic to your family’s finances. The loss of your job could mean that your family has no income at all. Compare this scenario to that of a family where both spouses work and earn similar salaries. If one of them loses their job, it would be tough, but at least they have another source of income to help weather the storm until the unemployed spouse finds another job. If your family only has one income earner, you should consider having a slightly larger Safety Net. Your expenses may not be adjustable. If you had a large medical bill or necessary car repair, would you be able to cut back on your expenses temporarily? If a large portion of your monthly spending is discretionary, this might be fairly easy for you to do. Maybe you won’t go out to eat for the next couple of weekends, or you delay that vacation you were planning. It wouldn’t be fun, but you could get by. If this sounds like the case, maybe instead of saving for three months of total monthly expenses, you could consider saving up only enough for three months of your fixed and unavoidable expenses, such as utilities and rent. However, if the majority of your monthly expenses are fixed, you won’t have this option. You can’t temporarily cut back on student loan payments, rent, or utilities. If these unavoidable expenses make up most of your spending, you may need a larger Safety Net. Your personal risk tolerance varies. Lastly, don’t forget your personal risk tolerance. Some customers are comfortable with 1-2 months of expenses in their Safety Net, and others can’t sleep without having a full 12 months worth of expenses tucked away. To each their own. While we caution against going too small with your Safety Net, ultimately the decision is yours and comes down to how you prioritize your financial goals. Let’s get prepared. Having emergency savings is a critical component for your financial health. We help make it easy by estimating how much you should have in your Safety Net, so you don’t have to. Since there are reasons why you may need more or less emergency savings, you can adjust your target to better match your individual needs. One last piece of advice: Make sure you only use your Safety Net for true emergencies. Try not to dip into it unless absolutely necessary.

Investing in Your 40s: 4 Financial Goals You Should Prioritize at Mid-Life Aug 2, 2021 12:00:00 AM In your 40s, your priorities and investing goals become clearer than ever; it’s your mid-life opportunity to get your goals on track. It’s easy to put off planning for the future when the present is so demanding. Unlike in your 20s and 30s when your retirement seemed like a distant event, your 40s are when your financial responsibilities become palpable—now and for retirement. You may be earning more income than ever, so you can benefit far more from planning your taxes carefully. Perhaps you have increased expenses as a result of homeownership. If you have kids, now may also be the time that you’re thinking about or preparing to pay for college tuition. When all of these elements of your financial life converge, they require some thoughtful planning and strategic investing. Consider the following roadmap to planning your investments wisely during these rewarding years of your life. Here are four ways to think about goals you might prepare for. Preparing for Your Next Phase: Four Goals for Your 40s You may have already made a plan for the future. If so, now is a good time to review it and adjust course if necessary. If you haven’t yet made a plan, it’s not too late to get started. Set aside some time to think about your situation and long-term goals. If you’re married or in a relationship, it’s best to include your spouse or partner in identifying your goals. Consider the facts: How much are you making? How much do you spend? Will your spending needs be changing in the near future? (Perhaps you're paying for day carte right now but can plan to redirect that amount towards savings in a few years instead.) How much are you setting aside for savings, investments, and retirement? What will you need in the next five, 10, or 20 years? Work these factors into your short- and long-term financial goals. 1. Pay off high-interest debt. The average variable-rate credit card charges more than 16% a year in interest, so paying off any high-interest credit card debt can boost your financial security more than almost any other financial move you make related to savings or investing. Student loans may also be a high-cost form of debt, especially if you borrowed money when rates were higher. For instance, even federally subsidized loans taken out in the 1990s may carry interest rates as high as 8.25%. If you have a high-interest-rate student loan (say more than 5%), or if you have multiple loans that you’d like to consolidate, you may want to consider refinancing your student debt. These days, lenders offer many options to refinance higher-rate student loans. There’s one form of debt that you don’t necessarily need to repay early, however: your mortgage. This is because mortgage rates are lower than most credit cards and may offer you a tax break. If you itemize deductions, you may be able to subtract mortgage interest from your taxable income. Many people file using the standard deduction, however, so check with your tax professional about what deductions may apply to your situation come tax time. 2. Check that you’re saving enough for retirement. If you’ve had several jobs—which means you might have several retirement or 401(k) plans—now is a good time to organize and check how all of your investments have performed. Betterment can help you accomplish this by allowing you to connect and review your outside accounts. Connecting external accounts allows you to see your wealth in one place and align different accounts to your financial goals. Connecting your accounts in Betterment can also help you see higher investment management fees you might be paying, grab opportunities to invest idle cash, and determine how your portfolios are allocated when we are able to pull that data from other institutions. There could also be several potential benefits of consolidating your various retirement accounts into low-fee IRA accounts at Betterment. Because it’s much easier to get on track in your 40s than in your 50s since you have more time to invest, you should also check in on the advice personalized for you in a Betterment retirement goal. Creating a Retirement goal at Betterment allows you to build a customized retirement plan to help you understand how much you’ll need to save for retirement based on when and where you plan on retiring. The plan also considers current and future income—including Social Security income—as well as your 401(k) accounts and other savings. Your plan updates regularly, and when you connect all of your outside accounts, it provides even more personalized retirement guidance. 3. Optimize your taxes. In your 40s, you’re likely to be earning more than earlier in your career–which may put you in a higher tax bracket. Review your tax situation to help make sure you are keeping as much of your hard-earned income as you can. Determine if you should be investing in a Roth (after-tax contribution) or traditional (pre-tax contribution) employer plan option, or an IRA. These days, more than half of employer-sponsored plans like 401(k)s offer a Roth option, and unlike Roth IRAs, it’s not limited by a maximum income threshold. The optimal choice usually depends on your current income versus your expected income in retirement. If your income is higher now than you expect it to be in retirement, it’s generally better to use a traditional 401(k) and take the tax deduction. If your income is similar or less than what you expect in retirement, you should consider choosing a Roth if available. Those without employer plans can generally take traditional IRA deductions no matter what their taxable income is (as long as your spouse doesn’t have one, either). You can use Betterment’s 401(k) vs. IRA calculator to help decide which one you should be contributing to, or if you’re a Betterment customer, consult your Retirement Goal’s “How To Save” section, after ensuring that you have connected any external retirement accounts. You’ll also want to make sure you take advantage of all the tax credits and deductions that may be available to you. For instance, if you work and pay for childcare, you may be eligible for a dependent care tax credit. Depending on your income, this credit may be worth anywhere from 20% to 35% of what you spend on childcare, and the expenses are capped at $3,000 for one qualifying individual, and $6,000 for two qualifying individuals. Check also to see whether your company offers tax-free transportation benefits—including subway or bus passes or commuter parking. The value of these benefits isn’t included in your taxable income, so you can save money. You can also save money on a pre-tax basis by contributing to a Health Savings Account (HSA) or Flexible Spending Account (FSA). You might not think using these accounts is worth the time, but for a couple making $100k in taxable income per year, you should receive a 29.65% return on investment in the federal/social security/medicare income tax break.1  You may not have that much in expenses, but even if you only pay $200 a month for commuter parking and/or transportation passes and only contribute $500 annually to your FSA, paying those costs pre-tax is the equivalent to paying yourself over $850 in tax savings - it’s worth the time it takes to sign up!  Health Saving Accounts (HSA) Health savings accounts (HSAs) are like personal savings accounts, but the money in them is used to pay for health care expenses. Only you—not your employer or insurance company—own and control the money in your HSA. The money you deposit into the account is not taxed. To be eligible to open an HSA, you must have a special type of health insurance called a high-deductible plan. Your 401(k) may be tied to your employer, however your HSA is not. As long as your health plan meets the deductible requirement and permits you to open an HSA, and you’re not receiving Medicare benefits or claimed as a dependent on someone else’s tax return, you can open one with various HSA “administrators” or “custodians” such as banks, credit unions, insurance companies, and other financial institutions. You can withdraw the funds tax-free at any time for qualified medical expenses. Flexible Spending Accounts (FSA) A Flexible Spending Account (FSA) is a special account that can be used to save for certain out-of-pocket health care costs. You don’t pay taxes on this money—this is a tax-favored program that some employers offer to their employees. If you have an FSA, remember that in most cases your spending allowance does not carry over from year-to-year. It’s important to find out whether your employer offers a grace period into the next year (typically through mid-March) to spend down your account. Before you waste your tax-free savings on eyeglasses, check what you can buy with FSA money—with and without a prescription. Any unused funds will be forfeited, so it’s a good idea to use up what you can. If you find yourself with more than you can spend, then you might want to adjust how much you’re allocating to your FSA. 4. If you have children, start saving for college—just don’t shortchange your retirement to do it. If you have children, you may already be paying for their college tuition, or at least preparing to pay for it. For 2020-2021, the average annual costs of college tuition and fees in the United States were $10,560 for in-state public colleges, $27,020 for out-of-state public colleges, and $37,650 for private education, according to the College Board. This doesn’t include the cost of room and board, so you can see why paying for college is something many people have to plan strategically for. Kids grow up fast, so if you haven’t started thinking about college costs, here’s some information to get started. According to the College Board’s College Cost Calculator, today’s fifth grader today will need approximately $268,8832 to graduate from an average four-year private college by the year 2033. Scholarships, grants and federal loans can help, but many parents feel it is up to them to make sure that their kids can get the education they deserve. It is a mistake to save for your kids’ college costs while neglecting your own financial security. Plenty of parents submit a final tuition payment only to realize that they’ve saved nothing for retirement—without any time left to save more. It is a mistake to save for your kids’ college costs while neglecting your own financial security. So, first things first, make sure you’re saving enough for your own retirement. Then if you have money left over, think about tax-deferred college savings plans, such as 529 plans. A 529—named for the section of the tax code that allows for them—can be a great way to save for college because earnings are tax-free if used for qualified education expenses. Some states even allow you to deduct contributions from your state income tax, if you use your state’s plan. (While each state has its own plan, you can use any state’s plan, no matter where your child will go to college.) An alternative is to put money away in your own taxable savings accounts. Some investors prefer this method since it gives them more control over the money if things change, and may be more beneficial for financial aid. Your 40s are all about taking stock of how far you’ve come, re-adjusting your priorities, and getting ready for the next phase of life. By working on your financial goals now, you can gain peace of mind that allows you to concentrate on important things like family, friends, work, and the way you want to spend this rewarding decade of your life. Get a better handle on your 40s with Betterment. Betterment handles your investments so you don’t have to. We make it easy to roll over your retirement accounts (or get new accounts set up), and much of what we do is designed to help you save money on taxes. Our customer support team is available to answer questions, and we have licensed experts available to help you plan. Get started today. 1 Assuming taxable income of 100k, married filing jointly, the tax bracket of 22% applying to the 2021 taxable income Bracket of 22% for $81,051 to $172,750, 1.45% medicare tax (2.9% split evenly by employees/employers), and 6.2% Social Security tax (12.4% split evenly by employees/employers). 2 Assuming 8 years remain until college, 4 years of attendance, 5% education inflation, average 4-year private college as of June 2021 ($42,224), full tuition covered by savings. The information in this article is provided solely for marketing and educational purposes. It does not address the details of your personal situation and is not intended to be an individualized recommendation that you take any particular action, including rolling over an existing account. When deciding whether to roll over a retirement account, you should carefully consider your personal situation and preferences. Specific factors that may be relevant to you include: available investment options, fees and expenses, services, withdrawal penalties, protections from creditors and legal judgments, required minimum distributions, and treatment of employer stock. Before deciding to roll over, you should research the details of your current retirement account, consult tax and other advisors with any questions about your personal situation, and review our Form CRS relationship summary and other disclosures. If you currently participate in a 401(k) plan administered or advised by Betterment (or its affiliate), please understand that this article is part of a general educational offering and that neither Betterment nor any of its affiliates are acting as a fiduciary, or providing investment advice or recommendations, with respect to your decision to roll over assets in your 401(k) account or any other retirement account. Betterment’s Licensed Concierge Team offers support for individuals transferring assets to Betterment of $100,000 or more, and receives incentive compensation based on assets brought to or invested with Betterment. Betterment’s revenue varies for different offerings (e.g., Betterment Digital and Premium) and consequently Team members have an incentive to recommend the offering which results in the greatest revenue for Betterment. The marketing and solicitation activities of these individuals are supervised by Betterment to ensure that these individuals act in the client’s best interest. Disclosure: Any links provided to other server sites are offered as a matter of convenience and are not intended to imply that Betterment or its writers endorse, sponsor, promote, and/or are affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated otherwise.

Portfolio Optimization: Our Secret to Driving Better Performance Jul 30, 2021 12:00:00 AM We optimally blend funds to pursue higher expected investor returns for each asset class. Many investors use a combination of tactics to try to get the best performance they can from their portfolios, including asset allocation, diversification and other risk management techniques. But the difference between Betterment and individuals who are trying to navigate this alone, is the complexity and the scale on which we can do this for you. When you invest with Betterment, you’re getting a professional portfolio that has fully integrated these tactics, delivering you an investment vehicle that's already been optimized. We integrate a number of sophisticated strategies that few people can implement on their own as part of our portfolio optimization, including maximizing upside potential and minimizing the downside risk for each of your investment goals. Building the portfolio We know any DIY investor can choose a bunch of funds with enough personal time spent on research, whether it's through Fidelity or Vanguard or some other platform. In fact, DIY investors can and do apply the lessons of many years of research with respect to picking funds, like only sticking with index funds, or favoring a value tilt. But for many people, spending a couple of days a month on investment research and management is either not of interest or a practical use of their time. The alternatives are paying for an advisor, or using a basic target date fund. The former is expensive, while the latter is inflexible to your needs, and can also be unnecessarily pricey. That's where our portfolio and service are ideal. At Betterment, we offer 101 customizable allocations to customers, ranging from 100% stocks to 100% short-term Treasuries. First, it's helpful to understand how we built our overall portfolio and what's inside. We started with a practical foundation based on Harry Markowitz's Nobel prize-winning research1 from the past seven decades. We began with the concept of diversifying as much as possible (Markowitz, Modern Portfolio Theory, 1950s), and then tilted toward value and small-cap stocks (Fama & French, 1970s). Since we know that most active mutual-fund managers tend to underperform, we then picked low cost, index-tracking, high liquidity ETFs for our portfolio. And because people often worry about potential losses about twice as much as potential gains (Kahneman, Prospect Theory, 2002), we worked on minimizing downside risk. Lastly, we assembled those funds in a way that gives you better performance by adding another level of analysis, or portfolio optimization. To do that, we used some of  the most recent quantitative models for asset allocation and downside risk to squeeze even more performance—or diversification alpha—out of these assets. Learn more about the funds in our portfolio. Driving performance The two modern techniques we used are the Black-Litterman model and a downside-risk optimization model. These two models complement each other like yin and yang—one model helps us optimize for the upside, while the other helps us see what the downside might look like. The Black-Litterman Model: This model allows us to generate forward-looking returns estimates —the upside—based on actual data that includes the collective intelligence of all investors around globe. To be sure, this is a general description of this model; there is also an academic view as well. This complex formula has a very basic insight at its core: it looks at how all investors around the world behave, and based on that information, creates a kind of global asset allocation model. This makes it a very good anchor of where all the world’s money is invested in the aggregate at any given time. The model was introduced in 1990 and refined over the next decade, and also helps make up for some of the shortcomings in the classic Modern Portfolio Theory, which can underestimate the diversification benefits of some asset classes. Read more about our diversification strategy. In addition, Black-Litterman is the way to avoid a so-called home bias in investing. This refers to the preference investors have for favoring assets that are “close to home”, contra evidence that would suggest a more global allocation. In other words, it's a tool for using empirical evidence to make investing decisions, with no reference to regional likes or dislikes. U.S. stock markets are only about 48% of the world stock market—the remainder is international developed (43%) and emerging markets (9%). You can see this breakdown in the MSCI All-Country World Index. Minimizing potential for loss Downside Risk and Uncertainty Optimization: Modeling for worst-case scenarios allows us to generate forward-looking views of potential downside risk and uncertainty based on the combination of the historical returns of our chosen assets. When we model our future expected returns we want to know two things — what is the frontier for expected outcomes and what is the frontier for worse than expected scenarios (e.g. everything from a mild downturn to a massive drawdown). With this model, we can evaluate a full range of future outcomes.  We can also stress-test our allocations through negative market scenarios to get an idea of how severe a drawdown could be, and what duration. We can also factor in the role our continuous, algorithm-based investment management will play, primarily via automatic rebalancing. The results An easy way to see the value-add of our strategies is to look at the difference between our efficient frontier and that of a so-called "naive" portfolio, one that is made up of only the S&P 500 and an index tracking all U.S. bonds (AGG). The expected returns of Betterment's portfolio significantly outperform a basic two-fund portfolio for every level of risk. This result is a function of portfolio optimization, along with our well-crafted selection of assets and funds. Even if it's clear that these strategies are out of reach for virtually all DIY investors, you might ask: why doesn't every advisor do portfolio optimization? There are several reasons. One is the issue of quantitative capacity—these methods are mathematically complex with multiple moving parts (that's why our investing team includes experts in mathematics, statistics and economics.) Second, portfolio optimization is time consuming—whenever a new asset class become available (FX-hedged international bonds, for example), or funds change their expense ratios, an advisor needs to rerun the optimization. Lastly, there's the cost of updating portfolios—we have built a sophisticated proprietary trading platform that automates these calculations on an ongoing basis, meaning that if we update our optimization, all our customers can instantly benefit. A traditional advisor would have to process many of these changes by hand. As you can see, investing well is not just a matter of picking the right funds—it's also a matter of applying some serious computing power to squeeze out optimal performance. For you, the result of this portfolio optimization is the security of knowing that for any level of risk you select, we've done a careful evaluation to provide the optimal risk-adjusted performance, and your portfolio is re-optimized on an ongoing basis. 1Markowitz, H., "Portfolio Selection".The Journal of Finance, Vol. 7, No. 1. (Mar., 1952), pp. 77-91.

Betterment’s Retirement Advice Tools Explained Jul 29, 2021 12:00:00 AM Betterment aligns our investment advice with what it’s really like to pursue your financial goals. Learn about our retirement planning advice and how it can help you. TABLE OF CONTENTS Define What Retirement Means To You Setting Up Your Retirement Projections At Betterment Understanding Betterment’s Recommendations Taking Action Savings towards retirement is one of the most popular reasons people use Betterment. This makes sense, since almost everybody dreams of retiring some day (or at least having the option to quit working or switch careers, if they choose). That’s why Betterment offers retirement tools in your account that allow you to define what retirement means to you, and then run projections that give guidance on whether your goal is on-track or off-track. Our advanced projections include key inputs like Social Security, inflation, life expectancy, and even investment accounts not held at Betterment. Once you have your retirement projections setup in your retirement goal, Betterment will give you personalized advice on how much you should be saving towards retirement, which accounts are most optimal for you, and how you should be invested. You can even run different “what-if” scenarios to see how things like retiring earlier, or saving more, affect your projections. Of course, we make it easy for you to then take action and make your money work for you. For example, you can open various types of retirement accounts. You can also enable our many automated tools to help you save more, manage your investments, and manage taxes. We even work to make rolling over other retirement accounts as easy as possible. Let’s walk through each of these areas in more detail, so you can learn how to make the most of Betterment’s retirement planning tools. Define what retirement means to you. Each person’s retirement plan is unique. That’s why we allow you to tell us how and when you’d like to retire, and then we shape our advice around those inputs. Afterall, our advice will be very different if you plan on retiring at age 55 vs. age 75. This is what we call goal-based investing, where you tell us your various financial goals, and we give you advice on how to achieve them. For many individuals, the initial step of defining retirement can be difficult. This is understandable. We often hear questions like “how do I know how much money I’ll spend in retirement?” or “can I retire tomorrow?” Don’t worry. Betterment built tools to help you answer these tough questions. Once you open a retirement goal in your Betterment account, our retirement planning tool will walk you through how to estimate both your retirement spending and retirement age in order to set up your plan. Estimating Retirement Spending How much you would like to spend during your retirement is the most important driver of your retirement plan, but it is often the hardest part to predict. Maybe your kids will be independent by then, but health care may cost more. Maybe your house will be paid off, but you’ll also want to travel more. These are just a few examples of how some spending categories may decrease, while others may increase. If you’re one of the few who happen to have a good idea of what you’d like to spend during retirement, we allow you to simply input that number. For those who are unsure, we have a helpful calculator that will automatically estimate a spending number for you. This number can serve as a starting point, but you can always override it. We then estimate your retirement spending by running key data points through a spending estimate formula. This formula includes expected wage increases (which tend to be higher than general inflation), cost of living data for your particular zip code, and an estimated percentage of income used to support your lifestyle (i.e. spent on goods and services) based on data from individuals with similar income to you. While not an exhaustive list, these data points provide a useful spending overview that are factored into our advice. Estimating Retirement Age When you’ll retire is also difficult to predict. The choice isn’t always yours to make either, as can be the case with unexpected health issues or being forced out of work. As with your retirement spending, if you have a particular retirement age in mind, you can simply enter it into our system. For those who are unsure, we default you to age 68, which is just beyond Full Retirement Age (FRA), as defined by the Social Security Administration, for many of our customers. Making Changes And Updates We know that life happens, and things change. The retirement plan you set up in your 30’s or 40’s may become outdated. That’s why we build flexibility into our retirement projections, and allow you to make changes to your plan. You can easily update your desired retirement spending or desired retirement age at any time. When you do, we will automatically update our projections based on your new inputs. This way, you can ensure your retirement plan is always up-to-date. In fact, we encourage you to review your retirement projections periodically for this exact reason. As a general guideline, you should review your retirement projections once per year, or after any major life event like a promotion, change in marital status, birth of a child, or other similar event. Setting Up Your Retirement Projections At Betterment Now that you’ve defined what retirement means to you, it’s time to run some projections and determine if you seem on-track or off-track to meet your retirement goal. Betterment will calculate this for you, but first we need to gather some information about your situation. The more information you tell us, the more accurate our corresponding projections can be. Existing Savings: Tell us which accounts you already have for retirement, so we can give you credit for the savings you already have. This should not include accounts that are set aside for other purposes, like emergency funds, buying a house, or your kid’s college. But it should include retirement accounts, even if they are not held at Betterment. Common examples of this are 401(k)s and your spouse’s retirement accounts as well. We recommend syncing these accounts to your Betterment account. Planned Future Savings: We can also factor in future retirement savings that you expect to make. Under each account, you can tell us how much you plan to contribute per year. You can even include employer matches, if applicable, to your workplace retirement accounts. Social Security Benefits: Social Security plays a key role in retirement for millions of Americans. We use your current income to estimate Social Security benefits according to the U.S. Social Security Administration’s benefit rules. We also adjust expected Social Security benefits based on projections from the Trustees Report. However, this is just an estimate, and you may prefer to instead login to your online Social Security account to view your official estimate and use that instead. Other Retirement Income: Some individuals may have other sources of retirement income, such as a pension or rental income. If this applies, you can enter that information into your projection inputs as well. Life Expectancy: We default your life expectancy to age 90, which is a conservative estimate compared to average life expectancies. Women tend to live longer than men, so keep this in mind as you adjust your retirement plan. You can always override our default age, if you’d like. With all of these inputs, your retirement plan should be personalized to your situation. We then use our Goal Projection and Advice methodology to estimate if you appear to be on-track to reach your retirement goal or not. If you’re off-track, that’s okay. We’ll give you recommendations to get on-track, and make it easy to take action on those recommendations. We don’t expect change to happen overnight, and even knowing where you stand is a great first step. Understanding Betterment’s Recommendations With your retirement projections in place, Betterment can now give you personalized recommendations to help you get on-track, or even if you are already on-track, to help maximize your savings and investments. The recommendations we give should answer many common questions we hear from customers, such as: How much should I be saving? Which accounts should I contribute to? How should I be invested? How much should I be saving? One of the most important recommendations we can give is telling you how much we estimate you should be saving per year to be on-track for retirement. Betterment will give you this top line number so that you have a target in mind to strive towards. Which accounts should I contribute to? For many people, you will need to combine multiple accounts to reach your goals and optimize your savings. Once you know how much you should be saving, we will also tell you which mix of accounts you should be putting those savings into, and show that to you in a prioritized list. This list includes things like tax bracket, employer match info, account fees, contribution limits, and more. This helps make sure your money is working as hard as possible for you. In particular, the use of tax-advantaged retirement accounts are an important benefit to consider when saving for retirement. Contributions to Traditional 401(k), Traditional 403(b), and Traditional IRA accounts are typically tax-deductible, which means you contribute on a pre-tax basis and normally don’t pay taxes until you make withdrawals. Contributions to Roth 401(k), Roth 403(b), and Roth IRA accounts are not tax-deductible, which means you contribute on an after-tax basis but they grow tax-free. How you contribute to your retirement accounts now can make a big difference over time. The earlier you invest, the more possibility there is for your investments to appreciate. This is especially true for retirement savings, because when you use tax-advantaged retirement accounts, such as IRAs or 401(k)s, all that time spent in the market can lead to benefits in tax-free growth. How should I be invested? Another critical component of your retirement plan is making sure you are invested appropriately. Betterment’s tools will give you feedback on key areas of your investments, even on your non-Betterment accounts. Our tools will give you feedback on how risky your investments are and if that risk level is appropriate given your time horizon to retirement. As a default for our recommended actions, if you have 20 or more years until you retire, we recommend 90% stocks. Then, our investment advice reduces your risk over time until your retirement date, when it hits 56% stocks. Finally, it glides down to 30% stocks during retirement. Our tools will also analyze your external accounts to determine if you seem to be paying more fees than you have to, and if you have too much cash sitting in your retirement accounts. Taking Action Even the best retirement plan won’t do you much good if you don’t take action. With Betterment’s smooth interface and powerful automation, taking action has rarely been easier. Open multiple retirement accounts: Many people can benefit from having multiple retirement accounts, like Roth and Traditional accounts. This can help you optimize for taxes and save beyond the contribution limits that some accounts have. Enable tax management algorithms: Optimizing for taxes can help your money work harder for you. Betterment is known for our advanced tax strategies like tax loss harvesting and tax coordination, which can both be put on autopilot in your Betterment accounts at the flip of a switch. Select a portfolio strategy: Betterment offers multiple portfolio strategies, which allow you to customize your investments and choose the strategy that best fits your needs and preferences. Enable investment management algorithms: Betterment allows you to automate many areas of investment management like rebalancing and auto-adjusting your investments over time. Roll over retirement accounts: Consolidating your investment accounts into Betterment may help you ensure your retirement portfolio is working together in a seamless, automated manner. Enable automatic deposits: Making retirement savings automatic can help you save more, and make maxing out your retirement accounts easier. Add beneficiaries: Adding beneficiaries can help ensure your money goes where you want it to, even after you pass away. All of these actions are important in setting up a comprehensive retirement plan that incorporates savings, investments, taxes, and more. Generally speaking, the earlier you start, the better off you’ll be. Start taking the above actions to set up your retirement plan at Betterment today.

How We Built 3 New Socially Responsible Investing Portfolios Jul 27, 2021 12:00:00 AM Betterment is moving the category forward for socially responsible investors by offering three SRI portfolios that are fully diversified and keeps costs low. It makes sense that some investors try to align their investments with the values and social ideals that shape their worldview. The way you live, the career you choose, and the people you care about align with your personal values; shouldn’t your investments do the same? Socially responsible investing (SRI) is an approach to investing that reduces exposure to companies that are deemed to have a negative social impact—e.g., companies that profit from poor labor standards or environmental devastation—while increasing exposure to companies that are deemed to have a positive social impact—e.g., companies that foster inclusive workplaces or commit to environmentally sustainable practices. The Betterment SRI portfolio strategy aims to maintain the diversified, low-fee approach of Betterment’s Core portfolio while increasing investments in companies that meet SRI criteria. Betterment has constructed three SRI portfolios, each with a different focus within the realm of Environmental, Social, and Governance (ESG) investing. Betterment’s Broad Impact portfolio offers increased exposure to companies that rank highly on all ESG criteria equally, while Betterment’s Climate and Social Impact portfolios focus on increasing exposure to companies with positive impact on a specific subset of ESG criteria. To learn more about how and why we’ve built the Betterment SRI portfolios, read on to the following sections. The technical details of our approach can be found in our full portfolio methodology as well as in our SRI disclosures. Why Did Betterment Develop SRI Portfolios? Betterment is dedicated to offering a personalized experience for our customers. This means providing options that help customers align our advice to their personal values. We decided to develop SRI portfolios because, currently, there are three major ways that investors attempt to execute an SRI strategy, and none meets an investor’s full needs: Some investors buy SRI mutual funds, settling for unreasonably high fees compared to performance and often losing out on important tax and cost optimization opportunities. Others opt for one of several SRI-specific investment managers whose SRI portfolios may fulfill the investors’ desire for SRI screening but do not always provide proper diversification against risk. Still others try to pick their own basket of SRI investments—a challenging, time-intensive, and inaccessible approach for most everyday investors. We set out to do better for SRI investors. You should not have to choose between holding an SRI portfolio and following a low-cost, diversified investment strategy with tax optimization in order to make sure your investments reflect your personal values. The Betterment SRI portfolio strategy is designed to achieve this balance. We allow socially conscious investors to express that preference in their portfolios without sacrificing the aspects of Betterment’s advice that protect their returns the most: proper diversification, tax optimization, and cost control. What Is Betterment’s Approach To SRI? While SRI has been around for decades, especially for institutions like churches and labor unions, the SRI funds available to individual investors have only emerged in the last 20 to 30 years. And most of these SRI products have been actively-managed mutual funds with high fees. Only recently have lower cost options, like ETFs for SRI, emerged in the market. As we developed each of Betterment’s SRI portfolios, we analyzed all low-cost ETFs available which align with the SRI mandate of each portfolio, searching for products that could replace components of our core strategy without disrupting the diversification or cost of the overall portfolio. In each of our SRI portfolios, some bond asset classes are not replaced with an SRI alternative either because an acceptable alternative doesn’t yet exist or because the respective fund’s fees or liquidity levels make for a prohibitively high cost to our customers. Broad Impact Portfolio In 2017, we launched our original SRI portfolio offering, which we’ve been steadily improving over the years. With this release, our original SRI portfolio benefits from a number of additional enhancements, and becomes our “Broad Impact” portfolio, to distinguish it from the new specific focus options, Climate Impact and Social Impact. As we’ve done since 2017, we continue to iterate on our SRI offerings, even if not all the fund products for an ideal portfolio are currently available. Figure 1 shows that we have increased the allocation to funds screened for ESG criteria each year since we launched our initial offering. Today all primary stock ETFs used in our Broad Impact, Climate Impact, and Social Impact portfolios are screened for some ESG criteria. 100% Stock Allocation in the Broad Impact Portfolio Over Time Figure 1. Calculations by Betterment. Portfolios from 2017-2019 represent Betterment’s original SRI portfolio. The 2020 portfolio represents a 100% stock allocation of Betterment’s Broad Impact portfolio. As additional SRI portfolios were introduced in 2020, Betterment’s SRI portfolio became known as the Broad Impact portfolio. As your portfolio allocation shifts to higher bond allocations, the percentage of your portfolio attributable to SRI funds decreases. Additionally, a 100% stock allocation of the Broad Impact portfolio in a taxable goal with Tax Loss Harvesting enabled may not be comprised of all SRI funds because of the lack of suitable secondary and tertiary SRI tickers in the developed and emerging market stock asset classes.  Betterment’s Broad Impact portfolio is Betterment’s general ESG investing option. The portfolio seeks to give investors greater exposure to all of the different dimensions of social responsibility, such as lower carbon emissions, ethical labor management, or greater board diversity. By investing in funds that consider all aspects of ESG investing, we create a portfolio that grades well with respect to a number of dimensions that socially responsible investors consider when making investment decisions. When creating the Broad Impact portfolio, the asset classes (i.e., portfolio component) that we can confidently replace with an SRI alternative are: U.S. Stocks Emerging Market Stocks Developed Market Stocks U.S. High Quality Bonds U.S. Investment Grade Corporate Bonds Five asset classes use SRI-specific funds—the rest remain similar to the Betterment Core portfolio—and that difference has an impact on the social responsibility of your overall portfolio. For one, many investors are most concerned about the social responsibility of the largest U.S. companies in their portfolios, which often set standards for acceptable corporate behavior that other companies try to emulate. In our Broad Impact SRI portfolio, stocks of companies deemed to have strong social responsibility practices, such as Microsoft, Google, Proctor & Gamble, Merck, CocaCola, Intel, Cisco, Disney, and IBM may make up a larger portion of the SRI portfolio than they do for Betterment’s Core portfolio. In addition, a major reason why there are no acceptable SRI alternatives for other asset classes is that the demand for these products has not been sufficient to encourage fund managers to create them. By electing to use the Betterment SRI portfolio strategy, you signal to the investing world that there is a demand for high quality SRI investment options and may help to encourage the development of well-diversified, low-cost SRI funds in a wider variety of asset classes. If you’re interested in a more quantitative understanding of how the Broad Impact portfolio compares to our Core portfolio in terms of social responsibility, you can review the SRI ratings published by MSCI, shown below. MSCI’s ratings for the SRI funds used in Betterment’s SRI portfolio are higher than the ratings for the funds used in the Betterment portfolio. For more information on what the numbers mean, read our full whitepaper. MSCI ESG Quality Scores U.S. Stocks Betterment Core Portfolio: 5.94 Betterment Broad Impact Portfolio: 7.31 Emerging Markets Stocks Betterment Core Portfolio: 4.22 Betterment Broad Impact Portfolio: 6.31 Developed Markets Stocks Betterment Core Portfolio: 6.81 Betterment Broad Impact Portfolio: 8.33 US High Quality Bonds Betterment Core Portfolio: 6.13 Betterment Broad Impact Portfolio: 6.91 Sources: MSCI ESG Quality Scores courtesy of etf.com, values accurate as of August 25, 2020 and are subject to change. In order to present the most broadly applicable comparison, scores are with respect to each portfolio’s primary tickers exposure, and exclude any secondary or tertiary tickers that may be purchased in connection with tax loss harvesting. Climate Impact Portfolio Betterment’s Climate Impact portfolio offers investors an SRI portfolio that is more focused on being climate-conscious rather than focused on all ESG dimensions equally like the Broad Impact portfolio. The portfolio achieves this objective by investing in ETFs with a specific focus on mitigating climate change. When compared to the Core portfolio, all of the stock positions have been replaced with more climate-conscious alternatives. Half of the stocks in the portfolio are invested in a global low-carbon stock ETF, which systematically overweights companies with lower carbon emissions, while also underweighting their high-carbon emitting peers. The other half of the stocks in the portfolio are invested in fossil fuel reserve free ETFs. These ETFs replicate broad market indices, while divesting from owners of fossil fuel reserves, defined as crude oil, natural gas, and thermal coal. By investing in the Climate Impact portfolio, investors are actively divesting assets away from holders of fossil fuel reserves while cutting their investments’ carbon emissions. Carbon emissions per dollar of revenue in the 100% stock Climate Impact portfolio are half of those in the 100% stock Betterment Core portfolio, based on weighted average carbon intensity data from MSCI. The other change from the Core portfolio, is that the Climate Impact portfolio replaces our International Developed Bond and US High Quality Bond exposure by investing in a global green bond ETF. Green bonds, as defined per MSCI, fund projects that support alternative energy, energy efficiency, pollution prevention and control, sustainable water, green building, and climate adaptation. Social Impact Portfolio Betterment’s Social Impact portfolio offers investors an SRI portfolio that is more focused on supporting social equity and minority empowerment compared to the Broad Impact portfolio. The portfolio achieves this objective by augmenting the ESG exposure achieved in the Broad Impact portfolio with two additional ETFs each with a unique focus on diversity, NACP and SHE. NACP is a U.S. stock ETF offered by Impact Shares that tracks the Morningstar Minority Empowerment Index. The National Association for the Advancement of Colored People (NAACP) has developed a methodology for scoring companies based on a number of minority empowerment criteria. These scores are used to create the Morningstar Minority Empowerment Index, an index which seeks to maximize the minority empowerment score while maintaining market-like risk and strong diversification. The end result is an index which provides greater exposure to US companies with strong diversity policies that empower employees irrespective of race or nationality. By investing in NACP, investors are allocating more of their money to companies with a better track record of social equity as defined by the NAACP. SHE is a US Stock ETF that allows investors to invest in more female-led companies compared to the broader market. In order to achieve this objective, companies are ranked within each sector according to their ratio of women in senior leadership positions. Only companies that rank highly within each sector are eligible for inclusion in the fund. By investing in SHE, investors are allocating more of their money to companies that have demonstrated greater gender diversity within senior leadership than other firms in their sector. Let’s Make Investing More Socially Responsible As you review our SRI portfolios, you might ask yourself, “Is it more important that my portfolio is well-diversified with reasonable costs, or should my money be exclusively invested in SRI funds, regardless of the cost or level of diversification?” These are insightful questions that get at the heart of the tradeoffs involved in socially responsible investing today. Currently, most accessible SRI approaches make investors choose between a well-diversified, low-cost portfolio and an inadequately diversified and/or higher cost portfolio comprised of SRI funds. Diversification and controlled costs are investing fundamentals that all investors—SRI or not—deserve. They’re principles that live at the heart of fiduciary advice. The only reason other SRI solutions settle for higher costs and less diversification is because the industry isn’t challenged to offer something better. We at Betterment believe we can create a future that does not ask SRI investors to choose. We are committed to achieving more socially responsible investing through our research over time and are tracking the availability of better vehicles for these purposes. Since originally launching the legacySRI portfolio in 2017 (and now the Broad Impact portfolio) with ESG exposure to only U.S. large cap stocks, we’ve been able to expand the exposure to now cover also developed market stocks, emerging market stocks, and US high quality bonds. We’ve also been able to launch the Climate and Social Impact portfolios which add exposure to focused ESG issues by allocating to assets such as green bonds or gender-diverse U.S. Stocks. As always, we will continue to monitor additional ways to improve our portfolios. In the future, we will improve our SRI portfolio even further, iterating and adding new SRI funds that satisfy our cost and diversification requirements as they become available. Get started with the Betterment SRI Portfolio. Get started with our approach to SRI today, and join us as we work to expand our SRI approach together. If you don’t yet have a Betterment account, open an account to explore the portfolio options available to you. If you already have a Betterment account, you can enable a SRI portfolio when adding a new goal or by updating your existing goal’s portfolio strategy via the “Portfolio Analysis” tab of your Betterment account. Once on your “Portfolio Analysis” tab, you will see an “edit” option under the “Portfolio Strategy” section. Once you select “edit” you will be sent to the “Portfolio Strategy” flow where you can opt into a SRI portfolio.

ETF Selection For Portfolio Construction: A Methodology Jul 27, 2021 12:00:00 AM Betterment seeks to maximize investor take-home returns, which drives our criteria and process for selecting ETFs (the funds in your portfolio). TABLE OF CONTENTS Why ETFs ETF Selection Total Annual Cost of Ownership Mitigating Market Impact Conclusion One of Betterment’s central objectives is to help investors achieve the best possible take-home returns. At the most fundamental level, we do this through the allocation advice we provide for every portfolio. However, another key component of performance is the investment vehicles we use in our portfolio. They are an essential—but often overlooked—element in maximizing the risk-adjusted, after-tax, net-of-costs return for our customers. In the following piece, we detail Betterment’s investment selection methodology, including: Why we use exchange-traded funds (ETFs) Why expense ratios are not the whole story How Betterment estimates an investment vehicle’s total annual cost of ownership (TACO). Why Do We Invest in ETFs? An ETF is a security that generally tracks a broad-market stock or bond index or a basket of assets just like an index mutual fund, but trades just like a stock on a listed exchange. By design, index ETFs closely track their benchmarks—such as the S&P 500 or the Dow Jones Industrial Average—and are bought and sold like stocks throughout the day. Betterment only uses open-ended ETFs (which carry no restrictions around issuing or redeeming shares) as they have many embedded structural advantages when compared to mutual funds. These include: Clear Goals and Mandates Unlike many actively managed mutual funds, the ETFs we use have definite mandates to passively track broad-market benchmark indexes. A passive mandate explicitly restricts the fund administrator to the singular goal of replicating a benchmark rather than making active investment decisions constituting market timing, building concentration in either a single name, group of names, or themes in an effort to beat the fund’s underlying benchmark. Adherence to this mandate ensures the same level of investment diversification as the benchmark indexes, makes performance more predictable, and reduces idiosyncratic risk associated with active manager decisions. Intraday Availability ETFs are transactable during all open market hours just like any other stock. As such, they are heavily traded by the full spectrum of equity market participants including market makers, short-term traders, buy-and-hold investors, and fund administrators themselves creating and redeeming units as needed (or increasing or decreasing the supply of ETFs based on market demand). This diverse trading activity leads to most ETFs carrying low liquidity premiums (or lower costs to transact due to competition from readily available market participants pushing prices downward) and equity-like transaction times irrespective of the underlying holdings of each fund. This generally makes ETFs fairly liquid, which makes them cheaper and easier to trade on-demand for activities like creating a new portfolio or rebalancing an existing one. In comparison, mutual funds transact only once per day, which introduces significant lag between desired and filled price. Moreover, certain portfolio management strategies like tax loss harvesting require liquid securities that trade more than once a day. Low and Unbiased Fee Structures Below is the expense ratio for the 70% stock Betterment IRA portfolio in 50% primary and 50% secondary tickers and the asset-weighted average expense ratio for all ETFs. Expense Ratio Comparison The chart above compares the asset-weighted expense ratios of the Betterment Portfolio Strategy versus the average ETF, based on data collected by the Investment Company Institute in their 2018 Factbook. The range for average expense ratios of Betterment’s recommended portfolios at the time of this 2018 comparison was 0.07% to 0.15%, depending on allocation. Note that the range is subject to change depending on current fund prices. Because most benchmarks update constituents (i.e., the specific stocks and related weights that make up a broad-market index) fairly infrequently, passive index-tracking ETFs also register lower annual turnover (or the rate a fund tends to transact its holdings) and thus fewer associated costs passed through to investors. In addition, ETFs are generally managed by their administrators as a single share class that holds all assets as a single entity. This structure naturally lends itself as a defense against administrators practicing fee discrimination across the spectrum of available investors. As an example, some index-tracking mutual fund administrators segment their funds into several share classes where institutional and high net-worth investors can secure lower fees and more lenient terms in exchange for investing a higher amount upfront. Retail investors with lower available investment balances are funneled into higher fee share classes with more stringent terms. By comparison, with only one share class, ETFs are investor-type agnostic. The result is that ETF administrators provide the same exposures and low fees to the entire spectrum of potential buyers. The fund and administration structure of ETFs also eliminates concerns stemming from potential conflict of interest in the standard sales and access channels utilized by mutual funds. While mutual funds can be sold directly to investors by their administrators, most investments in mutual funds are recommended and placed through a multi-tiered sales and distribution network. Each layer of the network tacks on a host of opaquely documented fees. These fee amounts are entirely non-standard across funds and networks, and are largely the result of negotiations between marketing and sales executives who are divorced from the investment functions of the fund administrators. These network fees come in the form of front and back loaded costs, or immediate one-time fees assessed for initial investment or redemptions. Sales channels are subject to compensation incentives that tend to favor investment recommendations that yield allocation to funds where they can collect more fees over selections that might ultimately be in the best interest of their clients. Tax Efficiency In the case when a fund (irrespective of its specific structure) sells holdings that have experienced capital appreciation, the capital gains generated from those sales must, by law, be accrued and distributed to shareholders by year-end in the form of distributions. These distributions increase tax liabilities for all of the fund’s shareholders. With respect to these distributions, ETFs offer a significant tax advantage for shareholders over mutual funds. Because mutual funds are not exchange traded, the only available counterparty available for a buyer or seller is the fund administrator. When a shareholder in a mutual fund wishes to liquidate their holdings in the fund, the fund’s administrator must sell securities in order to generate the cash required to satisfy the redemption request. These redemption-driven sales generate capital gains that lead to distributions for not just the redeeming investor, but all shareholders in the fund. Mutual funds thus effectively socialize the fund’s tax liability to all shareholders, leading to passive, long-term investors having to help pay a tax bill for all intermediate (and potentially short-term) shareholder transactions. Because ETFs are exchange traded, the entire market serves as potential counterparties to a buyer or seller. When a shareholder in an ETF wishes to liquidate their holdings in the fund, they simply sell their shares to another investor just like that of a single company’s equity shares. The resulting transaction would only generate a capital gain or loss for the seller and not all investors in the fund. Mutual fund distributions are generally decided by the fund administrator and can introduce material variability in an investor’s tax profile. ETF tax profiles are fairly static with most of the tax realization/deferral control being held by the individual investor. In addition, ETFs enjoy a slight advantage when it comes to taxation on dividends paid out to investors. After the passing of the Jobs and Growth Tax Relief Reconciliation Act of 2003, certain qualified dividend payments from corporations to investors are only subject to the lower long-term capital gains tax rather than standard income tax (which is still in force for ordinary, non-qualified dividends). Qualified dividends have to be paid by a domestic corporation (or foreign corporation listed on a domestic stock exchange) and must be held by both the investor and the fund for 61 of the 120 days surrounding the dividend payout date. As a result of active mutual funds’ higher turnover, a higher percentage of dividends paid out to their investors violate the holding period requirement and increase investor tax profiles. Investment Flexibility The maturation and growth of the global ETF market over the last two decades has led to the development of an immense spectrum of products covering different asset classes, markets, styles, and geographies. The result is a robust market of potential portfolio components which are versatile, extremely liquid, and easily substitutable. ETFs Have Seen Significant Growth   Source: Investment Company Institute 2016 Investment Company Fact Book, Chapter 3: Exchange-Traded Funds, Figure 3.2 Selecting Across the ETF Universe Despite all the advantages of ETFs, it is still important to note that not all ETFs are exactly alike or equally beneficial to an investor. The primary task of Betterment’s investment selection process is to pick the set of funds or vehicles that provide exposure to the desired asset classes with the least amount of difference between underlying asset class behavior and portfolio performance. In other words, we attempt to minimize the “frictions” (the collection of systematic and idiosyncratic factors that lead to performance deviations) between ETFs and their benchmarks. The principal component of frictions between tracked asset classes and investor returns is the fund’s expense ratio: The higher the expenses charged to the investor, the lower the resulting returns that pass through. However, relying on just expense ratio to make an instrument selection could yield to a less efficient portfolio. There are other material frictions that factor in that Betterment also considers, discussed below. Betterment’s measure of these frictions is summarized as the total annual cost of ownership, or TACO: a composition of all relevant frictions used to rank and select ETF candidates for the Betterment portfolio. Total Annual Cost of Ownership The total annual cost of ownership (TACO) is Betterment’s fund scoring method, used to rate funds for inclusion in the Betterment portfolio. TACO takes into account an ETF’s transactional and liquidity costs as well as costs associated with holding funds. TACO is determined by two components, or frictions as mentioned above, and they are a fund’s cost-to-trade and cost-to-hold. The first, cost-to-trade, represents the cost associated with trading in and out of funds during the course of regular investing activities, such as rebalancing, cash inflows or withdrawals, and tax loss harvesting. Cost-to-trade is generally influenced by two factors: Volume: A measure of how many shares change hands each day. Bid-ask spread: The difference between the price at which you can buy a security and the price at which you can sell the same security at any given time. The second component, cost-to-hold, represents the annual costs associated with owning the fund and is generally influenced by these two factors: Expense ratios: Fund expenses imposed by an ETF administrator. Tracking difference: The deviation in performance from the fund’s benchmark index. Let’s review the specific inputs to each component in more detail: Cost-to-Trade: Volume and Bid-Ask Spread Volume Volume is a historical measure of how many shares may change hands each day. This helps assess how easy it might be to find a buyer or seller in the future. This is important because it tends to indicate the availability of counterparties to buy (e.g., when Betterment is selling ETFs) and sell (e.g., when Betterment is buying ETFs). The more shares of an ETF Betterment needs to buy on behalf of our customers, the more volume is needed to complete the trades without impacting market prices. As such, we measure average market volume for each ETF as a percentage of Betterment’s normal trading activity. Funds with low average daily trading volume compared to Betterment’s trading volume will have a higher cost, because Betterment’s higher trading volume is more likely to influence market prices. Bid-Ask Spread Generally market transactions are associated with two prices: the price at which people are willing to sell a security, and the price others are willing to pay to buy it. The difference between these two numbers is known as the bid-ask spread, and can be expressed in currency or percentage terms. For example, a trader may be happy to sell a share at $100.02, but only wishes to buy it at $99.98. The bid-ask currency spread here is $.04, which coincidentally also represents a bid-ask percentage of 0.04%. In this example, if you were to buy a share, and immediately sell it, you’d end up with 0.04% less due to the spread. This is how traders and market makers make money—by providing liquid access to markets for small margins. Generally, heavily traded securities with more competitive counterparties willing to transact will carry lower bid-ask spreads. Unlike the expense ratio, the degree to which you care about bid-ask spread likely depends on how actively you trade. Buy-and-hold investors typically care about it less compared to active traders, because they will accrue significantly fewer transactions over their intended investment horizons. Minimizing these costs is beneficial to building an efficient portfolio which is why Betterment attempts to select ETFs with narrower bid-ask spreads. Cost-to-Hold: Expense Ratio and Tracking Difference Expense Ratio An expense ratio is the set percentage of the price of a single share paid by shareholders to the fund administrators every year. ETFs often collect these fees from the dividends passed through from the underlying assets to holders of the security, which result in lower total returns to shareholders. Since expenses are a principal component in reducing investor returns, ETFs with higher expenses generally tend to perform worse. For context, a Betterment 70% equity tax-advantaged portfolio contains ETFs with expense ratios that average to 0.11%. Tracking Difference Tracking difference is the underperformance or outperformance of a fund relative to the benchmark index it seeks to track. Funds may deviate from their benchmark indexes for a number of reasons, including any trades with respect to the fund’s holdings, deviations in weights between fund holdings and the benchmark index, and rebates from securities lending. It’s important to note that, over any given period, tracking difference isn’t necessarily negative; in some periods, it could lead to outperformance. However, tracking difference can introduce systematic deviation in the long-term returns of the overall portfolio when compared purely with a comparable basket of benchmark indexes other than ETFs. Finding TACO We calculate TACO as the sum of the above components: TACO = "Cost-to-Trade" + "Cost-to-Hold" As mentioned above, cost-to-trade estimates the costs associated with buying and selling funds in the open market. This amount is weighted to appropriately represent the aggregate investing activities of the average Betterment customer in terms of cash flows, rebalances, and tax loss harvests. The cost-to-hold represents our expectations of the annual costs an investor will incur from owning a fund. Expense ratio makes up the majority of this cost, as it is the most explicit and often the largest cost associated with holding a fund. We also account for tracking difference between the fund and its benchmark index. In many cases, cost-to-hold, which includes an ETF’s expense ratio, will be the dominant factor in the total cost calculations. Of course, one can’t hold a security without first purchasing it, so we must also account for transaction costs, which we accomplish with our cost-to-trade component. Minimizing Market Impact Market impact, or the change in price caused by an investor buying or selling a fund, is incorporated into Betterment’s total cost number through the cost-to-trade component. This is specifically through the interaction of bid-ask spreads and volume. However, we take additional considerations to control for market impact when evaluating our universe of investable funds. A key factor in Betterment’s decision-making is whether the ETF has relatively high levels of existing assets under management and average daily traded volumes. This helps to ensure that Betterment’s trading activity and holdings will not dominate the security’s natural market efficiency, which could either drive the price of the ETF up or down when trading. We define market impact for any given investment vehicle as the Betterment platform’s relative size (RSRS) in two key areas. Our share of the fund’s assets under managements is calculated quite simply as RS of AUM = ('AUM of Betterment' / 'AUM of ETF') while our share of the fund’s daily traded volume is calculated as RS Vol = ('Vol of Betterment' / 'Vol of ETF') Minimizing investor frictions is one of the core goals of the Betterment investment methodology. ETFs without an appropriate level of assets or daily trade volume might lead to a situation where Betterment’s activity on behalf of customers moves the existing market in the security. In an attempt to avoid potentially negative effects upon our investors, we do not consider ETFs with smaller asset bases and limited trading activity. Any market impact measure that does not satisfy our criteria disqualifies the security from consideration. Betterment Portfolio ETFs Account Type: Taxable Asset Class Ticker ETF Fund Name Index Expense Ratio U.S. Total Stock Market Primary VTI Vanguard Total Stock Market ETF CRSP U.S. Total Market 0.03% Alternate ITOT iShares Core S&P Total U.S. Stock Mkt ETF Dow Jones U.S. Broad Stock Market 0.03% U.S. Large-Cap Value Stocks Primary VTV Vanguard Value ETF CRSP U.S. Large Value 0.04% Alternate SPYV SPDR® Portfolio S&P 500 Value ETF S&P 500 Value 0.04% U.S. Mid-Cap Value Stocks Primary VOE Vanguard Mid-Cap Value ETF CRSP U.S. Mid Value 0.07% Alternate IWS iShares Russell Mid-Cap Value ETF Russell Midcap Value 0.24% U.S. Small-Cap Value Stocks Primary VBR Vanguard Small-Cap Value ETF CRSP U.S. Small Value 0.07% Alternate IWN iShares Russell 2000 Value ETF Russell 2000 Value 0.24% International Developed Stocks Primary VEA Vanguard FTSE Developed Markets ETF FTSE Developed ex U.S. All Cap Net Tax (U.S. RIC) Index 0.05% Alternate IEFA iShares Core MSCI EAFE ETF MSCI EAFE IMI 0.07% Emerging Market Stocks Primary VWO Vanguard FTSE Emerging Markets ETF FTSE Custom Emerging Markets All Cap China A Inclusion Net Tax (U.S. RIC) Index 0.10% Alternate IEMG iShares Core MSCI Emerging Markets ETF MSCI EM (Emerging Markets) IMI 0.11% Short-Term Treasuries Primary GBIL Goldman Sachs Access Treasury 0-1 Year ETF FTSE US Treasury 0-1 Year Composite Select Index 0.12% U.S. Short-Term Bonds Primary JPST JPMorgan Ultra-Short Income ETF N.A. 0.18% Inflation Protected Bonds Primary VTIP Vanguard Short-Term Infl-Prot Secs ETF Bloomberg Barclays U.S. Treasury TIPS (0-5 Y) 0.05% U.S. Municipal Bonds Primary MUB iShares National Muni Bond ETF S&P National AMT-Free Municipal Bond 0.07% Alternate TFI SPDR® Nuveen Blmbg Barclays Muni Bd ETF Bloomberg Barclays Municipal Managed Money 1-25 Years Index 0.23% U.S. High Quality Bonds Primary AGG iShares Core U.S. Aggregate Bond ETF Bloomberg Barclays U.S. Aggregate 0.04% International Developed Bonds Primary BNDX Vanguard Total International Bond ETF Bloomberg Barclays Global Aggregate x USD Float Adjusted RIC Capped 0.08% Emerging Market Bonds Primary EMB iShares JP Morgan USD Em Mkts Bd ETF JP Morgan EMBI Global Core Index 0.39% Alternate VWOB Vanguard Emerging Mkts Govt Bd ETF Bloomberg Barclays USD Emerging Markets Government RIC Capped Bond 0.25%   Account Type: IRA Asset Class Ticker ETF Fund Name Index Expense Ratio U.S. Total Stock Market Primary VTI Vanguard Total Stock Market ETF CRSP U.S. Total Market 0.03% Alternate SCHB Schwab US Broad Market ETF™ S&P TMI 0.03% U.S. Large-Cap Value Stocks Primary VTV Vanguard Value ETF CRSP U.S. Large Value 0.04% Alternate SCHV Schwab US Large-Cap Value ETF™ Dow Jones U.S. Total Stock Market Large-Cap Value 0.04% U.S. Mid-Cap Value Stocks Primary VOE Vanguard Mid-Cap Value ETF CRSP U.S. Mid Value 0.07% Alternate IJJ iShares S&P Mid-Cap 400 Value ETF S&P Mid Cap 400 Value 0.18% U.S. Small-Cap Value Stocks Primary VBR Vanguard Small-Cap Value ETF CRSP U.S. Small Value 0.07% Alternate SLYV SPDR® S&P 600 Small Cap Value ETF S&P Small Cap 600 Value 0.15% International Developed Stocks Primary VEA Vanguard FTSE Developed Markets ETF FTSE Developed ex U.S. All Cap Net Tax (U.S. RIC) Index 0.05% Alternate SCHF Schwab International Equity ETF™ FTSE Developed ex US Index 0.06% Emerging Market Stocks Primary VWO Vanguard FTSE Emerging Markets ETF FTSE Custom Emerging Markets All Cap China A Inclusion Net Tax (U.S. RIC) Index 0.10% Alternate SPEM SPDR® S&P Emerging Markets ETF S&P Emerging Markets BMI 0.11% Short-Term Treasuries Primary GBIL Goldman Sachs Access Treasury 0-1 Year ETF FTSE US Treasury 0-1 Year Composite Select Index 0.12% U.S. Short-Term Bonds Primary JPST JPMorgan Ultra-Short Income ETF N.A. 0.18% Inflation Protected Bonds Primary VTIP Vanguard Short-Term Infl-Prot Secs ETF Bloomberg Barclays U.S. Treasury TIPS (0-5 Y) 0.05% U.S. High Quality Bonds Primary AGG iShares Core U.S. Aggregate Bond ETF Bloomberg Barclays U.S. Aggregate 0.04% International Developed Bonds Primary BNDX Vanguard Total International Bond ETF Bloomberg Barclays Global Aggregate x USD Float Adjusted RIC Capped 0.08% Emerging Market Bonds Primary EMB iShares JP Morgan USD Em Mkts Bd ETF JP Morgan EMBI Global Core Index 0.39% Alternate PCY PowerShares Emerging Markets Sov Dbt ETF DB Emerging Market USD Liquid Balanced Index 0.50% Source: Cost information is from Xignite. Last updated May, 2021. Conclusion We are constantly monitoring our investment choices. Our selection analysis is run quarterly to assess the following: validity of existing selections, potential changes by fund administrators (raising or lowering expense ratios), and changes in specific ETF market factors (including tighter bid-ask spreads, lower tracking differences, growing asset bases, or reduced selection-driven market impact). We also consider the tax implications of portfolio selection changes and estimate the net benefit of transitioning between investment vehicles for our customers. The power of this methodology is how quickly it arrives at a total cost figure that synthesizes several dissimilar factors across many different candidate securities. The ability to quickly assess candidate suitability across the wider universe of potential options for each asset class is novel and incredibly useful in fulfilling our objectives of constantly providing a robust investment product, platform, advice, performance, and process control. We will continue to drive innovation when trying to improve investor take-home returns by finding ways to lower costs and frequently re-evaluating our portfolio choices. We use the ETFs that result from this process in our allocation advice that is based on your investment horizon, balance, and goal. ETFs are subject to market risk, including the possible loss of principal. The value of the portfolio will fluctuate with the value of the underlying securities. ETFs may trade for less than their net asset value (NAV). There is always a risk that an ETF will not meet its stated objective on any given trading day.

What To Do After A Market Drop Jul 27, 2021 12:00:00 AM Seeing a market dip is scary. We feel it, too. But it’s important to remind yourself that market drops are an expected, unavoidable part of investing. A sharp fall in stock prices, as we’ve seen recently, is usually accompanied by scary news headlines and red numbers. Modern media wants clicks and attention, and, unfortunately, fear sells. It’s hard to stay calm. We feel it, too. But our advice is simple and straightforward: Stay calm and make smart decisions to  support your longer-term goals. We knew there would be days like this, and we planned for it. Betterment portfolios are optimized for your time horizon. They’ll stay that way. If you’re tempted to take action, remember that this is why we created Betterment—to automatically plan for and handle market drops so that you wouldn’t have to worry about them. When you opened your Betterment account, we based our portfolio-allocation advice on the time horizon for each of your goals. That means each of your portfolios is properly adjusted for risk and takes into account the likelihood and magnitude of a downturn or below-average returns. We’ve planned on seeing some dips, and adjusted accordingly. Also remember that, as with many things in life, making decisions in the heat of the moment is probably not a good idea. Investing is no different. The more you check your account, the more likely  you are to see losses, and subsequently do something in reaction to a near-term drawdown. And reacting to market drawdowns is likely to  hurt your returns over the long term. Other experts agree: stay calm, do nothing. You don’t have to take my word for it. Listen to some of the most respected consumer advocates in personal finance. Jason Zweig, an esteemed columnist for The Wall Street Journal, put together a 2015 list of what not to do. Read it for yourself, but here’s an overview, put more positively: Turn off the news. Stay calm; don’t panic and sell. Use this as an opportunity to diversify. Remember that what matters is the outlook for the future, not a “correction.” Ignore most commentary; no one knows what will happen next. Ron Lieber of The New York Times knows what this feels like and puts forward six excellent points to consider: You are more diversified than just the S&P 500 and (should) have bonds. This drop is nothing compared to the gains the market has seen in the past six years. These portfolios were constructed when you weren’t anxious. You (should) have plenty of time to recover. If you’re worried about panicking, it’s better to reduce your risk (say, by 20% stocks) than to move to cash. Just know this likely means you’ll need to save more. This is completely normal. This is what markets do. Cass Sunstein, author of Nudge and an experienced investor in his own right, recommends to "have a diversified portfolio, consisting in large part of low-cost index funds, weighted toward equities; add money as you get it, and diversify it as well; keep the cash you need; and otherwise hold steady (and spend a lot of time with the sports pages)." Finally, legendary investor Warren Buffett gives perhaps the most concise advice about how risky markets feel, and what you should do: "The stock market is a device for transferring money from the impatient to the patient." Stay focused on the future, not the past. Let’s answer the key question on many people’s minds: How much worse have markets performed after a bad week (a 5% or worse drop in markets) historically? The answer: If anything, they appear to perform slightly better. Recent performance is simply not informative about what will happen next. The graph below shows the subsequent returns of the S&P 500, split by if the preceding week was “bad." We defined “bad” as any week with a loss of 5% or more. We have 48 of such weeks starting from the 1950s. (Analysis from 2015) Bad Weeks and Future Returns https://d1svladlv4b69d.cloudfront.net/src/js/returns-following-bad-weeks/index.html While it might seem like future returns are more variable after a bad week, this is likely because of the smaller sample size (there are 3,376 weeks that were not bad, for comparison). Indeed, if anything, it seems like bad weeks are followed by slightly better weeks. But we don’t recommend you bet on it; the odds of it going well are the same as the odds of it going poorly. Following 4 Weeks’ Return After Normal Weeks After Bad Weeks < -20% 0% 0% -20% to -10% 1% 8% -10% to 0 39% 30% 0 to 10% 59% 51% 10% to 20% 1% 8% 20% or More 0% 2% What We’re Doing to Help You Reach Your Goals We’re in an era of uncertainty; we always have been, and we always will be. Even if people say otherwise, no one knows what will happen, so there’s no use in projecting. We understand that it might feel necessary to try to correct what’s happened, but it’s just a distraction. The more important thing to do is focus on the future and staying properly invested. Tax Loss Harvesting+ Our Tax Loss Harvesting+ can help you capture any losses in your portfolio and use them to help lower your tax bill at the end of the year. You can offset up to $3,000 of ordinary income every year with tax losses, which can be a substantial savings. Tax-Aware Rebalancing Each of your goals has its own target asset allocation. We monitor every goal daily, and will rebalance when your goal’s allocation drift passes above our thresholds. This helps to maintain your selected allocation level and buys depreciated assets at a lower price. Our tax minimization algorithm seeks to select the lowest tax impact lots, and stops before selling any lots that would realize short-term capital gains when possible.  Keeping Your Goals on Track When your goals start to go off track, we’ll alert you. We may suggest either a one-time deposit or a slightly higher auto-deposit amount to make up for any market losses. However, it’s important to note that most people with longer-term goals will not fall off track. If you have to do something, do something productive. There are plenty of things you can do in response to a drop in markets that can have a positive effect on your portfolio, risk management, and chance of hitting your goals. Revisit your goals and plans. A good action to take would be to make sure your goals are properly aligned with your time horizon. For example, let’s take a 30-year retirement goal (target $1 million) with $85,000 rather than $100,000 due to a 15% drawdown. The drop has increased the monthly savings amount to $647, up $10 from $637 before the crash—hardly a game changer. But, that $10 makes a difference over the following 30 years, so check to see if any of your goals have gone off track and need to be replenished. Opportunistically Deposit to Fund Rebalancing A market drawdown is one of the most frequent causes of rebalances. The losing assets (often stocks) become underweight relative to the stable assets (bonds). Sell-based rebalances are an automatic and systematic way to buy lower and sell higher. However, in taxable accounts, selling can trigger capital gains and thus taxes, even if the asset is substantially below its all-time high. Betterment's tax minimization algorithm seeks to select the lowest tax impact lots, and stops before selling any lots that would realize short-term capital gains when possible. And you can avoid generating long-term capital gains by making opportunistic deposits during volatile times. This allows us to buy underweight assets without selling. On the Portfolio page of your account, you can see the minimum deposit necessary to avoid a sell-based rebalance. Liquidate losses in external accounts. One of the most commons barriers to switching over entirely to Betterment is incurring capital gains in external investments. Take advantage of a short-term market drawdown and let go of an underperforming mutual fund, or diversify away from a single stock position. What can you do today? Prepare a short list of investments you would like to liquidate, and the price at which you are willing to sell them. Our tax-switch calculator can help with that. If you can’t stand the heat… turn it down. While the best investment strategy is usually to stay invested, some people could find the stress simply to be too much. If you think you might make an extreme decision—such as moving to 100% bonds—if the drawdown continues, then it’s OK to reduce your risk temporarily. Just make it less extreme than you’re inclined to. Adjust from 90% stocks to 60% stocks, for example. Make sure you set a reminder to revisit your portfolio after a month. While we don’t believe it will improve your performance from a pure investment returns point of view, it means you’ll be less likely to make an emotional decision, and you’ll have a higher return per night’s lost sleep. Take a vacation from your portfolio. My own research has shown that people are more likely to monitor portfolios during volatile periods. The only problem is that the more you monitor, the riskier your portfolio will seem to you. A better strategy is to log in less during volatile periods. When stress drives bad decisions, it pays to be the ostrich, not the meerkat. When Fidelity looked at which investors had the highest returns, it was those who never logged in. Still unsure? Get a second opinion. Our dedicated team of CFP™ professionals are here for you. If you need additional guidance and personal recommendations for your financial plan, book an advice package today. Ultimately, the best thing to do in a market downturn is nothing. Our advice takes an underperforming market into account, so trying to correct a drop could end up hurting your returns over the long term.

How Tax Impact Preview Works to Help Avoid Surprises Jul 27, 2021 12:00:00 AM Betterment continues to make investing more transparent and tax-efficient, and empowers you to make smarter financial decisions. Two words that don’t belong together: taxes and surprise. But all too often, a transaction made in your investment account has unexpected, costly consequences many months later. Selling securities has tax implications. Typically, these announce themselves the following year, when you get your tax statement.  Today, we are changing that, with Tax Impact Preview. Betterment’s Tax Impact Preview feature provides a real-time tax estimate for a withdrawal or allocation change—before you confirm the transaction. Tax Impact Preview shows you exactly the information you should be focusing on to make an informed decision—potentially lowering your tax bill. Tax-Aware Investors Can Consider: Do the benefits outweigh the costs? Should I wait to avoid short-term capital gains? Is there another source of funds I could use that might have a lower or no tax impact? “Customers can become overly focused on short-term returns and change allocations or make withdrawals in reaction to fluctuations in the market,” says Alex Benke, CFP®, product manager for this new feature, “Tax Impact Preview will help these customers stay focused on the big picture and avoid unpleasant surprises on their tax bill.” Tax Impact Preview: An Industry First Betterment is the only investment platform to offer this kind of real-time tax information—and it joins a suite of tools which already helps investors minimize their taxes, including Tax Coordination™, Tax Loss Harvesting+, TaxMin, and more. Tax Impact Preview is available to all Betterment customers at no additional cost. Learn more about the suite of tax-efficiency features available for your portfolio. How It Works When you initiate a sale of securities (a withdrawal or allocation change), our algorithms first determine which ETFs to sell (rebalancing you in the process, by first selling the overweight components of your portfolio). Within each ETF, our lot selection algorithm, which we call TaxMin, will select the most tax-efficient lots, selling losses first, and short-term gains last. Transaction Timeline Table With Tax Impact Preview, you will now see an “Estimate tax impact” button when you initiate an allocation change or withdrawal, which will give you detailed estimates of expected gains and/or losses, breaking them down by short and long-term. Using this timely information, you can better decide if the tax result makes sense for you.  If your transaction results in a net gain, we estimate the maximum tax you might owe. Why Estimated? The precise tax owed depends on many circumstances specific to you: not just your tax bracket, but also the presence of past and future capital gains or losses for the year across all of your investment accounts. We use the highest applicable rates, to give you an upper-bound estimate. You might ask—why are the gains and losses about to be realized not exact, even if the resulting tax is only an estimate? The gains and losses depend on the exact price that the various ETFs will sell at. If the estimate is done after market close, the prices are sure to move a bit by the time the market opens. Even during the day, a few minutes will pass between the preview and the trades, and prices will shift some, so the estimates will no longer be 100% accurate. Finally, while we are able to factor in wash sale implications from prior purchases in your Betterment account, the estimates could change substantially due to future purchases, and we do not factor in activity in non-Betterment accounts. That is why every number we show you, while useful, is an estimate. Tax Impact Preview is not tax advice, and you should consult a tax professional on how these estimates apply to your individual situation. Why You Should Avoid Short-Term Capital Gains Smart investors take every opportunity to defer a gain from short-term to long-term—it can make a substantive difference in the return from that investment. To demonstrate, let’s assume a long-term rate of 20% and a short-term rate of 40%. A $10,000 investment with a 10% return—or $1,000—will result in a $400 tax if you sell 360 days after you invested. But if you wait 370 days to sell, the tax will be only $200. That’s the difference between a 6% and 8% after-tax return. Until now, making the smart choice meant doing your own calculations for every trade you were about to make. This is the kind of stuff most people hate doing, and automation excels at, so we built it into our product. A Sample Scenario Betterment customer Jenny, 34, has been watching the recent market news and feels nervous about her "Build Wealth" goal, which has a balance of $95,290. She is currently at 90% stocks—the optimal allocation for an investor with more than a 20 year horizon. Jenny decides to temporarily move her allocation to 10% stocks to minimize her exposure to the roller coaster on Wall Street. What Jenny may not realize is that changing allocation will cost her very real money—in the form of a tax bill. And even if she suspects it, she cannot appreciate the extent of the cost. The taxes are abstract, but the anxiety from the rocky market is real. Before finalizing the allocation change, Jenny clicks “Estimate tax impact” and sees that she is about to realize $4,641 in capital gains, with $4,290 of that short-term, which could incur up to $2,304 in taxes if she goes through with the trades. Putting a real dollar cost on knee-jerk reactions to market volatility is exactly what we as investors need at the critical moment when we are about to deviate from our long-term plan. Market timing is not a good idea, and most of us know this. However, emotions can get the better of even the most sophisticated investors, and we can all use some help in making the right decisions. Smarter Design for Better Decisions, Lower Taxes We believe that unhelpful emotion can be mitigated by good product design, which emphasizes the right information at just the right time. For instance, we never show you the individual daily performance of the ETFs in your portfolio—you are more likely to see losses that way, even if your overall portfolio is up. Seeing losses causes stress, which leads to emotional behavior, which can hurt your long-term returns. And yet, every other investment platform shows you individual asset performance front and center. On the other hand, showing you the estimated tax impact of a transaction before you commit to it encourages better decisions, and yet nobody except Betterment shows you this information. This distinction is at the core of our mission. Building the perfect investment service is not just about a pretty web interface, or a slick mobile app (though these are nice too!). It means rethinking every convention from the ground up. We are very excited about Tax Impact Preview, because it’s already helping our customers make better choices, and lessen their tax burden.

Why Comparing Returns Is a Bad Way to Choose an Investment Manager Jul 26, 2021 12:00:00 AM Short-term or recent returns give little information about future returns, and they increase the odds you’ll make a bad decision. The greatest trick the stock market ever pulled was convincing investors that historical returns are predictive. They aren’t. In fact, historical returns not only give you very little information about future returns, but they can also increase the odds you’ll make a bad decision. We often see this bias in investors. Both reporters and prospective customers often ask us, “What are your returns?” I cringe when I hear this. Out of all the questions you should be asking, this one should be low on the list. There are far more informative and useful questions to ask, once you know what's in our portfolio. To be fair, there are aspects of the answer that can be helpful. Returns can give you an idea of the size of upswings and drawdowns, and how the portfolio relates to other asset classes. But in a passive, index-tracking portfolio, such as Betterment’s, you shouldn’t expect to see market alpha in our performance. When properly benchmarked, we are the benchmark. The other common mistake people make is comparing our portfolio to another over a short period of time. If, after six months, our portfolio has a lower return, they’ll often ask, “Why should I use you if your returns are worse?” Far too often, investors put too much weight on small sample, recent historical performance, choosing the investment with the highest investment return. How deceptive can this be? How the Data Deceives You might not realize it, but when you look at historical returns, you’re doing a statistical analysis. Any set of historical returns comprises a sample of behavior over a certain period. Any inferences you make about what they tell you of the future should be balanced by placing them into context of how variable they are. And when you do that, two clear issues arise. Fooled by Randomness The first is being “fooled by randomness,” a phrase coined by Nicholas Nassim Taleb, a risk analyst and statistician. When you choose the highest returning of two correlated investments using a small sample of historical data, the odds are incredibly high that you picked the wrong fund. The randomness of small samples overwhelms the truth. Let’s work through some examples. We’ll use hypothetical portfolios with return probabilities we know for certain, because we’ve created them through simulation, and see how well the short-term data mimics the long-term truth. These are not Betterment portfolios. Portfolio A will have a mean annual return of 6% and a volatility of 14%. Portfolio B has a mean return of 6.5% and annual volatility of 13%. The portfolios will also have a 0.90 correlation to each other—most stock funds have higher correlations. By both measures of absolute return and risk-adjusted return, Portfolio B is better. Yet over the first randomly simulated six-month period, Portfolio A came out ahead. One 6-Month Simulation How often does the worse portfolio come out ahead over a short time period? In this case, we’ll call them C and D, with the same parameters. Let’s look at running 1,000 of such simulations over a six-month period. How often does Portfolio D, who should be the winner, come out ahead? Many Simulations Over 6 Months The answer is so close to 50% as to be indistinguishable from it. In fact, we can increase the differences in expected returns and this remains true. Let’s give Portfolio D a mean return of 8% and Portfolio C a mean return of 6%. Both have 14% volatility. The significantly higher return Portfolio D will still lose over 40% of the time over a six-month period. Many Simulations Over 6 Months While the odds are just better than 50/50 in the short term, they have big consequences in the long term. Here are the distributions of 20-year outcomes for those same portfolios: Many Simulations Over 20 Years The randomness in half-year returns results in choosing the wrong portfolio about half the time, even with large difference in return. You might as well save yourself the time and expense and flip a coin. Over long periods of time (20 years), and with large differences in average returns, the odds of picking the correct choice do increase. But you may be surprised how long it can take. For portfolios with a 1% return difference, by 20 years you still have about a one-in-four chance of picking the portfolio that will have worse underlying returns over even longer periods of time. Chance of Choosing Worse Portfolio Based on Performance Return Difference 3 months 6 months 1 Year 5 Years 10 Years 20 Years 0.50% 49% 48% 48% 42% 40% 37% 1.0% 47% 46% 44% 36% 32% 26% 2.0% 44% 43% 37% 26% 16% 9% Each cell based on 3,000 simulated cumulative returns of better portfolio (8% return) versus a benchmark portfolio with a mean return of 6% and 14% volatility. Correlation of 0.90 between portfolios. To be clear, there are statistical tools you can use to improve your odds of picking the right portfolio, but most investors aren’t professional statisticians. They just go by the cumulative returns over a short period of time. Performance Chasing Is Worse Than Random If the low odds of correctly choosing a better portfolio above didn’t convince you, it’s even worse than that. Empirically, choosing the best funds, a strategy called performance chasing, is likely to reduce your returns. The graph below comes from an excellent research paper from Vanguard. It shows the returns achieved by investing in the best fund in each asset class, compared to a buy-and-hold strategy. Performance chasing—picking investment based on recent performance—produced worse returns of about -2% to -3.5%. Buy-and-Hold Outperforms Performance Chasing, 2004-2013 If every year, you picked the investment manager with above average returns over the past 12 months, you’d end up underperforming an investor who stuck with the passive index-tracking manager. The Right Things to Consider If recent investment performance is such a poor way to choose an investment manager, how should you select one? Use a set of clear principles that are likely to be true in the future: Monetary Cost: A certain drag on returns, if the service doesn’t deliver value above cost. Consider commissions, trade fees, and assets under management (AUM) fees. Non-Money Costs: How much time and and effort does it take for you to use it well? Does it have a high time or stress cost for you to get the most out of it? Services Offered: Do the services offered make you better off? Does it do things for you which you wouldn’t do yourself? Does it help you make better decisions? Does it make some of those decisions for you, automatically? Experience: Is it easy to use? Do you enjoy using it? Philosophy Fit: Consider its investment philosophy, and if it is parallel to yours. Some funds seek to deviate from the index and cost more, some seek to track it passively. Tax Management: Returns will likely not take into account actual value-adds, such as tax loss harvesting. You won’t have received a comparison tax bill that allows you to compare after-tax returns across services; it will be up to you to compare them. Behavior Management: Does the service have a track record of reducing the behavior gap? When choosing an investment manager, the key isn’t to focus on investment performance; it’s to focus on service, fit, and investor returns.

The Fiduciary Rule Is on Life Support – We Must Act Now Jul 22, 2021 12:00:00 AM Whether or not the fiduciary rule survives could directly impact you. Because if it dies, and your money manager is no longer required by law to act in your best interest...are they going to anyway? You give your retirement money to a money manager. You expect them to look at all the investment options out there and make decisions based on what’s best for you, your portfolio, and your money’s growth over time. You expect them to act in your best interest—to do the right thing for you. You expect them to charge reasonable fees, try to minimize taxes, and make decisions that are going to get you the returns you deserve. You expect all of this because it’s their job. It’s what they’re paid to do. They’re the expert, the professional. Surely they’re going to advise you on the best investment decisions for you...right? I wish it were that simple, and I can’t believe it isn’t. But today, many money managers are not doing what’s best for you. They recommend funds because they make money selling them. They charge confusing fees that you can’t see. They push you into investments that are in their best interest—not yours. And the one thing that was going to help stop it might not survive. President Donald Trump on Feb. 3 signed a memorandum directing the Department of Labor (DOL) to reconsider its fiduciary rule, which would require money managers who provide retirement advice to act in their clients’ best interests. The rule was set to go into effect on April 10, but the DOL on Feb. 10 reportedly filed for a 180-day delay, putting the rule at risk of being diluted beyond recognition or, worse, thrown out completely. Whether or not this rule survives could directly impact you. Many companies were planning to make positive changes in response to the rule and publicly supported it, back when they were going to be required by law to do what was best for their clients. But now that the Trump administration is threatening the rule’s existence, we expect many of those institutions to remain silent, indicating that their former support was solely for public display. We believe that, in some ways, silence from those institutions is as bad as lack of public support. Because if your money manager is not openly supporting the rule, then they may not be willing to fight for you. And once the rule is gone for good, it could mean reverting to business as usual. We encourage you to reconsider your money manager or, at the very least, push them to clarify their stance. Because if the rule dies, and they’re no longer required by law to act in your best interest...are they going to anyway? The State of the Industry (Also Known As “Why This Rule Must Live”) The fiduciary rule’s six-year history has coincided with a secular shift in the industry that has felt promising and good. We’ve seen positive evolutions, like easier access to low-cost investments (e.g., exchange-traded funds) and heightened awareness of how financial providers are compensated. As the Washington Post’s Barry Ritholtz put it, “The fiduciary rule is not shaping investor behavior, it is now catching up with it." But now that the rule has the potential to be thrown out, we have to reexamine the conflicts of interest that are costing American workers and their families $17 billion a year—and that could persist without the proper regulations in place. Many money managers (brokers) are not currently required to make investment recommendations based on your best interests, and instead only need to pick “suitable” investments. They are allowed to consider whether a particular recommendation will result in a higher commission or kickbacks to them. As a result, you are likely to end up in a less-than-ideal portfolio—one that’s higher-cost and lower-return than it should be. This Is What Firms Are Allowed To Do. Is It Happening to You? Here’s the Way It Should Be We believe in low, transparent fees. We believe that when you give your money to a money manager, they should choose funds based on what’s best for you, the customer—not your money manager. A Defective Argument: The Fiduciary Rule “Limits Investors’ Choice” There have been various arguments opposing the fiduciary rule. The most recent came from Gary Cohn, the White House National Economic Council Director, who said that the rule would limit investors’ rights to choose their investments. He told The Wall Street Journal in an interview: “We think it is a bad rule. It is a bad rule for consumers…. This is like putting only healthy food on the menu, because unhealthy food tastes good but you still shouldn’t eat it because you might die younger.” It’s an interesting analogy, but it’s flawed. The rule isn’t about limiting choice (all the choices are still there); it’s about empowering consumers with information to make better decisions and forcing advisors to give straightforward advice. The right analogy would be both options are still on the table—you want to eat a cheeseburger instead of a salad, you can still do that—but you’ll know exactly how many calories are in it and how much it’ll cost you. In the case of financial services, if you want to put your money in a worse investment product, you can still do that—and the advisor has to disclose all the fees associated with it, and can’t tell you it’s the best option for you (unless it truly is). The text of the rule itself is clear on this point; it simply requires advisors to make an investment recommendation that they can demonstrate is in an investor’s best interest. Sure, that may be the lowest-cost option, but not necessarily. If advisors are not able to defend the investment products they are recommending, including their cost, investors will not suffer from their absence. If you want a good analogy for what this rule could do for financial services, consider the medical industry. Doctors aren’t allowed to get paid by drug companies for pushing drugs on you. That would be ridiculous, right? Why should it be different in financial services? Why should so-called financial advisors be allowed to be compensated for pushing certain products on you? It’s ridiculous! They shouldn’t. And, if we have our way, they won’t. Former Rule Champions, Where Are You Now? We’ve been closely following which big financial firms are committed to the positive changes represented by the fiduciary rule. Last fall, when it was expected that the rule would go into effect this April, many firms publicly trumpeted their support. Merrill Lynch came out with an ad campaign that declared, “We’re committed to your best interest. Not the status quo.” Other firms, like J.P.Morgan and Commonwealth Financial Group, announced they’d be cutting commissions in their retirement accounts to comply with the rule. Now that the rule’s future is in doubt, Merrill Lynch is retreating from its support of the rule and has indicated it may not complete the changes it previously committed to making. Many other firms have likewise gone silent on their support for the rule and their intent to follow through on earlier commitments. Some firms are even gloating over the fact that they didn’t take a position on the rule or commit to changes. AdvisorHub.com quoted UBS Chief Financial Officer Kirt Gardner saying, “There is some indication that [the DOL Rule] will, at a minimum, be delayed and potentially not be implemented at all. And because we delayed our announcement…that’s proved to be very effective given some of the commitments that our competitors have made.” It’s become extremely difficult to get individual firms to commit to a clear public position on the fiduciary rule. In January, Sen. Elizabeth Warren, D-Mass., a longtime supporter of the rule, sent a letter to 33 financial institutions that had already begun making changes designed to satisfy the rule’s regulations. She warned them that the rule was under attack, while also questioning whether they supported it and would continue to work toward implementing changes. This was an opportunity for these firms to speak out in support of the rule. Twelve firms ignored the letter. Of the 21 that responded, many provided a general statement about the importance of the rule's objectives, but declined to make a clear commitment to its actual implementation. Make no mistake, though, the fiduciary rule is the only realistic hope for prompt action to improve the quality of retirement advice. If firms genuinely support the rule's objectives, they should also support the rule. In the coming weeks, we encourage you to watch closely to see which firms are willing to take a clear public stand on behalf of investors, and which are silent or hide behind trade groups. What You Can Do to Protect Your Right to Honest Financial Advice Today, I’m sad for retirement savers. I’m disappointed that so many of us have trusted people we’ve chosen to manage our money, to prepare us for the future, and yet we still can’t be sure if they’re doing the right thing for us. I’m angry that the one ruling that could make us feel confident again is under attack. Why would anyone want to get rid of something that could do so much good? We encourage you to advocate for yourself and your future by submitting a public comment in support of the fiduciary rule here. You can also contact your elected representative and/or financial provider to share your support for the rule. Then it might be time to ask your money manager these questions: Why are your services and investments right for me and my situation? Who makes money from my account—and how much? Do you make more money recommending some investments over others? Are you committed to acting in my best interests for all my accounts, at all times? We’re not giving up on this. We stand for our customers and their best interests, and we always will. We don’t take political sides, but we are fighting for this rule until all investors receive advice they can trust. Because if the rule dies, whether it’s quick or slow, it’s sure to be painful. A version of this article originally appeared on CNBC.

How to Estimate Your Tax Bracket When Investing Jul 21, 2021 12:00:00 AM Knowing your tax bracket opens up a huge number of planning opportunities that have the potential to save you taxes and increase your investment returns. If you’re an investor, knowing your tax bracket opens up a number of planning opportunities that can decrease your tax liability and increase your investment returns. Investing based on your tax bracket is something that good CPAs and financial advisors, including Betterment, do for customers. Because the IRS taxes different components of investment income (e.g., dividends, capital gains, retirement withdrawals) in different ways depending on your tax bracket, knowing your tax bracket is an important part of optimizing your investment strategy. In this article, I’ll show you how to estimate your tax bracket and begin making more strategic decisions about your investments with regards to your income taxes. First, what is a tax bracket? In the United States, federal income tax follows what policy experts call a progressive tax system. This means that people with higher incomes are generally subject to a higher tax rate than people with lower incomes. Currently there are seven different tax brackets, ranging from 10% up to 37%. Below are the 2021 federal tax brackets if you are single or married filing jointly. 2021 Federal Tax Brackets Taxable Income Bracket: Filing as Single Taxable Income Bracket: Filing as Married, Filing Jointly Tax Rate $0 to $9,950 $0 to $19,900 10% $9,951 to $40,525 $19,901 to $81,050 12% $40,526 to $86,375 $81,051 to $172,750 22% $86,376 to $164,925 $172,751 to $329,850 24% $164,926 to $209,425 $329,851 to $418,850 32% $209,426 to $523,600 $418,851 to $628,300 35% $523,601 or more $628,301 or more 37% For example, if you are single and have taxable income of $75,000 this year, you fall into the 22% tax bracket. However, that does not mean that all $75,000 of your income will be taxed at 22%. Instead, tax brackets apply to each portion of your income, building up like a staircase. Here’s a visual to help explain. U.S. Federal Tax Brackets for Single Filers If you are a single individual with a taxable income of $75,000, the first $9,950 of your income will be taxed at 10%, then dollars $9,951 - $40,525 will be taxed at 12%, and dollars $40,526 – $75,000 will be taxed at 22%. If your taxable income were to grow, then dollars $75,001 — $86,375 would still be taxed at 22%, but after that, the dollars would be taxed at higher tax rates. Filing status (single, married, head of household, etc.) also affects your tax bracket. See the tax brackets for each filing status. How difficult is it to estimate my tax bracket? Luckily, estimating your tax bracket is much easier than actually calculating your exact taxes, because U.S. tax brackets are fairly wide. Just look at the 22% tax bracket. If you are filing as single, any income between $40,526 and $86,375 falls within that same tax bracket. That’s a big margin of error for making an estimate. The wide tax brackets allow you to estimate your tax bracket fairly accurately even at the start of the year, before you know how big your bonus will be, or how much you will donate to charity. Of course, the more detailed you are in calculating your tax bracket, the more accurate your estimate will be. And if you are near the cutoff between one bracket and the next, you will want to be as precise as possible. How Do I Estimate My Tax Bracket? Estimating your tax bracket requires two main pieces of information: Your estimated annual income Tax deductions you expect to file These are the same pieces of information you or your accountant deals with every year when you file your taxes. Normally, if your personal situation has not changed very much from last year, the easiest way to estimate your tax bracket is to look at your last year’s tax return. However, with the passing of the Tax Cuts and Jobs Act in December 2017, a lot of the rules and brackets have changed. Thus, it is wise for most people to estimate their bracket by crunching new numbers. Estimating Your Tax Bracket with Last Year’s Tax Return If you expect your situation to be roughly similar to last year, then open up last year’s tax return. If you review Form 1040, you can see your taxable income on Page 2, Line 43, titled “Taxable Income.” As long as you don’t have any major changes in your income or personal situation this year, you can use that number as an estimate to find the appropriate tax bracket on the table above (or the full set of tables provided by the Tax Foundation). Estimating Your Tax Bracket by Predicting Income, Deductions, and Exemptions Estimating your bracket requires a bit more work if your personal situation has changed from last year. For example, if you got married, changed jobs, had a child or bought a house, those, and many more factors, can all affect your tax bracket. It’s important to point out that your taxable income, the number you need to estimate your tax bracket, is not the same as your gross income. The IRS generally allows you to reduce your gross income through various deductions, before arriving at your taxable income. When Betterment calculates your estimated tax bracket, we use the two factors above to arrive at your estimated taxable income. You can use the same process. 1. Add up your Income. Add up your income from all expected sources for the year. This includes salaries, bonuses, interest, business income, pensions, dividends and more. If you’re married, don’t forget to include your spouse’s income sources. 2. Subtract Your Deductions Tax deductions reduce your taxable income. Common examples include mortgage interest, property taxes and charity, but you can find a full list on Schedule A – Itemized Deductions. If you don’t know your deductions, or don’t expect to have very many, simply subtract the Standard Deduction instead. For 2020, the standard deduction is $12,400 if you are single, and $24,800 if you are married filing jointly. By default, Betterment assumes you take the standard deduction. If you know your actual deductions will be significantly higher than the standard deduction, you should not use this assumption when estimating your bracket, and our default estimation will likely be inaccurate. The number you arrive at after reducing your gross income by deductions and exemptions is called your taxable income. This is an estimate of the number that would go on line 11b of your 1040, and the number that determines your tax bracket. Look up this number on the appropriate tax bracket table and see where you land. Again, this is only an estimate. There are countless other factors that can affect your marginal tax bracket such as exclusions, phaseouts and the alternative minimum tax. But for planning purposes, this estimation is more than sufficient for most investors. If you have reason to think you need a more detailed calculation to help formulate your financial plan for the year, you can consult with a tax professional. How Can I Use My Tax Bracket to Optimize My Investment Options? Now that you have an estimate of your tax bracket, you can use that information in many aspects of your financial plan. Here are a few ways that Betterment uses a tax bracket estimate to give you better, more personalized advice. Tax-Loss Harvesting: This is a powerful strategy that seeks to use the ups/downs of your investments to save you taxes. However, it typically only makes sense if you are in the 22% tax bracket or higher. For those in the 10% & 12% tax brackets, capital gains are taxed differently, which could make this strategy not beneficial. Tax Coordination: This strategy reshuffles which investments you hold in which accounts to try to boost your after-tax returns. For the same reasons listed above, if you are in the 10% or 12% tax bracket, the benefits of this strategy are reduced significantly. Traditional vs. Roth Contributions: Choosing the proper retirement account to contribute to can also save you taxes both now and throughout your lifetime. Generally, if you expect to be in a higher tax bracket in the future, Roth accounts are best. If you expect to be in a lower tax bracket in the future, Traditional accounts are best. That’s why our automated retirement planning advice estimates your current tax bracket and where we expect you to be in the future, and uses that information to recommend which retirement accounts make the most sense for you.In addition to these strategies, Betterment’s team of financial experts can help you with even more complex strategies such as Roth conversions, estimating taxes from moving outside investments to Betterment and structuring tax-efficient withdrawals during retirement. In addition to these strategies, Betterment’s team of financial experts can help you with even more complex strategies such as Roth conversions, estimating taxes from moving outside investments to Betterment and structuring tax-efficient withdrawals during retirement. Tax optimization is a critical part to your overall financial success, and knowing your tax bracket is a fundamental step toward optimizing your investment decisions. That’s why Betterment uses estimates of your bracket to  recommend strategies tailored specifically to you. It’s just one way we partner with you to help maximize your money. Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a tax professional.

How Betterment’s Climate Impact Portfolio Was Born Jul 21, 2021 12:00:00 AM At Betterment, our work is just beginning. Our Climate Impact portfolio is as much a process as it is a product. We see it as a continuation of a conversation with our customers, who told us in no uncertain terms, that climate change matters to them. If climate change somehow wasn’t already front and center of your headspace, 2019 likely changed that. In February, Rep. Alexandria Ocasio-Cortez and Sen. Markey released their Green New Deal resolution. By August, the Amazon rainforest, often referred to as the “Earth’s lungs”, was on fire, as climate activist Greta Thunberg sailed across the Atlantic in a carbon-neutral, solar-powered yacht. In New York, she’d address the United Nations, and go on to be named Time’s youngest ever Person of the Year for sounding “a moral clarion call to those who are willing to act.” Later that fall, inspired by Thunberg, actress Jane Fonda partnered with Greenpeace to kick off “Fire Drill Fridays”, a series of weekly protests through Washington D.C. The final week’s theme was “The Role of Financial Institutions in the Climate Crisis”. Dr. Ayana Elizabeth Johnson, a marine biologist and a friend, extended an invitation to join her at this protest. I never thought of myself as an activist, but I had spent the better part of a decade helping to build a different kind of financial institution at Betterment. I knew this was an opportunity I couldn’t miss and soon found myself aboard an Amtrak headed to D.C. Curbing greenhouse gas emissions from human activity must center on dramatically reducing reliance on fossil fuels across every sector of the global economy. No surprise then, that the rallying cry that weekend was cutting off the flow of capital to the fossil fuel industry. One word reverberated across every speech and conversation: “divestment.” As we marched together towards the Capitol, one phrase ran through my mind: “if only it were that simple.” What did feel simple, however, was that those of us pushing for change within the financial services industry hadn’t come close to channeling the remarkable energy on display. In our goal to bring more American investors off the sidelines and into sustainable investing, we were clearly falling short. Since 2017, Betterment has offered one “Socially Responsible Investing” option, constructed from funds that tilt towards companies which rate highly on a scale that considers each of three pillars: Environmental, Social and Governance (“ESG”). ESG is often embraced as the gold standard for sustainable investing by professionals, but is not tailored to a specific investor’s values. In that moment, seeing the power and conviction of thousands who were mobilized by climate change, our sole ESG offering no longer felt like enough. The Betterment Way Back in NYC at Betterment’s headquarters, it was becoming clear that adding a climate-specific portfolio would better reflect some of our customers’ values even more than our broadly-focused offering could alone. If so, greater adoption would further amplify the signal to the industry that values-based investing, despite its recent growth, was still underserved. For over a decade, Betterment has been working to maximize our customers’ expected returns following the principles of global diversification and low cost. We’ve sought to tackle the complexities behind implementing a sophisticated investing strategy, so that our customers don’t have to, while maintaining transparency around the choices that go into our products. We applied this framework to the challenges of integrating our customers’ values into their investments. We felt well-positioned to make this daunting process simpler, wherever we could. Where some amount of complexity was unavoidable, we would be transparent about how we chose to address it. Broadly speaking, there are three distinct approaches to climate-conscious investing, and all three are integrated into Betterment’s Climate Impact portfolio. Divestment (i.e. excluding companies holding fossil fuel reserves) The equities basket includes SPYX, EEMX, and EFAX, “Fossil Fuel Reserves Free” ETFs tracking US, Developed, and Emerging markets. Low carbon exposure (i.e. overweighting carbon footprint leaders within each industry) The equities basket includes CRBN, a global ETF whose objective is to reduce the carbon footprint of a globally diversified portfolio. Impact (i.e. financing environmentally beneficial activities directly) The fixed income basket includes BGRN, holding “green bonds”, which fund projects across the world, including alternative energy, pollution control, and climate adaptation. The nuances behind how these approaches interact with each other is discussed below. Beyond Divestment What exactly was I going on about, muttering “It’s not that simple”, while surrounded by passionate cries to “divest” from fossil fuels? Like a good student of finance, I was referring back to another mantra: “Capital naturally wants to flow toward where it earns the highest return.” A core argument for divestment is that it “increases the cost of capital”. Less demand for a stock means a lower stock price, which means the company needs to give away more of itself to raise the same amount of money. The problem is that the more successful you are at driving up a company’s cost of capital, the higher the expected return for the financier.  As long as the business you want to starve is engaged in activity that remains both profitable and legal, another investor will come along.  The fewer investors are willing, the more those who remain willing stand to make. The alternative to divestment is engagement. By owning a stock, and using your rights to vote on shareholder resolutions, you can attempt to change the company’s activities from the inside. This path is long and messy. What seems like a victory, often curdles into an empty gesture, as management’s words produce no meaningful action. It’s a grind, and success is far from assured. Engagement is rife with compromise and disappointment. Divestment, on the other hand, feels principled and decisive. It offers immediate action in the face of a crisis that feels unstoppable. Yet its economic impact on the perpetrators of harm is negligible, particularly if it’s applied in a vacuum. Both strategies have their advocates, whose vigorous debates occasionally lose sight of the fact that they are on the same team. Moreover, conflicting appeals to absolutes run the risk of paralyzing millions of their fellow citizens, deeply sympathetic to the cause, but reluctant to wade into the confusion. Can the two approaches be meaningfully reconciled? Michael O’Leary and Warren Valdmanis offer a compelling argument that they can. In their recent book, Accountable: The Rise of Citizen Capitalism, they consider the question through the lens of the Divest Harvard campaign, which took center stage on campus in the spring of 2019. While O’Leary and Valdmanis believe in the effectiveness of engagement, they express great admiration for the campaign’s leaders, which include both students and faculty. By directly examining these leaders’ expressed views, O’Leary and Valdmanis conclude the following: Divestment advocates have done the climate movement a great service, by forcing a broad recognition that “there is no value-neutral way to invest”. These leaders aren’t naive. They view engagement with suspicion—as a fig leaf for complacency. But they also understand the limits of divestment within our existing legal and financial framework. Rather than narrowly fixate on proximate effects, these leaders take a longer view of divestment—as a political act of civic leadership. Under this theory, divestment seeks to impose “a cultural toll, labeling oil and gas companies as morally repugnant … making it easier to pass bold legislation rapidly, with broad political support.” Accordingly, the measure of success for divestment should not anchor on the number of dollars diverted, but on its ability to “center climate change in broader discourse”. Furthermore, if you are able to advance that objective, while also pushing for change via engagement, there is no reason why pursuing both in parallel cannot be a coherent strategy. In other words, if an act of divestment, however great or small, aims to achieve more than a feeling of moral satisfaction, it needs to be heard. It needs to help start conversations, trigger chain reactions, grab headlines. And it doesn’t preclude pushing for change within the shareholder framework, if integrated thoughtfully. It’s a lot to ask of your investment account. Here’s how we approached it at Betterment. Divestment And Engagement In Your Climate Impact Portfolio A divestment strategy is implemented in a globally diversified portfolio by applying a screen to an index of all available stocks, expunging those that hold large fossil fuel reserves, and producing a so-called “ex Fossil Fuels” index. The problem with relying solely on an “ex Fossil Fuels” approach, is that it is both under-inclusive, and over-inclusive. First, let’s look at how it is under-inclusive: An “ex Fossil Fuels” index is highly effective at screening out stocks of companies with familiar logos that we’ve seen plastered on gas stations. But, such indexes generally do not exclude the hundreds of companies that don’t necessarily own reserves, but are integral to the fossil fuel industry (e.g. pipeline operators, and the utilities that actually burn the fuels). Critics of a divestment-only approach refer to this phenomenon as “greenwashing”. There are powerful incentives for investment managers to expunge the familiar fossil fuel companies and call it a day. This goes a long way towards providing an investor with emotional satisfaction, but it ignores the complex enmeshment of fossil fuels throughout every sector of the economy. As for how it is over-inclusive: A handful of energy companies have staked their futures on renewable energy, and are actively diversifying away from fossil fuels. However, these transitions take time and today they qualify for exclusion under a blunt divestment criteria. We believe there is merit to the divestment approach. In Betterment’s Climate Impact portfolio, 50% of the stock basket is allocated to SPYX, EEMX, and EFAX, “Fossil Fuel Reserves Free” equity funds for US, Developed, and Emerging markets. For an act of divestment to be effective, it must be heard, and for most investors, this is uniquely possible by joining with other like-minded investors through index funds. For “ex-Fossil Fuels” funds to grow in assets and stature, sends an increasingly loud message, that the public views the industry as a whole as a pariah. We also believe there is merit for the engagement approach. In Betterment’s Climate Impact portfolio, 50% of the stock basket is allocated to CRBN, a global ETF whose objective is to reduce the carbon footprint of a globally diversified portfolio, with an expense ratio of only 0.20%. CRBN was launched on Earth Day, 2015, seeded with an initial investment from the United Nations Joint Staff Pension Fund. Today, it holds nearly $650mm, and is gaining scale rapidly. By excluding companies holding fossil fuel reserves, ex-Fossil Fuel indexes are effectively concerned only with future, not ongoing emissions. CRBN takes aim at both, with more precision, by assigning every company in every sector a “carbon exposure” score, which incorporates any fossil fuel reserve holdings, but also greenhouse gas emissions from the company’s activities (measured per dollar of revenue). It then uses the scores to minimize carbon exposure across the entire index while maintaining tracking error constraints, by overweighting companies that are managing the lowest carbon footprint within their sphere of activity, including in the energy sector, and underweighting companies that lag their peers, with some of the worst offenders getting dropped from the index entirely. Boosting The Leaders Not surprisingly, a rigorous, quantitative methodology is highly effective in service of a clear objective. When compared to the equity basket of Betterment’s core portfolio, CRBN achieves a 50% reduction in carbon emissions. Perhaps more surprising, is that CRBN’s holdings also emit less carbon than the companies collectively held by the “ex-Fossil Fuels” funds, in spite of the latter’s targeted exclusions. CRBN achieves these results by mathematically expressing preference for “best-in-class” leaders in every sector. In practice, this means that CRBN adds back a handful of energy companies which were screened out by one of the three “ex-Fossil Fuels” funds. An energy company can wind up in the index if it’s shifting out of legacy fossil fuel activities, and driving significant investments in renewables or bio fuels. A couple of illustrative examples held by CRBN as of 1/31/21: Neste is the largest producer of renewable diesel jet fuel, which will significantly reduce aviation emissions (it has two renewable refineries but also two conventional refineries). NextEra Energy Inc is the world’s largest producer of wind and solar energy (but also has generating plants powered by natural gas, nuclear energy, and oil) Generally, “best-in-class” energy leaders are companies where pro-transition management factions have won the internal battles, and have successfully pivoted their roadmaps towards a net zero economy. But such strategic shifts can be fragile. Consider NRG, an enormous American power company, whose CEO, David Crane, wrote to shareholders in 2014: “The day is coming when our children sit us down in our dotage, look us straight in the eye … and whisper to us, ‘You knew … and you didn’t do anything about it. Why?’” NRG announced it would cut its carbon dioxide emissions by 50 percent by 2030 and 90 percent by 2050, and began its transformation. But just three years later, Elliot Management, an activist hedge fund unhappy with its financial performance, was able to reshuffle the board, depose the CEO, and begin to sell off NRG’s renewable energy assets. One could argue that the climate movement is better served, if the David Cranes of the world not only get control, but stay in control. Elliot was able to reverse the transition while holding just 6.9% of NRG’s shares. If climate-conscious capital held enough of the rest, and used that perch to fight, Crane could have survived. At a systemic level, divestment and engagement are complementary—the stick for companies core to the problem, and the carrot for those who may be part of the solution. Each message has value, and your investments can express both. However, for these messages to actually reach their intended recipients, how you implement these investing strategies becomes important. A globally diversified portfolio calls for exposure to thousands of individual stocks and bonds. Buying index funds, rather than the individual securities directly, is not only a cheaper and simpler way to get this exposure. For most climate-conscious individual investors, it’s also by far the most effective path to have their dollars contribute to the systemic change they want to see. A detour into some general investing plumbing may help to appreciate why. The Power of the Index While passive investing had been steadily gaining popularity over active stock-picking for decades, the 2008 global financial crisis served as an inflection point. Complex strategies seeking to beat the market came under suspicion, and then continued to lose credibility during the relentless bull market that followed. With each year, a transparent buy-and-hold strategy proved harder and harder to beat, particularly net of fees. The spotlight shifted away from chasing alpha, towards lowering expenses, making the continuing rise of passive index fund investing a textbook flywheel in action, where growth begets more growth. Falling fees mean more inflows, and more assets mean more scale, which allows for another round of fee reductions, which pulls the next cohort of fee-conscious investors into the fold. The big fund managers have been engaged in a decade-long “core war”, led by Vanguard, whose flagship equity fund (found in Betterment’s core offering), has ballooned to over a trillion in assets, with its expense ratio down to 0.03%. These pooling dynamics have had an underappreciated second order effect—the anointment of index providers to new heights of authority in global markets. The trillions may be flowing into Vanguard, Blackrock, and State Street, but the investing decisions have been largely delegated to FTSE Russell, MSCI, and S&P DJI. In 2017, the Economist dubbed them “finance’s new kingmakers: arbiters of how investors should allocate their money.” However laborious the process behind constructing and maintaining an index, the finished product is little more than a list of companies, with assigned percentages that add up to 100%. The index-makers take pains to emphasize the rules-based, non-discretionary nature of their work. Nonetheless, because trillions of obedient dollars promptly and faithfully replicate every bureaucratic tweak, these glorified spreadsheets are imbued with at times eye-popping power. Being added to a list has no bearing on a company’s business, and under an efficient markets hypothesis, should have no impact on share price. Yet it is conventional wisdom that membership in the S&P 500 provides some price support. Thus, joining this iconic club can be cause for fanfare befitting a coronation, while removal can be tantamount to a “humiliation”, a symbol of irreversible decline. Some allegedly “rules-based” decisions are inevitably discretionary, and impactful enough to threaten a geopolitical crisis. A rumor that MSCI was considering reassigning Peru from its flagship Emerging Markets Index, to its less prestigious Frontier Markets Index, put the finance minister, leading a senior delegation, on an emergency flight to NYC to avert the demotion. The gradual inclusion of Chinese “A-shares” into the major indexes was a highly political, contentious process with far greater stakes. In early 2019, MSCI announced it would quadruple its exposure, which is estimated to steer $80 billion of investment into China. Throughout the process, MSCI has at times functioned as a quasi-regulator, at one point delisting several Chinese companies that had violated its internal governance standards. Such examples are myriad, ably outlined in a recent paper on “the growing private authority” of index providers. It’s hard not to come away in agreement with the authors, that this backoffice corner of global finance would benefit from more transparency and accountability. But there’s another takeaway: These mechanical, ostensibly value-neutral switchboards for capital have untapped potential as agents of change. But Make It Sustainable 🚀 What would it mean for sustainability-focused indexes to wield this kind of power? Is it crazy to imagine a future in which getting booted from a major ESG index for failing to hit sustainability targets is viewed as irrefutable evidence of corporate management malpractice? Or is that future more likely than not, if we observe the patterns already in motion, some new, some familiar, and play them forward to their logical conclusion? As of Sept. 2020, the top ten equity indexes were directly tracked by over $3.5 trillion. Of course, there is no hint of ESG anywhere near the top, but there are compelling reasons to believe that a secular shift is already in progress, and that the rate of change will be non-linear. None other than the head of ESG at MSCI believes that its sustainable indexes will eventually overtake its traditional offerings, and that trends suggest that the shift will happen “more quickly than most people would expect.” Indeed, while the absolute numbers are relatively small, sustainable funds are seeing scorching, exponential growth. In 2020, investors poured in $50 billion; double that of 2019, and ten times that of 2018. Meanwhile, we’re on the cusp of the greatest generational transfer of wealth in history, to a demographic that bodes well for only more acceleration. According to Morgan Stanley, “nearly 95% of millennials are interested in sustainable investing, while 75% believe that their investment decisions could impact climate change policy.” This story is genuinely new, but one level deeper is a more familiar one. Sustainable investing, until recently still largely the domain of active management, is catching up with the broader industry, and shifting towards passive. 2020 marked the first year that passive sustainable funds (i.e. ones that fully replicate an ESG index) handily beat active sustainable funds. Passive took in 2.5 times more inflows than active, whereas the split was 50/50 just in 2019. Not surprisingly, ETFs, predominantly passive, and favored by investors for their tax efficiency, dominated mutual funds by similar margins. In other words, the defining capital allocation shift of the last two decades is just now starting to play out within the nascent field of sustainable investing, and we know where it leads—the elevation of the index as a behind-the-scenes nexus of power. Neither retail nor institutional investors are likely to reverse course towards more complexity, less transparency, and higher fees. Sustainable or not, investors have been trained to be laser-focused on low fees. We know how the flywheel turns. How do we harness this unstoppable force as a tailwind for real progress on sustainability, and ensure that there’s more to this reallocation than greenwashing deck chairs on the Titanic? “Index Activism”: A Theory Of Change “Index activism”, as any theory of change, faces serious challenges, addressed below. But the structure of index fund investing, as compared to investing in companies’ stocks directly, is uniquely suited to aggregate and amplify the impact of tens of millions of individual portfolios. It represents a form of “collective bargaining”—putting aside lesser differences in favor of progress towards a greater common cause. Index funds will always entail a trade-off between personalization and the benefits of scale. For some investors, trading the underlying securities for a portion of their overall exposure, will make more sense. However, when it comes to effecting broad, systemic change, the prospect of a robust sustainable index fund ecosystem is hard to beat. We can rely on the asset gathering flywheel to carry funds tracking sustainable indexes to the mainstream. Yet asset inflows alone won’t magically teach the passive asset allocators to be the active shareholders that we need them to be. After all, active ownership is a demanding full time affair, requiring specialized expertise. Most of us already have jobs, and ideally, we would empower a team of experts with our dollars, not only to decide what shares to buy, but also how to then leverage those shares in furtherance of a sustainable agenda. What might it look like, if fund managers acted as stewards of sustainable business, pushing their portfolio companies towards a net-zero economy, standing ready to oppose activist shareholders like Elliot, who seek to undermine progress? Boutique managers who have long specialized in shareholder advocacy can offer a glimpse. In 2020, Green Century, which manages ~$1 billion across three mutual funds, used the shares of Procter & Gamble it holds on behalf of investors to introduce a resolution, calling on the company to step up efforts to mitigate deforestation in its supply chain. P&G’s board recommended that shareholders vote “Against”. It passed anyway, with a resounding 67% of votes cast—the first ever deforestation proposal to do so, receiving twice as many votes as any such prior attempt in all of corporate America. Experts believe it will spur other companies targeted with deforestation resolutions in coming months to engage with shareholder proponents. The Work Ahead Now for the reality check—both Blackrock, with 43% of all passively managed sustainable assets, and Vanguard, with 21%, could learn a thing or two from tiny Green Century, to put it mildly. When it comes to steering capital flow, where their expertise is unparalleled, the giants’ commitment to sustainability is tangible. In January 2020, Blackrock made its first ever addition of a sustainable fund, its flagship ESGU, to forty of its non-ESG model portfolios. As a result, ESGU captured nearly a quarter of the $26 billion of net new money that surged into sustainable strategies through August 2020. Yet, there is no denying that active engagement is not in their DNA. That Larry Fink, the head of Blackrock, would call for every corporation to develop a plan for a net zero economy, as he did in his 2021 “Letter to CEOs”, would have been hard to believe just five years ago. Activists may see more posturing than substance to these proclamations, and the facts don’t exactly refute the accusation. While support for shareholder resolutions relevant to climate change from fund managers was generally on the rise in 2020, Blackrock and Vanguard, the perennial largest and second largest shareholder of any major U.S. corporation, were dead last, voting in favor of just 12% and 15% of such resolutions, respectively. Even basic issues of transparency reflect an unacceptable status quo. For instance, how did these giants, who together control about 15% of Procter & Gamble, vote on Green Century’s deforestation resolution? For now, only they know. Blackrock only recently began to disclose their votes on a quarterly basis, and Vanguard may not announce its votes until August 2021. Reading Fink’s letter in a vacuum, one could get the impression that Blackrock confidently leads on environmental and social issues, and corporations are somewhat compelled to actually listen. At best, that model “is not so much true, as it is in the process of becoming true”, as Matt Levine generously put it. As investors, and as citizens, we can and should demand that managers of sustainable funds act like sustainable fund managers. However, one need not infer bad faith. It’s hard to overstate the banal power of inertia. An active posture towards their portfolio companies runs directly counter to decades of institutional muscle memory. Reorienting the highly coordinated efforts of tens of thousands of people will require its own theory of change. At Betterment too, our work is just beginning. Our Climate Impact offering is as much a process, as it is a product. We see it as a continuation of a conversation with our customers, who told us in no uncertain terms, that climate change matters to them. We set out to integrate this mandate alongside the rest: diversify globally, keep costs low, optimize for after-tax return, and automate as much as we can. It's the framework we've been refining for a decade, and continuing to make it better is all we know. Any links provided to other websites are offered as a matter of convenience and are not intended to imply that Betterment or its authors endorse, sponsor, promote, and/or are affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated otherwise. Higher bond allocations in your portfolio decreases the percentage attributable to socially responsible ETFs.

How Disciplined Will You Be in the Next Downturn? Jul 21, 2021 12:00:00 AM Every investor should have a fire-drilled plan for the next market drop because anticipating your own behavior is part of what makes you a better investor. I can’t take any further losses. I’m just not comfortable with losing 8% of my money in one year. I’ll start thinking about more aggressive investments when the dust settles. The stock market is pretty rough right now. If that continues, I don’t want any part of it. I know I shouldn’t time the market, but it’s now up 3x and I can just see it reversing course soon! These are just a few paraphrased notes from Betterment customers who reduced their stock allocation in January or February 2016. From Nov. 1, 2015 to Feb. 11, 2016, the global stock market (ACWI) fell about 15%. And, of course, markets then rallied 31% up until September 2017. Looking back between February and September of 2017, a stay-the-course investor tracking the index would be up about 20% cumulatively. A reactive investor, who sold in February then re-bought when markets recovered in July, would be up only 4%. Source: Data from Xignite, total returns data for ACWI ETF representing global stock markets. This particular ETF was chosen as it is a widely used global market cap fund, and represents a commonly used investable market cap global stock portfolio. We published research showing that the more a customer changes their allocations, the worse their performance likely is. On average, investor returns dropped about 0.20% per year for each allocation change the customer made. This means if you change your allocation three times per year, you could underperform by about 0.60%. That’s more than twice the annual cost of Betterment’s advice and portfolio management. One study by Vanguard of 58,000 of their IRA account holders from 2008 to 2012 found that those who reacted to the crisis had significantly worse performance than those who stayed the course, giving up about 1% a year. When you consider that a reasonable excess rate of return for global stock markets is about 6%, that could mean giving up about 17% of your expected return. How can you ensure that you won’t succumb to the same fears and anxieties the next time a market drop hits? My recommendation has just three simple steps: Arrange your finances. Write out a downturn plan. Stick to it. Arrange your finances. Properly arranged finances make it much easier to glide through a rough market by buffering and hedging your overall downside exposure. Here are four major steps to help get your finances in order. 1. Have an emergency fund. An emergency fund is usually one of the highest priority goals we recommend customers have, and we believe it should be invested conservatively. A bond-heavy portfolio does a better job than cash at preserving the real value of your wealth. One reason it’s important to have an emergency fund is because it helps gives you peace of mind when longer term, higher risk portfolios are more affected by a market drop. If you need to make a withdrawal from your emergency fund, you’ll be able to access it since it’s invested conservatively and is less likely to experience an extreme loss than a fund invested in a more aggressive allocation. 2. Earmark your money for future expenditures. It’s also smart to earmark your money for future spending. At Betterment, we call this setting a goal. Setting up goals helps to make sure you have money when you need it, aligning our investing advice to your life needs. From existing research on goal-based wealth management and internal research on Betterment customers, I believe investors who use specific and highly personal goals could not only save more, but might also earn higher returns. 3. Don’t take on more risk than necessary given your time horizon. It’s easy to get excited when markets have gone up and increase your stock allocation to try and benefit from it. While it’s ok to deviate within a range, we generally don’t recommend going outside our recommended ranges. Our stock allocation advice is based on your goal type and how long you’re investing for. We take into account the total cumulative returns over that period and figure out an optimal amount of risk for you to take on. You generally shouldn’t take on significantly more risk than we recommend. It exposes you to drawdowns that your portfolio may not have time to recover from. 4. Don’t invest in a portfolio that might keep you up at night. Your emotional time horizon is likely much shorter than the goal term. That’s why, when setting your allocation, we show you a range of one-year performance you can expect from that portfolio. Have an honest chat with yourself about how much of a loss would be too much to bear. Imagine you had invested $100,000 a few years ago, and today you logged in to see your portfolio was down to $90,000, a -10% loss. Would that be too much? How about $70,000, a -30% loss? How about $44,000, a -56% loss? That’s how much a 90% Betterment portfolio lost in 2008-2009. For a 90% stock portfolio, up to a -27% drop over any one-year period wouldn’t be unusual, per the example below which reflects our 90% stock portfolio. You should choose a stock allocation that you could stay invested in, even during a down market. So if the “poor” market performance would be too painful for you, feel free to take on less risk. You’ll have to save a bit more, but you’ll be able to sleep at night. Write out your plan now. Prioritize your goals. In a market drop, most of your goals will likely experience a loss. That might mean shifting balances between them, or waiting longer to achieve some after the market rises again. Know ahead of time what goals you’ll prioritize and whether or not you’ll need to move money from lower priority goals to higher ones. Have an anti-monitoring strategy too. At some point, the stress of seeing losses increases the chance that you’ll do something impulsive. Rather than test your fortitude and willpower, give yourself a break from the stress. If the news is bad, you can always choose to not log into your account. I regularly use apps to restrict my access to unproductive websites at work. I recommend doing the same thing with your investments. What can you do during a market drop? Liquidate legacy losers. The most common barrier to consolidating your taxable investments is capital gains tax. Take advantage of a short-term market drawdown and let go of a high cost mutual fund or diversify away from a single stock position. What can you do today? Prepare a short list of investments you would like to liquidate, and the price at which you will give them the pink-slip. Our tax-switch calculator can also help with that. Do less than you want to. While the best investment strategy is typically to stay invested, some people could find the stress simply to be too much to bear. If you think you might make an extreme decision—such as moving to 100% bonds—if the drawdown continues, then it’s ok to reduce your risk temporarily. Adjust from 90% stocks to 60% stocks, for example, for a 60-day period. Make sure you set a reminder to revisit your portfolio at that point. While we don’t believe it will improve your performance from a ‘cold’ view, it may mean you’ll be less likely to make an emotional decision and have a higher return per nights lost in sleep. Take a vacation from your portfolio: My own research has shown that people are more likely to monitor portfolios during volatile periods. The only problem is that the more you monitor, the riskier your portfolio will seem to you. A better strategy is to login less during volatile periods—a strategy successful investors with higher emotions do follow. Sometimes, it pays to be the ostrich. Talk it out. Have a friend with a cool head? Sure you do. Contact us and our Customer Support Team can walk through your concerns with you. While Betterment is all about efficiency, we know there’s no replacement for a human conversation. And we love talking to you. Seriously. The figures contained in this article have been obtained from third party sources, and their accuracy and completeness are not guaranteed by Betterment. All performance data quoted represents past performance, and past performance is not indicative of future returns. The conclusions drawn in this article should not be construed as advice meeting the particular investment needs of any investor, and they are not intended to serve as the primary basis for financial planning or investment decisions. This material has been prepared for informational purposes only and is not a solicitation or an offer to buy any security or instrument.

Meet $VOTE: Channeling Our Values Through Shareholder Engagement Jul 15, 2021 12:00:00 AM We're adding the new $VOTE ETF to our Socially Responsible Investing portfolios. Here's why it gives investors more power to advocate for their values. Today, we are excited to announce that we will begin integrating the $VOTE ETF, recently launched by Engine No. 1, into all of Betterment’s Socially Responsible Investing portfolios. This new ETF invests in 500 of the largest U.S. companies, weighted according to their size, with a management fee of only .05%. You might think that this sounds a lot like a garden variety index fund tracking the S&P 500—a commodity for many years now. So, why the excitement? In short, $VOTE represents a highly innovative approach to pushing the economy towards sustainability via index fund investing. It may be “passive” in the traditional sense—buying shares in companies purely based on an index—but it is “active” when it comes to engaging with those companies as a shareholder. Beyond Divestment: What’s Shareholder Engagement? Historically, values-aligned investing has often been synonymous with avoiding the purchase of certain stocks—a practice often referred to as “divestment.” The alternative to divestment is “engagement.” By owning a stock, and using your rights to vote on shareholder resolutions, you can attempt to change the company’s activities from the inside. Vanguard, BlackRock, and State Street—the “Big Three” largest fund managers—are collectively the biggest shareholders in most companies, but have historically been reluctant to rock the boat and aggressively challenge management. As a result, when it comes to investing through index funds, the full potential of shareholder engagement to drive change hasn’t been tapped. Engine No. 1’s new $VOTE ETF promises to change that. To understand why, it helps to understand the mechanics of how shareholders can push for change. Proxy Voting Purchasing stock in a company grants you not just a share of its profits, but also the right to influence its decision-making. This process is called “proxy voting,” which can be a powerful tool with the potential to transform the entire economy, company by company. Publicly traded companies operate like quasi-democracies, accountable to their shareholders. They hold annual meetings, where shareholders can vote on a number of topics. Shareholders who disagree with some aspect of how a company’s business is conducted can engage with management, and if they feel they aren’t being heard, can present an alternate course of action by making a “shareholder proposal.” If they can persuade a majority of all shareholders to vote in support of the proposal, they can overrule management. When more drastic change is warranted, such “activist” shareholders can seek to replace management entirely, by nominating their own candidates for the company’s board of directors. Shareholder Activism: Social Change Through Engagement Social change via shareholder activism has a storied history. As early as 1951, in a seminal case, civil rights leader James Peck took the fight to the proxy arena, by filing a shareholder proposal with the Greyhound Corporation, recommending that the bus operator abolish segregated seating in the South. Seventy years later, on May 26, 2021, activist hedge fund Engine No. 1 stunned the corporate world by winning a proxy battle against the current leadership of ExxonMobil, persuading a coalition of shareholders to elect three of its own candidates to the board—the first ever climate-centered case for change. Engine No. 1 argued that Exxon’s share price was underperforming that of its peers because the company was unprepared for the transition away from fossil fuels. It nominated candidates for the board that would push the oil giant to embrace renewable energy. Against all odds, holding just .02% of Exxon’s stock, Engine No. 1 prevailed.  Corporate boardrooms across the entire S&P 500 are buzzing, asking what the Exxon coup means for them. Where will environmentally and socially conscious investors strike next? These questions are warranted: The Exxon campaign was a first, but it surely won’t be the last. “Index Activism”: Bringing Power To The People Individual investors are increasingly aware of proxy voting as a domain by which their portfolios can channel their values. In a recent Morningstar report, 61% of those surveyed said that sustainability should be factored into how votes attributable to their 401(k)s are cast. However, most Americans, including Betterment customers, don’t buy stock of companies like Greyhound or Exxon directly, but through index funds. When you buy a share of an index fund, the index fund manager uses your money to buy stocks of companies on your behalf. As a shareholder of the fund, you benefit financially when these underlying stocks rise in value, but the index fund is technically the shareholder of each individual company, and holds the right to participate in each company’s proxy voting process. As more investors tell the industry that they want their dollars to advance sustainable business practices, the Big Three have been feeling the pressure to work these preferences into their proxy voting practices. This year, they are showing some signs of change. Notably, the Big Three ultimately joined Engine No. 1’s coalition, which could not have prevailed against Exxon without their support. However, even if the Big Three, who manage trillions on behalf of individual investors, continue to side with the activists, what’s missing is a way for individuals to invest their dollars not just to support these campaigns, but to spearhead them as well.   What Makes $VOTE Special Activist shareholder campaigns are generally led by hedge funds, and what happened with Exxon was no exception. However, by launching an ETF that anyone can invest in, Engine No. 1 is looking to break that mold. In 2020, investors poured $50 billion into sustainable index funds—double that of 2019, and ten times that of 2018. The $VOTE ETF should bring even more investors off the sidelines, and into sustainable investing, for two reasons. First, rather than dilute its efforts, $VOTE intends to spearhead a handful of campaigns, pushing companies to improve their environmental and social practices. A focus on the highest impact, and most powerful narratives, will continue to raise awareness for the power of shareholder activism. Second, $VOTE is designed for mass adoption, not as a niche strategy. With a management fee of only .05%, and tracking a market cap weighted index, $VOTE is designed to ensure no trade-off to long-term returns. It is also well-suited for those investing for retirement—and as of today, it will make its way into its first ever 401(k) plan, via Betterment for Business. What Does $VOTE Mean For Investors? We know that many of our customers want to invest for real impact, especially if they can do so without sacrificing their long-term financial goals. If you’re investing through any of Betterment’s three Socially Responsible Investing portfolios, $VOTE will have a target weight equal to 10% of your exposure to the U.S. stocks. With $VOTE in your portfolio, you’ll know that your dollars are directly supporting whatever engagements Engine No. 1 launches next. As their subsequent work unfolds, we will be monitoring their efforts, and updating our customers on the impact their investments are driving. Now that $VOTE exists, anyone—not just Betterment customers—can invest in it, which is a great thing. The bigger it gets, the more it can drive change, and you, as an investor, get to help write the next chapter.

What Are The Most Effective Deposit Settings? Jul 8, 2021 12:00:00 AM Choosing the right deposit strategy is an important step towards helping you reach your goals. We recommend setting up your auto-deposits so that they occur right after each paycheck. You’ve set up your account, prioritized your financial goals, and you’ve linked your checking account. Now you’re ready to start making deposits. Automating your deposits helps you to “pay yourself first” by quickly separating your savings money and spending money. It also reduces the amount of idle cash you hold, which could be earning more value if it was invested. More importantly, regular deposits help protect you from trying to attempt the impossible: effectively timing the market. Deposit Types There are multiple ways you can deposit into your Betterment account. You can make a one-time deposit or you can set up recurring deposits. One-Time Deposit A one-time deposit is an ad-hoc type of deposit where you choose a specific dollar amount to transfer from your checking account to any of your investment goals at Betterment. They can work well when you have cash on hand that you’re ready to invest, right now. A major downside of a one-time deposit is that you must initiate it manually. You’ll need to log in to your account every time you want to make a deposit. Even though we have a convenient mobile app for both iPhone and Android, we know you’re busy and likely have a lot on your to-do list already. Recurring Deposits Auto-deposits eliminate the manual process required for a one-time deposit, and instead, allows you to schedule recurring future deposits for a specific dollar value. The set amount will be transferred from your bank account on a repeating frequency that you designate—either weekly, every other week, monthly, or on two set dates per month, making it a great option for anyone who likes to know exactly how much will be transferred and when, on an ongoing basis. We’ll email you the day before a scheduled recurring deposit so that you can make any necessary adjustments before the money is withdrawn from your bank account. The email will provide you with an option to skip the auto-deposit if you need to. Many people utilize the auto-deposit feature as a way to dollar-cost average into the market. Auto-deposits help you stay on track and are the preferred deposit method for any of your goals. What are the most effective recurring deposit settings? The most behaviorally effective auto-deposit strategy is to set up your recurring deposits so that they occur right after each paycheck. Choosing the day after you get paid as your auto-deposit date allows time for your paycheck to completely settle in your bank account before we start the transfer to Betterment. The principle of having recurring deposits set up for right after you get paid is something you actually may already be doing in your employer-sponsored 401(k) account. Your 401(k) contributions come right out of your paycheck, and never actually reaches your bank account. With other investment accounts that aren’t provided to you by your employer, like IRAs or individual taxable accounts, it’s generally not possible to move money directly from your paycheck to those investment accounts. Instead, the next best thing you can do is to schedule auto-deposits for the day after your paycheck hits your bank account. Optimize Timing You may have heard of the saying “pay yourself first” when it comes to saving money. Setting up your auto-deposits for right after you get paid allows you to do this by separating your paycheck into two categories: savings and spending. From a behavior standpoint, this protects you from yourself. Your paycheck is immediately going towards your financial goals first, and any leftover cash in your checking account can then be used for your other spending needs. Avoid Idle Cash Delaying your deposits for any period of time after you get paid allows your cash to sit in your checking account—which can be problematic. Cash that sits in a traditional bank account is likely earning either no interest or very little interest at best. This means that over time, your cash is effectively losing value due to inflation. Letting the cash sit may also tempt you to try to time the market, which might lead you to ultimately hold on to your cash for even longer because of market activity. Not investing that cash could cause you to miss out on dividend payments or coupon income events that you otherwise would have received. Reduce Taxes Another perk of using auto-deposits is that they can help keep your tax bill low. Regular and frequent deposits and dividends help us rebalance your portfolio more tax-efficiently, which keeps you at the appropriate risk level without realizing unnecessary capital gains taxes. We do this by using the incoming cash to buy investments in asset classes that you might be underweight in, instead of selling investments in asset classes that you’re overweight in. Even little amounts help, because we can use those small amounts to invest in fractions of investments. How much should I deposit into each goal? Not sure how much you should be saving in each of your goals per month? We’ll tell you. You can see our recommendations on the Plan tab of each of your goals. We’ll calculate how much you should be saving towards each goal using information such as how much you already have saved, how long you’ll be saving for, and the expected growth rate of your investments. For more information on how our recommendations are determined, please see our goal projection and advice methodology. Ready to put your savings habits on auto-pilot? If you’re already a customer, setting up your preferred deposit type is easy. On a web browser, simply head to New Transfers and choose the deposit option. If you’re using the mobile app, simply log in and choose the Deposit button that will appear at the bottom of the screen. If you have any questions about how to schedule your auto-deposits, we have a team of customer experience associates available to help with any questions or concerns you may have.

How Memestocks Affected Investors’ Actions And Emotions Jun 24, 2021 12:00:00 AM In April, Betterment surveyed 1,500 investors to examine “the rise of the day trader,” and how ‘memestocks’ affected their actions and emotions when it comes to making financial decisions. Money and emotions have long gone hand-in-hand, and this is no more apparent than during significant financial crises. From the 2008 market crash to COVID-19’s economic impact, we’ve seen first hand how money has the ability to impact our stress levels, mental health and personal relationships. And yet in times of particular financial strife—or likely because of it— many people take actions with their money that often undermine their emotional wellbeing, sacrificing long-term happiness for short-term pleasure without even realizing it at the time. This trend toward short-termism grew in 2020: people stuck inside, on screens all day and kept from their normal activities sought new ways to fill their time and energy. Many took up day trading, culminating in one of the wildest rides at the beginning of 2021 (and recent surges demonstrating people are still trying to head to the moon) with Gamestop, AMC, Blackberry and other retail stocks caught in the middle of a clash between amateur retail and institutional investors. Following this eventful start to the year, Betterment was curious to see both the immediate and long-term impact this had on investors, particularly those involved in the action. In this report -- a survey of 1,500 active investors conducted by a third party -- we took a look at the rise of day trading activity and the impact it did (or didn’t have) on people’s behavior. From their own forecasts, it looks like “the rise of the day trader” is here to stay -- but forecasting is hard. None of us would have bet on the pandemic and the changes it's causing. People actually aren't very good at forecasting their own preferences and behavior in the future, so it will be interesting to see if said forecasts actually come to fruition. Regardless, at Betterment we welcome the addition of consumers looking to learn more about the markets and, ultimately, how to balance their portfolios for the long-term too. Section One: The Rise Of Day Trading Activity With movie theaters, stadiums, bars and restaurants closed, many people took up day trading during the COVID-19 pandemic. Half of our total respondents said they actively day trade investments, and nearly half of those day-traders (49%) have been doing it for 2 years or less. While most day traders indicated their main reason for doing so was that they believed they could make more money in a shorter period of time (58%), many (43%) also indicated it was because it is fun and entertaining. Of those who look to day trading for fun/entertainment, half (52%) said it was to make up for the bulk of their other hobbies—like sports, live music, social gatherings, gambling—not being available due to COVID-19. And these day traders have fully acknowledge that COVID-19 played a big impact role in their market activity overall: 54% indicated they trade more often as a result of COVID-19; and interestingly, 58% said they expect to day trade more as normal activities return and COVID-19 restrictions are lifted, likely as a result of what they learned during this downtime. Only 12% said they expect to trade less. More than half (58%) are using less than 30% of their portfolio to actively trade individual securities or stocks. Nearly two thirds also allow an advisor (either online or in-person) to manage a separate part of their portfolio. Betterment's Point Of View: It is interesting to see more respondents expect to day trade more after the pandemic than are currently day trading: we imagine it is hard for people to forecast themselves into the future and imagine doing things differently than they are now. However, what is positive to see is these people aren’t using an excessive amount of their portfolio to day trade. The majority of investors day trade with a minority of their total investing balance, and delegate day-to-day management of the larger portion of their portfolio to an advisor. Passing hobby or not, how educated is the average day trader on what they’re buying and what they stand to gain—or lose? Sixty one percent rely on financial news websites to decide which stocks to buy, but nearly half (42%) are influenced by social media accounts, showing just how powerful “memestocks” can be. Betterment's Point Of View: More than half of the respondents suggested they buy stocks based on company names they’re familiar with, but we’ve seen this lead to issues in the past—with “ticker mis-matches,” where people trade the ticker of a stock that isn't the correct company. For example, after a tweet from Elon Musk about Signal (a non-profit messaging app), a different company’s stock was sent soaring 3,092%. We also asked day trader respondents if they consider capital gains taxes when deciding to sell their investments. While the majority (60%) indicated that it influences them to hold onto stocks longer to avoid short-term capital gains, 14% said they weren’t aware there was a difference in taxes based on how long they hold a stock. Another 17% said they simply don’t care about the short-term capital gains tax. Who invested their stimmys? Almost all (91%) respondents received some stimulus money, and nearly half (46%) invested some of that money; of those who did invest it, 70% invested half or less of their stimulus. Day trader and male respondents were more likely to invest then their counterparts, as represented in the graphic below. This is in contrast to our COVID-19 investor sentiment survey from 2020, where only 9% of respondents indicated they put some of their stimulus money towards investment. Last year’s response pool was primarily focused on building out their emergency funds, with 40% putting money into a safety net. This is a good indication that respondents are more comfortable with their financial situations this year, compared to the throes of the pandemic. Section Two: Memestocks Understanding And Involvement We asked all respondents how well they understood what occurred in the stock market in January & February surrounding “memestocks” like GameStop, AMC, BlackBerry and other retail investments. Most indicated having some level of understanding, but nearly a quarter (24%) of all respondents said they didn’t understand it well at all; and only half (51%) of day trader respondents said they understood what happened very well. Nearly two-thirds (64%) of all survey respondents said they did not actively purchase any popular retail investments (GameStop, AMC, BlackBerry, etc.) during the stock market rally in January or February. But those that DID were primarily day traders. Of all respondents that did buy in actively, 55% are still holding onto all their investments. Only 2% of those that sold these investments sold everything at a loss; 44% sold all for a profit and 54% sold some at a profit and some at a loss. Of those that bought into memestocks, there is a near universal consensus that they will continue investing in stocks like these that get a lot of attention in the future—97% said they’re at least somewhat likely to invest. Betterment's Point Of View: It is interesting to see the majority of respondents holding onto their investments - are they expecting another high or holding on because they don't want to admit they made a bad investment? Disposition Effect says people tend to hold on until they get back to zero loss; but seeing so few sell entirely for a loss is encouraging. However, 60% previously said thinking of short-term capital gains taxes encourages them to hold onto their investments longer, which is good to see. Section Three: Money And Stress Factors It’s no secret that money and stress are linked, so we wanted to take a look at respondents’ money habits and how that may be impacting stress levels. The consensus is that for better and for worse day traders and younger generations are more engaged with their finances. We asked respondents how much they stress about their finances on a daily basis—three quarters said they stress to some degree. Interestingly, when we looked a layer deeper, day traders are much more stressed than non-day trader—86% indicated they stress to some degree, vs 65% of their counterparts. Unsurprisingly, younger generations are more stressed about their finances than older ones. In looking at the causes of the stress: respondents are nearly equally concerned about money in the short term, near term future, and long term future with the top 3 financial stress factors being their daily expenses (43%), how much money they will have in retirement (43%), and how much money they have saved (42%). We asked respondents how often they are checking their bank account and investment portfolio balances -  39% are looking at their bank account balances every day, with 11% of those checking multiple times a day; 37% also check their investment portfolio balances every day, with 16% of those checking multiple times a day. When we look a layer deeper, we find that day traders are checking both their bank account and investment portfolio balances significantly more than non-day traders. Interesting Bank Account Habits 50% of day traders indicated they check at least once a day (18% multiple times) vs 29% of non-daytraders (5% multiple times). Men check their accounts more often—41% at least once a day (13% multiple times) vs 36% of women (8% multiple times). 46% of Gen Z/Millennials and Gen X both said they check their accounts at least once a day, whereas only 28% of Boomers said the same. Those making more money actually check their accounts more often—42% respondents making $100K or more check every day, compared to 39% of those making between $50-100K and 35% of those making less than $50K. Interesting Investment Account Habits Unsurprisingly, 56% of day traders said they check their investment portfolio balances every day (25% multiple times a day), whereas only 18% of non-day traders said the same. 41% of men check every day, compared to 30% of women. 47% of Gen Z/Millennials check every day, compared to 41% of Gen X and 22% of Boomers. 42% of those making 100K or more check every day, compared to 35% making between $50-100K and 30% of those making less than $50K. Betterment's Point Of View: The differences between men and women here are in line with research we’ve seen elsewhere. Women are less focused on market performance, and more focused on the end financial outcome. They also tend to invest at lower risk levels, so are less likely to see extreme ups and downs. Additionally, Women tend to be less competitive/score based in general, so are less interested in monitoring the game. Encouragingly, when we asked people how they felt checking these accounts, the positive responses outweighed negative options for both. Interestingly, day traders were significantly more excited for both (21% for bank accounts, 25% for investments) than non-day traders (4% and 12%, respectively) as well. Most respondents (89%) indicated they’re putting some money away every month, but it's equally split as to where that money is actually going. Conclusion At Betterment, we have often compared day trading to going to Vegas—have a great time, enjoy yourself, but be prepared to come back home with fewer dollars in your wallet and a hangover.  The trends outlined in this report seem to indicate that more people are dipping their toe into the investing pool and (so far) few have decided to walk away. Whether this trend will continue—and the long term impact it will have on people’s finances, health, stress, etc.—remains to be seen. And for those who want to avoid the FOMO of the next big memestock, but aren’t sure of the best way to get started—a simple alternative is investing in a well diversified portfolio. That way, whenever someone asks if you own the hottest thing, you can say “yes”, regardless of what it is. Methodology An online survey was conducted with a panel of potential respondents from April 26, 2021 to May 3, 2021. The survey was completed by a total of 1,500 respondents who are 18 years and older and have any kind of investment (excluded if only 401k). Of the 1,500 respondents, 750 of them actively day traded their investments while the other 750 did not. The sample was provided by Market Cube, a research panel company. All respondents were invited to take the survey via an email invitation. Panel respondents were incentivized to participate via the panel’s established points program, regardless of positive or negative feedback. Participants were not required to be Betterment clients to participate. Findings and analysis are presented for informational purposes only and are not intended to be investment advice, nor is this indicative of client sentiment or experience. Any links provided to other websites are offered as a matter of convenience and are not intended to imply that Betterment or its authors endorse, sponsor, promote, and/or are affiliated with the owners of or participants in those sites, unless stated otherwise.

Understand Your Finances By Connecting Your Accounts Jun 17, 2021 12:00:00 AM Connecting your outside accounts lets you see your holistic financial picture in one place. It also lets us give you more accurate advice. As an added bonus, you may even spot high fees you didn’t know about, or extra cash that could be doing more. Securely connecting your outside investment accounts—such as 401(k)s, IRAs, and taxable accounts held at other institutions—helps us give you better investment advice. For instance, the way we recommend that you save for retirement depends on what sort of account types you have available to you. Knowing that you are making annual contributions to your 401(k) account and getting a 3% match, for example, will drastically alter your retirement projections. The list goes on!   In addition to investment accounts, you can also securely connect debt accounts, such as mortgages and loans. This helps you see your overall financial picture, putting you more in control of your wealth. Your connected account data is regularly updated automatically, so you’ll know where you stand. Step-by-step instructions for how to sync your accounts. See your wealth in one place. What is your net worth? When you connect all of your other accounts to your Betterment account, you’ll have the power of seeing all of your wealth in one place. Whether your net worth is positive or negative, or mostly managed at Betterment or not—seeing this information can help you see the big picture when it comes to your personal finances. Seeing all your wealth in one place can help you better understand if you’re on track to meet your financial goals, and which goals might need some more attention. .     Receive personalized advice. We understand that you currently may be saving towards your financial goals in more accounts than one. For example, with retirement plans, we’ve found that customers often have investments spread out across multiple institutions, especially in the case of 401(k) accounts. It can be cumbersome to manage your finances across many accounts. When you connect your accounts, we’ll analyze your holdings and display each account’s individual risk profile for you. You can also assign any account you connect to a specific Betterment goal. This allows you to see your overall risk profile across all related accounts.  We’ll provide an assessment of how your current risk profile compares to our recommendations so that you can make informed decisions about whether any adjustments need to be made.     For example, you might find that your overall portfolio is riskier than you thought, and may want to reallocate some of your funds into more conservative investments. Knowing your portfolio’s true allocation can help you better understand the risks you are taking and will help you make informed decisions about how to save for the future. Reveal hidden fees. Fees are sometimes hidden between the lines of confusing jargon and can be hard to locate on your statements. In the financial industry, many institutions thrive off high or hidden fees. At Betterment, we believe in transparency. This is why when you sync your external accounts, we’ll clearly display the expense ratios of the funds you are invested in, as well as how much you are paying in management fees, whenever that data is available to us. Using this information, we’ll analyze how much you could potentially save using low-cost ETFs and a low cost advisor like Betterment.   Identify excess cash. A buffer of cash is good to keep in your checking account for regular transactions and short-term spending needs. However, holding cash in any long-term investment account is likely impacting your potential returns because it’s not being invested. This is known as “idle cash” or “cash drag”. When you instantly connect your funding accounts, we’ll analyze your accounts to determine if you’re holding onto too much cash. We classify any cash or cash-equivalent securities as idle cash. It is “idle” because it’s not invested, and therefore, not working as hard for you as it could be. The opportunity costs of idle cash can be significant—especially over long periods of time and because of inflation. Gain peace of mind. At Betterment, your privacy comes first. We will never sell, rent, or trade your information without your permission. We are a fiduciary financial advisor, so we're obligated to—and want to—act in your best interests Additionally, we strive to exceed the safest standards for protecting your account and financial data. Instantly connecting a financial account through our partner Plaid creates a secure, read-only connection with your institution, and we will never store your credentials, nor share your connected data. Connect your accounts. It only takes a few minutes. To connect your accounts, you must first either sign up or log in. On your home page after logging in, scroll down to the "Other Connected Accounts" and click "Connect New." Search for your firm, making sure you choose the firm name and option that has a matching URL to the one you use to log in to their website. Enter your username and password for that firm, and complete any additional security prompts that appear. You can manage and edit your connected accounts from "Connected Accounts" under "Settings." Need more help connecting your accounts?

The Origins of the Racial Wealth Gap Jun 15, 2021 12:00:00 AM Decades of voting, housing, job, and banking discrimination created a racial wealth gap in the U.S. One of the hallmarks of this country is an opportunity to become whatever you want to be. But if we look at the racial wealth gap, it unravels a historical narrative of unequal levels of opportunity that continue to impact us today. The Brookings Institute noted that “At $171,000, the net worth of a typical white family is nearly ten times greater than that of a Black family ($17,150) in 2016.” Mehrsa Baradaran, the author of The Color of Money, puts it best when she states, “The wealth gap is where historic injustice breeds present sufferings.” Looking at the racial wealth gap is like a cobweb. Each strand, or in this case, a reason for the racial wealth gap, can be overcome. But if you combine the strands—the reasons—it grows into a web. These strands are decades of voting, housing, job, and banking discrimination, to name a few, and years of this repeated pattern over generations creates a ripple effect that leads to racial wealth disparities today. A Case Study: How The U.S. Systematically Prevented Black Veterans From Military Benefits In World War II. Although there are many examples of how Black Americans were economically set back by the U.S., one tipping point in modern history is how lawmakers and business discrimination practices denied millions of WWII Black veterans access to GI bill benefits. The post WWII GI Bill benefits included low-cost mortgages, educational grants, and low-cost loans to start a business, which are all key wealth building and wealth transfer vehicles.    Ira Katznelson, author of “When Affirmative Action Was White,” said, “there’s no greater instrument for widening an already huge wealth racial gap in postwar America than the GI Bill.” Here are some examples of how Black veterans were negatively impacted during this time period: Housing discrimination left many Black veterans out of the suburban housing boom after WWII. In New York and northern New Jersey, there were about 67,000 post WWII GI Bill mortgages: non-white people made less than 100 of these mortgages. Black people, as well as other ethnic groups, were denied access to vocational training and college education. Even Black veterans who were lucky enough to get GI Bill education benefits faced Jim Crow laws that prevented many from going to college. No access to education benefits hampered many Black veterans from getting better paying jobs. Low paying jobs, combined with living in neighborhoods where schools had fewer resources, had its ripple effect. Their children, the baby boomer generation, were less prepared for college, and their parents couldn’t afford to send them to school. Today, the lack of inherited generational wealth also means that: Fewer Black Americans are investing. More Black Americans have high amounts of student loan debt. More Black Americans have credit card debt, most of which have crippling interest rates. While many of these issues require systemic changes to law, business, and legal practices, there are also tangible strategies Black Americans can adopt now to take charge of their finances. We delve into some of those in Betterment's annual look at Black wealth.

Financial Advice From Betterment’s LGBTQ+ Community Jun 14, 2021 12:00:00 AM Members of Betterment’s Betterpride ERSG share their financial goals, long-term money habits, and advice for how they approach money decisions in their everyday lives. While not everybody feels that their identity affects their finances, queer people face disproportionate levels of homelessnness, carry more debt, and have more healthcare hurdles than their straight, cis-gendered peers. This Pride month, we’re highlighting stories from members of Betterment’s queer community and sharing the creative ways that they approach money in their everyday life. Get to know our employees with a fun fact. Troy Healey, 401(k) Client Success Manager (he/him): I lived in South Africa for a year. Crys Moore, Product Design Manager (they/them): I'm an avid rock climber. I've climbed all over the U.S, as well as Mexico and Cuba. Sumaya Mulla-Carrillo, Social Media Coordinator (she/her): In addition to my full time job, I'm also a professional dancer. Ricky Whitcomb, Customer Support (he/him): I love cooking and run a food/cooking Instagram account. Woot Hammink, Banking Operations Manager (he/him): My family has farms on three continents! Maria Howe, Sales Development Representative (she/they): I almost never wear matching socks—must be my Aries energy. The path to financial freedom looks different for everybody. Here are some of the goals we’re working towards. Woot Hammink, Banking Operations Manager (he/him): My partner and I have been mulling over buying a home! It's a big, scary investment in a place like New York City. Crys Moore, Product Design Manager (they/them): Saving for a house. Sumaya Mulla-Carrillo, Social Media Coordinator (she/her): Saving for a trip to Italy, and also working towards 1.5 million in retirement. Maria Howe, Sales Development Representative (she/they): Now that I’m on top of my student loans, my partner and I are starting to save for a home. Ricky Whitcomb, Customer Support (he/him): Saving for my wedding. Troy Healey, 401(k) Client Success Manager (he/him): Saving for a cruise ship trip for post COVID-19 travel! Healthy habits make all the difference in doing what’s best for you and your money. Here are some ways our employees are reaching their goals. Sumaya Mulla-Carrillo, Social Media Coordinator (she/her): I use auto-deposit for pretty much every account, and I also save any windfalls or extra money from dancing professionally towards my financial goals. Troy Healey, 401(k) Client Success Manager (he/him): Automation! I deposit $100 every Tuesday into my cruise savings! Ricky Whitcomb, Customer Support (he/him): Prepping my lunches as opposed to ordering out, and saving a percentage of my paycheck. Woot Hammink, Banking Operations Manager (he/him): First: Recurring deposits to a Home Ownership goal. We've got to start from somewhere. Second: We check in with each other frequently, and talk about what we're open to and comfortable with. Since we're not married, ownership gets even more complicated. Maria Howe, Sales Development Representative (she/they): This may be counterintuitive, but after a lot of time spent in grad school and having a tight budget, little indulgences (like dinner out with my partner) are key to making sure I don’t go wild and break my budget. Crys Moore, Product Design Manager (they/them): I auto-deposit into my house goal. Otherwise, I’d spend that money on something else. Our approach to money can change drastically over time, and as we age, perspectives on money shift. Members of the BetterPride community shared advice to their younger self. Ricky Whitcomb, Customer Support (he/him): Open a savings account and don't touch it. Crys Moore, Product Design Manager (they/them): Money is real and has real consequences. It’s not monopoly money. That student loan debt comes back around. Choose wisely young Crys! Maria Howe, Sales Development Representative (she/they): I’d tell myself to go look up IRAs! I knew so little about tax advantaged accounts until working at Betterment. My money could have worked harder for me if I had known more. Woot Hammink, Banking Operations Manager (he/him):  I'd first agree with my younger self that money should be more colorful than our green USD. I'd also take saving earlier more seriously, and spend less money at Dairy Queen. Troy Healey, 401(k) Client Success Manager (he/him): Just make sure if you are going to spend it, you got it in the bank! Sumaya Mulla-Carrillo, Social Media Coordinator (she/her): Take it slow and steady. I always want to achieve my goals as fast as possible, but in reality I have to slow down and stay the course for a while before seeing results. Has your identity influenced your relationship with money in any way? Why or why not? Maria Howe, Sales Development Representative (she/they):  As a queer person who was socialized as a woman, I subconsciously didn’t think of myself as a future breadwinner during formative years. Now that my partner and I are at the point in our lives where we are saving for goals like a house and family, I’m more aware of living in a society where a gender wage gap exists and I’m working hard to catch up! Crys Moore, Product Design Manager (they/them): Even though I have a ton of skin privilege because I'm white, being visibly queer sets me back compared to my cisgender heterosexual peers. Society works for them in ways it doesn't work for me. Most things are a bit harder. Sumaya Mulla-Carrillo, Social Media Coordinator (she/her): Yes and no—I don't think it influences my spending or saving habits, but I do know that I'll eventually have more expenses around having a child, or any legal fees that come with adoption. I'm always mentally preparing myself for that major life expense. Ricky Whitcomb, Customer Support (he/him): When I was younger I definitely felt the need to have the nicest brands and newest styles and now I'm a very happy boring dresser who doesn't spend his paychecks on jeans. Troy Healey, 401(k) Client Success Manager (he/him): No! I am a frugal spender... frugality applies to gay or straight! Woot Hammink, Banking Operations Manager (he/him): Definitely! Being in a "nontraditional" relationship blurs a lot of lines when it comes to long term planning and saving. I've never felt like I have a traditional "Game of Life" style plan, where a simple path can lead me to success.

How Much Could You Be Losing To Fees? Jun 2, 2021 12:00:00 AM Unexpected or hidden fees can damage your long-term investment returns. Sync your outside accounts with Betterment now and see how much you’re being charged by other investment providers. When you invest in valuable items, it’s easy to overlook the hidden fees. Buying a house certainly requires property tax and insurance payments, but you may quickly discover hidden fees in your investment—such as home repair and maintenance costs—of which you were never aware nor did you expect. Purchasing a car results in a similar scenario, in that taxes and insurance are rarely the only expenses. Repair, cleaning, maintenance, and miscellaneous fees can catch you off guard. You’ll soon realize that it’s more expensive than you ever thought to manage these assets. The same is true with investment accounts. At Betterment, we think all investment accounts should be clearly and transparently priced, without any hidden fees. Now, we can help you discover if you’re paying high advisory or hidden fund fees across all of your investments. Here’s a deeper dive into the types of fees you may encounter in your investments with outside fund providers. Understanding Fund Fees Expense Ratios When investing in any mutual fund or exchange-traded fund (ETF), the investor pays fees that cover the management, administration, and operations of the fund. These fees are summarized in the expense ratio. This fee may also include marketing costs which go to the salesperson, known as 12b-1 fees. The expense ratio is visible in the fund’s prospectus, but in general people rarely read that long document. It often goes unnoticed because the fee is not explicitly charged from the balance, but is instead built into the fund’s daily pricing. Contrary to general assumptions, paying higher expense ratios does not guarantee higher returns in an investment portfolio. Since paying higher fees does not necessarily equal high returns, choosing funds with a lower expense ratio is a simple yet generally sound investment strategy. Advisory Fees If you hire an advisor to choose and manage your investments, including one such as Betterment, you’ll most likely pay for the service received. This is known as an “advisory fee.” If you pay advisory fees with an outside investment provider, you can include the fees after you sync your outside accounts with Betterment. We then summarize how much you are paying in fees per year, and also take that number into account when providing retirement advice. Some advisors do not charge fees in an overly transparent manner but earn revenues in other ways. This can include the 12b-1 fees mentioned above, which are built into the expense ratio of the fund, or through load charges, explained below. Lesser-Known Fees Aside from expense ratios and advisory fees, some investment funds have even less transparent costs. One reason Betterment chooses ETFs for our portfolios is because they do not contain the fees mentioned below1, and they are often tax-efficient. On the other hand, mutual funds can have additional fees and revenue-sharing relationships, due to the level of trading and activity involved with the fund’s management. When investing in mutual funds, they typically have the following costs which are borne of the investor, but not included in the expense ratio. These include: Sales load fee: A sales charge imposed by “Class A” or “Class B” mutual funds when you purchase shares. “Class C” shares can have a load fee when you withdraw your money from the fund. These loads are commissions that pay the professional adviser or broker who sold you the fund. Trading fee: Trading fees when you buy or sell stocks in a brokerage account, or when the manager of a mutual fund pays to make trades within the fund. These expenses are taken out of the daily pricing of the fund, but not included in the expense ratio. These fees are hard to estimate, but in general a fund that has a high turnover, like an actively managed fund, will have higher trading fees. Redemption fee: Also referred to as a “market-timing fee,” or “short-term trading fee,” mutual funds charge this fee to discourage investors from making short-term “round trip” transactions (i.e., a purchase, typically a transfer, followed by a sale within a short period of time). 4 Steps to Minimize Investment Fees As a smart investor, there are four steps you can take to help minimize your investment fees. Know where you stand. Look up the expense ratios for all of your investments, or simply sync your outside accounts with Betterment to see a summary of the total advisory and fund expenses you are currently paying. Choose low cost funds. Typically, index ETFs are cheaper than mutual fund equivalents. They generally have no loads or marketing expenses. They also have lower turnover, which means lower internal trading costs and low taxes. Avoid trading costs. If you envision lots of trading activity across your investments, try choosing a platform that has no trading costs. Trading costs can be a constant drag on returns, especially when you use smart strategies like rebalancing and tax loss harvesting. Betterment includes both smart rebalancing and Tax Loss Harvesting+ (TLH+) benefits at no additional cost for customers. Select a low cost advisor. If you have investments with other providers, inquire regarding what fees outside of expense ratios are being charged. You can then enter these additional fees to appear on your synced non-Betterment accounts. Betterment is the largest independent online financial advisor, and we also deliver enhanced value with transparent pricing and lower fees than traditional financial services. When you sync your accounts, not only can you see all of your wealth in one place—we’ll also help you discover which outside investments are charging you high fees so that you can take action accordingly. Get started with opening a Betterment account today. For existing Betterment customers, get started syncing your accounts now. 1Some brokerages charge trading fees for ETFs. Trading fees are included in Betterment’s flat advisory fee.

How Much Crypto Should I Own? Jun 1, 2021 12:00:00 AM What’s the right amount to keep in a portfolio? If investors want to dip their toes into crypto, we recommend aiming for this allocation. Many of us have followed the dramatic rises and precipitous falls of bitcoin, and cryptocurrencies in general, over the past few years. Some may have written them off entirely after 80% declines in 2018, only to see them roar back into investors’ collective consciousness in 2020. Certainly sentiment has shifted over a short two years—more institutional investors are taking a hard look at crypto and previous naysayers have softened their view. This all leads to one question: How much cryptocurrency should I own? Math to the rescue. It goes without saying that this is a hard question to answer. But, we can borrow a page from modern quantitative finance to help us arrive at a potential answer. For years, Wall Street “quants” have used a mathematical framework to manage their portfolios called the Black-Litterman model. Yes, the “Black” here is the same one from the famous Black-Scholes options pricing formula, Fischer Black. And “Litterman” is Robert Litterman, a long-time Goldman Sachs quant. Without getting into too much detail, the model starts with a neutral, “equilibrium” portfolio and provides a mathematical formula for increasing your holdings based on your view of the world. What’s amazing is that it incorporates not just your estimate about how an investment might grow, but also your confidence in that estimate, and translates those inputs into a specific portfolio allocation. Your starting point: 0.50% The Black-Litterman model uses the global market portfolio—all the asset holdings in the world—as its starting point for building a portfolio. This means that, if you don’t have any other views on what investments might perform better or worse, this is the portfolio you should consider holding. In early 2021, the global market for stocks totaled $95 trillion and the global bonds market reached $105 trillion. The cryptocurrency market as a whole was valued at roughly $1 trillion. This means that cryptocurrency represents 0.50% of the global market portfolio. The Global Market Portfolio In Early 2021 Source: Betterment sourced the above cryptocurrency data and stock and bond data from third parties to produce this visualization.  Just as there are plenty of arguments to hold more cryptocurrency, there are also many arguments to hold less. However, from the model’s standpoint, 0.50% should be your starting allocation. Now, add your views. This is where the mathematical magic comes into play. For any given growth rate in cryptocurrency (or any investment for that matter), the Black-Litterman model will return the amount you should hold in your portfolio. What’s more, you can specify your level of conviction in that assumed growth rate and the model will adjust accordingly. In the below chart are the portfolio allocations to bitcoin derived from the Black-Litterman model. This chart can serve as a useful, hypothetical guideline when thinking about how much cryptocurrency you might want to hold. How to use it: Select how much you think bitcoin will overperform stocks, from +5% to +40%. Each return expectation corresponds to a line on the chart. For example, if you think that bitcoin will outperform stocks by 20%, this corresponds to the purple line. Now, follow the line left or right based on how confident you are. If you’re at least 75% confident (a solid “probably”), the purple line lines up with a 4% allocation to bitcoin. Graph represents a hypothetical rendering of confidence of return value based on inputs to the Black-Litterman model. Image does not represent actual performance, either past or present.  One of the most interesting things to note is how high your return estimate needs to be and how confident you need to be in order to take a sizable position in bitcoin. For example, for the model to tell you to hold a 10% allocation you need to be highly confident that bitcoin will outperform stocks by 40% each year. Also of note, it does not take much to drive the model’s allocation to 0% allocation, ie: no crypto holdings. If you don’t think that there’s a 50/50 chance that bitcoin will at least slightly outperform, the model says to avoid it entirely. How we got here. The inputs to the Black-Litterman model tell an interesting story in and of themselves. The main inputs into the model are global market caps, which we discussed earlier, asset volatility, and the correlation between assets. It goes without saying that cryptocurrencies are risky. Over the last five years, bitcoin’s volatility was six times that of stocks and 30 times that of bonds. At its worst, the digital coin saw an 80% drop in value, while stocks were down 20%. Other cryptocurrencies fared even worse. Source: Betterment sourced the above ACWI data and Cryptocurrency data from third party sources to create the above visualization. Visualization is meant for informational purposes only and is not reflective of any Betterment portfolio performance. Past performance is not indicative of future results.    If an asset is volatile, and one is not able to diversify that volatility away, then investors will require a higher rate of return on that investment, otherwise they will choose not to invest. The fact that bitcoin is so volatile, but has such a small number of investors (relative to stocks or bonds) suggests that many investors still do not see the potential returns worth the risks. On the other hand, cryptocurrencies are at their core a new technology, and new technologies always have an adoption curve. The story here may be less about expected return versus risk and more about early adoption versus mass appeal. The final ingredient in the model is bitcoin’s correlation with stocks and bonds. Bitcoin has some correlation with both stocks and bonds, meaning that when stocks go up (or down), bitcoin may do so as well. The lower the correlation, the greater the diversification an asset provides to your portfolio. Bonds have a low correlation with stocks, which makes them a good ballast against turbulent markets. Bitcoin’s correlation is higher, meaning that it can provide some diversification benefit to a portfolio, but not to the same degree as bonds. Cryptocurrencies can be a component of your financial plan—but it shouldn’t be the only thing. While it can’t tell you if bitcoin will be the next digital gold, this mathematical model can help you think about what kind of allocation to crypto might be appropriate for you and what assumptions about risk and return might be underlying it. Even though Betterment currently doesn’t include cryptocurrency in our recommended investment portfolios, you can learn more about how to invest appropriately in it using our cryptocurrency guide. Since crypto should only comprise a small percentage of your overall portfolio, you should still have a diversified portfolio and long-term investment plan that will help you meet your financial goals. Betterment can help you plan for the short and long term, recommending the appropriate investment accounts that align with your financial goals and allowing you to select your preferred risk-levels. You can also align your investments with your values by using one of our three socially responsible investing portfolios.

Understanding Crypto Fundamentals May 20, 2021 12:00:00 AM Cryptocurrency is a complicated technology, but it’s also accessible. It can be understood by anyone, regardless of your background. At this point, it’s highly likely you’ve at least heard the many buzzwords associated with cryptocurrency. Blockchain, Bitcoin, or Ethereum ring a bell? But how many times has someone also said, “You should definitely invest in crypto” and then done a poor job of describing what any of it actually means? I’m all for movements and trends that create engagement within the investing space, but most of us require more before we feel comfortable taking action. My hunch is that some of the qualities that help make an investor successful—being thoughtful and disciplined, for example—can also be our Achilles heel when it comes to crypto and other speculative investments. And while I’m not suggesting that we set our principles aside and immediately add crypto to our portfolio, (heck, only 15% of women are actually investing in it and we’re the better investors, aren’t we?), understanding the fundamentals should help unlock the door to the possibility. At the very least, I hope it prepares you for the next time crypto is inevitably brought up in conversation. So let’s master the three main areas, eh? What it actually is. Considerations for investing. And how to do so, if you so wish. Section 1: So, what’s crypto, anyway? First things first, it’s important to understand a few key definitions. Only then can we piece them together to try and make sense of it all. Three key terms: Cryptocurrency “Crypto”: a form of payment for goods and services that can only be exchanged virtually (digital currency). It’s also decentralized, meaning the transaction doesn’t have to be made through an official financial institution, such as a bank. Blockchain: the technology behind crypto that enables virtual records of all digital transactions to be created and stored securely across computers. This helps verify ownership and prevents fraud. Bitcoin: one of the MANY types of cryptocurrencies that exist. Tied together, crypto is basically a decentralized form of currency that relies on blockchain technology to facilitate secure and strictly digital transactions. Bitcoin, while by far the most popular cryptocurrency, is really just one of many that exist. Bitcoin can be acquired and used to exchange goods and services and/or as an investment opportunity. Still confused? Analogy time. It’s kind of like when you go to a carnival and you use tickets instead of cash. The ticket is your Bitcoin (or another crypto, like Ether) and it carries a perceived value that can be exchanged for something else: Say, a ferris wheel ride. Your primary motivation for having the tickets could be purely transactional, like paying for the fun night at the carnival. But what happens if you wind up with leftover tickets at the end of the night, either intentionally or unintentionally? By not timely exchanging those tickets for other goods and services, it’s expected that their value could change. Over time, the same leftover tickets could potentially buy you 2x the ferris wheel rides, for example, or the same ride could require more tickets than before. To tie it back to cryptocurrency, what continues to attract investors is the idea that the value of cryptocurrency could increase over time. Section 2: To invest or not to invest? The considerations associated with investing in the digital currency space are unique and complex. Does one invest in a single cryptocurrency? A mixture of the 1,000+ possible currencies? Or, is it actually the technology behind cryptocurrency that has the most potential? And exactly how much exposure should one have? If you were hoping for a straightforward answer, I'm sorry to disappoint. Take Bitcoin, for example. Satoshi Nakamoto created Bitcoin in 2009, in response to the financial crisis of 2008. His primary intention was for Bitcoin to act as an alternative to your traditional, bank-controlled currency. Fast forward to today and Bitcoin is still far from being a convenient, 1:1 replacement for cash. Instead, retail investors are flocking to it for its growth potential, betting its value will continue going up. And even though Bitcoin is far and away the single largest cryptocurrency—and the fastest ever asset class to reach a $1T market cap thanks to a $500B surge in 2021 alone—its historical price fluctuations and inherent volatility often make it too risky to be trusted as a standalone investment. Bitcoin’s extreme price fluctuations in April should be a caution sign to all investors. After cracking $60,000, a 15% flash crash had Bitcoin’s price as low as $50,900, and as of end of month April, it was still down about 8%. And if you’re looking for a sound reason as to why the crash happened...good luck. There is no true consensus. So, even if you believe in the technology and conclude crypto’s here to stay, one thing is certain: Right now, this is not a stable asset class and buying Bitcoin is absolutely not the same as holding a regulated currency, like U.S. dollars. That said, even if stability and a disciplined investment approach is important to you, there could still be room for crypto in your strategy. Like anything else, having some exposure is reasonable. You just want to be sure it’s in balance with your broader strategy, explicitly categorized as “play money”, and not being counted towards any specific goal or future need. Until there’s an easier way to actually exchange your crypto for goods and services (at a steady price), you should be buying it primarily for its growth potential. Read more on Betterment's advice for investing in crypto responsibly. Section 3: I think I’m ready to buy. So, you’re ready to join the club. You’ve decided that based on your financial goals and strategy, you’re willing to invest some of your excess cash in crypto. Great. Like the many currencies and tangent technologies, there are several platforms to choose from, possibly even through one of your existing accounts. Unless you have the ability to easily track and monitor your crypto, keeping it separate from your established portfolio may help you better maintain your core strategy moving forward. As you evaluate your options, here are some additional considerations to keep in mind. Safety and security: Use a centralized exchange, or one that’s required to register and follow standard “know your customer” rules (at least when you’re first starting out). Cost: Depending on the platform, there can be trade specific fees, ongoing management fees, and additional costs to send your currency to someone else. General platform functionality: Do you want to be able to simply buy and sell currency? Or do you also want to be able to exchange your currency for additional goods and services and send it to other people? Since this asset class is so volatile, what is your chosen platform’s track record of uptime? Nobody wants their platform to be down while they are trying to make a trade. Companies like Coinbase are often touted as good enough options for beginners and have seemingly avoided the fraud and funny business that other exchanges have fallen victim to. They also have a lot of resources and tools you can access as you get your feet wet. Consider using them as a jumping off point for further exploration. Be an informed crypto investor. So, while this asset class is relatively new and is constantly evolving, it’s important to get familiar with the basics. It’s clear that cryptocurrencies aren’t going anywhere, and the sooner you have the tools to understand what cryptocurrency is—and the consideration related to investing in it—the more empowered you’ll feel participating in the ongoing conversation, and ultimately investing (responsibly), if you so choose.

Personal Finance Stories From Our AAPI Community May 18, 2021 12:00:00 AM Members of the Asians of Betterment ERSG share financial advice learned from their parents and the immigrant experience, and how their financial perspectives have shifted over time. Advice is a powerful way of connecting families across generations. In honor of Asian American and Pacific Islander Heritage Month, we asked members of our Asians of Betterment community to share personal finance advice from their parents. Financial advice is rooted in our experiences. While our families grew up at different times and in different countries, many still have a shared experience of moving to the United States that left an impact on their advice for how to grow their wealth through saving. Eric Pan, Senior 401(k) Operations Associate: I’ve accumulated subtle frugal habits from my parents since I was a minor. From observing my mom pick off slightly rotten parts of the vegetable prior to checkout so it weighs less, to being scolded for tossing a soda can into the garbage instead of the recycling that could be redeemed for cash at the supermarket, their advice has been ingrained in me. Kim Pham, Brand Designer: We used cash for everything. Credit cards were such a foreign concept to me growing up—I didn’t even get my first card until I almost graduated college. We always had the mentality of not spending what we didn’t have. To this day I still take that to heart, but I also understand the efficiency and importance of credit cards and building credit. Anwesha Banerjee, Legal Counsel: My parents taught me about getting a bank account and a (starter) credit card early and paying it in full each month, to start building good financial habits and credit. Also, they emphasized strong and quick mental math—you can't get cheated if you know your numbers! John Kim, Mobile Engineer: My parents were responsible spenders and liked to save. They taught me not to make purchases off of impulse and I learned how to live within my means happily. Jeff Park, Software Engineer: My family's perception of money has always been heavily influenced by historical events that affected my family over generations. My father's family, for example, were scholars in the nobility class, and for all intents and purposes, they were pretty well-off. My grandfather was a university professor in the early 1920s, but due to his vocal criticism of the Japanese occupation, he and his family were forced to leave their wealth behind as they ran away to China to avoid criminal prosecution. My mother's family also saw their wealth significantly decline due to the Korean War. As both my parents looked abroad for sustainable opportunities, they brought with them an understandable fear that events outside of their control can significantly affect their well-being. Prudence and savings were often preached in my family, and we were always told that it is often better to forego immediate petty pleasures for the peace of mind of a prepared tomorrow. Thi Nguyen, Senior Technical Recruiting Manager: My family comes from humble beginnings, and I remember my dad working every single day and only taking time off when he was sick. We never got any advice directly, but understood that working to earn money was tough. My parents never really cared about material things, but we always had food on the table. It taught me that it's okay to spend money on necessities (food, clothing, housing), but I needed to stay humble in how I spent my money. I learned to be frugal and always love a good deal. "Save where you can, spend when you need to." -Thi Nguyen Taking care of our families always comes first. Family is a recurring theme in the way that our community thinks about finances. Our parents instilled a strong sense of frugality and saving, but taking care of family financially, both at home and abroad, always comes first. Kim Pham, Brand Designer: My parents taught me the importance of spending money on family. When my parents first came here they had to build their own wealth from the ground up, which meant a lot of sacrifice. Our family values spending and sending money to our family here and abroad, more than material possessions. Cat Gonzalez, Product Marketing Manager: My mom always taught me that family comes first with your finances. While you are saving for your own goals, make sure to save enough to take care of your family. Help them make sure they have enough to reach their goals as well. Erica Li, Software Engineer: My family taught me to recognize and prioritize your financial goals. Work towards reaching them even if it means sacrificing from other areas. My dad made $30 a month in China before getting the opportunity to immigrate to the United States. His biggest goal, in addition to learning English and acclimating to an entirely new culture, was to save enough money to bring my mother and I over as well. Once my mother and I settled in the United States, new goals and expenses appeared: buying a house in a good public school district and starting a college fund for me. Saving for these goals wasn't such a smooth journey. My mother had to transition from a stay-at-home role to working alongside my dad as our financial circumstances fluctuated. They took up multiple jobs and sacrificed retirement savings to put money towards these goals. We eventually bought a house in New Jersey, and I was lucky to have had financial support from my parents during my college years. Our financial perspectives shifted over time, too. Part of the beauty of the advice passed from generation to generation is how it evolves and adapts over time. Times change, environments change, knowledge changes and our perspectives shift with that. Our community members, many of whom grew up in a different country than their parents, shared how their personal outlook on finances evolved from that of their families. John Kim, Mobile Engineer: I definitely took after my parents saving habits and learned to expand that mentality through investing. Nima Khavari, Account Executive: Moving to the United States and watching my parents adapt to a consumer driven economy based on access to credit was a significant observation. Remembering them trying to understand credit scores and how to improve it in order to purchase a home left a lasting impression. Erica Li, Software Engineer: Now that I'm all grown up, my parents are no longer putting away money towards goals for my benefit. Alongside catch-up retirement contributions, it makes me happy to see that my parents are finally using their money for pleasure. They recently bought themselves a new car after having their old one for 20 years. Also happy to say that they finally replaced their stove with one that has a working oven! Anonymous: My family made every financial mistake in the book. I can't blame them since they immigrated to this country without knowing English and without a formal financial education. They fell for every scam, pyramid scheme, loan shark, didn't know how credit worked, and lost everything. However, it was an opportunity to learn from their mistakes. After seeing what my parents went through, I learned how credit and financing worked magic, financial planning, and how to recognize cons. I wouldn't be as financially apt if it weren't for their experiences—a huge motivation for why I'm studying for the CFP® exam. The plan is to go back to immigrant communities and warn others from making the same mistakes. Kim Pham, Brand Designer: When I was younger, we didn’t invest and we held all our money in savings accounts. This was a hard habit to unlearn. My entire life growing up my parents would instruct us to put all our money into our savings account, mainly because they didn’t know enough about investing. It helps that I work at Betterment because now I learned how to diversify my portfolio, and that investing isn’t—and shouldn’t be—as hard as it seems.

Goal Projection and Advice Methodology May 5, 2021 12:00:00 AM Betterment helps you get on track to meet your goals by providing projections and advice on allocation, savings, and withdrawals. Our methodology for doing so involves some assumptions worth exploring. TABLE OF CONTENTS Projection Methodology and Assumptions Methodology and Assumptions Withdrawal Advice Methodology and Assumptions For Retirement Goals Graph Explanation Goal Status - On Track or Off Track Limitations Betterment provides allocation, savings and withdrawal advice alongside a projection graph when customers view their goal projection under “Plan.” The graph is intended to show the possible future investment values in order to illustrate the impact of different contribution and withdrawal choices, investment time horizons, and portfolio allocations. Actual individual investor performance has and will vary depending on market performance, the time of the initial investment, amount and frequency of contributions or withdrawals, intra-period allocation changes and taxes. An indication of “On Track” is not a guarantee of achieving a goal in the future. Acting on savings and withdrawal advice is not a guarantee that goals will be met or that the investment will meet cost of living needs throughout one’s life. See our Terms and Conditions. In the following sections, we’ll provide an overview of our methodology and assumptions for each component under “Plan” in a Betterment goal. Projection Methodology and Assumptions The expected investment portfolio returns used in the portfolio value projection results are based on the expected returns and risk free rate assumptions for your target Betterment portfolio allocation. (See more about how the expected returns are derived). This portfolio is set by the user-selected allocation to “stocks” and “bonds”. The allocation choice corresponds to weights of the underlying Exchange Traded Funds (ETFs), as defined in our Portfolio. The recommended allocation mix is based on user investment profile including age, the goal type and time horizon. For Cash Goals, the expected return is based on the current APY on Cash Reserve, Betterment’s cash account, and risk free rate assumptions. The returns used are net of your current annual fee and we assume that fee holds throughout the investment. Cash Goals have no fee on your account balance (For Cash Reserve (“CR”), Betterment LLC only receives compensation from our program banks; Betterment LLC and Betterment Securities do not charge fees on your CR balance.), and our projections thus use the current APY when forecasting your Cash Goal account balance. In projecting your balance, we estimate the uncertainty in returns for both your investment portfolio and the underlying risk free rate. For Cash Goals, we assume in our projections that the interest rate for Cash Reserve will vary over time commensurate with any changes to the underlying risk free rate. Monthly Contributions or Withdrawals, if specified, are assumed to be made at the end of the month. We project your balance in monthly increments, never going below twelve months. We project allocation changes on a monthly basis. For users with remaining goal terms of less than one year, our projection assumes that you maintain the allocation at the end of the goal term rather than liquidate. We sometimes map external assets to proxy assets. For investments with available data, we map holdings to our asset classes for risk analysis. In some cases we do not have data for a specific investment, usually because the holding is a non-publicly-listed vehicle, such as a private 401(k) plan. In those cases, we use proxy tickers to determine the appropriate asset class exposures. Proxy tickers are provided by Plaid, our third-party data provider for connected accounts. Plaid uses a proprietary process to identify similar public securities to the unknown ticker using structural information (including security type and fund name) and to qualify the confidence level of the similarity. Betterment uses Plaid’s proxy tickers only for securities that pass a threshold confidence level of similarity. Plaid’s methodology may change over time, and Betterment will continuously evaluate any such changes. The monthly contributions estimate is based on a 60% likelihood of the portfolio value reaching the goal target at the end of the investment term. Calculations assume that you maintain the same portfolio strategy over time. If the portfolio strategy changes over time or has different expected returns, outcomes may be adjusted. Calculations will be updated based on the current portfolio. Charts and graphs are in nominal terms. Withdrawal Advice Methodology And Assumptions For Retirement Income Goals Only The monthly safe withdrawal is based on a 96% likelihood of having $0 or more at the end of the time horizon, assuming the following assumptions hold true. The safe withdrawal amount assumes the user adjusts the withdrawal rate and allocation according to our advice at least once per month. The safe withdrawal amount assumes the user does not live past the specified time horizon (“plan-to-age”). Calculations assume the current Betterment portfolio. If the portfolio changes over time or has different expected returns, outcomes may be adjusted. Calculations will be updated based on the current portfolio held. Withdrawal advice and graphs are in real terms, using an inflation rate of 2% The default time horizon (“plan-to age”) is 90 years of age, or age + 50 years if younger than 40, or age + 10 if older than 80. The model will use this value or the value entered by the user. Graph Explanation The Graph exhibits the possible range of projected portfolio values using color. The dark line indicates the projected portfolio value under average market conditions. This means that there is a 50% likelihood of portfolio values greater than this, and a 50% likelihood of portfolio values less than this. The lighter, shaded region indicates the range within which there is 80% likelihood of the projected portfolio value. This means that there is a 10% likelihood of portfolio values greater than the top of this region, and a 90% likelihood of portfolio values at least as high as the bottom of this region. Goal Status (Savings Goals): On Track Or Off Track The Betterment Savings Advice tool constantly tracks the portfolio performance and indicates the ability of the portfolio to reach the Goal target, assuming average market performance. The portfolio performance is categorized as “On Track” or “Off Track”, and Betterment makes recommendations to increase the likelihood of reaching the Goal target. The portfolio performance is “On Track” when the total projected portfolio value exceeds the Goal target assuming average market performance. This is equivalent to a likelihood of 50% and above of reaching the Goal target. The portfolio performance is “Off Track” when the future projected portfolio value (i.e. current balance plus future contributions, plus investment growth) is not sufficient to reach the Goal target assuming average market performance. This is equivalent to having less than 50% likelihood of reaching the Goal target. Betterment provides advice for bringing the goal back on track in three areas – either increasing the amount of future monthly contributions, or increasing the term of the investment or increasing the current balance in the account by making a one-time deposit. These recommendations are based on a relatively conservative stance, e.g. a 60% likelihood of projected portfolio value to reach the Goal target, compared to the 50% chance used by other models. Limitations The Goal target is a user input and may not be sufficient to provide income for actual spending or retirement income needs. The model does not account for any taxes, except for retirement goals. All non-retirement goal values are assumed to be pre-tax. The model does not account for forced withdrawals such as Required Minimum Distributions that must be taken from pre-tax qualified retirement accounts after a certain age. The model does not account for auto-deposits that are skipped. The savings model is in nominal terms and therefore does not have a direct inflation assumption. (The withdrawal model is in real terms, and uses a 2% inflation assumption). The withdrawal model does not take into account other sources of income outside the Betterment account. A full income plan should include all sources of income and a spending needs analysis. Past performance is not indicative of future results. These projections do not guarantee investment performance. Extreme market conditions, sustained high inflation, or other unforeseen events may reduce portfolio value and withdrawals. Income is not guaranteed.

Investing in Your 30s: 3 Goals You Should Set Today Apr 27, 2021 12:00:00 AM It’s never too early or too late to start investing for a better future. Here’s what you need to know about investing in your 30s. In your 30s, your finances get real. Your income may have increased significantly since your first job. You might have investments, stock compensation, or a small business. You may be using or have access to different kinds of financial accounts (e.g. 401(k), IRA, Roth IRA, HSA, 529, UTMA). In this decade of your life, chances are you’ll get married, and even start a family. Even if you’ve taken this complexity in stride, it’s good to take a step back to review where you are and where you want to go. This review of your plan (or reminder to create a plan) is essential to setting up your financial situation for future decades of financial success. Don’t Delay Creating A Plan: Three Goals For Your 30s As always, the best thing to do is start with your financial goals. Keep in mind that goals change through time, and this review is an important step to make updates based on where you are now. If you don’t have any goals yet, or need some guidance on which investing objectives might be important for you, here are three to consider. Emergency Fund Sometimes your plan doesn’t go as planned, and having an adequate emergency fund can help ensure those hiccups don’t affect the rest of your goals. An emergency fund (at Betterment, we call it a Safety Net) should contain enough money to cover your basic expenses for a minimum of three to six months. You may need more than that estimate depending on your career, which may or may not be one in which finding new work happens quickly. Also, depending on how much risk you want to take with these funds, you may need a buffer on top of that amount. Read more about how to calculate your target amount, or follow this simple formula: Monthly Expenditures x Re-Employment Period = Baseline Safety Net Amount As you review your goals, make sure you have established a safety net account. Good options for this include a high-yield cash account like Betterment Cash Reserve, or a Betterment Safety Net. Then, make sure you have enough saved in that account (or are regularly saving into it to build up the balance). Retirement Most people don’t want to work forever. Even if you enjoy your work, you’ll likely work less as you age, presumably reducing your income. To maintain your standard of living, or spend more on travel, hobbies or grandkids, you’ll need to spend from savings. Saving for your retirement early in your career—especially in your 30s–is essential. Thanks to medical improvements and healthier living, we are living longer in retirement, which means we need to save even more. Luckily, you have a secret weapon—compounding—but you have to use it. Compounding can be simply understood as “interest earning interest,”a snowball effect that can build your account balance more quickly over time. The earlier you start saving, the more time you have, and the more compounding can work for you. In your goal review, you’ll want to make sure you are on track to retire according to your plan, and make savings adjustments if not. You’ll also want to make sure you are using the best retirement accounts for your current financial situation, such as your workplace retirement plan, an IRA, or a Roth IRA. Your household income, tax rate, future tax rate and availability of accounts for you and your spouse will determine what is best for you. Use Betterment’s Retirement Planner, which helps answer all of these questions. Also, if you’ve changed jobs, make sure you are not leaving your retirement savings behind, especially if it has high fees. Often, consolidating your old 401(k)s and IRAs into one account can make it easier to manage, and might even reduce your costs. You can consolidate retirement accounts tax-free with a rollover. If you have questions about your plan or the results using our tools, consider getting help from an expert through our Advice Packages. Major Purchases A wedding, a house, a big trip, or college for your kids. Each of these goals has a different amount needed, and a different time horizon. Our goal-based savings advice can help you figure out how to invest and how much to save each month to achieve them. Take the chance in your goal review to decide which of these goals is most important to you, and make sure you set them up as goals in your Betterment account. Our goal features allow you to see, track, and manage each goal, even if the savings aren’t at Betterment. Get Started with Betterment It can be easy to set up your Safety Net, Retirement, and Major Purchase investment goals on Betterment. Get started now. Please note that Betterment is not a tax advisor. Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements. This article is provided solely for educational purposes. It does not address the details of your personal situation and is not intended to be an individualized recommendation that you take any particular action, including rolling over an existing account. When deciding whether to roll over a retirement account, you should carefully consider your personal situation and preferences. Specific factors that may be relevant to you include: available investment options, fees and expenses, services, withdrawal penalties, protections from creditors and legal judgments, required minimum distributions, and treatment of employer stock. Before deciding to roll over, you should research the details of your current retirement account, consult tax and other advisors with any questions about your personal situation, and review our Form CRS relationship summary and other disclosures. If you currently participate in a 401(k) plan administered or advised by Betterment (or its affiliate), please understand that this article is part of a general educational offering and that neither Betterment nor any of its affiliates are acting as a fiduciary, or providing investment advice or recommendations, with respect to your decision to roll over assets in your 401(k) account or any other retirement account. Add Cash Reserve Disclosure to this article.

4 Betterment Investing Options If You Have Low Risk Tolerance Mar 25, 2021 12:00:00 AM If you’re an investor with low risk tolerance, Betterment has options that can help move forward your investing and savings goals, mediating between potential returns and your desired risk level. One of the more hazy concepts to quantify in behavioral investing is the concept of risk tolerance. Though it’s clear that people in general like to win more than they like to lose, there is also a well-known phenomenon that some people are more risk averse than others. Some investors are content to endure losses of more than half of their investment portfolio if they believe that the potential reward is high enough. Others may feel uneasy with even a loss of one percent. In general, we expect that investors who take more risk can often gain higher returns, but that doesn’t mean seeking a low-risk portfolio is the wrong move. On the contrary, steadily investing in a low-risk portfolio can be an appropriate strategy if it’s an approach you can stick with for the long-term. Betterment’s tools can help you determine the amount of risk that’s right for your financial goals and how much you should save to help reach them. If recent market volatility has made you rethink your risk tolerance, here are four options at Betterment that can offer lower risk. Cash Reserve If you’re looking to earn interest on your short-term cash or general savings, consider using Cash Reserve. It’s a cash account that helps you earn a competitive rate—0.75%*. You’ll have the ability to easily transfer your cash to any of your investment goals when you’re ready to take on more risk, but keep in mind that the transfer can take up to two business days to complete. And, not only does Cash Reserve earn a competitive rate, but it also has FDIC insurance up to $1,000,000† once deposited at our program banks. Cash Reserve is only available to clients of Betterment LLC, which is not a bank, and cash transfers to program banks are conducted through the clients’ brokerage accounts at Betterment Securities. Safety Net Betterment’s Safety Net goal is designed with the specific purpose of building you a financial emergency fund. We recommend that you think of this as a pot of money you save for an emergency, such as a temporary loss of employment or a large unexpected expense. After you decide how much money to put into your Safety Net goal, we invest the money into a 30% stock/70% bond ETF portfolio. While this portfolio is riskier than a 0% stock portfolio, it’s likely a more appropriate allocation for your emergency fund as it can be better at combating a hidden risk to your savings goal: inflation. As Dan Egan, VP of Behavioral Finance & Investing wrote recently, “At least a market crash has the decency of showing up in your balance. Inflation doesn’t tell you that it’s cost you”. While Cash Reserve is built to help keep up with inflation in the short-term, the Safety Net goal can offer the opportunity to potentially exceed inflation while seeking to give you a buffer for rainy days. General Investing Using Betterment’s Portfolio At Low Stock Allocation If you’re now thinking that Cash Reserve is too conservative for your needs but the 30% stock allocation of the Safety Net goal is too aggressive, another option is to set your own stock allocation with Betterment’s allocation slider. For every financial goal you set, Betterment recommends a target stock allocation but lets you adjust it from 0% to 100% stocks. Whatever allocation you choose, Betterment will help you along the way. As you move the slider, we will inform you whether your choice is “Very Conservative”, “Appropriately Conservative”, “Moderate”, “Appropriately Aggressive” or “Too Aggressive”. While we don’t recommend that you change your allocation too drastically one way or the other, feel free to try out different allocations in our preview mode to find the portfolio that’s right for you. Using Flexible Portfolios to Choose Assets We build portfolios that balance a number of different asset classes—like U.S. bonds and international stocks—to achieve a high level of diversification. However, if you want to change exposures to specific asset classes, Flexible Portfolios allows you to make changes to your allocation, and you can choose to only hold what are typically low volatility assets. Another valid use of a Flexible Portfolio is to adjust to high concentrations in your holdings outside of Betterment. For example, if you have a large investment in U.S. bonds in an outside account, you could use a Flexible Portfolio to shift your allocation at Betterment towards more international bonds and away from U.S. bonds. A Flexible Portfolio starts with the Betterment Portfolio Strategy as a baseline, and then we allow you to tune the specific allocation to your preferences. While we don’t recommend you make asset class changes, if you have specific views, you could choose only assets that generally have less volatility. However, you should note that we have specific guidelines for appropriate uses of Flexible Portfolios, and generally, our recommendation is to only decrease risk by adjusting your allocation using your goal slider. As you change the allocation, we will analyze the holdings and inform you whether the risk of the portfolio is suited for your goal, as well as whether the portfolio is adequately diversified. Conclusion Deciding where to place your hard earned cash can be an emotional experience for even the most seasoned financial planner. Choosing a portfolio or cash account that you can stick with can be particularly important to reaching your financial goals. No matter which of the options above you choose, Betterment will give you advice and support to help you reach your financial goals.

4 Reasons Why Women Need To Start Saving More And Sooner Mar 24, 2021 12:00:00 AM Women face unique financial challenges that make saving for retirement more urgent. When I first started in the 401(k) business and heard someone express the need for a special seminar on women and investing, I balked. Why do we need to talk about saving and investing to women differently than we do to men? As I quickly learned: the need to save for retirement is even more urgent for women because they face several undeniable headwinds. Gender Pay Gap1 For starters, most people are well aware of the gender pay gap, which currently translates into women earning just 82 cents to every man’s dollar. To put it mildly, improvements in this number over the years have been slow, and at the current rate of progress, estimates are that the gender pay gap will not close until 2093. And this number is for all women: for women of color and older women, the gap is even larger. Lower earnings over a working lifetime mean that women are more likely to have less saved for retirement. Longer life expectancies. In addition, the average life expectancy for women is about 81 years compared to 76 years for men.2 That’s five more long years that women have to support themselves in old age when a regular paycheck is no longer coming in.  And that’s just based on averages. One-third of women aged 65-years old today who are in excellent health will probably live to age 95—a full three decades past the traditional retirement age.3 So any money that women have saved for retirement needs to stretch further, in some cases much further. In some cases, this forces older women back into the workforce, often at low-paying jobs. Less time spent working. Compared to men, women often have less consistent income streams during their working years. As the primary caretaker in most families, women are more likely to interrupt their earning years to care for a loved one—whether a child, a parent, or someone else. Or they may elect to take a part-time job which not only reduces their income but often, too, their access to benefits, including a retirement plan. Lower participation in workplace savings plans. Women (and especially women of color) are more likely to work in part-time or other positions that don’t include retirement benefits.4 Even when they have access to a workplace retirement saving program, women are less likely to take full advantage of it. As part of recent study about retirement saving attitudes and behaviors among Millennials and Gen Z, Betterment found that overall, men are simply more engaged than women when it comes to retirement saving.5 Specifically with respect to workplace retirement plans like a 401k: Nearly twice as many women aren’t contributing to a retirement plan. Of those contributing, significantly more men increased their contributions in the last year—so they’re tending to their accounts. More men are maximizing the employer’s match. That means that ⅓ of women who have a match are leaving money on the table. Women’s Lower Participation In Workplace Savings Plans  Wow. That’s a lot of headwind! And that was even before the pandemic hit. As a result of COVID-19, women are more likely than their male counterparts to leave their paid positions to take care of school-age kids, which means the workplace is losing ground in terms of gender diversity.6 But the risks for women are even more personal: dropping out of the workforce means losing traction not only as it relates to career advancement, but also as it relates to financial security and building savings. And once again, women of color are impacted disproportionately: The pandemic impacted the very industries in which they are heavily represented, even while Hispanic and Black women are more likely to be single heads of households and the main source of financial support for their families.7 For all these reasons, women should start saving for their future—regardless of their age—before it’s too late. Younger generations can learn from older women: in one study, 41% of women across all races and ethnicities said that their biggest financial regret was not making the effort to invest more.8 Other research shows that women are 14% more likely to feel financially stressed than men and 13% less optimistic about their financial future.9 Women of all ages need to understand these challenges which may not be affecting them now, but likely will in the future. And if they’re already saving, then they (and everyone else!) should help spread the word. It’s never too soon to start saving for retirement. And Betterment can help. Whether you have your 401(k), IRA or other account with us, we can help you create a plan and determine how much to save, how to invest, and which accounts to use. And our automated tools and strategies will help to keep you on track.

4 Ways Women Can Counter The Financial Effects Of COVID-19 Mar 17, 2021 12:00:00 AM The COVID-19 pandemic and its economic fallout are having a regressive effect on gender equality. Here are four solutions that can help women empower themselves financially. Whether you experienced the virus yourself, cared for sick loved ones, lost your job, had work fundamentally change, or assumed new roles in your household as kids stayed home from school and daycare, it goes without saying that no one is going to walk away from the COVID-19 pandemic untouched. That being said, data regarding the immediate and projected long-term effects of the pandemic consistently show that the impact on women—particularly women of color—are far greater than the impact on our male counterparts. How Women Are More Vulnerable To COVID-19 Economic Effects In September, four times as many women dropped out of the labor force compared to men. During the spring and summer of 2020, on average, 10% of working mothers reported not working each week because they were caring for a child who was not in school or childcare. And to make matters worse, in addition to all of this, women also experience a greater negative financial impact. To understand the significance of what is happening, it’s crucial to address the wealth gap prior to the start of the pandemic.  According to the National Partnership for Women & Families: “White, non-Hispanic women are typically paid just 79 cents for every dollar paid to white, non-Hispanic men.” “Black women are typically paid just 63 cents for every dollar paid to white, non-Hispanic men.” “Native American women are typically paid just 60 cents for every dollar paid to white, non-Hispanic men.” “Latinas are typically paid just 55 cents for every dollar paid to white, non-Hispanic men.” As shown above, the wealth gap is significantly wider for women of color, as they face not only a gender wealth gap, but a racial wealth gap as well. This means that well before the world turned upside down, women were already facing major headwinds financially, and now things seem to be getting harder, not easier. While this is a pretty harsh reality, the good news is that even in tough times, there are things all women can do to help themselves and their families succeed financially. 1. Know your expenses. First things first: Know what you spend money on each month. It is easy to feel overwhelmed and bury your head in the sand when bills start piling up, but knowing where your money goes can help you stay in control of your finances. For example, many people forget about small recurring bills for subscriptions or services, which could add up when money is tight. Housing costs are typically the largest expense, but this is not something that’s easily reducible if you are experiencing job loss or lower wages. Knowing the money areas that are more flexible can help you come up with an effective cost cutting strategy that can be implemented at any time. Research Relief Programs As part of knowing what you spend, you should also know where you can cut costs on larger bills. Due to COVID-19, many private companies are providing some relief to their customers. Educate yourself on the programs available, be it a reduced rate on your utility bill, or waiving late credit card fees. In addition, various social service agencies, states, and local governments are still offering additional rent assistance, and President Biden extended the nationwide moratorium on foreclosures and evictions until at least March 31. Think of it like a fire drill: If you know what to do beforehand, you know what to do in the face of an emergency. 2. Manage debt. The Equal Credit Opportunity Act of 1974 banned lenders from discriminating against consumers based on sex. It is illegal for lenders to charge women higher interest rates based on sex or race. Unfortunately, bias still shows up in the lending process. For example, lenders typically use income to inform loan terms, and since women are statistically paid less, and take on more unpaid work (particularly true during the pandemic), it is no surprise that women face less favorable terms like higher interest rates on credit cards and personal loans. While the system is certainly flawed, managing debt effectively is something everyone can do. If you’re able, the most important thing to do is make sure you are making minimum payments on time. This will help you avoid late fees and negative impacts to your credit score, as missed or late payments feed into payment history which is a large part of your credit score. Women should also be careful about how much they put on credit cards, as many credit card companies will approve customers for larger lines of credit than they can really afford to pay back in a reasonable time frame. Of course, in an emergency sometimes credit cards or loans are your only option to bridge the gap before you are back on your feet, so make sure you use them judiciously. 3. Build an emergency fund. Unfortunately, there are few, if any, programs in the U.S. that act as social or medical “emergency funds” for Americans facing financial hardships unrelated to the pandemic or natural disasters, so it is largely up to individuals to protect themselves financially. If you are fortunate enough to still be employed, you should consider building a three to six month emergency fund. It should cover three to six months of your living expenses to protect you in case of sudden job loss, unexpected medical bills, or other unforeseen events that could cause you to go into debt. I recommend keeping your emergency fund in a low risk account such as a high yield savings account, or low risk investment account. If you do choose to keep your funds in a low risk investment account, at Betterment we currently recommend keeping your portfolio in a 30% stock/70% bond allocation. This is to help keep up with inflation and maintain your money’s purchasing power over time. Use state and federal funds for emergencies. If unfortunately you’ve lost your job during the pandemic or are working less hours, then applying for your state and local unemployment benefits is the best course of action. In addition, with the new COVID-19 relief bill, expanded unemployment benefits from the federal government would be extended through September 6th, 2021 at $300 per week. This in addition to the one time stimulus checks, with single taxpayers getting $1,400 checks, while married couples who file jointly would get $2,800, with an additional $1,400 per dependent for both filers. 4. Keep your career options open. Women leaving the workforce at astonishing rates is a very real problem socially and economically. However, I am generally optimistic that this trend could improve over time as businesses open and new businesses emerge, and kids go back to in-person school full time. If you have been laid off, or forced to stay home due to a lack of childcare, I encourage you to keep your options open by maintaining a professional network or picking up a side hustle. Maintaining a professional network looks different for everyone, but some examples include staying in touch with former colleagues and managers, joining professional organizations, or reaching out to professionals in fields you are interested in through professional networking sites such as LinkedIn. You never know who may be looking to hire in the future that could think of you. As for a side hustle, this can both help bridge the gap financially, but also allow you to explore other fields and gain skills that may translate to full time work or your own business in the future. Hang in there. Over the past year, our lives changed in big ways. Women have been feeling the brunt of these changes, as we’ve had to assume more roles, with less support. It has not been easy, and the new norm may be here to stay for a while longer. That being said, there’s light at the end of the tunnel as more vaccines are distributed, another stimulus check may be headed your way, and kids start going back to school. In the meantime, take the steps outlined above to help you keep moving forward and empower yourself financially.

5 Ways To Spend Your Next Stimulus Check Based On Your Finances Mar 12, 2021 12:00:00 AM A third stimulus check could be on its way to you in the next few days. Here’s how you can plan to use it based on your financial situation. With a newly inaugurated President, the American government is moving quickly on social and economic policies. Most recently, President Biden signed a $1.9 trillion COVID relief bill that includes $1,400 stimulus checks for eligible recipients. While the $1,400 stimulus payments could hit your bank account within a few days, other benefits, such as the extension of federal unemployment benefits and the enhanced child tax credit, may take a few weeks to arrive. No matter what financial stage you’re in, below is a simple action plan on how you can make your stimulus check work for you. How The Plan Works We’ve analyzed five potential ways to use your stimulus check wisely, and organized them according to which stage your finances are currently in. Start from the beginning and work your way up. For example, if you already have stage one covered, congratulate yourself and move onto stage two. Let’s get to it. 1. Spend on necessities. We recognize that for many, receiving their stimulus check can mean the difference between putting food on the table vs. going hungry. If you’re one of the millions of Americans who are unemployed, or are simply struggling to make ends meet, then consider using your stimulus check to help cover your basic necessities (i.e. food, water, heat, shelter). These basic needs should be your first and foremost priority. If you’ll need the money soon for these necessities, you should keep the money in an account that’s immediately accessible. 2. Pay down debt. Once your basic needs are covered, you can consider using your stimulus check to pay down debt. You are not alone if you had to borrow money to get through the difficulties of COVID-19. Americans collectively have over $4 trillion in non-housing debt, $800 billion of which is credit card debt. Paying down any debt will increase your net worth, but you should especially prioritize any debt with high interest rates. Two common culprits of this are credit cards, which currently average a 15% interest rate, and personal loans, which average 10% interest. Really, any debt with an interest over 5% should probably be paid off before investing. 3. Save for emergencies. Next on the list is building an emergency fund. 2020 was a perfect reminder that unexpected events can happen at any time, many of which are outside of our control. When an emergency happens, like an injury, broken appliance, or job loss, knowing you have a safety net to fall back on is priceless. Emergencies, by definition, are difficult to plan for. You don’t know when they will occur or how much they will cost. As a starting point, we recommend your emergency fund be at least three months of your living expenses.  4. Invest for the future. With your emergency fund full, you can calmly focus on investing for your future. Investing your stimulus check in stocks can help your money work harder for you than cash. Unfortunately, only about ½ of American families own stocks, which means many have not reaped the benefits of the double-digit returns we’ve seen over the past decade. Your stimulus check could give you the jump start you need to invest. Betterment makes it easy to invest for common goals such as retirement, saving for college, or buying a home. In just a few minutes, you can have a personalized investment portfolio, built by humans and managed by algorithms. A bonus way to invest for your future is by investing in yourself. Consider instead using your stimulus check to take an online course or train for a new career in our rapidly-changing world. 5. Give to others. Lastly, you can consider using your stimulus check to help others. If your finances are in good shape, giving some or all of your stimulus check to those who need it can be a great way to lend a hand during these trying times. There are plenty of ways you can help out. Donate money to charities. An added benefit of doing this is potentially getting a Federal income tax deduction. Congress passed a special rule that allows you to deduct up to $300 per person ($600 if married filing jointly) of cash donations to charity, even if you don’t itemize! Use your stimulus check to help out a local business that may be suffering due to the pandemic. Even buying a gift card to use in the future can help significantly. Use your stimulus check to help family or friends who need it. Wrapping Things Up The best way to use your stimulus check will depend on your situation, and we recommend working your way down the prioritized list depending on where you fall financially.

How to Save for Retirement: 5 Essential Accounts to Consider Mar 5, 2021 12:00:00 AM If you are wondering where to squirrel away money when it comes to saving as tax-efficiently as possible, consider these five essential retirement account types. Saving for retirement can seem daunting and complicated, but it doesn’t have to be. If you are wondering where to squirrel away money when it comes to saving as tax-efficiently as possible, consider these five essential retirement account types. Traditional 401(k) The most common type of workplace retirement account for investors is a Traditional 401(k). Contributions to a Traditional 401(k) are made with pre-tax dollars, and the money is normally deducted directly from your paycheck before the paycheck reaches you. The result is that Traditional 401(k) contributions reduce your amount of taxable income for the current year. This holds true for Traditional 403(b)s, too. Money in a Traditional 401(k) grows tax-free, and the distributions are taxed when you withdraw the money during retirement. Therefore, it may be smart to contribute to a Traditional 401(k) if you think you will be in a lower tax bracket in retirement than you are currently in now. Another good reason to contribute to a Traditional 401(k) is the possibility of an employer match. Your employer may match the contributions you make to your Traditional 401(k) plan up to a certain percentage. That’s free money—and no one should pass that up. For 2020 and 2021, the contribution limits have increased to $19,500 for those under age 50. For those age 50+, the catchup contribution is now $6,500, meaning that your total contribution limit is up to $26,000. The IRS generally requires you to start taking required minimum distributions from your Traditional 401(k) either when you reach a certain age, or, when you retire from your job—if you are older than the age requirement. Roth 401(k) A less common but increasingly popular workplace retirement account is a Roth 401(k). These accounts have the same contribution limits as Traditional 401(k)s. The main difference is when the funds in Roth 401(k)s are actually taxed. Unlike Traditional 401(k)s, Roth 401(k)s are funded with contributions that have already been taxed. This means that Roth 401(k) contributions do not reduce your taxable income. The money in a Roth 401(k) grows tax-free, and when you withdraw the money in retirement, the distributions are also tax-free. If you think you are going to be in a higher tax bracket in retirement—or generally think tax rates are going to increase in the future—Roth 401(k) contributions may be the right choice for you. If your employer offers a 401(k) match then you will still get the match if you make Roth 401(k) contributions, however, the match will be placed in a Traditional 401(k) account. Keep in mind, the contribution limit across Traditional and Roth 401(k)s is a combined limit. For example, you could not contribute $19,500 to both a Traditional and a Roth 401(k) in 2021—you can only contribute $19,500 total across both. You can split your contributions so that a portion goes to the Traditional and a portion goes to the Roth. Contributions are made on a calendar year basis. Traditional IRA IRAs (Individual Retirement Accounts) are not offered by an employer, which means you have more control and flexibility with the investments and the provider you choose. As long as you earn taxable income you can contribute to a Traditional IRA, and the maximum contribution you can make for 2020 and 2021 is $6,000. If you are over age 50, you can contribute $7,000. Money in a Traditional IRA grows tax-free, and is normally taxed when you take distributions in retirement. Additionally, the IRS generally requires you to start taking distributions from a Traditional IRA starting at a certain age. You can also get a tax deduction on your Traditional IRA contributions in the year you make them. Your ability to deduct, though, can depend on if: You are covered by a retirement plan through work You are not covered by a retirement plan through work Some investors choose to roll over their 401(k)s to a Traditional IRA in order to consolidate their investments at the provider of their choice, or to switch to a provider with a lower fee. For investors looking to make backdoor Roth conversions, it is wise to move an old 401(k) into a current 401(k) if that option exists, instead of a Traditional IRA. Roth IRA Unlike Traditional IRAs, Roth IRA contributions offer no ability to receive a tax deduction. You contribute to a Roth IRA with after-tax dollars, and when you take distributions from your Roth IRA in retirement they are tax-free. Similar to Roth 401(k)s, making Roth IRA contributions is beneficial if you think you will be in a higher tax bracket in retirement than you are now. Another perk is flexibility. Roth IRAs do not require you to take minimum distributions like Traditional IRAs do. Additionally, you can withdraw your contributions to a Roth IRA at any time without taxes or penalties. If you make over a certain amount of income, you cannot contribute to a Roth IRA directly. Roth IRAs have the same contribution limits as Traditional IRAs ($6,000 or $7,000, depending on age), but that limit is the maximum amount total across both types—meaning you cannot contribute the maximum amount of $6,000 (or $7,000) to both a Roth IRA and a Traditional IRA in the same year. Unlike 401(k)s, you can contribute to an IRA up until that year’s tax filing deadline. So for example, you contribute to an IRA for the 2020 tax year up until April 2021. Health Savings Account (HSA) Health Savings Accounts (HSAs) should be used as an option to set aside money for retirement if you have already filled up all your other retirement account options. Contributions to an HSA are tax-deductible, and distributions from an HSA are tax-free if you use the money for medical expenses or related costs. If you allow your HSA to invest and grow over time you can withdraw the funds at age 65 without triggering a penalty. Distributions from your HSA at age 65 or over would be treated similarly to distributions from a Traditional IRA. In 2020 and 2021, you can contribute up to $3,500 to an HSA if you are a single tax filer, and up to $7,000 if you have a family HSA. For 2020, the limits are $3,050 for single tax filers and $7,100 for families. Keep in mind that you can only contribute to an HSA if you are enrolled in a high-deductible health plan through you or your spouse’s workplace. HSA contributions are made on a calendar year basis. Need Advice? Within a Betterment account, we can provide additional advice regarding which accounts you should consider funding and in what order. You can even sync up your 401(k)s and other financial accounts to see an overall picture of your finances. Get started or log in to complete your retirement plan and see personalized savings advice. Our licensed financial experts also offer advice packages for retirement planning and more. Betterment is not a tax advisor. Contact a qualified tax advisor to understand your personal situation. This article is provided solely for marketing and educational purposes. It does not address the details of your personal situation and is not intended to be an individualized recommendation that you take any particular action, including rolling over an existing account. When deciding whether to roll over a retirement account, you should carefully consider your personal situation and preferences. Specific factors that may be relevant to you include: available investment options, fees and expenses, services, withdrawal penalties, protections from creditors and legal judgments, required minimum distributions, and treatment of employer stock. Before deciding to roll over, you should research the details of your current retirement account, consult tax and other advisors with any questions about your personal situation, and review our Form CRS relationship summary and other disclosures. If you currently participate in a 401(k) plan administered or advised by Betterment (or its affiliate), please understand that this article is part of a general offering and that neither Betterment nor any of its affiliates are acting as a fiduciary, or providing investment advice or recommendations, with respect to your decision to roll over assets in your 401(k) account or any other retirement account.

Diamond Hands And Financial Plans: Betterment’s Advice For Investing In Crypto Mar 3, 2021 12:00:00 AM Is there a way to invest in cryptocurrencies responsibly? We certainly think so. Here are five tips to help guide you through the process. Even though cryptocurrencies have only been around for a short period of time, it’s abundantly clear that they’re here to stay. As a financial advisor, we at Betterment want to share our guidance on how to invest responsibly in cryptocurrency, if that’s something you choose to do. Fortunately, Betterment has a set of five universal investing principles that serve as a guide for the investment advice we give our 600,000+ customers, and that can help you make educated decisions about cryptocurrency yourself. 1. Make a personalized plan. As an investor, you have your own unique goals and values. Depending on those goals and values, the role cryptocurrency plays in your overall financial plan—if it has a role at all—will vary. Let’s start with your personal values. Many individuals are fans of cryptocurrency for reasons beyond just the potential to see their net worth go “to the moon.” You may be fascinated with crypto from an engineering perspective, or maybe for the societal impact it could have. Ultimately, it’s okay to invest your money in a way that reflects your personal values; just do so in an informed, principled manner. The second component of personalization is your financial goals. Your goals will also affect if and how cryptocurrency should be implemented into your portfolio. For example, if your child is going to college next year, their tuition money likely shouldn’t be invested 100% in Dogecoin. The volatility is far too large for a goal so short-term. Likewise, your emergency fund shouldn’t be held in Bitcoin either, because of the large price swings it’s experienced over the past few years. But, if you have a play account on the side, or a long-term goal where you’re able to tolerate more ups/downs, cryptocurrency may be an appropriate component of your portfolio. The overall point is that, just like any other investment, there is no one-size-fits-all answer: The best financial advice incorporates the unique goals and values of each person. 2. Diversify your investments. Even if cryptocurrency as an asset class may be here to stay, it’s impossible to know which cryptocurrencies will thrive and which will go extinct. There are currently over 4,000 unique cryptocurrencies, with new coins popping up seemingly every week. It’s likely many, if not most, will fail. With any type of investment, it’s not wise to “put all your eggs in one basket.” That’s why diversification is a critical piece of any financial plan.  In early 2021, the cryptocurrency market as a whole passed $1 trillion for the first time. That’s quite an accomplishment. But when compared to the size of the global stock and bond markets, we see just how new and small cryptocurrency is. All the cryptocurrencies combined total just about 0.5% of the global stock and bonds markets, which exceed $200 trillion. Global Market Capitalization of Stocks, Bonds & Cryptocurrency Sources: Reuters and SIFMA If you take a market capitalization approach, crypto would make up about 0.5% of your overall portfolio. Even if you are very bullish on crypto, Betterment doesn’t recommend it exceeding a maximum of 10% of your portfolio. We also recommend diversifying across multiple cryptocurrencies. 3. Prepare your taxes. Tax management is part of any investment strategy. Afterall, it’s not what you earn, but what you keep. When it comes to the taxation of cryptocurrency, the word that best describes it is “confusing.” If you’re going to invest in crypto, be sure to comply with all relevant laws and reporting requirements. The IRS published an FAQ page that addresses most common questions, such as: How is virtual currency treated for Federal income tax purposes? Will I recognize a gain or loss when I sell my virtual currency? Where do I report my capital gain or loss for virtual currency? If you invest in crypto, one strategy you may consider to manage taxes is tax loss harvesting. Betterment implements this strategy at the flip of a switch for our investment customers and we’ve automated the process so that our customers don’t have to do it manually. For example, losses that Betterment harvests can be used to offset gains in your cryptocurrency investments. 4. Weigh the overall costs and value. With all the hype and talk of double-digit—even triple-digit—growth in the world of cryptocurrencies, it’s easy to forget about the potential costs incurred from investing in them. Costs, when taken holistically, not only include how much you pay out of pocket, but also the execution quality of your trades, and the opportunity cost of your time. Depending on where you buy and sell cryptocurrency, you could pay transaction fees of over 1% for each trade. Newer cryptocurrencies, or those that don’t trade very frequently, may have larger bid-ask spreads. This means the price for which you can sell your cryptocurrency is lower than what it would cost you to purchase more. Lastly, when there are large price swings, you also must be careful about order execution. All of these direct or indirect costs can chip away at your take-home returns from trading cryptocurrency. 5. Grow investing discipline. Warren Buffet is famous for saying the market is “a device for transferring money from the impatient to the patient." He was referring to the stock market, but the saying also applies to the cryptocurrency market. Almost all investments have ups and downs, and the cryptocurrency market is no different. Bitcoin lost 80% of its value in 2018, over 1,000 currencies have failed, and stories of fraud are not hard to come across. These challenges -- price shocks, bankruptcy, panic, theft -- are not unique to crypto; however the risks are magnified because of the new technology, lack of regulation, and intense media hype around the cryptocurrency market. You must be willing to HODL, even when your portfolio is dropping. As an asset class, cryptocurrencies are extremely volatile, and it’ll likely be the disciplined investors who’ll be rewarded. Before you purchase any crypto, make sure doing so is appropriate for your risk tolerance, and that you have a plan in place for if and when you encounter volatility. Manage your investments purposefully. Cryptocurrency is a novel type of investment, and carries a lot of risk. That’s why having a clear set of investing principles is important. These principles can help guide your investment decisions and help you avoid getting caught up in the news hype of particular cryptocurrencies.

Financial Resources For Women’s History Month Mar 2, 2021 12:00:00 AM Join us as we celebrate Women’s History Month. Explore our personal recommendations for featured organizations, financial content, and more below. What better way to celebrate Women’s History Month than by considering women’s financial well-being? Though many women are increasingly independent, they’re also often supporting both themselves and other family members. General financial planning often ignores gender-specific issues that continue to challenge long-term financial security for women. Here’s Betterment’s guide to help you navigate the month. Meet Women+ of Betterment The Women+ of Betterment ERSG works to improve the company by partnering across the organization to amplify the voices of and advance equity for all women+, however you identify. We work alongside ERSGs of Betterment to ensure proposed solutions are intersectional. We provide women+ opportunities to strengthen relationships, lead, and broaden their network. Investing, Financial Planning, and Career Tips For Women Everyone should understand the importance of financial planning for women. Here are four articles that can help you get started, from gender-specific considerations to earning more money, here are our money tips for women. Is Financial Planning Different For Women? Betterment’s Women Leaders Share Their Best Career Advice How A Generation Gap Impacts Finance For Women Women and Money: Bridge The Gap Organizations We’re Supporting This Month Even though the COVID-19 pandemic has permeated all aspects of American society, research has shown how women have been disproportionately impacted by working on the front lines and mass unemployment. Here are three organizations you can donate to today who are working to address social and economic gaps for women: Bottomless Closet - Helps women in New York prepare for job interviews and sets them up for success in their careers. Moms Helping Moms - Supports hundreds of thousands of individuals in New Jersey by providing them with essential items for their children and families. Days for Girls - Provides women and girls with reusable menstrual products, health education programs, and training classes. Trans Lifeline - Offers direct emotional and financial support to trans people in crisis – for the trans community, by the trans community. Ladies Who Launch - Facilitates the connections needed to support female entrepreneurs as they follow their passions and launch their businesses. Organizations Supporting Women On Betterment’s Platform Through our Charitable Giving feature, customers can donate shares held for longer than one year to any organization we partner with. Below are three charities working to improve women’s lives: Breast Cancer Research Foundation - Fund the best ideas in breast cancer research. Hour Children - Reunify families impacted by incarceration. Boys & Girls Clubs of America - Provide a safe space for kids and teens during out-of-school time. Invest in gender equity this month with our Social Impact Portfolio. If you’re passionate about issues like gender and racial equity and want to support companies who demonstrate a commitment to gender diversity within senior leadership, you can invest your money in Betterment’s Social Impact Portfolio. There are also two other socially responsible investing portfolios that may align with your values: the Broad Impact Portfolio and Climate Impact Portfolio. What better way to celebrate Women’s History Month than by considering women’s financial well-being? Though many women are increasingly independent, they’re also often supporting both themselves and other family members. General financial planning often ignores gender-specific issues that continue to challenge long-term financial security for women. Here’s Betterment’s guide to help you navigate the month. Meet Women+ of Betterment The Women+ of Betterment ERSG works to improve the company by partnering across the organization to amplify the voices of and advance equity for all women+, however you identify. We work alongside ERSGs of Betterment to ensure proposed solutions are intersectional. We provide women+ opportunities to strengthen relationships, lead, and broaden their network. Investing, Financial Planning, and Career Tips For Women Everyone should understand the importance of financial planning for women. Here are four articles that can help you get started, from gender-specific considerations to earning more money, here are our money tips for women. Is Financial Planning Different For Women? Betterment’s Women Leaders Share Their Best Career Advice How A Generation Gap Impacts Finance For Women Women and Money: Bridge The Gap Organizations We’re Supporting This Month Even though the COVID-19 pandemic has permeated all aspects of American society, research has shown how women have been disproportionately impacted by working on the front lines and mass unemployment. Here are three organizations you can donate to today who are working to address social and economic gaps for women: Bottomless Closet – Helps women in New York prepare for job interviews and sets them up for success in their careers. Moms Helping Moms – Supports hundreds of thousands of individuals in New Jersey by providing them with essential items for their children and families. Days for Girls – Provides women and girls with reusable menstrual products, health education programs, and training classes. Trans Lifeline – Offers direct emotional and financial support to trans people in crisis – for the trans community, by the trans community. Ladies Who Launch – Facilitates the connections needed to support female entrepreneurs as they follow their passions and launch their businesses. Organizations Supporting Women On Betterment’s Platform Through our Charitable Giving feature, customers can donate shares held for longer than one year to any organization we partner with. Below are three charities working to improve women’s lives: Breast Cancer Research Foundation – Fund the best ideas in breast cancer research. Hour Children – Reunify families impacted by incarceration. Boys & Girls Clubs of America – Provide a safe space for kids and teens during out-of-school time. Invest in gender equity this month with our Social Impact Portfolio. If you’re passionate about issues like gender and racial equity and want to support companies who demonstrate a commitment to gender diversity within senior leadership, you can invest your money in Betterment’s Social Impact Portfolio. There are also two other socially responsible investing portfolios that may align with your values: the Broad Impact Portfolio and Climate Impact Portfolio.

The Recommended Allocation To Keep Up With Inflation Has Changed Mar 2, 2021 12:00:00 AM For funds that seek to match or beat inflation, like a Safety Net goal or Emergency goal, we seek to take on minimal risk while allowing your portfolio the potential growth needed to keep up with inflation. Learn about our updated portfolio allocation recommendations for your emergency funds. At Betterment, we are routinely evaluating our investment strategies to help you achieve your financial goals. As part of that routine evaluation process, we have recently updated our recommended portfolio allocation for goals that seek to keep up with inflation. Goals like our Safety Net goal or an emergency fund are designed to be an account you can withdraw from in the case of an unexpected financial situation, such as a large medical bill or the loss of a job. If your emergency money is sitting out of the market and it’s not invested, it runs the risk of losing buying power over time because of inflation. A key risk to this money is that it loses purchasing power as time goes on. A key aim for such goals is to match—or beat—inflation, so that your dollars can keep as much buying power over time as possible. We updated our recommended allocation for goals that seek to keep up with inflation from 15% stocks to 30% stocks. Based on updated analysis below that considers the current yield curve and inflation expectations, our recommendation is that a 30% stock portfolio is the appropriate allocation for your emergency funds. The chosen allocation is designed to match our assumptions regarding long term inflation. We revisit these assumptions annually, and our assumption for long term inflation is still 2%. As interest rates have moved lower, the yield on low asset assets has also gone down. Now, an investor must take slightly more risk to achieve a return that may beat inflation. Just as they have in the past, these economic conditions could change again in the future—which is why we routinely evaluate our strategies over time. Keeping Inflation At Bay In order to determine the right level of portfolio risk, we need two key pieces of information: The expected return of the portfolio The expected rate of inflation Our current inflation assumption is 2% per year. We review our inflation assumptions annually to make sure they reflect the current economic environment, which is always changing. The expected return of the portfolio has two key components: the risk-free rate and the expected return on risky assets. Yield on U.S. Treasury bonds determines the risk-free rate. Since U.S. Treasury bonds are backed by the U.S. government, they are considered to be virtually risk-free. We also estimate how much additional return we might expect from holding risky assets, such as stocks or corporate bonds. Putting these two pieces together gives us the total expected return for the portfolio. As of January 2021, short-term U.S. Treasury bonds were expected to have a 0.10% annual yield. This means that holding these bonds until they mature will produce about a 0.10% annualized return, which is less than the 2% we need in order to combat inflation, based on our current inflation assumptions. By taking slightly more risk, Betterment seeks to improve on the 0.10% risk-free investment return. Based on our asset class return assumptions, we expect that the total returns for our 30% stock portfolio could potentially be 2.1% after fees*, which is slightly higher than our inflation expectations. We Recommend A Buffer Unfortunately, we can’t predict the future, so the actual performance of our 30% stock portfolio may turn out to be different than our projected assumptions. We can use history to help us understand the range of potential outcomes. Our 30% stock portfolio’s worst performance in a historical backtest would have been -22.9%, during the Great Financial Crisis.** To help protect against a temporary market drop, we recommend that you hold an additional buffer that’s 30% of your target amount—which generally represents at least three months of normal expenses—to insulate against down markets. For example, if three months of expenses is $10,000, we recommend that you hold $13,000 in our goal. Why not just hold cash? Finally, you might be wondering, “Why not just use a bank account for my emergency funds?” It’s a valid question. After all, money in a checking or savings account isn’t subject to market volatility. Most traditional bank accounts don’t pay a high enough interest rate to keep up with inflation. The national average interest rate is 0.04%, which is far below the 2% annual return we need in order to simply match inflation. This means that even though the amount of cash you’re holding is stable, its buying power is still declining over time. We’ll help keep you on track while keeping you informed. Having funds set aside for emergencies is the cornerstone of any financial plan, since it provides an important cushion against unforeseen circumstances—circumstances that might otherwise require you to dip into a long term account, such as retirement. In fact, our advisors routinely recommend that the first investing goal our customers set up should be a goal to protect oneself against unexpected costs, like a medical bill, or loss of income. If you currently have a goal that’s set to the target allocation of our old recommendation—15% stocks—we’ll alert you that your allocation is now considered conservative, and that a more appropriate target allocation for your goal is now 30% stocks. While we won’t adjust your target allocation for you, you’ll be able to adjust your target allocation within your goal either on a web browser or on your mobile app. Before making this update, please note that there may be a tax impact. We’ll show you the estimated tax impact before you complete the change inside of your account. As the economic environment changes, we will continue to review our recommendations. Because we believe in transparency, we’ll keep our customers updated if economic condition shifts lead to a chance in our advice and recommendations. We calculate expected excess returns for the assets in our portfolio by applying a Black-Litterman model, as described in “Computing Forward-Looking Return Inputs” of our . By multiplying these expected returns by our portfolio weights, we can calculate the gross expected excess returns for the portfolio. We can then calculate the expected total return of the portfolio by adding to the expected excess return our estimate of the forward-looking risk-free rate. In this example, we used the lowest point on the US Treasury yield curve as our assumption. The expected returns are net of a 0.25% annual management fee and fund level expenses, and assumes reinvestment of dividends.This expected return is based on a model, rather than actual client performance.  Model returns may not always reflect material market or economic factors. All investing involves risk, and there is always a chance for loss, as well as gain. Actual returns can vary. Past performance does not indicate future results. ** The Betterment portfolio historical performance numbers are based on a backtest of the ETFs or indices tracked by each asset class in Betterment’s portfolio as of January 2021. Though we have made an effort to closely match performance results shown to that of the Betterment Portfolio over time, these results are entirely the product of a model. Actual client experience could have varied materially.  Performance figures assume dividends are reinvested and daily portfolio rebalancing at market closing prices. The returns are net of a 0.25% annual management fee and fund level expenses. Backtested performance does not represent actual performance and should not be interpreted as an indication of such performance. Actual performance for client accounts may be materially lower. Backtested performance results have certain inherent limitations. Such results do not represent the impact that material economic and market factors might have on an investment adviser’s decision-making process if the adviser were actually managing client money. Backtested performance also differs from actual performance because it is achieved through the retroactive application of model portfolios designed with the benefit of hindsight. As a result, the models theoretically may be changed from time to time and the effect on performance results could be either favorable or unfavorable.  See additional disclosure https://www.betterment.com/returns-calculation/.

Betterment’s Women Leaders Share Their Best Career Advice Mar 2, 2021 12:00:00 AM Nine women leaders across Betterment talk about their work, leadership, and advice for the next generation. In the full year since COVID-19 fundamentally upended our realities forever, Betterment adapted and grew alongside a changing society, industry, and tumultuous economy. That’s why this Women’s History Month, we’re taking a moment to learn from and appreciate the women who are leading Betterment into the future, by taking a look at their invaluable insights and experiences. We asked nine women at the helm of various departments across Betterment to talk about their work, leadership, and advice for the next generation. What advice do you have for women who are just starting out in their careers? Sarah Levy, CEO: Find something that you are passionate about. You will spend many hours of your life at work and it's best to love what you do. Katherine Kornas, VP of Product: Early in my career, I remember having a conversation with my dad, who worked at General Motors his entire career, about how I always felt like I was “getting it wrong” because I didn’t come up with the same solutions to problems that my colleagues did. “You know what, Kate?” he said. “You think differently than other people. That’s not a sign that you’re unqualified. It’s a sign that you’re an extremely valuable employee because you’re able to see things no one else sees.” Susan Justus, Head of Talent Development: Allow yourself to be vulnerable: Vulnerability is not a sign of weakness and can be your greatest strength. Vulnerability can create a culture of trust and respect. Admitting our mistakes, seeking help, and acknowledging we don’t have all the answers are all expressions of vulnerability. Pat Advaney, Senior Director, B4B Marketing: Don't diminish the value of skills that come easily to you; something that may not be "rocket science" to you is likely something that others struggle with. Own your expertise! Kim Rosenblum, CMO: Try things out; it's hard to know what you will love (or hate!) without hands-on experience. Take time to find the intersection of "what you love" and "what you are good at." Once you know that magic combo it will be easier to create a career path where you will be happy and successful! Veronica Mendoza, Senior Director of Growth Marketing: Don't be too hard on yourself! You can strive to be good without beating yourself up for not being perfect. Can you tell us more about self-care, and how you accomplish it as a leader? Kate Smith, Senior Director of People Strategy & Operations: This is a hard one. As a working mom of three young kids, I find I'm constantly focused on the care of others, and it's only been recently that I've realized the need to carve out time for myself. Once a week my husband and I get the girls to bed, and then I'm off to play a sport I love for an hour, helping me both mentally and physically! Johanna Richardson, Head of Product: Not going to lie: finding balance during the past year has been a constant struggle. Juggling work, normal parenting, and remote schooling all in the place where I live has seriously blurred the lines between all aspects of my life. My daughter has crashed many-a-meeting, but I try to remind myself how cool it is that she gets to see her mom at work up close. That said, carving out some time for myself every day to go for a run or just binge-watch some Netflix is a must. Also, I've really upped my skincare game. Veronica Mendoza, Senior Director of Growth Marketing: I'm not much of a routines or rituals type of person when it comes to self care, but I do believe in Body's Choice. Whether it's a long walk, a night of mindless TV-watching, or just consistently taking a workday lunch break, I try to listen to what my mind or body is telling me it needs—before it starts yelling. Sarah Levy, CEO: It's important to turn off after hours. For me, spending time with family and friends, walking in the park with my husband and dog, and reading books keep me happy. Kim Rosenblum, CMO: It's personal. I try and exercise 5x a week. Even if it's for a short amount of time. And when I exercise I keep a notebook handy because endorphins generate ideas! I also only take on volunteer or extracurricular projects if I have the time. Katherine Kornas, VP of Product: Too much routine is often the source of burnout for me, so when I start to feel like I’m doing the same things, day after day, I’ll do something differently, even if it's uncomfortable at first. Tweaking my schedule even just a tiny bit helps force my brain out of its groove, and I find that I’m able to look at problems and opportunities in new, insightful ways afterwards. What’s your leadership style? Lucy Babbage, SVP of People: I focus on building personal relationships and getting to know my colleagues' personal goals in career and life, and doing what I can to support those goals in the context of what the company needs. I also like to bring some silliness and laughter to the table, so I hope my team thinks I am funny! Susan Justus, Head of Talent Development: I am a people first leader. I lead with care and empathy. I engage my team by asking open-ended questions and creating space for their input and ideas and make myself available to support and guide the process along the way. I am a true believer that people grow when they are provided autonomy, respect and trust to contribute at their full potential. Kate Smith, Senior Director of People Strategy & Operations: Player / coach. I'm ready to roll up my sleeves and get into the details, but can take that step back to be able to take a more strategic view. I want my team to feel empowered and accountable, but I'm here to support them every step of the way. Kim Rosenblum, CMO: Over many years I've learned my strengths and weaknesses. When I'm at my best, I'm supporting people to do their best job—to maximize their talent and potential. Veronica Mendoza, Senior Director of Growth Marketing: I like to think I have a supportive, consultative leadership style. Over time, I've also learned that not everyone responds to a single style in the same way, so I also believe it's most important to be adaptable. Getting to know people individually makes it easier to find the sweet spots between disparate styles, leading to stronger relationships and, very often, better business outcomes. Johanna Richardson, Head of Product: I try to lead with empathy and transparency. I want to make sure that everyone on my team has the space and autonomy to shine and feels supported in their careers. What about your work at Betterment are you most proud of so far? Sarah Levy, CEO: It's pretty early in the journey for me. I'm really enjoying getting to know the team, the industry, and the amazing things that differentiate Betterment: performance, ease-of-use, transparency, and personalization. Susan Justus, Head of Talent Development: Building the Talent Development function from the ground up over the last four years. Creating a core skill training curriculum, leadership development tracks, one-on-one coaching programs and various other tools/resources that support growth and development for employees. Pat Advaney, Senior Director, B4B Marketing: Publishing lots of B4B content that has helped drive traffic to our site and helps educate our employer clients. Kate Smith, Senior Director of People Strategy & Operations: I'm proud of the direct impact my work has on our people and culture. A lot of what we do is behind the scenes, but to see how that work has contributed to Betterment being a great place for our team members to grow and develop their careers, all while creating and supporting an amazing product for our customers—it's very rewarding to say the least! Kim Rosenblum, CMO: It's been a fast first month! I'm learning so much, and I feel very welcomed. I appreciate that everyone here is helpful and a teacher. I'm excited to learn more about our existing and potential customers, building an emotional and resonant brand, and marketing incredible products that meet a vital need. Our mission is quite inspiring! Lucy Babbage, SVP of People: I'm proud to have been part of an ever-evolving team that has made Betterment such a special place to work over the years and also that I finally got our new kitchen construction wrapped! Johanna Richardson, Head of Product: I'm really proud of the team we've built. Truly a stellar crew. Anything else on your mind that our readers should know about? Katherine Kornas, VP of Product: I’m queer-identified and grew up in a conservative, religious Midwest suburb. I didn’t fit in. My experiences, while heartbreaking at times, helped instill a tenacity in me that I often call upon during my career, particularly when I’m faced with tough problems and ambiguity. I believe I’m a better leader because of it—and am proud of that. Kate Smith, Senior Director of People Strategy & Operations: I'm a proud mom to three little girls, and I feel so grateful to work at a place like Betterment where I feel so supported as I try to juggle work and family priorities. Sarah Levy, CEO: I love leading a business with such a positive mission—to empower customers to make the most of their money, so they can live Better! If you’re interested in joining our team, check out the Betterment careers page! We’re always looking for passionate candidates to join our company.

Tax Planning Happens Year Round, Not Just When You File Feb 19, 2021 12:00:00 AM Knowing how your investments affect your tax bill can help you save money not just when you file, but for years to come. Thinking about reducing your taxes may not be your favorite hobby, but the truth is that it can help you keep more of what you earn. While you can't control the stock market, you can control some of your tax obligations. To identify whether your long-term investment strategy is running efficiently, take a few minutes to review these year-round tax optimization tips. 1. Invest Your Tax Refund Would you have guessed that a smart place to invest your tax refund is in an IRA? Normally, investors might divert a portion of the refund into this account as part of a well-rounded investment strategy and claim the deductions on your taxes next year. Invest your refund, and you may get a portion of that back in tax savings. Stay in the habit of investing your refund as soon as you receive it, and over time you’ll feel good when you see your returns start to add up. The IRA contribution limits for 2020 and 2021 are the same. If you are under 50, you can contribute $6,000 to your Traditional or Roth IRA. If you are over 50, you can contribute $7,000 to your Traditional or Roth IRA. 2. Think Several Moves Ahead Investing is complex, and from time to time you might have to sell some of your investments. It might be to rebalance your portfolio, or maybe your goals have changed and your investments no longer match their intended purpose. Smart investors think ahead before blindly selling parts of their portfolio, because selling certain assets could potentially lead to capital gains taxes. By carefully choosing which investments to sell, you can help minimize hefty tax consequences. One way to do this is to partner with an investing company that has the tools to help make this process easy to access and understand. Here at Betterment, we are continuously rebalancing your portfolio as tax-efficiently as possible, using an automated method we call TaxMin. Further, our Tax Impact Preview tool lets you see the estimated potential taxes on a sale before making the trade. 3. Reorganize Your Investments Another way to potentially leverage small tax advantages for long-term growth is to organize your portfolio. Move tax-inefficient investments, like international stocks and other assets that are taxed at higher rates and more frequently, into a tax-deferred account, such as an IRA or a Roth IRA. That way, you can enjoy the potential for higher growth while also facing less of a tax burden. Similarly, you can also move tax-efficient assets, such as municipal bonds, into taxable accounts. For further guidance, we’ve outlined the tax implications that accompany each type of investment account. As part of your reorganization efforts, you may want to consider setting up Tax Coordination, which allows us to optimize this practice of asset location for you. 4. Benefit from Losses It’s never fun to watch your assets lose value, but did you know that in some cases, losses can actually benefit you? You can receive a tax deduction for your losses that can help cancel out the taxes you owe on assets that have gained value, or, you can use up to $3,000 worth of realized losses per year to lower your income—and excess losses can even be carried forward. The practice of selling assets that are currently at a loss in order to reduce your overall tax liability is called tax loss harvesting. You may want to consider our Tax Loss Harvesting+ feature (TLH+), which allows Betterment to automatically capture losses as the market fluctuates at the flip of a switch. Smart investors should always remember that investments involve risk and may result in loss. 5. Give to a Worthy Cause While it’s important to secure your own financial future, many investors see community support as an important additional goal. Consider donating to a nonprofit organization in your community. Not only are you helping to improve the quality of life in your locale, you can potentially claim a deduction from your income taxes. Fortunately, it sometimes can pay to do the right thing. Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a tax professional for more information.

An HR Generalist Making $90k In Minneapolis Wants To Pay Off Student Loans Feb 19, 2021 12:00:00 AM How this 25-year-old can pay off her student loan debts and balance car payments and more. How I Money is a series featuring real people who have real questions about money, and real advice from Betterment’s experts. Follow along as our financial planners help folks just like you think through saving, investing, debt, retirement, and more. Meet Lilliana*: Let’s dive into Lilliana’s financial goals and concerns: Talk me through your short-term financial goals. What do you hope to achieve within the next 5 years? Lilliana: Making progress on paying down undergrad and graduate student debt. Paying off a car. Let's talk long-term. What do you hope to accomplish financially 5 years or more from now? Lilliana: Continuing to pay off student loans hopefully before the 15-year repayment period! What impact has COVID-19 had on either your short or long-term financial goals? Lilliana: COVID impacted the start date of my post-graduation job, which restricted my ability to begin refinancing and beginning to pay my student loans until I could start this job roughly six months later—all while my private loans continued to accrue interest. This impacted both my short and long-term goals as paying down the immense student loan debt is my current top priority. If you could ask a financial expert for advice on one money question, what would it be? Lilliana: How should someone plan to start contributing for their retirement when they are unable to comfortably afford to do so in the present moment? What the financial experts say: We asked Corbin to comment on Lilliana’s financial goals. Here are her thoughts. Like many young people, Lilliana has a large amount of student loan debt. How much of her income should she be using to pay student loans? Corbin: I’m so glad to see that Lilliana has a full-time role after graduation, especially since many graduates have struggled this year to find work. Given both her relatively high income compared to the average college graduate and her stated priority of paying off her student loans, Lilliana can be aggressive with her payment plan. There is no set amount of income that Lilliana should contribute, but before coming up with a repayment plan for her debt, Lilliana needs to make sure that she is making all minimum debt payments on time. This will allow her to avoid racking up fees and help her build her credit score. After that, how much she contributes towards her student loans depends on how much cash she has on hand after paying all of her living expenses. Given that aid to federal loans will end eventually, Lilliana should do the following: Pay off debt with the highest interest first. People tend to think that paying off the loan with the highest balance is best, but the reality is that loans with higher interest rates are more costly over time. At Betterment, we consider any debt above 5% interest or finance charge fees to be high-cost debt. Others may use a higher number (like 8%), but we tend to take a more conservative view here. Since Lilliana also mentioned having both federal and private student loans, consolidating and/or refinancing may be in her best interest. While there are differences within these two options, the overall benefit is being able to make one monthly payment instead of individual payments to each loan provider. With private loan refinancing, she may even be able to reduce her interest rate and change her repayment schedule. Once Lilliana knows her new minimum payments, she can choose to pay more towards the highest interest loan or maintain the minimum payments depending on her other competing financial goals, like building an emergency fund or retirement. How should Lilliana plan to save for retirement in the future? Corbin: The most important factor Lilliana has on her side is time. Regular investments made right from an early age can reap huge benefits at the time of retirement, because of money’s time value and compound interest.  Because of this, I’d strongly recommend that once Lilliana gets to a manageable place with her loans and builds a three month safety net, she begin investing for retirement. First, Lilliana should calculate how much she needs to save. To get this number, she needs to consider factors like when she wants to retire, her possible future Social Security benefits, inflation, taxes, and estimated investment returns. Then, Lilliana needs to figure out what accounts benefit her the most based on the factors above, like a 401(k) or IRA, Roth or Traditional account, HSA, and/or taxable investment account, to name a few. Finally, if her employer offers a match as part of her retirement plan, she should contribute enough to get the full benefit. Take advantage of this money, since not every employer is nice enough to offer one! This is the one caveat to the high interest debt pay off recommendation. Since an employer match provides “free money”, you should prioritize maxing this match if one is available over making additional payments to your high interest loans. If all of this sounds overwhelming, that’s totally understandable—but there are services out there that can help with just this scenario. For example, Betterment has a tool that helps tell our customers how much they need to save for a comfortable retirement. We take into account when and where they plan on retiring, as well as their current and anticipated income. Ultimately, Lilliana will have to make investing for retirement a priority and be careful not to sacrifice her debt repayment plan through spending that can restart the debt cycle. Are there other financial goals Lilliana should start thinking along with tackling her debt? Corbin: We always recommend building an emergency fund as one of the pinnacles of financial security. That’s because an emergency fund can help you pay for unexpected expenses that you otherwise aren’t able to afford, or that even force you to take on more debt. An emergency fund can also provide some peace of mind, especially during this tumultuous period of job loss for many folks. We recommend saving three to six months of living expenses, including your monthly housing payments, bill payments, utilities, groceries, and other recurring monthly bills. If Lilliana is able to repay her high interest student loans, build an emergency fund, get on track for retirement, and still have extra cash to put towards other goals, I recommend focusing on her next highest priority such as paying off her car. Whether that means increasing her monthly loan payments or paying off a loan early entirely, she should keep in mind that lenders are not always inclined to help with the latter, because of the potential income they might lose. Want to get your financial questions answered? Submit here. If you have a How I Money entry you’d like to share and want your financial questions answered, submit an anonymous response today. Betterment can help make your financial goals real. When it comes to saving and investing, Betterment aims to help you align your money with your goals. That means not only offering multiple types of accounts for your short and long-term goals, but also helping you identify your goals and invest for them appropriately. Learn more about our guidance and get started saving for your future. Responses for the How I Money series were gathered through voluntary participation in an online survey where participants were requested to provide comments, feedback, ideas, reports, suggestions, data or other information to Betterment (collectively “Feedback”). The Feedback gathered in that survey excluded Betterment clients, was anonymized, and was used internally to help us understand how people could benefit from Betterment’s services and to create content to address those needs. Participants permitted Betterment to use any Feedback they provided for these purposes. While this content is written for advice purposes, it may not be applicable to all and is intended to be informational only.

Q&A: What’s The Future Of Investing? Feb 17, 2021 12:00:00 AM Betterment’s VP of Behavioral Finance & Investing discusses entertainment investing, its impact to long-term investors, and how to know if day-trading is right for you. Millions of people are jumping into the stock market. We’re here for it. It seems easy. It can be fun. Isn’t it for everyone? Plus, you never know when you could take a little play money, trade a hot stock, and double it up. But your real money? That long-term, easy-living, retire-where-and-when-you-want money? That’s our forte. Buying into the entire market, setting goals, saving easy—that’s investing for better. It won't make you a millionaire overnight. But it could probably help make you a millionaire over your lifetime. We asked Dan Egan, VP of Behavioral Finance & Investing at Betterment, to comment on the longer term effects of entertainment investing and how to know if it’s right for you. What happened with Gamestop? What are the broader trends at play here? Dan: The rally and collapse in GameStop hit basically all the classic notes of a bubble and burst, with some added intrigue around short squeezes. To understand the specifics of what occurred, start with this article from The New York Times: “4 Things to Know About the GameStop Insanity.” If you’re interested in exploring some of the psychological aspects behind investor behavior, I touch on that in “Memestonks: What’s Different About This Market?” What is “entertainment investing” and how is it likely to evolve in the future? Dan: It’s investing to entertain yourself, to get stimulated or excited, to relieve boredom. It’s not about long-term growth in the economy, or discounted free cash flow. It’s about being in on the hot new stock, or seeing huge movement in your accounts, and being able to talk about it with other people. There’s a reason BarStool Sports founder Dave Portnoy got into day-trading: the excitement of winning and losing, the ability to yell at the refs and regulators, the game we can all access and play regardless of how small. And finally, don’t forget: the thrill of making and losing money. How does the internet and social media change investing? Dan: It speeds everything up, usually not in good ways. Stock markets already operate at the millisecond. Professionals have news parsed, analyzed, and acted upon by algorithms faster than any human. Social media and always-on news means you hear news faster than ever before, and with greater variety in what you hear. Conspiracy theories and misinformation spreads faster than boring truths. Once you’ve shown interest in a stock, your Facebook, Twitter, Youtube, and TikTok accounts will all double down on that content, hoping to keep you for a few more seconds, a few more ads. This reduces the diversity of perspectives you see. Thus, social media encourages large, dispersed groups of people to coordinate on a single stock or issue, giving it the feel of a grassroots movement. This means that high prices and short-term volatility are more likely to occur, especially in companies consumers interact with. These dynamics have always been at play in markets—that’s not new. Now we’ve sped them up through the internet and fractured social networks. How is the investing industry changing? Dan: Over the past 40 years there’s a consistent trend towards consumers paying less and less for trades, investment management, etc. That trend recently crossed a tipping point, with some consumers paying $0 for trade commissions, $0 for investment management, or $0 for advice. Most folks love free, so companies that offer free trading have grown dramatically in recent history. Of course, those companies are still getting paid, just not directly from the general investor. Free trading services often make money by sending your trades to people who pay to trade against you. These are high-frequency trading shops, hedge funds, etc. When you sell a share for $99.96 and a buyer pays $100.00, these brokerages get the $0.04. This is called the ‘spread’. Do that billions of times, and you can see how they make money. So, they want users to trade a lot. They want users to trade in stocks with bigger spreads. And they don’t care if users make or lose money—they win as long as users trade. Users are the gravy. So it still costs you, but you can’t see how much. You can easily compare trade fees, but not the spread you pay. It is easier than ever to invest well: the minimums are low, the costs are low, diversification is easy, and the markets are reasonably well regulated. It’s also easier than ever to invest badly: you can access leverage, derivatives, and leverage to buy speculative, concentrated assets you don’t really have any underlying understanding of. How will these recent trends in investing impact long term investors? Dan: For the most part, positively. Gaining exposure to genuine economic growth is easier than ever. Holding a broad-based, diversified portfolio means when a new company gains ground, you were already invested in it. That’s part of why Betterment invests beyond the S&P 500: a diversified portfolio with a mixture of stocks and bonds and international exposure helps mitigate risk. Has anything like this happened before, and what has been the impact? Dan: Yes, bubbles—and bubbles popping—happen all the time. They all have a slightly different flavor: 2001 was the original tech/internet bubble popping, 2008 was based on leverage in the housing market, etc. The biggest difference between any two stock-market cycles is whether or not it impacts the real economy, generally through de-leveraging. The stock market can crash without an impact on the real-world economy because all assets are just valued lower. But when that lower valuation causes deleveraging and bankruptcies, the real-world is impacted and it’s dramatically worse. Should I start investing in individual stocks too? How do I know if it’s right for me? Dan: That depends on if you want to. You don’t have to if you don’t want to. I think of it much like this: I could bake my own bread, change the oil in my car, and build my own custom closet shelves. But should I? Here are questions I ask myself whenever I’m tempted to D-I-Y: Do I really want to do this? Will I enjoy it? Will it reduce my time doing other things I enjoy more? How much more will it cost me if I do it wrong, or to a lower quality? Will I need to pay for tools that professionals already have? If I want to do it to learn, that’s great. I’ll need to be deliberate about learning, which means setting up high-fidelity feedback loops about successes and failures. Am I ready to recognize and learn from failure? Am I ready and willing to fire myself if I’m not good at it? It’s fine to have a hobby, but with most hobbies we don’t harbor a belief we might get rich quickly with them—we do them because we enjoy them. Make sure you’re enjoying yourself in the process. How can services like Betterment compliment an active trading strategy? Dan: It’s important to remember that you don’t have to choose between being a long-term investor or an active trader. Long-term investing can be a great compliment to a trading strategy, especially if you want to meet your financial goals like retirement, saving for a home, or saving for college. Betterment helps you invest in what matters to you by helping you define your goals, recommending how much you should save, and tailoring your portfolio recommendations based on when you need the money. For those who do want to actively trade, you can set up a “get rich” portfolio and a “stay rich” portfolio. For example, you can open a riskier "get rich" portfolio at a broker that allows you to day-trade stocks and crypto, then set up a long-term "stay rich" portfolio with Betterment. This way, you can day-trade guilt free without compromising your financial goals. To start, you can allocate about 10% to 20% of your wealth to your “get rich” portfolio, and the remainder to the “stay rich” portfolio. If or when your “get rich” allocations grow to be 40% of your overall wealth, rebalance it back down to 10% to 20%. If you're lucky, you might still get rich and stay rich. If you're not, then the best case scenario is that you still have your long-term investing and savings squared away for future use and you don’t have to start saving all over again.

A Creative Strategist Making $135K In Chicago Dreams Of 1mm In Retirement Feb 2, 2021 12:00:00 AM How this goal-oriented couple can save for the unexpected while still dreaming big for retirement. How I Money is a series featuring real people who have real questions about money, and real advice from Betterment’s experts. Follow along as our financial planners help folks just like you think through saving, investing, debt, retirement, and more. Meet Sasha*: Let’s dive into Sasha’s financial goals and concerns: Talk me through your short-term financial goals. What do you hope to achieve within the next 5 years? Sasha: Be financially stable enough to take one big vacation a year. Have a year's worth of expenses (mortgage, bills, etc.) saved. Be relatively debt free (except for student loans, though those are all federal). Start investing more aggressively towards retirement (tracking towards 1 million in investments by the age of 63). Let's talk long-term. What do you hope to accomplish financially 5 years or more from now? Sasha: Pay off student loans. Maybe start a business? Invest in real estate. Donate more to the causes we care about. Build our dream home. What impact has COVID-19 had on either your short or long-term financial goals? Sasha: My wife worked in the food industry and was furloughed for 5 months this year. While we are very grateful to have an additional salary to pay the month-to-month bills and a decent cushion in savings, we weren't able to start paying down our debt as aggressively as we'd hoped to until now. My job is also not matching 401(k) contributions during this time, though we are hopeful that will resume in 2021. If you could ask a financial expert for advice on one money question, what would it be? Sasha: How best to save for retirement—how do we maximize the impact of our investment? What the financial experts say: We asked Corbin to comment on Sasha’s financial goals. Here are her thoughts. Sasha and her wife have so many short and long-term goals, which is great. How should they prioritize them? Corbin: This is a really common question that a lot of our customers ask, and thankfully Sasha has already done the hard part of figuring out exactly what her goals are. At a high level, prioritizing the life goals we need to save money for is so important because most of us only have a limited amount of income. But before Sasha and her wife even get to saving for their goals, they need to ensure that they’ve covered the basics: Making all minimum debt payments Always having three to five weeks’ worth of expenses in an easily accessible place, like a checking account. Contributing to their employer’s retirement plan to maximize any employer match once they receive a match again. Once they have those three sorted, they can move on to getting specific about each of their goals and determining how much they would have to save, then decide when they’d need the money. For example, they currently have a mortgage but also want to build a dream home—do they want to stay in the house they’re currently in and renovate it, or move to a new home? When would they buy their new home? Where would it be? And what size? When you open a goal within Betterment, we prompt you to enter this information. Keep in mind that it doesn’t have to be exact, but when Sasha completes this process for each of her short and long term goals, she will be able to rank her goals in their order of importance, calculate how much she would have to save for each, and then set up auto-deposits to the goals she is funding so that her savings happen automatically. Sasha also mentioned she wanted to save a year’s worth of expenses in her emergency fund, even though we typically recommend having three to six months’ worth of expenses saved. But, since Sasha mentioned that her wife was furloughed during the pandemic, it makes sense that she would want an extra financial cushion. Once she covers all the basics, I recommend starting there to give them more peace of mind and be prepared for anything else that might happen. How should Sasha and her wife save for retirement? With no 401(k) contribution from her employer, are there other accounts and products they should explore to maximize their investment? Corbin: Fortunately, Sasha and her wife are eligible for both their employer’s 401(k) and an IRA (regardless of if they’re married filing separately or married filing jointly). There are many different options for them to choose from, but she can use these questions to help guide her: How much does she need to save? First, she needs to know how much she wants to spend every year in retirement, and when she wants to retire. This way she can calculate how much money she should be saving, or use a financial product that does it for her, like Betterment. How much can she save? Not everyone can afford to save everything they need to for the retirement lifestyle/age they want. However, Sasha can still weigh her retirement goals against other expenses and financial goals, and determine how much her and her wife can afford and are willing to save for this goal. Does she expect to be in a lower tax bracket today or in retirement? Knowing this will help dictate her highest priority account. For example, if she expects to be in a higher tax bracket, then she should be putting money away in a Roth IRA for tax-free withdrawals in retirement. But if she expects to be in a lower tax bracket, then prioritizing a Traditional 401(k) might be better for her in the long run. For reference, the 401(k) and IRA limits for 2021 are as follows:  The contribution limit for employer-sponsored 401(k) plans remains at $19,500 for individuals under age 50. Contribution limits for IRAs remain at $6,000 in 2021 for individuals under age 50. The income phase-out range for taxpayers making contributions to a Roth IRA is $125,000 to $140,000 for singles and heads of household. For married couples filing jointly, the income phase-out range is $198,000 to $208,000. One of Sasha’s long-term goals is to donate more to the causes she cares about. What are some things she should keep in mind? Corbin: Donating any amount of money on a regular basis takes planning. Not only does it require researching the causes and charities she’s interested in, but it also requires tax planning if Sasha envisions reporting the donations in her yearly taxes. One thing Sasha should keep in mind are the administrative expenses of the organization. For some folks, it’s important to them that the money used for these expenses doesn’t outnumber the amount of money used to fund programs. From a personal financial perspective, donating to charity can help reduce her taxes. If Sasha wants to claim a deduction for her charitable donations on her taxes, she needs to itemize rather than take the standard deduction in that year(s). When it comes time to file them, she can use Schedule A on the form 1040 to itemize each of her deductions, and be sure to include her donation on lines 16-19. Another tax efficient way to donate to charity is by donating appreciated stock instead of cash. Betterment has a charitable giving feature that ensures almost all charities keep 100% of your gift. Let’s say that Sasha opens an investment account at Betterment and her money grows over the years. If she were to sell some of her shares and donate the cash, she would pay taxes on the growth, but if she simply donates the actual shares to her charity of choice, she can avoid having to pay taxes on the gains and still gets to deduct the fair market value of the shares on the date of her donation  (as long as the shares were held for more than a year). Another benefit to this strategy is that you can donate shares, and then replace the shares with an additional cash deposit, resulting in a lower embedded tax liability, while keeping your investing goals on track. How much of her student loans should she prioritize paying every month, particularly with federal loans repayments on hold? Corbin: The exact dollar amount of how much she pays off will depend on her competing priorities. Thankfully, on Wednesday, January 20th, President Biden signed an executive order to extend federal student loan forbearance until September 30th, 2021, which is great news. We always recommend making minimum monthly payments on time for all loans and bills, with any extra income going to the loan with the highest interest first, not the highest balance. Want to get your financial questions answered? Submit here. If you have a How I Money entry you’d like to share and want your financial questions answered, submit an anonymous response today. Betterment can help make your financial goals real. When it comes to saving and investing, Betterment aims to help you align your money with your goals. That means not only offering multiple types of accounts for your short and long-term goals, but also helping you identify your goals and invest for them appropriately. Learn more about our guidance and get started saving for your future. Responses for the How I Money series were gathered through voluntary participation in an online survey where participants were requested to provide comments, feedback, ideas, reports, suggestions, data or other information to Betterment (collectively “Feedback”). The Feedback gathered in that survey excluded Betterment clients,  was anonymized, and used internally to help us understand how people could benefit from Betterment’s services and to create content to address those needs. Participants permitted Betterment to use any Feedback they provided for these purposes. While this content is written for advice purposes, it may not be applicable to all and is intended to be informational only. Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Taking Time Off From Work Can Be A Secret Tax Opportunity Feb 1, 2021 12:00:00 AM If you’re taking off time from work—e.g. sabbatical, leave of absence, or traveling the world—you might be able to take advantage of a special tax boon if you put money toward retirement. If you’re taking time off work, it’s probably not for tax reasons. But did you know that doing so could open up a major tax opportunity. It turns out, if you work less than half the year—without becoming dependent on another person—you may be able to take advantage of a special tax credit that could save you hundreds of dollars. And, get this: This year may be one of the only times in your life you’re eligible. Today, we’ll show you how you can potentially take advantage of the retirement saver’s credit. The only major move you have to make is to contribute to an IRA (which you might want to make a Roth IRA) or your employer-sponsored retirement plan, like a 401(k) or 403(b). Why is this tax opportunity a big deal? It’s a win-win. You could potentially pay less in taxes simply by saving for retirement. But you’d have to save this calendar year. If you can put away money for your future self right now, while you aren’t working, you’ll actually get more back from Uncle Sam for your current self. Chances are, you may never be eligible to receive this tax credit again if you normally make more than $32,500 for 2020 ($33,000 for 2021) per year as a single person. It works this year because even if you make a high amount per month, you’re only working a few months in total for the year. It’s one of the rare triple tax advantages in life. This tax credit helps reduce how much you pay in taxes for this year, while letting you save into a Roth IRA or Roth 401(k) where gains are tax deferred, and you don’t have to pay taxes on withdrawals in retirement. In this way, it’s one of the few opportunities where the government offers three tax advantages at once. How does this tax opportunity for not working work? Getting the retirement saver’s credit during a year of taking time off isn’t going to be possible for everybody, but if you plan the next few months effectively, it might just work for you. Let’s walk through exactly what you’d need to do to take advantage. 1. You have to file taxes as an independent person. If you’re taking time off in May, then depending on what choices you make next, you’ll either be independent for the year (supporting yourself in the government’s eyes) or you might be dependent on somebody else (like a family member). If you plan to work and live off existing savings while you take time off, then more than 50% of your lifestyle support will come from yourself, and you can file your taxes independently. This situation opens up tax credits and deductions for you that otherwise would not be there because somebody would be claiming you as a dependent. One of these is the Retirement Savings Contribution Credit. 2. You have to be a full-time student for less than 5 months during the year. In general, if you’re taking off to start school, you’re usually not eligible for this credit, but there are a few exceptions. For instance, if your school is on a quarter/trimester schedule and you’re only taking one term, then you could be eligible. Also, if you’re only enrolled part-time and still supporting yourself, then you could be eligible too. 3. Because you’re only working 50-60% of the year, your annual income will likely be significantly lower than in future years. Because you’re only probably working six or seven months of the year, your federal tax bracket will be far lower than you might expect for future years. If you make a salary, and the annual amount is $50,000, then you could earn as little as $25,000 in gross income. You can qualify for the saver’s credit if your income for the tax year is less than $32,500 for 2020 ($33,000 for 2021) if you’re single and less than $65,000 for 2020 ($66,000 for 2021) if you’re married filing jointly. The level of credit you get is tied to how much you save and depends on the size of your income. If you live and work in an area with a low cost of living, you could have a respectable entry salary of $36,000, and you could be eligible for the maximum credit. We have the entire Saver’s Credit income table below for 2020 and 2021. 4. Start saving into a Roth IRA or employer plan when you’re ready. If the three steps above apply, you’re ready to go after the saver’s credit. Your next step should be to start putting away money for retirement. We suggest using a Roth account, given that if you qualify for the credit, you’re almost certainly making less money than you expect to take during retirement. You can read more about why a Roth accounts might make sense for you, but the short of it is this: any employer plan you’re eligible for may not offer a Roth 401(k)/403(b), but you can always open a Roth IRA as an individual. 5. You need to have a tax liability. The retirement savers credit is non-refundable which means that it cannot reduce your tax liability below zero. Some other credits like the Earned Income Tax Credit are refundable which means you may receive net payout (otherwise known as a negative tax) from the IRS. One of the challenges is keeping your income low enough to qualify for the credit but high enough to have a tax liability that will allow the greatest amount of the credit to be used. 6. Decide how much you’ll save each month. The final step is to decide how much you’ll save and to set up automatic savings deposits. To qualify for the credit at all, your gross salary isn’t likely to be more than $54,000 for the year (and more likely, it will be less)—or just over $4,500 per month before taxes. Since IRA contributions are limited to $6000, you’d need to contribute $2,000 to capture the maximum retirement saver’s credit, which could easily be a half of a month’s salary. In other words, maxing out might be aggressive as you’re getting your first post-collegiate paychecks. But even if you don’t max out, every amount saved supports your long-term retirement and your 6-month chance to get the retirement saver’s credit. If you have a lot in savings, then you can definitely consider transferring savings account money or even taxable invested savings into a Roth IRA to take advantage. FAQs about the Retirement Saver’s Credit So, there you have it: the tax incentive that few people taking a sabbatical or time off work think about using, but many should consider. What other questions might you have? Should I save into my new employer’s 401(k) or an IRA? The great thing about this credit is that both your contributions to your employer’s plan and your IRA help you qualify. So, if you can contribute to an employer plan for part or all of the year, which one should you choose? The answer is that it depends. If your employer plan offers a company match on your contributions, then you should certainly contribute there to capture the match—that’s free money. However, as explained above, it probably makes sense to contribute to a Roth plan—where you pay taxes now and not in retirement—so if your employer doesn’t offer a Roth 401(k) or 403(b), you may want to contribute to get the match, then save further in a Roth IRA. Moreover, some employer plans may have higher fees on the investments provided than you might find by opening a Roth IRA. Is there any way I can qualify for the saver’s credit if I my salary is greater than $66,000? There may be situations that help you qualify for the saver’s credit. For instance, if you get married this year—maybe taking a 6-month honeymoon using savings—then you and your spouse could feasibly qualify for a partial credit if your annual income is not more than $66,000 for the year—meaning your combined salary could be far greater. Also, as you’ll see in the table below, the limits are based on adjusted gross income (AGI), which isn’t just your gross income. Certain life situations can adjust your income, lowering it in a way that may help you qualify or increase your credit. Examples of ways you can reduce your AGI include: pre-tax employer retirement contributions, health insurance premiums,  medical expenses, saving into a health savings account (HSA), moving expenses, capital losses, school tuition or fees you paid, or student loan interest. What are the qualification rules for the credit? See the table below full table of adjusted gross income limits and partial credit rates. Be sure to read the IRS’ detail on the Retirement Savings Contribution Credit too. 2020 Saver's Credit Credit Rate Married Filing Jointly Head of Household All Other Filers* 50% of your contribution up to $1,000 per spouse AGI not more than $39,000 AGI not more than $29,250 AGI not more than $19,500 20% of your contribution up to $400 per spouse $39,001 - $42,500 $29,251 - $31,875 $19,501 - $21,250 10% of your contribution up to $200 per spouse $42,501 - $65,000 $31,876 - $48,750 $21,251 - $32,500 0% of your contribution more than $65,000 more than $48,750 more than $32,500   2021 Saver's Credit Credit Rate Married Filing Jointly Head of Household All Other Filers* 50% of your contribution up to $1,000 per spouse AGI not more than $39,500 AGI not more than $29,625 AGI not more than $19,750 20% of your contribution up to $400 per spouse $39,501 - $43,000 $29,626 - $32,250 $19,751 - $21,500 10% of your contribution up to $200 per spouse $43,001 - $66,000 $32,251 - $49,500 $20,251 - $32,500 0% of your contribution more than $66,000 more than $49,500 more than $33,000 Any tax information provided by Betterment is not a substitute for the advice of a qualified tax advisor. You should consult with your tax advisor to discuss tax-related concerns.

Put Your Tax Refund To Work—We’ll Show You How Feb 1, 2021 12:00:00 AM You finally got your tax refund. Now what? We’ll show you how to put it to use so that you can get the most of your money. Today is the day you’ve been patiently awaiting. You’ve just received your tax refund. While some ponder a vacation on the beach, others—such as smart investors like you—think about how they can invest the funds for the long-term. There is no one right strategy on how to use your refund, but here are some smart money moves you may want to consider. Pay down high-interest debt. Credit cards and personal loans typically charge interest rates as high as 15% to 30% on outstanding balances. Using your refund to pay off this debt is a wise move because it helps you avoid future interest charges on your outstanding balance. Many customers ask us the question—should I invest, or pay off debt? Check out this article if you aren’t sure where paying off debt falls on your priority list. Build a rainy day fund Like it or not, rainy days happen—and we need to be prepared to weather them. That’s why most financial planners recommend having a short-term savings account that holds 3 to 6 months’ worth of expenses. Unfortunately, not all of us have that much cash readily available to immediately access, which can expose us to additional risks in the event of an unexpected major expense or the loss of a job. Consider opening a Safety Net to stash away cash for emergencies. Increase your 401(k) contributions. Although you generally can’t contribute directly to your 401(k) from your bank account, you can increase your contribution rate through your employer and use your refund to cover daily living expenses. First, make sure you contribute at least the amount that your employer will match, if they have a 401(k) matching policy. If your employer offers a Roth 401(k), still consider making contributions, which can provide tax-free income in retirement and a hedge against future tax increases. If you are able, consider contributing the maximum amount for the year. For 2021, if you are under 50, the maximum contribution amount is $19,500. If you are age 50 or older, the maximum contribution amount is $26,000. Contribute to your IRA. If you are looking for another place to grow your retirement investments with additional tax benefits, consider contributing to a Traditional or Roth IRA. If you’re unsure which type of IRA is best for you, we have a tools and resources that can help you decide. For 2020 and 2021, if you are under 50, the contribution limit is $6,000. If you are over 50, the contribution limit is $7,000.  Remember that if you contribute earlier in the year, your future growth could be more than if you had contributed at the end of the year. Invest in education. Benjamin Franklin said it best when he stated, “An investment in knowledge pays the best interest.” Using your tax refund to save for education can turn out to be a wise decision. Tax-advantaged education savings accounts, like your state’s Section 529 plan, allow for your investments to grow tax-deferred. If the funds are used for qualified education expenses, you won’t have to pay taxes when you withdraw. Donate to charity. Giving feels good, but did you know it can also reduce your taxes? Donating to charity allows you to deduct your charitable contributions from your itemized taxes for 2020, while also contributing to causes you care about. You can read more about the rules for deducting charitable contributions on the IRS website. Make Energy-Efficient Home Improvements Using your refund to make energy-efficient upgrades to your home can help reduce your utility bills. The U.S. Government currently has a number of incentives to promote energy efficiency that you can take advantage of. The amount you reduce your utility bills by can then be saved and invested to help maximize the benefit. Good for the planet, good for your wallet—energy efficiency is truly a gift that keeps on giving. Get Started Ready to save? Get started or log in to set up a Safety Net, contribute to an IRA, or start giving to charity. If you plan to use your tax refund to save towards other financial goals, learn how to prioritize each goal. Please note that Betterment is not a tax advisor—please consult a tax professional for further guidance.

How To Make A Mega Backdoor Roth 401(k) Contribution Feb 1, 2021 12:00:00 AM Looking to boost your retirement savings? Contributing above the limit through after-tax contributions into a traditional 401(k) can help you maximize your savings with potentially great tax benefits. For most people that participate in a 401(k) plan through their employer, $19,500 is the maximum contribution (pre-tax and Roth) you can make to your 401(k) in 2021 (those age 50 and older get an additional $6,500 catch-up contribution). This “standard” contribution is considered to be an employee elective deferral. But what if your 401(k) plan could allow you to contribute more than this amount? And how much more? Potentially up to $38,500 more in 2021. After-tax traditional 401(k) contributions are less commonly offered by employers, but for heavy savers or high-income earners who do have this option, after-tax traditional contributions are a great way to try and maximize your overall retirement contributions. “Super-size Me”: 401(k) 2020 Contribution Limits 401(k) plans are a type of defined contribution plan where you, as the employee, make your own contributions to your retirement. In 2021, the total annual contribution limit to defined contribution plans is $58,000 (or $64,500, if age 50 and older). This $58,000 limit consists of your $19,500 contribution (combination of pre-tax and Roth), as well as any matching contributions your employer makes, employer profit-sharing, and after-tax traditional 401(k) contributions made. Any employer match would potentially reduce the amount of after-tax contributions you could make into a traditional 401(k). But if your employer does not provide any matching contributions nor profit-sharing, you could contribute up to an extra $38,500 on an after-tax basis to your 401(k). Tax alert – Even if your employer offers after-tax traditional 401(k) contributions, you may not be able to fully maximize the contribution due to plan limits and nondiscrimination testing for highly compensated employees. How Do After-Tax Contributions Work? Now that we’ve covered different types of contributions that could be made to your 401(k), how do they all work? The $19,500 salary contribution can generally be made as either pre-tax (traditional), or post-tax (Roth): When you make pre-tax contributions, the amount contributed to your retirement plan reduces your taxable income for that year, so that you get a tax break in the year contributing. When you withdraw in the future, you will pay ordinary income taxes on the full amount of the withdrawal, basis and earnings included. With post-tax Roth contributions, the amount contributed does not reduce your taxable income for that year, as you pay tax on the money before it is contributed. As long as you meet general requirements, withdrawals will be free of tax, earnings included. After-tax contributions into a traditional 401(k) are not tax deductible and grow tax-deferred, meaning that earnings will be taxed as ordinary income upon withdrawal. This is unlike general Roth 401(k) contributions, where earnings and withdrawals are tax-free. You might be wondering what happens to after-tax traditional 401(k) contributions after you retire or leave your company. IRS Notice 2014-54 states that earnings from these contributions while they are in the 401(k) would be rolled into a traditional IRA, where you will pay tax upon withdrawal. However, the original after-tax traditional contributions in your 401(k) are able to be rolled into a Roth IRA without paying taxes (since you already paid tax on the dollars contributed), where future growth and withdrawals are tax-free. Benefit To After-Tax Contributions For those who have the option and are able to make these contributions, it enables extra savings to be made into an account that grows tax-deferred rather than being saved to a taxable account, where you will owe annual taxes on dividends. After-tax traditional contributions allow you to indirectly contribute money to Roth-style accounts when you may not have been able to otherwise. For example, your income may be too high to make direct Roth IRA contributions or you may choose not to make Roth 401(k) contributions with your elective deferral because you’d prefer to make pre-tax contributions to reduce your taxable income. If that’s the case, the only other way you’d be able to get money into a Roth IRA for tax-free growth is to execute a Roth conversion, which may require you to pay income tax upon converting. The In-Plan Roth rollover Here is a strategy for how you can further amplify the benefits of after-tax traditional 401(k) contributions. If your employer allows you to make In-Plan Roth rollovers (not all plans offer the feature) – where you can effectively convert your traditional 401(k) to a Roth 401(k) – you can start the tax-free growth on your after-tax contributions even earlier. Any earnings on the after-tax traditional contributions would be considered taxable at the time of the In-Plan Roth rollover. The sooner this process is completed after the contribution is made, it would minimize taxable earnings. In other words, you don’t have to wait until you retire to get your after-tax contributions into a Roth 401(k). Steps To Take For Your Retirement Planning To see if your 401(k) plan offers after-tax traditional contributions, we recommend contacting your plan administrator. Note that Betterment for Business 401(k) plans currently do not offer the ability for you to make after-tax contributions to your Traditional 401(k), nor the ability to convert Traditional funds to Roth funds while the plan is active. Depending on each individual plan, these options could increase non-discrimination testing complexity and lead to unexpected refunds. Over time, we’ll continue to evaluate the value of these additional capabilities to our customers who hold Betterment 401(k) plans through their employer. For those that do have this option, you will want to consider all of the retirement accounts you have at your disposal, the tax benefits each offer, and your overall savings plan and cash-flow needs. If interested, you can speak with a financial planner to help you make the best decision for your retirement plan. Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a qualified tax professional. This article is provided solely for educational purposes. It does not address the details of your personal situation and is not intended to be an individualized recommendation that you take any particular action, including rolling over an existing account. When deciding whether to roll over a retirement account, you should carefully consider your personal situation and preferences. Specific factors that may be relevant to you include: available investment options, fees and expenses, services, withdrawal penalties, protections from creditors and legal judgments, required minimum distributions, and treatment of employer stock. Before deciding to roll over, you should research the details of your current retirement account, consult tax and other advisors with any questions about your personal situation, and review our Form CRS relationship summary and other disclosures. If you currently participate in a 401(k) plan administered or advised by Betterment (or its affiliate), please understand that this article is part of a general educational offering and that neither Betterment nor any of its affiliates are acting as a fiduciary, or providing investment advice or recommendations, with respect to your decision to roll over assets in your 401(k) account or any other retirement account.

A Development Director Making $100K In DC Envisions A Debt-Free Future Jan 29, 2021 12:00:00 AM How one person can balance paying off credit card debt, preparing for the unexpected, and becoming more financially literate. How I Money is a series featuring real people who have real questions about money, and real advice from Betterment’s experts. Follow along as our financial planners help folks just like you think through saving, investing, debt, retirement, and more. Meet Raven*: Let’s dive into Raven’s financial goals and concerns: Talk me through your short-term financial goals. What do you hope to achieve within the next 5 years? Raven: Pay off credit card debt. Become more financially literate, especially when it comes to investing. Increase savings. Let's talk long-term. What do you hope to accomplish financially 5 years or more from now? Raven: I’m honestly not sure. I’ve gone through some big life changes and need to adjust my plans accordingly. What impact has COVID-19 had on either your short or long-term financial goals? Raven: I have a good job but there is so much uncertainty in the world. Losing my job is in the back of my mind. Not sure what I should be saving or planning for at this point. If you could ask a financial expert for advice on one money question, what would it be? Raven: Do I need a financial manager? Or do I start small with some of these DIY programs? What the financial experts say: We asked Corbin to comment on Raven’s financial goals. Here are her thoughts. Raven has a lot of competing financial goals: does she need a financial manager, or can she start with an automated investing and savings product? Corbin: What a lot of folks don’t realize is that many financial tools are already financial managers. Automated investing providers, like Betterment, offer automated advice and technology that build a unique investment portfolio for each type of investment goal. When you open an investment goal with us, its customized stock-to-bond allocation recommendation is designed to automatically adjust (in most cases) to help you reach your goal without taking on unnecessary risk. But since you also mentioned that she’s interested in financial literacy, working with a CFP® professional to answer her in-depth questions could be beneficial to getting her on the right track. A CFP® professional can work with Raven to review her debt, goals, and retirement planning, as well as her current financial situation and investment portfolio. In either case, an automated financial manager or financial planning professional can help her manage her financial goals. What should Raven do first: pay off credit card debt or increase her savings? Corbin: First, it’s always smart to have a cash buffer. We typically recommend having at least three to five weeks’ worth of expenses in your checking account to cover your expenses. Think about it: If Raven worked to pay off her debt as aggressively as possible but had no extra cash on hand, she’s only one unexpected expense away from potentially being in debt again. Next, she should think about tackling her high-interest debt. For example, credit cards tend to have high interest rates of more than 16.5% on average. If Raven’s debt has higher interest rates than her potential returns through investing or saving, then she’s better off paying off her debt first or paying off her debt and saving simultaneously. How can Raven financially prepare for a potential job loss? Corbin: It’s completely understandable, given the pandemic, that Raven is worried about losing her job. The first thing Raven should do is find out what she’s spending her money on. By creating a list of expenses and minimum payments, she’ll know the minimum she needs to financially get by. While she’s still employed and financially stable, she could also use this time to build her emergency savings. It’s not the most optimal solution mathematically since she still has high-interest debt, but financial decisions aren’t always made solely based on math. Finances are emotional and personal, and they should always reflect the circumstances we’re going through. Since Raven is worried about financial security and her ability to pay bills in the future, building her emergency fund is one way to help her feel better about an uncertain future. She shouldn't ignore high-interest debt, but if making minimum debt payments while building a robust emergency fund for a few months makes her feel more financially prepared, this may be the right path for right now. How should Raven be thinking about long-term financial goals? Corbin: Retirement isn’t always a choice depending on industry and health—given Raven’s age, it’s important that she revisit her retirement plan and find out if she is on track to save enough for what she wants to spend during her golden years, especially if she plans to retire around 64, which is the average retirement age. If Raven’s employer offers a matching plan on their retirement account, it’s most important that she contributes enough to receive the full match: that’s basically free money! After that, I’d recommend not falling into the trap of thinking she can only contribute to an employer plan—using multiple accounts like a Traditional or Roth IRA, an HSA, or an investment account can help her meet her retirement goals, and can also help with taxes. Want to get your financial questions answered? Submit here. If you have a How I Money entry you’d like to share and want your financial questions answered, submit an anonymous response today. Betterment can help make your financial goals real. When it comes to saving and investing, Betterment aims to help you align your money with your goals. That means not only offering multiple types of accounts for your short and long-term goals, but also helping you identify your goals and invest for them appropriately. Learn more about our guidance and get started saving for your future. *Responses for the How I Money series were gathered through voluntary participation in an online survey where participants were requested to provide comments, feedback, ideas, reports, suggestions, data or other information to Betterment (collectively “Feedback”). The Feedback gathered in that survey excluded Betterment clients, was anonymized, and was used internally to help us understand how people could benefit from Betterment’s services and to create content to address those needs. Participants permitted Betterment to use any Feedback they provided for these purposes. While this content is written for advice purposes, it may not be applicable to all and is intended to be informational only.

Memestonks: What’s Different About This Market? Jan 29, 2021 12:00:00 AM You might be wondering what’s going on in the world of “stonks” right now. Yes, we have a take and, no, you won’t be surprised to hear we’re thinking bigger picture. Let’s talk about this whole GME/short-squeezing/meme stock thing. Like many people, you may have a simple question: Is this time different?  Here’s my impression: Most things are the same... In many cases, nothing is new about the meme stock circus. Humanity, greed, FOMO, bubbles, mania. Squeezing and vilifying shorts. You can go back hundreds of years and find loads of examples of madness in the marketplace. Throughout history, the specific game and players has changed, but the desire to win remains the same. ...but not everything. Here’s what’s different this time around: Zero-commission trading. We over-consume free things, and that’s particularly true of the no-cost trading platforms that don’t force you to think twice before hitting “buy” or “sell.” There’s often little thought given to something that costs nothing. Mobile trading apps.  These days, the phones in our pockets offer powerful access to the financial markets. Normal people have greater access to higher risk investments and strategies such as derivatives and leverage (even if some of the pitfalls aren’t clear), and they can coordinate their moves together better than ever (see below). A pandemic. Social distancing has left many of us with a lot of restless energy and no outlet. We can’t go out and play sports, go to the gym, watch a ball game, go to the movie theater, or have a late dinner and drinks with friends. We’re disconnected from each other -- and looking for that connection online. Social networks. Investing is now a social participation sport: you can actually cause the price to move. You can help your team win! Social media has monetized and weaponized people's attention.  These networks tend to direct people's attention into a very narrow frame -- like using a magnifying glass to turn sunlight into a laser. It’s easy to accidentally spend hours diving deeply into a specific topic -- and maybe even get sucked in by a conspiracy theory.  Like the magnifying glass, that laser-like focus can have real-world impacts. How will it end? I see three scenarios: Fast and hard: A major regulator only needs to make a somewhat innocuous statement like, “Oh, we’ve seen some concerning things here; we’re going to start looking into specific actors,” and the typical market reaction would be  quick. Back when Hertz was contemplating doing a secondary offering, the SEC spoke up and the Hertz bubble quickly popped. There are also financial requirements with clearing firms that could cause brokerage firms to restrict transactions in these types of situations to ensure that the firm can continue to operate. Moderately quickly, giving way to the next memestock: It’s hard for meme stocks to keep themselves in focus for long. Novelty fades, and the amount of stimulus (price changes) must rise exponentially in order to keep the focus on.  In this case, options sellers are already beginning to demand higher premiums for new options. It could be a messy unwind. Slowly and permanently: As vaccines roll out, the pandemic ends, I think we’ll start spending our free hours doing more meaningful things -- like spending 3-D time with each other rather than with  strangers on a message board. What’s the aftermath? It’s worth remembering that this doesn't change the underlying companies: no amount of price movement or short-squeezing can turn around a company in a bad business. Some people will get out near the top. You’ll certainly hear those people talking about it. The people who bought from them hoping it would go up further -- and that there would be  another buyer waiting -- will be conspicuously quiet. We've already seen normal investors get burned by memifying trades (see: Hertz, Blackberry). In some cases, an unrelated stock was pumped up quickly by retail investors who didn't realize they weren't trading what they thought they were trading. In every case, someone is left holding the stock when it crashes back to reality. So…? This kind of trading is like going to Vegas. By all means, go, and have a great time. Just be prepared to come back home with fewer dollars in your wallet and a vicious hangover. An alternative? Invest in a well diversified portfolio and whenever someone asks if you own the hottest thing, you can say “yes”, regardless of what it is.

6 Tax Filing Hurdles When Investing Jan 22, 2021 12:00:00 AM Taxes can be confusing, even for the most savvy investors. Enter Eric Bronnenkant, our Head of Tax, with six things to look out for when filing your taxes while investing. Whether you’ve been investing for years or not, holding money in an investment account can make your filing process a bit more complicated. I’m here to help guide you through that process with a few tips. 1. Haven’t taken a withdrawal from your taxable account? Still expect some taxable income. Even if you haven’t withdrawn funds from your account, dividends you’ve earned and capital gains from sales in your account may still be taxable. Sales that don’t result in withdrawals can come from rebalancing that helps keep your portfolio on track, as well as any allocation changes you might have made. The dividend and investment sales will be reported to you on a Form 1099-B/DIV. Interest on your Cash Reserve account will be reflected on a Form 1099-INT. Learn more » 2. If you only have IRA investments, your taxes may be simpler than you think. One of the key benefits of investing in an IRA is that all the income inside the account is tax-deferred. As long as you leave your funds in the IRA, you do not report any of the dividends or investment sales. If your only investments are within an IRA or 401(k), you aren’t typically required to report investment sales on Schedule D/Form 8949 (which you might experience as buying tax software that includes investments), so that may make your filing process more straightforward. Learn more » If you do take an IRA distribution (make a withdrawal), you should expect to receive a Form 1099-R from us. An IRA distribution may or may not be taxable, but it is always reportable. 3. A globally diversified portfolio is a good strategy. Know how it can affect your tax filing. Diversification is one of the key tenets of Betterment’s portfolio advice. International investments help decrease the risk of a portfolio heavily invested in U.S. stocks and bonds. Because of this, you should know that these foreign investments add a few steps when you’re filing your taxes. You’ll need to calculate the foreign tax credit to mitigate the double taxation between the US and foreign countries. Learn more » 4. Tax-smart investing starts with government bonds. Look out for reporting that income. To be as tax-smart as possible, you’ll want to take advantage of every tax benefit available to you. One benefit built into Betterment’s portfolios is income from government bonds, which is exempt from state and local income taxes due to federal law. It is common for investors to overlook this tax benefit and subject all of their taxable interest to state and local income taxes. Be more tax-smart by being sure to report income from government bonds on your state tax returns. Learn more » In addition, municipal bond income is generally exempt from federal income tax. The rules at the state level are a little more tricky. If your resident state has an income tax, it will tax all out-of-state muni income. Knowing what portion of your income falls into the in-state versus out-of-state is important to paying the appropriate amount of tax. Learn more » 5. 2020 markets were volatile, which means Tax Loss Harvesting+ was hard at work.1 Stock and bond markets are inherently volatile. While you hope that they appreciate in value over the long term, it is expected that there may be substantial fluctuations in the short term. Betterment’s Tax Loss Harvesting+ helps to take advantage of volatility by “capturing losses,”—selling investments at opportune times and buying similar replacement investments that do not violate certain IRS rules. These captured losses can then be used to help offset any gains you’ve recognized or against other income in the tax year up to $3,000. If there are any additional losses, they may be carried forward until used in a future year. Learn more » 6. We saw new tax legislation starting in 2019. This changed IRA contribution rules and required minimum distribution provisions. The SECURE Act, which was passed in late 2019, paved the way for retirement rule changes starting in 2020. Traditional IRA contributions have historically been limited to owners under the age of 70 1/2. The age restriction has been lifted starting for 2020 tax year, and even 100 year olds can now contribute to a Traditional as long as they (or their spouse) have “earned income”. Non-spouse beneficiaries of IRAs and 401(k)s historically had been able to withdraw funds over the beneficiary’s life expectancy. For deaths that occur in 2020 or later, the beneficiary is now required to completely distribute the entire account by the end of the 10th year after death. Learn more » Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a qualified tax professional. 1Tax Loss Harvesting works automatically for customers who have elected the service in their accounts.

Rolling Over Your 401(k) Jan 19, 2021 12:00:00 AM Have 401(k)s from old jobs lying around? Moving them to Betterment means a common approach for all of your retirement savings. Plus, we make rolling over simple and easy—whether to your 401(k) account or a Betterment IRA. Let’s say you have a 401(k) account at Betterment, but you also have a 401(k) from a previous employer. What should you do with it? You have four choices with respect to 401(k) account from a previous employer: Keep it in your previous employer’s 401(k) plan (assuming previous employer’s plan allows) Roll it over to your current 401(k) plan at Betterment Roll it over to an Individual Retirement Account (IRA) to Betterment or elsewhere Take a cash distribution It’s important to consider all of your available options and to understand the implications of each. Only the first three options keep your money working for your retirement, so taking a cash distribution should be a last resort. Even if you don’t have a huge balance today, thanks to the effect of compounding, your account could grow into a nice chunk of change by the time you retire. Plus, taking a cash distribution is a taxable event, meaning you’ll owe taxes now and might be hit with an early distribution penalty on top of that, courtesy of the IRS. Let’s look at the other alternatives. Keeping your money with your previous employer’s plan Although there are times where it can make sense to keep your 401(k) where it is, doing so may not be in your best interest due to high fees, poor user experience, and a lack of tools and resources. In addition, having a 401(k) account that’s invested in different funds than the 401(k) plan you’re currently contributing to can make it difficult to have a unified investment approach. Rolling over your 401(k) The two remaining choices are either to roll over your old 401(k) to an IRA or to your active 401k at Betterment. Choosing between an IRA or 401k can come down to many factors, such as: fees, investment options, certain tax planning considerations, etc. Choosing to rollover your old 401k to an IRA or to your active 401k is generally the best option for most individuals. Furthermore, you could rollover your old 401k to an IRA provider other than Betterment, but we believe there are lots of reasons why choosing Betterment as your IRA and/or 401k provider is the better choice. At Betterment, it’s different. Simple, efficient, transparent, automated, individualized processes. In just a few clicks, you can start the rollover process to Betterment, whether you’re moving your money to your Betterment 401(k) account or a Betterment IRA. This means you’ll be set up with the appropriate investment strategy, and instantly receive a personalized set of rollover instructions via email. There is zero paperwork required from Betterment, though your previous provider may require paperwork to initiative the rollover. Consolidated investment strategy. By having all of your retirement assets at Betterment, you’ll be able to invest in the same funds and a single, coordinated strategy. This makes it easy for you to monitor your progress and to rest assured that your investments are not competing or cancelling out one another. Low cost with flexibility. At Betterment, our management fee covers everything and is one of the lowest in the industry. The low-cost investments (ETFs) we invest in are among the lowest available to investors. Plus, you can choose from multiple portfolio strategies, including three different Socially Responsible Investing (SRI) portfolios. Holistic view. Betterment’s investment platform allows you to see all of your saving goals in one place, making it easy for you to keep track of your investments. Advice and hands-on customer service. With Betterment, the corresponding investment strategy can align with your specific retirement plan. It can even work in coordination with the rest of your retirement funds. Not only does the website itself provide you with personalized financial advice, we also have a team of CERTIFIED FINANCIAL PLANNER™ professionals and an easy-to-reach customer support team. If you are considering rolling your old 401(k) to another institution, be aware that you may be subjected to lots of paperwork, long waits, and clunky processes. Make sure you understand the fund fees along with other fees that may apply when you open accounts, close accounts, change your allocation, make trades, etc. We automate the rollover process as much as possible. Whether you are rolling over to a Betterment IRA or 401(k), not only does Betterment make the rollover process simple and easy, we also make sure that your funds are placed into a globally diversified investment portfolio that fits your personalized retirement needs—all at a low cost. With just a few clicks inside of your Betterment 401(k) account, we will get the ball rolling for you and automatically open up new accounts (Traditional or Roth), depending on what type of 401(k) monies you are rolling over. We do not need any paperwork from you. Then, we’ll email you a full set of personalized instructions for how to proceed with your rollover, including the next steps to take and the information you need to complete your rollover. Some providers may have rollover paperwork that must be completed or even ask you to give them a call to complete a rollover. If so, there’s no way around that. All of the information you’ll need is included in the Betterment email, including information for how your previous employer’s 401(k) provider should make out the rollover check and where they can mail it to. We will notify you via email as soon as your rollover funds are deposited into your Betterment account. You can roll over more than just a 401(k). It’s important to note that this process does not just apply to 401(k)s. It applies to any employer-sponsored plan that you hold from past employment. This includes pensions, 401(a)s, 457(b)s, profit sharing plans, stock plans, and Thrift Savings Plans (TSPs). Ready to Roll? We designed the rollover process to be as smooth as possible. If you have any questions before or during your rollover process, we have a team of customer experience associates available via phone, email or mobile messaging to sort out any questions or concerns you may have.   Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a qualified tax professional. This article is being provided solely for marketing and educational purposes. It does not address the details of your personal situation and is not intended to be an individualized recommendation that you take any particular action, including rolling over an existing account. When deciding whether to roll over a retirement account, you should carefully consider your personal situation and preferences. Specific factors that may be relevant to you include: available investment options, fees and expenses, services, withdrawal penalties, protections from creditors and legal judgments, required minimum distributions, and treatment of employer stock. Before deciding to roll over, you should research the details of your current retirement account, consult tax and other advisors with any questions about your personal situation, and review our Form CRS relationship summary and other disclosures. If you currently participate in a 401(k) plan administered or advised by Betterment (or its affiliate), please understand that you are receiving this email solicitation as part of a general offering and that neither Betterment nor any of its affiliates are acting as a fiduciary, or providing investment advice or recommendations, with respect to your decision to roll over assets in your 401(k) account or any other retirement account.

4 Questions To Help You Invest For Your Financial Goals Jan 4, 2021 12:00:00 AM There are many factors to consider when investing for the first time: Use these four questions as a guide to help you choose the best investment strategy for your financial plan. Warren Buffet’s definition of investing is, “laying out money now, in expectations of receiving more money in the future.” Investing starts with ensuring that nothing gets in the way of you “laying out money now.” This means having a solid financial foundation by doing the following: Saving three to six months’ of expenses in an emergency fund, so your savings, not investments, cover unexpected costs. Paying off high-interest debt, so you are making money from companies rather than paying interest to companies. Contributing enough to your 401k plan to at least get a match from your employer, if you’re offered one: get all the free money you can! Once your financial foundation is in place, use the four questions below as a guide to help decide how to invest your money: 1. What’s the goal for the money? Your goals should always inform what you do with your money, but understandably it can be difficult to envision long or short term life goals as events that need to be saved for. Here are some examples of life events that can be translated into financial goals: Short-term: Wedding gifts, vacations, a new laptop, an engagement ring. Long-term goals: A house downpayment, future college education, retirement. Envision all of your possible goals that may put you into debt if you didn’t begin saving for them now. Once you have a list, you can move on to determining where and how they will be invested. 2. When do you need the money? Recessions, on average, happen every five years. For this reason, some conservative investors decide to keep money needed in five years or less out of the market, while moderate to aggressive investors typically shorten this time period. For financial goals with a time horizon of five years or less, here are some alternatives to high-risk investments where you can save your money: Cash accounts: An excellent alternative to a standard savings account from your bank, cash accounts typically earn you more, have more flexible transfers, and allow you to easily access your money. Betterment’s Cash Reserve is FDIC-insured for up to $1,000,000† once deposited at our program banks, and has no minimum balance. Low-risk investment accounts: Consider investing your shorter-term goals in a low-risk portfolio instead. Betterment offers various low-risk ways to invest, and we give you the opportunity to choose any allocation, even portfolios with little-to-no stock exposure. This strategy can be useful if you are comfortable with the risk statistics provided to you while opening a portfolio and selecting your stock-bond allocation mix. If you decide you do want to invest in the market, consider these options for your money: Stocks: An investment that represents partial ownership of a company. Bonds: An investment in which you lend money to a company for a fixed rate that gets paid to you for a specified period. ETFs: Basket of investments (can be stocks, bonds, or a combination of both) that typically tracks a part of the financial market, called an index. The index can be made up of the largest companies in the U.S., such as the S&P 500. When you open an investment goal Betterment will recommend a portfolio for you when you deposit, based on your goals. Betterment will also handle the trading and rebalancing for you, so that you don’t have to. 3. How many highs and lows in the market can you stand? Everyone thinks they are an aggressive investor until the market drops: your real risk tolerance is how you feel when your investments drop by 30%. Below are three types of risk tolerance: Conservative: Values preservation of funds; can’t handle any fluctuations. Moderate: Values stability of funds; sees market volatility as a necessary evil. Aggressive: Values growth of the funds, can handle wild fluctuations for the price of growth. 4. How knowledgeable do you want to be about investing? People typically fall into three basic investment styles:  DIY: You put in the time to research, create, and monitor an investment portfolio. Most importantly, you can manage your emotions during up and down markets. Do it for me: You partner with a professional to give you financial advice and manage your portfolio. Do it with me: You tap into experts’ knowledge and research to help you select investments based on your needs. Determining how much you want to be involved with your investments and their performance will help you determine who to partner with (if at all) to help you meet your financial goals. If you fall into this last bucket, Betterment can help you meet your financial goals: as your money grows and your priorities change, Betterment’s advice evolves and helps you stay on track. Don’t forget that the most critical part of investing is getting your finances in order: if you decide to invest to meet your financial goals, having your finances in order means you won't have to cash out your investments to cover unexpected expenses. Use these four questions as a guide to help you choose the best investment strategy for your financial plan.

3 Simple Ways You Could Pay Fewer Taxes If You Have An Investment Account Dec 18, 2020 12:00:00 AM Tax loss harvesting, asset location, and utilizing ETFs instead of mutual funds can eliminate or reduce your tax bill, depending on your situation. Here’s why. If you have investments, you might be paying Uncle Sam more than you need to come tax time. Thankfully, there are three things you can do to help keep more of your money in your own pocket. Many investors may not know these strategies are available, or may have heard about them but do not use them. If while you’re reading this you start to think that these strategies are difficult to implement, you’re not wrong. Before we get started, it’s important to note that when you’re a Betterment customer, we can do these things for you (all you have to do is opt-in through your account). Now, onto the good stuff: Let’s demystify these three powerful strategies. 1. Tax loss harvest. Tax loss harvesting can lower your tax bill by “harvesting” investment losses for tax reporting purposes while keeping you fully invested. When selling an investment that has increased in value, you will owe taxes on the gains, known as capital gains tax. Fortunately, the tax code considers your gains and losses across all your investments together when assessing capital gains tax, which means that any losses (even in other investments) will reduce your gains and your tax bill. In fact, if losses outpace gains in a tax year you can eliminate your capital gains bill entirely. Any losses leftover can be used to reduce your taxable income by up to $3,000. Finally, any losses not used in the current tax year can be carried over indefinitely to reduce capital gains and taxable income in subsequent years. How do I do it? For example, sell Coke, buy Pepsi. When an investment drops below its initial value—something that is very likely to happen to even the best investment at some point during your investment horizon—you sell that investment to realize a loss for tax purposes and buy a related investment to maintain your market exposure. Ideally, you would buy back the same investment you just sold. After all, you still think it's a good investment. However, IRS rules prevent you from recognizing the tax loss if you buy back the same investment within 30 days of the sale. So, in order to keep your overall investment exposure, you buy a related but different investment. Think of selling Coke stock and then buying Pepsi stock. Here’s an example of tax loss harvesting: Overall, tax loss harvesting can help lower your tax bill by recognizing losses while keeping your overall market exposure. At Betterment, all you have to do is see if it’s right for you and turn on Tax Loss Harvesting+ in your account. 2. Asset locate. Asset location is a strategy where you put your most tax-inefficient investments (usually bonds) into a tax-efficient account (IRA or 401k) while maintaining your overall portfolio mix. For example, an investor may be saving for retirement in both an IRA and taxable account and has an overall portfolio mix of 60% stocks and 40% bonds. Instead of holding a 60/40 mix in both accounts, an investor using an asset location strategy would put tax-inefficient bonds in the IRA and put more tax-efficient stocks in the taxable account. In doing so, interest income from bonds, which is normally treated as ordinary income and subject to a higher tax rate, is shielded from taxes in the IRA. Meanwhile, qualified dividends from stocks in the taxable account are taxed at a lower rate. The entire portfolio still maintains the 60/40 mix, but the underlying accounts have moved assets between each other to lower the portfolio’s tax burden. Asset location in action.   3. Use ETFs instead of mutual funds. Have you ever paid capital gain taxes on a mutual fund that was down over the year? This frustrating situation happens when the fund sells investments inside the fund for a gain, even if the overall fund lost value. IRS rules mandate that the tax on these gains is passed through to the end investor, you. While the same rule applies to exchange traded funds (ETFs), the ETF fund structure makes such tax bills much less likely. In fact, most of the largest stock ETFs have not passed through any capital gains in over 10 years. In most cases, you can find ETFs with investment strategies that are similar or identical to a mutual fund, often with lower fees. Following these three strategies can help eliminate or reduce your tax bill, depending on your situation. At Betterment, we’ve automated these and other tax strategies, which means tax loss harvesting and asset location are as easy as clicking a button to enable it. We do the work, and your wallet can stay a little fuller. Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a qualified tax professional.

The Pursuit Of Betterment’s New CEO (And Finding Happiness Along The Way) Dec 8, 2020 12:00:00 AM Betterment Founder Jon Stein announces the appointment of Sarah Kirshbaum Levy as his successor and new CEO of Betterment. It’s the fall of 2007 on the Lower East Side. My Betterment clock starts not when we launch in 2010 but as I hash out the concept in conversations with roommates and friends. I have a crazy idea: to pursue my happiness via helping Americans pursue their happiness. I write a mission statement: empower customers to do what’s best with their money so they can live better. Investing feels complicated to most people, but the best practices are known and straightforward. Why not take the smart services used by the wealthy and institutions and make them accessible to every American? People like this crazy idea, some join me, and with sweat and sacrifice, a tiny, hungry, customer-impact-obsessed company is born. I pursue Betterment’s mission doggedly. My wife (whom I met in 2006—not coincidentally—her encouragement begets a startup) calls Betterment my “first child.” I say often (usually sincerely): “I’m the luckiest person, I have the best job in the world.” At times, it feels like all of my being, every waking hour, every dream, is intertwined with my company. I am Betterment. There is nothing else. Teammates become best friends (and each other's family: I officiate weddings of Bettementers who later have Betterment babies). I star in TV ads—never imagined that career turn. Early customers email me personally for support (and some still do—love y’all, customers). We grow to $25B AUM, more than 500,000 customers, a team of more than 300, and we move the industry forward. And yet, I know we can achieve more; we have millions more Americans to reach. The Pursuit Of Our Potential For some time, I look to bring in an experienced, dynamic operating leader to help drive the company forward. The search is not initially focused on one specific role to fill; it is about finding amazing talent that could help lead Betterment to realize our full potential. The time at home this year affords more time to devote to the search process, to talk to senior operating leaders and to think about what might be needed for the next leg of the journey. I spend time with hundreds of diverse candidates. I realize that the best way to achieve our mission might be to invite a successor to lead Betterment in the next phase of growth. Due to good fortune and intense effort in a most challenging year, the company has never been in a stronger position. Each line of business is reaching new heights in 2020. We’re beating targets, well-capitalized, with wind at our backs. It’s a good time to hand over the reins. Over the summer, I connect with Sarah Kirshbaum Levy. There is something enthralling about her. I don’t want to jinx or overload it, but outside of meeting my wife, it’s hard, at present, to think of a more consequential introduction. And this is over video conference! The Pursuit Of The One Over the next few months, I spend more time with Sarah and she begins engaging with members of the team and our board. I bring her in full-time as a consultant in a trial run. What a privilege not only to recruit my successor, but to observe her building relationships, to work side by side with her as she iterates on her plan, and to see her making every meeting more open and efficient. I give her my authority to work with the team to architect plans for 2021 and beyond, and she excels. My admiration grows as she starts effectively running the company, with my proxy. My execs tell me they have so much to learn from her. The only thing that is missing is the title—and today, we give her the title. Sarah’s Pursuits Sarah started out at Disney and spent the last 20 years at Viacom, home to beloved brands including Nickelodeon, BET, MTV, and Comedy Central. Through a series of senior leadership roles, culminating in Chief Operating Officer, she’s shepherded global phenomena, from SpongeBob to The Daily Show with Trevor Noah, connecting with audiences in meaningful ways. With her experiences leading large public companies, Sarah is the right executive to lead Betterment now, as we contemplate a transition from private to public in the coming years. For someone with a “big company” pedigree, she’s remarkably down to earth and scrappy. She’s launched and grown businesses, bought and sold businesses, managed the bottom line, and driven consumer brands to win. I appreciate her “outsider” perspective. Betterment is a unique company—not just finance, not just tech, 100% customer-impact obsessed. Take it from one who’s looked: It’d be hard to find someone who’s both spent a career in financial services and can credibly lead the change we envision: to empower customers to do what’s best with their money, so they can live better. The Pursuit Of Happiness I’ve done the best work of my life at Betterment, and I have worked too hard to stop giving it my all to realize this company’s mission, whatever form those efforts may take. From my role on the board, I’ll be supporting Sarah and her team, whether it be via recruiting, investor relations, telling our story, or upholding company culture and values. A dream for me since that Lower East Side fall in 2007 has been to build a sustainable institution, to build something that will outlast me. I’ve never taken a larger step toward that accomplishment than I am today in passing the torch to Sarah. I asked Sarah what mattered most to her in her next role, and she said, without hesitation, “A brand and mission I believe in.” She’s evidenced this for me in every interaction since. I believe that she’ll more fully realize the vision I laid out years ago, and make Betterment the most beloved, most essential financial brand for this generation. And in so doing, she’ll power the pursuit of happiness for millions of Americans.

How To Make The Most Of Your Spending With Cash Back Offers Nov 19, 2020 12:00:00 AM Betterment has partnered with Dosh to offer cash back offers for Checking customers. Learn how to make the most of your spending with cash back offers. We built our no-fee‡, hassle-free Checking account because we believe that you shouldn’t have to pay to access your money. Now, with help from our friends at Dosh, you can make the most of the money you spend by getting automatic cash back at thousands of your favorite brands. Plus thousands more brands Before making your purchase, we recommend checking your app to make sure a specific offer is still available. Merchants subject to change. With cash back offers from Dosh, you can shop from thousands of personalized online and in-person offers within your Betterment account. Plus, there’s no activation required—just shop, pay, and you can see your cash back come through as quickly as the next day. “Our goal at Betterment is to continuously find new ways to help our clients make the most of their money and have their best interests at heart,” said Katherine Kornas, Vice President of Growth at Betterment. “Providing Betterment Checking customers with a rewards program powered by Dosh builds upon this mission, by helping people save more money on everyday purchases. We’re excited to work with Dosh on implementing this benefit for our users.” “We’re passionate about putting cash back in the wallets of consumers when they shop, dine and travel, while making it a frictionless and delightful experience,” said Ryan Wuerch, CEO and founder at Dosh. “We’re so proud to provide Betterment Checking customers with automatic cash back at more than 10,000 of their favorite brands and retailers.” Interested in seeing where you could be earning cash back? Open a Betterment Checking account, browse our offers, and start earning. Cash Back Eligible when using your Betterment Checking Visa Debit Card. Cashback merchants and offers may vary. You’ll see rewards, which are deposited back into your Checking account, in as little as one day after making the qualifying purchase, but it may take up to 90 days depending on the merchant. In order to find you relevant offers, we share your Betterment Visa Debit Card transaction information (and location, if you choose) with our rewards partner,  Dosh. Shared data is anonymized and Dosh is prohibited from selling shared data to any third parties. See Terms and Conditions to learn more. Any references to other merchants or merchant websites are offered as a matter of convenience and are not intended to imply that Betterment or its authors endorse, sponsor, promote, and/or are affiliated with the owners of or participants in those merchant sites, or endorses any information contained on those merchant sites, unless expressly stated otherwise.

How The Presidential Election And COVID-19 Impact Investor Sentiment Oct 28, 2020 12:00:00 AM Betterment examines how investor sentiment has evolved since the beginning of the COVID-19 crisis, as well as the impact of the upcoming election on consumer finances. In March, Betterment surveyed a group of investors to examine how the COVID-19 crisis has impacted their financial security and spending habits, as well as gauge their reactions to the market turbulence. In June, after stimulus checks had been sent out and the markets continued to react to the news cycle, we followed up with those investors to look at whether people executed on the savings and investing actions they previously indicated. In the last of our three-part series, we return to those same investors to see how their sentiment and actions have changed since March, their thoughts on the upcoming election, as well as what the future might have in store for them financially. Methodology The third installment was an online reconnect to a panel of potential respondents that completed the two previous surveys. The recruitment period was 9/22 to 9/29. The survey was completed by a total of 1000 respondents who took all three surveys, are living in the United States and who are invested in the markets. The sample was provided by Market Cube, a research panel company. Panel respondents were invited to take the survey via email invitation and were incentivized to participate via the panel’s established points program. Investors are smarter and savvier than when COVID-19 began. With our third checkpoint, we wanted to again see how investors’ sentiments and actions are evolving over recent months. Encouragingly, more investors have an emergency fund in place than the last two times we checked in. They also continue to be less stressed and are less likely to take money out of the markets or tap into their long-term savings. Changes in investor sentiment as a result of COVID-19  Betterment’s Take “Investors seem to be settling into this “new normal.” It is great to see the number of people removing money from the market in the face of volatility trickling downward. But ideally, the number of people withdrawing from the market should be even lower: investors who react to volatility this way may be doing themselves a disservice in the long-run, potentially costing themselves gains by waiting for the market to recover.” Political beliefs and the potential impact of the election on investors. With the presidential election on the horizon, markets are gearing up for a myriad of potential results and almost guaranteed turbulence. As a result, we wanted to see if there were any changes investors might be making to their portfolios. The good news is investors seem to be looking past the short-term noise and volatility, and plan to stick to their long-term saving and investing goals. Do you plan to take any action in anticipation of the November 2020 election? Do you anticipate taking any actions after the election results? Betterment’s Take “With so much uncertainty surrounding the general election, it is encouraging to see investors taking a wait and see approach. To add, it’s even more encouraging to see that if they anticipate making any changes, it is to add money to their investment portfolios after the election.” We also asked investors for their thoughts on the government’s stimulus program. Overall, 71% indicated they were either unsatisfied or neutral on the government’s handling of the stimulus program. Only 15% of Democrats indicated they were satisfied, while 51% of Republicans were satisfied. Changing Perceptions Of Universal Basic Income (UBI) And Retirement How has the pandemic changed your perception about a universal basic income (UBI)? Following the national stimulus program, we were also interested to see if investors’ perception of a universal basic income (UBI) shifted in any way. Nearly one in five (18%) said they are more in favor of UBI than they were before the pandemic, while just 3% are less in favor of UBI. How has the COVID-19 pandemic changed investors’ approach to saving for retirement? While 35% indicated that they have added to a savings account recently—and this number trended up across our three surveys—we also asked investors how the pandemic has changed their approach to saving for retirement. The majority intend to keep saving as they have been, and only 5% of respondents indicated they intend to save less from now on, while 29% said they’d save even more. Betterment’s Take “Seeing more investors adding to their savings while mostly leaving their approach to retirement unchanged is exactly the balance we would hope to see. Having accounts to meet short-term goals means that accounts to fund longer-term goals—such as retirement— can remain untouched and continue to grow. While short-term volatility caused by the pandemic can feel hard to stomach, ultimately investors are weathering the storm and setting themselves up for long-term gains.” What are investors’ most popular investment products during this time period? The most popular investment our respondents had was an IRA, at 66%. More than half (56%) of respondents have individual stocks but only 16% indicated they invest in ETFs outside of or in addition to their 401K. And despite having higher expense ratios, mutual funds (46%) are a more popular choice than ETFs. Betterment’s Take “It is great to see the diverse vehicles that our respondents are invested in, beyond just a traditional 401K or IRA. We would encourage more investors to look at ETFs though, as they are typically cheaper than mutual funds. Investors pay, on average, 0.35% more for an index-tracking mutual fund than for an index-tracking ETF, based on the expense ratio. Any savings that accrue from owning vehicles with lower expense ratios like ETFs are more likely to provide a persistent boost in returns.” More respondents are invested in individual stocks than a 401K or IRA. Investors have adjusted to the “new normal” we live in today. Over the last six-plus months and three reports, we’ve tracked how investor sentiment has evolved during the COVID-19 pandemic, whether people executed on the savings and investing actions they initially outlined, and how it has changed their perception of retirement, finances, and more. Although this is the last of our three-part series tracking investor sentiment, the COVID-19 pandemic is far from over and its impact on many investors will likely be felt for years to come. It will be interesting to watch the long-term effect it has on investors, but for now we’re encouraged to see so many sticking to their long-term goals. From a financial markets perspective, smart investors know to keep their head down and focus on the long term rather than short term volatility. At Betterment, we’re here to help investors stay the course. Founded in the wake of a major financial crisis, Betterment believes financial institutions should work harder for you. Learn more about our commitment to putting your money to work for you.

What the Ultimate Betterment User Looks Like Oct 26, 2020 12:00:00 AM We're going to break down how to get the most value out of the goal-based money manager Betterment is designed to be. We’ve built Betterment to offer immediate value no matter why you came to us—whether for just an IRA or Checking, or everything we offer. Still, customers often ask us, “how do I get the most value from my money?” What are the “pros” doing with their accounts? What does a complete Betterment user account look like? Today, we’re going to break down a full answer to all those questions, showing you a glimpse of what the ultimate Betterment user looks like. Tax Loss Harvesting+ is automatic, but must be turned on within your account. To start with, let’s review the fundamentals of Betterment today. Since our release of Betterment Checking early in 2020, Betterment has been set up to mirror the four major aspects of a person’s financial life: Spending, Saving, Investing, and Retirement. While we’ll dive into each of those aspects later, the first thing to know is that an ultimate Betterment user leverages all four of these offerings at Betterment. That's where our magic happens: You have a full picture of your financial goals in a single place and we help you achieve that reality with our automated optimization techniques and low fees. The first step to Ultimate: Embrace savings goals. What’s the difference between most users and the “ultimate Betterment user”? Fully adopting the idea of goal-based saving and investing. Every new Betterment user starts by answering questions about what they’re trying to do. Are you trying to save for a car? Do you want to invest for retirement? Our aim is to get you thinking about what you want in life—your financial goals. The users who are likely to get the most value from Betterment adopt a wholly goal-focused mindset. They think, “What are the major things I want in life?” And they add those things as goals in the Betterment platform—with all the trappings of a well-defined goal: specific dates, target amounts, a thoughtful name. Here’s an example of what it looks like to become goal-focused. Take those future life decisions that will cost you (that are expensive enough that they might be financially stressful if you don’t save for them ahead of time) and turn them into clear, concrete savings goals that you can get on track to achieve. Keep planning with short-term cash goals and long-term investment goals. The ultimate user won’t have just one vague goal, they will have as many goals as they feel they need for their life. Some people start with the longest term, largest goals, like retirement, and work back to the present. Others like to think about what major purchases they’re looking to make in the next few years, and work toward the deeper future. Whatever your style, you want to get it all set up. If you’re a couple, you should probably do this together. Goals are also helpful because they help you decide how to invest. For the short-term goals in life (money you plan on spending in a year or less), you can save into our yield-earning FDIC-insured goals (i.e you’ll earn interest). For the longer-term goals (those of a year or more), we’ll advise you on a portfolio allocation that adjusts from riskier to more conservative, the closer the goal gets. For the in-between goals, you can make choices based on how you plan to spend your money. What does this look like? Take a peek at just how comprehensive and well thought out your goal-setting can get... Next, stretch your savings potential by auto-saving as you earn. Ultimate Betterment users don’t just set goals; they fund them out of every paycheck to automate their savings habits and keep their goals on track. Preemptively saving for something concrete can help make it easier to resist spending away your hard-earned money. Plus, auto-deposits ensure you invest as you earn, rather than becoming tempted to try and time the market (a task that even the professionals often fail to do well). Take it up a notch by using Checking to spur even more saving. Here’s where top-notch Betterment users really start standing out from others. They don’t just use auto-deposits to save; they minimize the extra cash they might normally spend away using the full power of Betterment’s spending and saving technology. Lean into complexity where it matters: Your retirement goal. Retirement is the longest-term goal most users set with Betterment. It’s also the most complex. Your retirement plan at Betterment can house multiple accounts types and external holdings, forecast how much you need to save based on the income you’ll want to withdraw, and manage your Betterment-held retirement accounts with Tax Coordination, which shelters some investment types from taxes. The most complete Betterment users let our technology advise them on how to save for retirement (e.g. which IRA type to use) while taking on the hard work of bringing their retirement savings into the goal itself. That can mean syncing an existing 401(k) plan, rolling old 401(k)s into an IRA, or moving outside IRA dollars into Betterment. The idyllic retirement goal at Betterment is holistic but straightforward: a single goal with a unified investment portfolio managed across account types. Tax Coordination (also known as asset location) moves more highly taxed assets into tax-advantaged accounts and lower-taxed assets into non-tax-sheltered accounts. Underlying IRA account rules offer tax-free growth, and where assets live outside of Betterment (but synced), they’re taken into account for determining how close you are to reaching your retirement goal. Beyond saving: Turn on investment optimizations. The key to financial success is saving. Once saving is well underway, the optimizing gets interesting. Especially for retirement goals and other long-term investment goals, users can try one of several maneuvers Betterment can help you handle: tax loss harvesting, charitable giving, and personalized portfolio strategy choices. Taking advantage of our automated Tax Loss Harvesting+ (TLH+) is as easy as switching it on with our app. It applies to all goals in personal and joint taxable accounts. Betterment recommends TLH+ to individuals that make more than $40,000 in annual income and married users who make more than $80,000 and file their taxes jointly. When long-term investments realize taxable capital gains, we let you give them away to charity, enabling you to claim a double tax benefit. For any goal, users can optimize their accounts for their views and preferences with portfolio options beyond just Betterment’s core recommendation. These options include Socially Responsible Investing or even designing your own “Flexible Portfolio” using our preset building blocks. Across strategies, Betterment has over 300 portfolio allocation targets you can choose from. Ultimately, we want Betterment users to feel the value of using technology to make their financial lives easier. From supporting your spending needs with Checking to helping you set up goals and invest for them effectively, we at Betterment know the best way to help people do what’s best for their money is to enable their full financial lives. Our biggest fans get this. Use Checking, Cash Reserve, Investing and Retirement together to initiate strong goal-based savings habits, reinforce them with automation and easy transfers, and optimize the rest of the way. That’s what the future of money management looks like. That’s the magic we work to create at Betterment. If you haven't start with Betterment, get started.

Betterment Socially Responsible Investing Portfolio Strategy Oct 22, 2020 12:00:00 AM Many investors prefer to invest according to their values. Socially and environmentally conscious customers are able to take advantage of our Socially Responsible Investing (SRI) options. TABLE OF CONTENTS How do we define SRI? The Challenges of SRI Portfolio Construction How is Betterment’s Broad Impact portfolio constructed? How socially responsible is the SRI portfolio? Should we expect any difference in an SRI portfolio’s performance? Climate Impact Portfolio Social Impact Portfolio Conclusion In today’s landscape, design and ongoing management of a values-driven investing strategy continues to face many challenges. Even the relevant terminology is in flux. Socially Responsible Investing (SRI), the most historically established term used to describe the integration of values into one’s investments, is today often used interchangeably with Environmental, Social and Governance (ESG), which strictly speaking, is more of an implementation, than the broad concept. Industry professionals are increasingly consolidating on “sustainable investing” as the umbrella designation of choice, though the public at large often associates that term with a narrower environmental focus, further adding to the confusion. Betterment first made a values-driven portfolio available to our customers in 2017, under the SRI label. When we expanded our offerings in 2020, and introduced a new class of engagement focused investments in 2021, we maintained SRI as the umbrella term for the category, including throughout this paper. That there remains no agreed-upon terminology which is broadly understood by retail investors, is as good a symbol as any that this is still an emerging field, with surging demand a relatively recent phenomenon. That the values-driven investing landscape is expected to continue evolving, both in terms of superficial labels, and in substance, continues to inform the core of Betterment’s aspirational approach to SRI. It is as much a process, as it is a product—designed to be iterated on over time, without sacrificing the core principles of our advice: balanced cost and proper global diversification. Despite the nascent state of SRI, Betterment’s portfolios represent a diversified, low-cost solution that will be continually improved upon as costs drop, more and better data emerges, and as a result, the availability of SRI funds broadens  (in this paper, “funds” refer to ETFs, and “SRI funds” refer to either ETFs screened for some form of ESG criteria or ETFs with an SRI-focused shareholder engagement strategy). In developing our SRI portfolios, we had to research, analyze, and ultimately answer five important questions: How should we define SRI for a portfolio? What are the challenges for implementing SRI today? Which SRI funds are among the best for an effective portfolio? How should we assess the “social responsibility” of an SRI portfolio? Should we expect any difference in an SRI portfolio’s performance? The resulting answers to these questions, explained in the sections that follow as well as in our SRI disclosures, informed how we created the Betterment SRI portfolios for our customers, including legacy versions of the SRI portfolios. In the first five sections we answer these questions both generally for all our SRI portfolios and with respect to Betterment’s Broad Impact offering, which focuses on investment options that consider broad social responsibility factors and engagement strategies. Betterment also offers two additional, more focused SRI portfolio options, a Social Impact SRI portfolio (focused on social governance criteria) and a Climate Impact SRI portfolio (focused on climate-conscious investments). These strategies are further elaborated on in Sections VI and VII. I. How do we define SRI? Our approach to SRI has three fundamental dimensions: Reducing exposure to companies involved in unsustainable activities and environmental, social, or governmental controversies. Increasing investments in companies that work to address solutions for core environmental and social challenges in measurable ways. Allocating to investments that use shareholder engagement tools, such as shareholder proposals and proxy voting, to incentivize socially responsible corporate behavior. We first define our SRI approach using a set of industry criteria known as “ESG”, which stands for Environmental, Social and Governance, and then expand upon the ESG-investing framework with complementary shareholder engagement tools.  Though SRI and ESG are often used interchangeably in general financial literature, experts will point out that there is a clear distinction between how each term is defined. SRI is the traditional name for the broad concept of values-driven investing (many experts now favor “sustainable investing” as the name for the entire category). ESG refers specifically to the quantifiable dimensions of a company’s standing along each of its three components. In our SRI portfolios, we use ESG factors to define and score the degree to which our portfolios incorporate socially responsible ETFs. We also complement our ESG factor-scored socially responsible ETFs with engagement-based socially responsible ETFs, where a fund manager uses shareholder engagement tools to express a socially responsible preference. Using ESG Factors In An SRI Approach A significant and obvious aspect of improving a portfolio’s ESG score is reducing exposure to companies that engage in unsustainable activities in your investment portfolio. Companies can be considered undesirable because their businesses do not align with specific values—e.g. selling tobacco, military weapons, or civilian firearms. Other companies may be undesirable because they have been involved in recent and ongoing ESG controversies and have yet to make amends in a meaningful way. ESG controversies include: Environmental controversies related to energy and climate change, land use, biodiversity, toxic spills and releases, water stress, and/or operational waste. A recent example is the BP (Deepwater Horizon) oil spill from 2010. Corporate governance controversies involving fraud, bribery, and controversial investments. A recent example is Wells Fargo’s recent controversy where the company may have created as many as 3.5 million fraudulent accounts in the last 15 years. Labor controversies like discrimination and other violations of International Labor Organization standards. For example, the class action lawsuit against Sterling Jewelers, alleging gender discrimination and sexual harassment within the company. Customer controversies involving anticompetitive practices, privacy and data security, and product safety. Remember the massive Yahoo data security breach from 2016 where 500 million user accounts were hacked? SRI is about more than just adjusting your portfolio to minimize companies with a poor social impact. Based on the framework of MSCI, a leading provider of ESG data and analytics, a socially responsible investment approach also emphasizes the inclusion of companies that have a high overall ESG score, which represents an aggregation of scores for multiple thematic issues across E, S, and G pillars as shown in Table 1 below. Table 1. A Broad Set of Criteria Across E, S and G pillars 3 Pillars 10 Themes 37 Key ESG Issues Environment Climate Change Carbon Emissions Energy Efficiency Product Carbon Footprint Natural Resources Water Stress Biodiversity & Land Use Pollution & Waste Toxic Emissions & Waste Electronic Waste Packaging Material & Waste Environmental Opportunities Opportunities in Clean Technology Opportunities in Renewable Energy Opportunities in Green Building Social Human Capital Labor Management Human Capital Development Health & Safety Supply Chain Labor Standards Product Liability Product Safety & Quality Privacy & Data Security Chemical Safety Responsible Investment Financial Product Safety Health & Demographic Risk Stakeholder Opposition Controversial Sourcing Social Opportunities Access to Communications Access to Health Care Access to Finance Opportunities in Nutrition & Health Governance Corporate Governance Board* Ownership* Pay* Accounting* Corporate Behavior Business Ethics Corruption & Instability Anti-Competitive Practices Financial System Instability *Board, Ownership, Pay, and Accounting carry weight in the ESG Rating model for all companies. Currently, they contribute to the Corporate Governance score directly and 0-10 sub-scores are not available. Source: MSCI Ratings Methodology Shareholder Engagement When an investor purchases shares of common stock in a company, they become a partial owner of that company. As a partial owner, they have not only a claim on the profits of the company but also a right to influence the company’s broader decision-making through shareholder engagement. The most direct ways a shareholder can influence a company’s decision making is through shareholder proposals and proxy voting. Publicly traded companies have annual meetings where they report on the business’ activities to shareholders. As a part of these meetings, shareholders can vote on a number of topics such as share ownership, the composition of the board of directors, and executive level compensation. Investors receive information on the topics to be voted on prior to the meeting in the form of a proxy statement, and can vote on these topics through a proxy card. A shareholder proposal is an explicit recommendation from an investor for the company to take a specific course of action. Shareholders can also propose their own nominees to the company’s board of directors. Once a shareholder proposal is submitted, the proposal or nominee is included in the company’s proxy information and is  voted on at the next annual shareholders meeting. But how does this work for investors who own ETFs rather than individual companies? ETF shareholders themselves do not vote in the proxy voting process of underlying companies, but rather the ETF fund issuer  participates in the proxy voting process on behalf of their shareholders. Shareholder voting is a powerful tool that has been underused on ESG issues until recently.  While support for ESG shareholder resolutions from fund issuers was generally on the rise in 2020, Blackrock and Vanguard, two of the largest ETF issuers, were dead last, voting in favor of just 12% and 15% of such resolutions, respectively. As investors signal increasing interest in ESG engagement, additional ETF fund issuers have emerged that play a more active role engaging with underlying companies through proxy voting to advocate for more socially responsible corporate practices. These issuers use engagement-based strategies, such as shareholder proposals and director nominees, to engage with companies to bring about ESG change and allow investors in the ETF to express a socially responsible preference. II. The Challenges of SRI Portfolio Construction Although using ESG factors to select portfolio funds may sound like a brilliantly straightforward, quantitative approach to constructing a portfolio, unfortunately, in today’s market, there are a number of limitations that plague the process of executing SRI. In spite of these limitations, we still strive to maximize the expression of your SRI values with some of the best available investing tools. For Betterment, three limitations had a large influence on our overall approach to building an SRI portfolio: 1. Poor quality data underlying ESG scoring. Because SRI is still gaining traction, data for constructing ESG scores are at a nascent stage of development. There are no uniform standards for data quality yet. Some companies disclose data on the various ESG metrics, others do not. And companies that do disclose their data may do so in inconsistent ways. As a result, ESG metrics may not necessarily capture the desired concepts and ideals with 100% accuracy. In order to standardize the process of assessing companies’ social responsibility practices, Betterment uses ESG factor scores from MSCI, an industry-leading provider of financial data and ESG analytics that has served the financial industry for more than 40 years. MSCI collects data from multiple sources, company disclosures, and over 1,600 media sources monitored daily. They also employ a robust monitoring and data quality review process. See the MSCI ESG Fund Ratings Executive Summary for more detail. By adopting MSCI’s framework for calculating ESG metrics, we’re putting our best foot forward toward assuring the data is as accurate as currently possible. 2. Many existing SRI offerings in the market have serious shortcomings. Many SRI offerings today sacrifice sufficient diversification appropriate for investors who seek market returns, allocate based on competing ESG issues and themes that reduce a portfolio’s effectiveness, and do not provide investors an avenue to use collective action to bring about ESG change. Some solutions do not use a diversified range of asset classes—for example, holding mostly or entirely US Large Cap funds–or invest only in a handful of individual stocks within an asset class. At Betterment, diversification is a fundamental pillar of our advice, and we do not believe it’s in our customers’ best interests to offer them an under-diversified portfolio. Our approach has the advantage of maintaining global diversification at a relatively low cost. Some approaches to SRI may seek to address a broad set of values by using a combination of more focused, single issue funds as the core of the portfolio (for example, an environmentally focused ETF, a social equity focused ETF, etc). However, some companies rank highly with respect to their environmental practices, but poorly on another, like board diversity, or vice versa. Rather than doubling down on multiple areas of impact, combining funds with a distinct focus can instead dilute each intent, by increasing the likelihood of offsetting positions in the same asset class. Lastly, many ESG offerings today do not provide investors an avenue with which to influence corporate decision-making and bring about sustainable change. Screening-based SRI solutions only work to exclude or include certain industries or categories of companies, but do not give investors the ability to express an ESG preference through collective action. Betterment’s SRI portfolios do not sacrifice global diversification and all three portfolios include a partial allocation to an engagement-based socially responsible ETF using shareholder advocacy as a means to bring about ESG-change in corporate behavior. These approaches allow Betterment investors to take a diversified approach to sustainable investing and use their investments to bring about ESG-change. Engagement-based socially responsible ETFs have expressive value in that they allow investors to signal their interest in ESG issues to companies and the market more broadly, even if particular shareholder campaigns are unsuccessful. The Broad Impact portfolio seeks to balance each of the three dimensions of ESG without diluting different dimensions of social responsibility. With our Social Impact portfolio, we sharpen the focus on social equity with partial allocations to gender and racial diversity focused funds. With our Climate Impact portfolio, we sharpen the focus on controlling carbon emissions and fostering green solutions. 3. Integrating values into an ETF portfolio may not always meet every investor’s expectations, though it offers unique advantage For investors who prioritize an absolute exclusion of specific types of companies above all else, the ESG Scoring approach will inevitably fall short of expectations. For example, many of the largest ESG funds focused on US Large Cap stocks include some energy companies that engage in oil and natural gas exploration, like Hess. While Hess might rate relatively poorly along the “E” pillar of ESG, it could still rate highly in terms of the “S” and the “G.” Furthermore, maintaining our core principle of global diversification, to ensure both domestic and international bond exposure, we’re still allocating to some funds without an ESG mandate, until satisfactory solutions are available within those asset classes. There is a view across the asset management industry, with a certainty approaching conventional wisdom, that only unbundling ETFs and holding the underlying securities directly, will offer the general public the ability to fully align their values with their investments. This approach is increasingly described as “direct indexing”, though the practice of tracking an index by trading the individual stocks in so-called SMAs (separately managed accounts) is decades old. An established index might serve as a starting point, after which, an investor’s specific bundle of preferences can be applied. This is particularly effective with respect to absolute exclusions. While ESG index providers such as MSCI or Morningstar might deem some particular company as worthy of inclusion, direct indexing offers the ability to override it. The hyper-personalization of direct indexing no doubt has its applications, but for most investors, an ETF-based approach to values-driven investing offers some unique advantages. We’ve heard from our customers that while knowing that they have personally limited or eliminated exposure to certain companies is important, it also matters to them that their investing choices contribute towards driving positive change. Investing in ETFs with ESG mandates maximizes the external impact of such choices. Publicly traded corporations employ entire Investor Relations teams, whose jobs include monitoring how their stock is faring across widely adopted indexes. Just as a company’s inclusion into the S&P 500 typically results in a price jump, a downgrade or outright exclusion from an influential ESG index is highly visible, and thus a cause for concern for a company’s management team. But an index is only as influential as the volume of assets that track it, and no assets are as easily counted, and as directly attributable to that index, as those invested in publicly traded funds. Tracking a values-driven index by buying and selling stocks in your personal account allows for additional customization, but when you invest in a fund that tracks that values-driven index, you are pooling your values with those of others in one of the most effective ways, empowering that index, and providing leverage to those who actively engage with companies, pushing them to improve their ESG metrics. Banding together with like-minded investors through a fund, amplifies your voice on issues that matter to you—like a form of collective bargaining. Furthermore, as more dollars flow into ETFs with ESG mandates, issuers are responding with more specialized offerings, allowing for ever more customization when integrating values into globally diversified ETF portfolios. However, that evolution will take time. This is precisely why we’ve approached our values-driven offering as a journey, not a final destination. We are committed to achieving ever more alignment with our customers’ values over time, through ongoing research tracking the availability of better vehicles, and this approach has been validated. When we launched our first SRI portfolio in 2017, only the US Large Cap asset class was allocated to an ETF with a sustainable mandate. It was the beginning of a conversation—an invitation to our customers to signal to the investing industry that this matters to them, and that there is demand for high quality values-driven ETFs. We expected that increased asset flows across the industry into such funds would continue to drive down expense ratios and increase liquidity. Since that original offering, which was the predecessor to what is now our Broad Impact portfolio, we’ve been able to expand the ESG exposure to now also cover Developed Market stocks, Emerging Market stocks, and US High Quality Bonds. We also now include ESG exposure to an engagement-based fund. Sufficient options also exist for us to branch out in two different areas of focus—Climate Impact, and Social Impact. 4. Most available SRI-oriented ETFs present liquidity limitations. In an effort to control the overall cost for SRI investors, a large portion of our research focused on low-cost exchange-traded funds (ETFs) oriented toward SRI. As with any of our portfolios, we aim to help maximize investors’ take-home returns by lowering the costs of the underlying funds. While SRI-oriented ETFs indeed have relatively low expense ratios compared to SRI mutual funds, our analysis revealed insufficient liquidity in many ETFs currently on the market. Without sufficient liquidity, every execution becomes more expensive, creating a drag on returns. Median daily dollar volume is one way of estimating liquidity. Higher volume on a given asset means that you can quickly buy (sell) more of that asset in the market without driving the price up (down). Of course, the degree to which you can drive the price up or down with your buying or selling must be treated as a cost that can drag down on your returns. Figures 1 and 2 below put the liquidity issues associated with trading two of the most widely traded SRI ETFs—ESGU and ESGD—into perspective by comparing their liquidity to the liquidity of other ETFs used in Betterment portfolios. Figure 1 compares the most liquid ESG funds, ESGU and ESGD, to the funds in Betterment’s Core portfolio, showing that ESG funds in general are less liquid than traditional market-cap based funds. Figure 1. In this figure we compare the median daily dollar volumes of the primary funds in the Betterment Core IRA portfolios as of June 2021 against those of ESGD and ESGU. As you can see, most funds that we currently trade in the Betterment portfolios have liquidity that surpasses that of ESGD or ESGU. Data: Factset. Median dollar value traded is measured over the past 45 trading days over the period ending June 3, 2021. However when compared to other ESG funds in Figure 2, ESGU and ESGD are some of the most liquid ETFs compared to other socially responsible ETF products. Liquidity is concentrated in the top few SRI funds Figure 2. ESGU, ESGE, and ESGD are more liquid than other fund options with SRI mandates. Certain SRI-oriented bond ETFs have more recently become liquid enough for inclusion in Betterment’s SRI portfolio, but the vast majority of these funds still lack sufficient liquidity. Data: Factset. Median dollar value traded is measured over the past 45 trading days over the period ending June 3, 2021. Please note that the tickers VSGX and SUSB in this figure are not included in the Betterment Broad Impact portfolio. In balancing cost and value for the Broad Impact portfolio, the options were limited to funds that focus on US stocks , Developed Market stocks, Emerging Market stocks, US Investment Grade Corporate Bonds, and US High Quality bonds. Accordingly, ESGU, ESGV, SUSA, ESGD, ESGE, ,EAGG, and SUSC are the ETFs with SRI mandates that we have selected for the Broad Impact portfolio. They are some of the ETFs with the largest AUM among broadly diversified SRI options, and our investment selection process shows that they have the highest liquidity relative to their size in the Betterment Broad Impact SRI portfolio. III. How is Betterment’s Broad Impact portfolio constructed? In 2017, we launched our original SRI portfolio offering, which we’ve been steadily improving over the years. In 2020, we released two additional Impact portfolios and improved our original SRI portfolio, the improved iteration now called our “Broad Impact” portfolio  to distinguish it from the new specific focus options, Climate Impact and Social Impact, and the legacy SRI portfolio for those investors who elected not to upgrade their historical version of the SRI portfolio (“legacy SRI portfolio”). For more information about the differences between our Broad Impact portfolio and the legacy SRI portfolio, please see our disclosures. As we’ve done since 2017, we continue to iterate on our SRI offerings, even if not all the fund products for an ideal portfolio are currently available. Figure 3 shows that we have increased the allocation to ESG focused funds each year since we launched our initial offering. Today all primary stock ETFs used in our Broad Impact, Climate Impact, and Social Impact portfolios have an ESG focus. 100% Stock Allocation in the Broad Impact Portfolio Over Time Figure 3. Calculations by Betterment. Portfolios from 2017-2019 represent Betterment’s original SRI portfolio. The 2020 portfolio represents a 100% stock allocation of Betterment’s Broad Impact portfolio. As additional SRI portfolios were introduced in 2020, Betterment’s SRI portfolio became known as the Broad Impact portfolio. As your portfolio allocation shifts to higher bond allocations, the percentage of your portfolio attributable to SRI funds decreases. Additionally, a 100% stock allocation of the Broad Impact portfolio in a taxable goal with tax loss harvesting enabled may not be comprised of all SRI funds because of the lack of suitable secondary and tertiary SRI tickers in the developed and emerging market stock asset classes.  Betterment has built a Broad Impact portfolio, which focuses on ETFs that rate highly on a scale that considers all three ESG pillars, and includes an allocation to an engagement-based SRI ETF. Broad ESG investing solutions are currently the most liquid, highlighting their popularity amongst investors. Due to this, we will first examine how we created Betterment’s Broad Impact portfolio. Further information on the Social Impact and the Climate Impact portfolios’ construction can be found in Section VI and VII. In order to maintain geographic and asset class diversification and to meet our requirements for lower cost and higher liquidity in all SRI portfolios, we continue to allocate to some funds that do not have SRI mandates, particularly in bond asset classes. How does the Broad Impact portfolio compare to Betterment’s Core portfolio? When compared to Betterment’s Core portfolio, there are three main changes. First, in both taxable and tax-deferred portfolios we replace the Core portfolio’s current US stock market exposure with an allocation to a broad ESG US stock market ETF (ESGU) and an allocation to a broad US stock market ETF focused on shareholder engagement (VOTE). Two other broad ESG US stock market ETFs (ESGV and SUSA) serve as the alternative tickers for ESGU, which are utilized by Tax-Loss Harvesting+ (TLH+). Currently, there are not any comparable alternative tickers for VOTE so this component of the portfolio will not be tax-loss harvested. Second, in both taxable and tax-deferred portfolios we replace the Core portfolio’s current Emerging Market stock exposure and Developed Market stock exposure with a broad ESG Emerging Market ETF (ESGE) and a broad ESG Developed Market ETF (ESGD), respectively. Because of limited liquidity among other Emerging Market and Developed Market SRI funds, non-SRI market-capitalization based ETFs, which are not screened for ESG criteria, are used as alternative tickers for TLH+. Third, in tax-deferred portfolios we replace the Core portfolio’s current US High Quality Bond and US Investment Grade Corporate Bond exposure with an ESG US High Quality Bond fund (EAGG) and an ESG US Investment Grade Corporate Bond fund (SUSC), respectively. A more subtle difference is that ESG funds tend to tilt away from small-cap stocks when compared to the broader market, as small-cap stocks often score poorly from an ESG perspective. As a result, the SRI portfolio may have limited investments in small cap stocks. Additionally, the Core portfolio has a tilt towards small cap and value, which is removed from all of the SRI portfolios in favor of using more funds screened for socially responsible criteria. ESGU, ESGV, SUSA, ESGD, ESGE, SUSC, and EAGG each track a benchmark index that screens out companies involved in specific activities and selectively includes companies that score relatively highly across a broad set of ESG metrics. ESGU, ESGD, ESGE, SUSC, and EAGG exclude tobacco companies, thermal coal companies, oil sands companies, certain weapons companies (such as those producing landmines and bioweapons), and companies undergoing severe business controversies. The benchmark index for ESGV explicitly filters out companies involved in adult entertainment, alcohol and tobacco, weapons, fossil fuels, gambling, and nuclear power. SUSA benchmark index screens out tobacco companies and companies that have run into recent ESG controversies (a few examples were mentioned earlier). VOTE tracks a benchmark index that invests in 500 of the largest companies in the U.S. weighted according to their size, or market capitalization. This is different from the other indexes tracked by SRI funds in the Broad Impact portfolio, because the index does not take into account a company’s ESG factors when weighting different companies. Rather than invest more in good companies and less in bad companies, VOTE invests in the broader market and focuses on improving these companies’ social and environmental impact through shareholder engagement. Some of our allocations to bonds continue to be expressed using non-SRI focused ETFs since either the corresponding SRI alternatives do not exist or may lack sufficient liquidity. These non-SRI funds continue to be part of the portfolios for diversification purposes. An example of how a Betterment Broad Impact portfolio for IRA accounts at a 70% stock allocation, with its primary tickers, is shown in Figure 4. Taxable portfolios are similar but with the replacement of US High Quality SRI Bond exposure (EAGG primary) by US Municipal bonds (MUB primary) as is implemented currently for Betterment Core portfolios. Figure 4. Betterment Broad Impact Portfolio for IRA – 70% Stock Allocation Based on the primary ticker holdings, the following are the main differences between Betterment’s Broad Impact portfolio and Core portfolio: Replacement of market cap-based US stock exposure and value style US stock exposure in the Core portfolio, with SRI-focused US stock market funds, ESGU and VOTE, in the Broad Impact portfolio. Replacement of market cap-based developed market stock fund exposure in the Core portfolio, with SRI-focused emerging market stock fund, ESGD, in the Broad Impact portfolio. Replacement of market cap-based emerging market stock fund exposure in the Core portfolio, with SRI-focused emerging market stock fund, ESGE, in the Broad Impact portfolio. Replacement of market cap-based US high quality bond fund exposure in the Core portfolio, with SRI-focused US high quality bond funds, EAGG and SUSC, in the Broad Impact portfolio. SRI portfolios can also support our core products for increasing after-tax returns, Tax-loss Harvesting+ (TLH) and Tax-coordinated portfolios (TCP). In the Broad Impact portfolio, because of limited fund availability in the developed and emerging market SRI spaces, we use non-SRI market cap-based funds, like VWO, SPEM, VEA, and IEFA as secondary and tertiary funds for ESGE and ESGD when TLH is enabled. How does the legacy SRI portfolio compare to the current SRI portfolios? There are certain differences between the legacy SRI portfolio and the current SRI portfolios. If you invested in the legacy SRI portfolio prior to October 2020 and chose not to update to one of the SRI portfolios, your legacy SRI portfolio does not include the above described enhancements to the Broad Impact portfolio. The legacy SRI portfolio may have different portfolio weights, meaning as we introduce new asset classes and adjust the percentage any one particular asset class contributes to a current SRI portfolio, the percentage an asset class contributes to the legacy SRI portfolio will deviate from the makeup of the current SRI portfolios and Betterment Core portfolio. The legacy SRI portfolio may also have different funds, ETFs, as compared to both the current versions of the SRI portfolios and the Betterment Core portfolio. Lastly, the legacy SRI portfolio may also have higher exposure to broad market ETFs that do not currently use social responsibility screens or engagement based tools and retain exposure to companies and industries based on previous socially responsible benchmark measures that have since been changed.  Future updates to the Broad, Climate, and Social Impact portfolios will not be reflected in the legacy SRI portfolio. IV. How socially responsible is the Broad Impact portfolio? As mentioned earlier, we first use the ESG data and analytics from MSCI to quantify how SRI-oriented our portfolios are. For each company that they cover, MSCI calculates a large number of ESG metrics across multiple environmental (E), social (S), and governance (G) pillars and themes (recall Table 1 above). All these metrics are first aggregated at the company level to calculate individual company scores. At the fund level, an overall MSCI ESG Quality score is calculated based on an aggregation of the relevant company scores. As defined by MSCI, this fund level ESG Quality score reflects “the ability of the underlying holdings to manage key medium- to long‐term risks and opportunities arising from environmental, social, and governance factors”. These fund scores can be better understood given the MSCI ESG Quality Score scale shown below. See MSCI's ESG Fund Ratings for more detail. Table 2. The MSCI ESG Quality Score Scale The ESG Quality Score measures the ability of underlying holdings to manage key medium- to long-term risks and opportunities arising from environmental, social, and governance factors. Scale 0-10 Score 8-10 Very high ESG quality — underlying holdings largely rank best in class globally based on their exposure to and management of key ESG risks and opportunities 6-8 High ESG quality — underlying holdings largely rank above average globally based on their exposure to and management of key ESG risks and opportunities 4-6 Average ESG quality — underlying holdings rank near the global peer average, or ESG quality of underlying holdings is mixed 2-4 Low ESG quality< — underlying holdings largely rank below average globally based on their exposure to and management of key risks and opportunities 0-2 Very low ESG quality — underlying holdings largely rank worst in class globally based on their exposure to and management of key ESG risks and opportunities Source: MSCI Based on data from MSCI, which the organization has made publicly available for funds to drive greater ESG transparency, and sourced by fund courtesy of etf.com, Betterment’s 100% stock Broad Impact portfolio has a weighted MSCI ESG Quality score that is approximately 21% greater than Betterment’s 100% stock Core portfolio. The data shown in Table 3 and the scale presented in Table 2 show that, on average, while current Betterment Core portfolios hold US, Developed and Emerging Market stocks that are of Average to High ESG quality, the funds that follow indexes based on ESG criteria in the Broad Impact portfolio invest in US, Developed and Emerging Market stocks that are of High to Very High ESG quality. MSCI ESG Quality Scores U.S. Stocks  Betterment Core Portfolio: 5.72 Betterment Broad Impact Portfolio: 6.30 Emerging Markets Stocks Betterment Core Portfolio: 4.72 Betterment Broad Impact Portfolio: 7.35 Developed Markets Stocks Betterment Core Portfolio: 7.26 Betterment Broad Impact Portfolio: 8.35 US High Quality Bonds  Betterment Core Portfolio: 6.28 Betterment Broad Impact Portfolio: 6.84 Table 3. Sources: MSCI ESG Quality Scores courtesy of etf.com, values accurate as of June 3, 2021and are subject to change. In order to present the most broadly applicable comparison, scores are with respect to each portfolio’s primary tickers exposure, and exclude any secondary or tertiary tickers that may be purchased in connection with tax loss harvesting. Because VOTE has yet to be evaluated by MSCI, we use the MSCI ESG score of SPY to derive the above values as it has a very similar investment nature to VOTE.  Another way we can measure how socially responsible a fund is by monitoring their shareholder engagement with companies on environmental, social and governance issues. Engagement-based socially responsible ETFs use shareholder proposals and proxy voting strategies to advocate for ESG change. We can review the votes of particular shareholder campaigns and evaluate whether those campaigns are successful. That review however does not capture the impact that the presence of engagement-based socially responsible ETFs may have on corporate behavior simply by existing in the market.  Engagement-based socially responsible ETFs have expressive value in that they allow investors to signal their interest in ESG issues to companies and the market more broadly. These aspects of sustainable investing are more challenging to measure in a catch-all metric, however that does not diminish their importance. We believe as this  field of sustainable investing expands, investors will demand increased transparency in fund sponsor’s corporate engagements. A Note On ESG Risks And Opportunities An ESG risk captures the negative externalities that a company in a given industry generates that may become unanticipated costs for that company in the medium- to long-term. An example of such a risk is the possible need to reformulate a company’s product due to a regulatory ban on a key chemical input. An ESG opportunity for a given industry is considered to be material if companies will capitalize over a medium- to long-term time horizon. Examples of ESG opportunities include the use of clean technology for the LED lighting industry. See MSCI ESG Ratings Methodology (April 2020) for more detail. For a company to score well on a key ESG issue (see Table 1 above), both the exposure to and management of ESG risks are taken into account. The extent to which an ESG risk exposure is managed needs to be commensurate with the level of the exposure. If a company has high exposure to an ESG risk, it must also have strong ESG risk management in order to score well on the relevant ESG key issue. A company that has limited exposure to the same ESG risk, only needs to have moderate risk management practices in order to score as highly. The converse is true as well. If a company that is highly exposed to an ESG risk also has poor risk management, it will score more poorly in terms of ESG quality than a company with the same risk management practices, but lower risk exposure. For example, water stress is a key ESG issue. Electric utility companies are highly dependent on water with each company more or less exposed depending on the location of its plants. Plants located in the desert are highly exposed to water stress risk while those located in areas with more plentiful water supplies present lower risk. If a company is operating in a location where water is scarce, it needs to take much more extensive measures to manage this risk than a company that has access to abundant water supply. V. Should we expect any difference in an SRI portfolio’s performance? One might expect that a socially responsible portfolio could lead to lower returns in the long term compared to another, similar portfolio. The notion behind this reasoning is that somehow there is a premium to be paid for investing based on your social ideals and values. A white paper by the Morgan Stanley Institute for Sustainable Investing, however, shows that this claim is questionable at best. This paper summarized the results from a study that analyzes the performance of nearly 11,000 funds from 2004 to 2018 and compares traditional funds to sustainable funds. The primary takeaway of the study revealed that there was no trade-off in performance when comparing sustainable to traditional funds. The study suggests they were only able to find sporadic and inconsistent differences in returns, which suggests that while there can be differences in performance over shorter time periods, over the long term there is likely no meaningful difference. The second significant finding from the study was that sustainable funds exhibited 20% lower downside risk, as measured by downside deviation. When considering the possible performance of Betterment’s SRI portfolios (excluding the legacy SRI portfolio), we examined evidence based on both historical and forward-looking analyses described below. When adjusting for the stock allocation level, the data indicates that the performance of Betterment’s Broad Impact portfolio versus our Core portfolio is not significantly different. Backtests Based On Historical Returns Past performance does not guarantee future results. Nonetheless, our analysis of historical returns is consistent with our assertion that the performance of SRI portfolios should track the performance of the Core portfolios very closely. An analysis of the historical total gross returns over the past four years shows that SRI portfolios and Core portfolios have been very highly correlated. In Figure 5 we illustrate this high correlation using Broad Impact IRA portfolios at a 70% stock allocation as an example. Both Taxable and IRA portfolios exhibit similar properties given other stock allocation levels. Figure 5. Betterment Core Portfolio vs Broad Impact Portfolio Monthly Returns Figure 5. Based on historical returns of a 70% stock allocation portfolio gross of all fees for the period starting May 31, 2017 and ending May 28, 2021.* But how do the net returns compare? In Figure 6 we show that the weighted expense ratios of the  Broad Impact portfolio is higher than those of Core portfolios at non-zero stock allocation levels (and the spread increases as you add more stocks to the mix). You might expect that the higher expense ratios would drag down the net performance of Broad Impact portfolios relative to Core portfolios. Figure 6. Weighted Expense Ratios For All IRA Portfolio Allocations Figure 6. Sources: Xignite. Calculations by Betterment as of June 3, 2021. Weighted expense ratios for each portfolio are calculated using the expense ratios of the primary ETFs used for IRA allocations of Betterment’s portfolios as of June, 2021. As it turns out, after reducing returns both by weighted expense ratios and a 0.25% annual Betterment fee, the performance of the Broad Impact portfolio ended up being similar to that of Core portfolio for the period starting May 31, 2017 and ending May 28, 2021, with the Broad Impact portfolio outperforming over this specific period. Table 3 provides an example of this claim for IRA portfolios at a 70% stock allocation. Performance summaries for other stock allocation levels as well as for taxable portfolios look similar. Table 4. Comparing Net Performance 70% Stock Allocation Portfolios for Period starting August 1, 2016 and ending February 28, 2021   Betterment Portfolio Betterment Broad Impact Annualized Return (net) 10.41% 12.14% Annualized Standard Deviation 11.02% 11.46% *Performance information for Table 4 ‘Comparing Net Performance’ and for Figure 5 ‘Betterment Core Portfolio vs Broad Impact Portfolio Monthly Returns’ for the Betterment allocations are based on a backtest of the ETFs or indices tracked by each asset class in Betterment’s portfolios as of June, 2021. Though we have made an effort to closely match performance results shown to that of the Betterment Portfolio over time, these results are entirely the product of a model. Actual client experience could have varied materially.  Performance figures assume dividends are reinvested and daily portfolio rebalancing at market closing prices. The returns are net of a 0.25% annual management fee and fund level expenses. Backtested performance does not represent actual performance and should not be interpreted as an indication of such performance. Actual performance for client accounts may be materially lower. Backtested performance results have certain inherent limitations. Such results do not represent the impact that material economic and market factors might have on an investment adviser’s decision-making process if the adviser were actually managing client money. Backtested performance also differs from actual performance because it is achieved through the retroactive application of model portfolios designed with the benefit of hindsight. As a result, the models theoretically may be changed from time to time and the effect on performance results could be either favorable or unfavorable. The returns of SPY were used as a proxy for the returns of VOTE for the purposes of this calculation due to their similar investment natures. See additional disclosure https://www.betterment.com/returns-calculation/. Source: Price data from Xignite. Calculations by Betterment. Forward-looking Analysis In Figure 7, we graph expected net total returns at each risk (stock allocation) level for both Betterment Core and Broad Impact portfolios. All expected total returns are expressed in annual terms and are net of the portfolio weighted ETF annual expense ratios and a 0.25% annual Betterment fee. Based on the application of Black-Litterman and mean-variance portfolio optimization methods, they are our best estimates of the actual returns, net of known fees, that you might expect to achieve on average annually. The expected net total returns of Betterment’s Broad Impact portfolio are only slightly below those of the Betterment Core portfolio. The higher weighted expense ratios of Broad Impact portfolios account for a large component of their expected underperformance. Figure 7. Comparison of Broad Impact and Core IRA Efficient Frontiers Assumes a risk-free rate of 2.77% Sources: Market capitalization data collected from S&P Dow Jones Indices, SIFMA, and Bank for International Settlements. Price data are from Xignite. A risk-free rate assumption of 2.77% is for a 10-year horizon and is derived using our methods for estimating the forward curve as of June 3, 2021. The forward looking returns are shown net of known fund fees and Betterment’s 0.25% management fee. Calculations by Betterment. Dividend Yields Could Be Lower Dividend yields calculated over the past year (ending June 3, 2020) indicate that income returns coming from Broad Impact portfolios have been lower than those of Core portfolios recently (see Figure 8). Oil and gas companies like BP, Chevron, and Exxon, for example, currently have relatively high dividend yields and excluding them from a given portfolio can cause its income return to be lower. Of course, future dividend yields are random variables and past data may not provide accurate forecasts. Nevertheless, lower dividend yields can be a factor in driving total returns for SRI portfolios to be lower than those of Core portfolios. Figure 8. Comparison of Dividend Yields Source: Xignite, Calculations by Betterment for one year period ending June 3, 2021. Dividend yields for each portfolio are calculated using the dividend yields of the primary ETFs used for IRA allocations of Betterment’s portfolios as of June, 2021. The dividend yield of SPY was used as a proxy for the dividend yield of VOTE for the purposes of this calculation due to their similar investment natures. VI. Climate Impact Portfolio Betterment offers a Climate Impact portfolio for investors that want to invest in an SRI strategy more focused on being climate-conscious rather than focusing on all ESG dimensions equally. The Climate Impact portfolio was designed to give investors exposure to climate-conscious investments, without sacrificing proper diversification and balanced cost. Fund selection for this portfolio follows the same guidelines established for the Broad Impact portfolio, as we seek to incorporate broad based climate-focused ETFs with sufficient liquidity relative to their size in the portfolio. How does the Climate Impact portfolio more positively affect climate change? Half of the stocks in the Climate Impact portfolio are allocated to iShares MSCI ACWI Low Carbon Target ETF (CRBN), an ETF which seeks to track the global stock market, but with a bias towards companies with a lower carbon footprint. By investing in CRBN, investors are actively supporting companies with a lower carbon footprint, because CRBN overweights these stocks relative to their high-carbon emitting peers. One way we can measure the carbon impact a fund has is by looking at its weighted average carbon intensity, which measures the weighted average of tons of CO2 emissions per million dollars in sales, based on the fund's underlying holdings. Based on weighted average carbon intensity data from MSCI (courtesy of etf.com), Betterment’s 100% stock Climate Impact portfolio has carbon emissions per unit sales more than 50% lower than Betterment’s 100% stock Core portfolio as of June 3, 2020. Because VOTE has yet to be evaluated by MSCI, we use the carbon intensity of SPY for this calculation as it has a very similar investment nature to VOTE. The remaining half of the International Developed and Emerging Markets stocks in the Climate Impact portfolio are allocated to fossil fuel reserve free funds, EFAX and EEMX. 40% of the U.S. stocks in the Climate Impact portfolio are allocated to a fossil fuel reserve free fund, SPYX, while the remaining 10% is allocated to the engagement-based ESG fund, VOTE. Rather than ranking and weighting funds based on a certain climate metric like CRBN, fossil fuel reserve free funds instead exclude companies that own fossil fuel reserves, defined as crude oil, natural gas, and thermal coal. By investing in fossil fuel reserve free funds investors are actively divesting from companies with some of the most negative impact on climate change, including oil producers, refineries, and coal miners such as Chevron, ExxonMobile, BP, and Peabody Energy. Another way that the Climate Impact portfolio promotes a positive environmental impact is by investing in bonds that fund green projects. The Climate Impact portfolio invests in iShares Global Green Bond ETF (BGRN), which tracks the global market of investment-grade bonds linked to environmentally beneficial projects, as determined by MSCI. These bonds are called “green bonds”. The green bonds held by BGRN fund projects in a number of environmental categories defined by MSCI including alternative energy, energy efficiency, pollution prevention and control, sustainable water, green building, and climate adaptation. How does the Climate Impact portfolio compare to Betterment’s Core portfolio? When compared to the Betterment Core portfolio allocation, there are three main changes. First, in both taxable and tax-deferred portfolios, replace 50% of our Core portfolio’s Total Stock exposure with an allocation to a broad global low-carbon stock ETF (CRBN) in the Climate Impact portfolio. Currently, there are not any viable alternative tickers for the global low-carbon stock asset class so this component of the portfolio cannot be tax-loss harvested. Second, we allocate the remaining 50% of our Core portfolio’s International Stock exposure, and 40% of our Core portfolio’s US Total Stock Market exposure to three broad region-specific stock ETFs that screen out companies that hold fossil-fuel reserves in the Climate Impact portfolio. US Total Stock Market exposure is replaced with an allocation to SPYX, International Developed Stock Market exposure is replaced by EFAX, and Emerging Markets Stock Market exposure is replaced by EEMX. In the Climate Impact portfolio, SPYX, EFAX, and EEMX will use ESG secondary tickers ESGU, ESGD, and ESGE respectively for tax loss harvesting. Third, we allocate the remaining 10% of our Core portfolio’s US Total Stock Market exposure to a fund focused on engaging with companies to improve their corporate decision-making on sustainability and social issues, VOTE. Currently, there are not any comparable alternative tickers for VOTE so this component of the portfolio will not be tax-loss harvested. Lastly, for both taxable and tax-deferred portfolios we replace both our Core portfolio’s US High Quality Bond and International Developed Market Bond exposure with an allocation to a global green bond ETF (BGRN) in the Climate Impact portfolio. Some of our allocations to bonds continue to be expressed using non-climate focused ETFs since either the corresponding alternatives do not exist or may lack sufficient liquidity. These non-climate-conscious funds continue to be part of the portfolios for diversification purposes. How do performance expectations compare to the Core portfolio? When some first consider ESG investing, they assume that they must pay a heavy premium in order to have their investments aligned with their values. However, as previously noted in Section V, the data suggests that the performance between sustainable funds versus traditional funds is not significantly different, although there can be differences over shorter periods. We also compared Betterment’s Broad Impact portfolio’s returns versus our Core portfolio’s and show the two are highly correlated. This holds true for the Climate Impact portfolio as well. BGRN, the global green bond ETF, was created in November of 2018, so backtests on historical returns are limited. However, we can still examine the Climate Impact portfolio’s return versus Betterment’s Core portfolio to get an idea as to whether they’ve been similar since BGRN’s inception. In Figure 9, comparing an IRA portfolio with a 70% stock allocation, we show that the returns of the portfolios are certainly directionally aligned, while the Climate Impact portfolio actually outperformed (+43.27% vs +39.45%) over the shorter time horizon. Betterment Core 70% Stock Returns vs. Betterment Climate Impact 70% Stock Returns Figure 9. This plot shows the cumulative return of the IRA 70% stock allocation for both the Betterment Core portfolio as well as the Climate Impact portfolio from November 28, 2018 to May 31, 2020. The returns of SPY were used as a proxy for the returns of VOTE for the purposes of this calculation due to their similar investment natures. Performance information for the Betterment allocations is based on the time-weighted returns of Betterment IRA portfolios with primary tickers that are at the target allocation every market day (this assumes portfolios are rebalanced daily at market closing prices). Dividends are assumed to be reinvested in the fund from which the dividend was distributed. Betterment allocations reflect portfolio holdings as of June 2021 and include an annual 0.25% management fee. This does not include deposits or withdrawals over the performance period. These allocations are not representative of the performance of any actual Betterment account and actual client experience may vary because of factors including, individual deposits and withdrawals, secondary tickers associated with tax loss harvesting, allowed portfolio drift, transactions that do not occur at close of day prices, and differences in holdings between IRA and taxable portfolios. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Market conditions can and will impact performance. Past performance is not indicative of future results. Source: Returns data from Xignite. Calculations by Betterment. Now that we have examined how the Climate Impact portfolio has performed historically since inception, we next focus on forward-looking analysis. In Figure 10, we show that the weighted expense ratios of Climate Impact portfolios are higher than those of Core portfolios at non-zero stock allocation levels (and the spread increases as you add more stocks to the mix). However in Figure 11, when we examine this difference within the context of our best estimates of future returns, net of known fees, the expected net total returns of Climate Impact portfolios are only slightly below those of Betterment Core portfolios. The higher weighted expense ratios of Climate Impact portfolios primarily account for their future expected underperformance. Figure 10. Weighted Expense Ratios for IRA Portfolio Allocations Figure 10. Sources: Xignite. Calculations by Betterment as of June 3, 2021. Weighted expense ratios for each portfolio are calculated using the expense ratios of the primary ETFs used for IRA allocations of Betterment’s portfolios as of June 2021. Figure 11. Comparison of Climate Impact SRI and Core IRA Efficient Frontiers Figure 11. Sources: Market capitalization data collected from S&P Dow Jones Indices, SIFMA, and Bank for International Settlements. Price data are from Xignite. A risk-free rate assumption of 2.77% is for a 10-year horizon and is derived using our methods for estimating the forward curve as of June 3, 2021. The forward looking returns are shown net of known fund fees and Betterment’s 0.25% management fee. Calculations by Betterment. VII. Social Impact Portfolio Betterment offers a Social Impact portfolio for investors that want to invest in a strategy more focused on the social pillar of ESG investing (the S in ESG). The Social Impact portfolio was designed to give investors exposure to investments which promote social equity, without sacrificing proper diversification and balanced cost. Fund selection for this portfolio follows the same guidelines established for the Broad Impact portfolio discussed above, as we seek to incorporate broad based ETFs that focus on social equity with sufficient liquidity relative to their size in the portfolio. How does the Social Impact portfolio promote social equity? The Social Impact portfolio shares many of the same holdings as Betterment’s Broad Impact portfolio, which means the portfolio holds funds which rank strongly with respect to broad ESG factors. The Social Impact portfolio looks to further promote the social pillar of ESG investing, by also allocating to two ETFs that specifically focus on diversity and inclusion -- Impact Shares NAACP Minority Empowerment ETF (NACP) and SPDR SSGA Gender Diversity Index ETF (SHE). NACP is a US stock ETF offered by Impact Shares that tracks the Morningstar Minority Empowerment Index. The National Association for the Advancement of Colored People (NAACP) has developed a methodology for scoring companies based on a number of minority empowerment criteria. These scores are used to create the Morningstar Minority Empowerment Index, an index which seeks to maximize the minority empowerment score while maintaining market-like risk and strong diversification. The end result is an index which provides greater exposure to US companies with strong diversity policies that empower employees irrespective of race or nationality. By investing in NACP, investors are allocating more of their money to companies with a better track record of social equity as defined by the NAACP. SHE is a US Stock ETF that allows investors to invest in more female-led companies compared to the broader market. In order to achieve this objective, companies are ranked within each sector according to their ratio of women in senior leadership positions. Only companies that rank highly within each sector are eligible for inclusion in the fund. By investing in SHE, investors are allocating more of their money to companies that have demonstrated greater gender diversity within senior leadership than other firms in their sector. For more information about these social impact ETFs, including any associated risks, please see our disclosures. How does the Social Impact portfolio compare to Betterment’s Core portfolio? The Social Impact portfolio builds off of the ESG exposure from funds used in the Broad Impact portfolio and makes the following additional changes. First, we replace 10% of our US Total Stock Market exposure with an allocation to a US Stock ETF, NACP, which provides exposure to US companies with strong racial and ethnic diversity policies in place. Second, we replace an additional 10% of our US Total Stock Market exposure with an allocation to a US Stock ETF, SHE, which provides exposure to companies with a relatively high proportion of women in high-level positions. As with the Broad Impact and Climate Impact portfolios, we allocate the remaining 10% of our Core portfolio’s US Total Stock Market exposure to a fund focused on engaging with companies to improve their corporate decision-making on sustainability and social issues, VOTE. Currently, there are not any viable alternative tickers for NACP, SHE, or VOTE, so these components of the portfolio will not be tax-loss harvested. How do performance expectations compare to the Core portfolio? When some first consider ESG investing, they assume that they must pay a heavy premium in order to have their investments aligned with their values. However, as previously noted in Section V, the data suggests that the performance between sustainable funds versus traditional funds is not significantly different, although there can be differences over shorter periods. We also compared Betterment’s Broad Impact portfolio’s returns  to our Core portfolio’s and show the two are highly correlated. This holds true for the Social Impact portfolio as well. NACP, the minority empowerment ETF, was created in July of 2018, so backtests on historical returns are limited. However, we can still examine the Social Impact portfolio’s return versus the Betterment Core portfolio’s return to get an idea as to whether they’ve been similar since NACP’s inception. In Figure 12, comparing an IRA portfolio with a 70% stock allocation, we show that the portfolios are directionally aligned, while the Social Impact portfolio actually outperformed (+47.37% vs +43.90%) over the shorter time period. Figure 12. Betterment Core 70% Stock Returns vs. Betterment Social Impact 70% Stock Returns Figure 12. This plot shows the cumulative return of the IRA 70% stock allocation for both the Betterment Core portfolio as well as the Social Impact portfolio from October 24, 2018 to May 31, 2021. The returns of SPY were used as a proxy for the returns of VOTE for the purposes of this calculation due to their similar investment natures. Performance information for the Betterment allocations is based on the time-weighted returns of Betterment IRA portfolios with primary tickers that are at the target allocation every market day (this assumes portfolios are rebalanced daily at market closing prices). Dividends are assumed to be reinvested in the fund from which the dividend was distributed. Betterment allocations reflect portfolio holdings as of June 2021 and include an annual 0.25% management fee. This does not include deposits or withdrawals over the performance period. These allocations are not representative of the performance of any actual Betterment account and actual client experience may vary because of factors including, individual deposits and withdrawals, secondary tickers associated with tax loss harvesting, allowed portfolio drift, transactions that do not occur at close of day prices, and differences in holdings between IRA and taxable portfolios. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Market conditions can and will impact performance. Past performance is not indicative of future results. Source: Returns data from Xignite. Calculations by Betterment. Now that we have examined how the portfolio has performed historically since inception, we next focus on forward-looking analysis. In Figure 13 we show that the weighted expense ratios of Social Impact portfolios are higher than those of core portfolios at non-zero stock allocation levels (and the spread increases as you add more stocks to the mix). However in Figure 14, when we examine this difference within the context of our best estimates of future returns, net of known fees, the expected net total returns of Social Impact portfolios are only slightly below those of Betterment core portfolios. The higher weighted expense ratios of Social Impact portfolios primarily account for their future expected underperformance. Figure 13. Weighted Expense Ratios for IRA Portfolio Allocations Figure 13. Sources: Xignite. Calculations by Betterment as of June 3, 2021. Weighted expense ratios for each portfolio are calculated using the expense ratios of the primary ETFs used for IRA allocations of Betterment’s portfolios as of June 2021. Figure 14. Comparison of Social Impact SRI and Core IRA Efficient Frontier Figure 14. Sources: Market capitalization data collected from S&P Dow Jones Indices, SIFMA, and Bank for International Settlements. Price data are from Xignite. A risk-free rate assumption of 2.77% is for a 10-year horizon and is derived using our methods for estimating the forward curve as of June 3, 2021. The forward looking returns are shown net of known fund fees and Betterment’s 0.25% management fee. Calculations by Betterment. Conclusion SRI portfolios are designed to help you express your values and social ideals through your investments. Despite the various limitations that all SRI implementations face today, Betterment will continue to support its customers in further aligning their values to their investments. Betterment may add additional socially responsible funds to the SRI portfolios and replace other ETFs as more socially responsible products become available. We are now able to provide you with multiple globally diversified SRI portfolios, at relatively low cost that are expected to track the performance of the long-standing Betterment Core portfolio closely. We also now are able to provide you with an avenue to influence corporate decision making. We believe shareholder engagement is a key component of evaluating sustainable investing products. We released our first SRI offering in 2017, with the stated intent to incrementally improve it over time, and we’ve done just that. You can think of these iterations as the latest, and certainly not the last step in that journey. By indicating what matters to you, as an investor, you are sending a signal to the financial services industry, which we will amplify, by bundling it with those of our other customers. As demand grows, and assets flow into funds that best reflect your values, those funds will become bigger, cheaper, and more liquid, continuing to erase whatever accessibility gaps remain between standard market-cap based index funds, and those that track a values-based index or actively engage with the companies they’re invested in. As a result, the SRI portfolio you opt for today will only keep getting better at expressing your values.

How We Help Investors Seamlessly Transfer Accounts Sep 16, 2020 12:00:00 AM Transitioning investment accounts from one provider to another can be tedious and complicated. Humans can help make it seamless and easy. Transitioning investment accounts from one provider to another can be complicated. You may be in the early days of exploration, wondering if adopting a new investment strategy is worth it. Or, you may know that making a switch is what’s best but it’s unclear how Betterment will handle the trading and operational steps required to complete your transfer. How we help customers transition to Betterment. We’ve largely automated the process of transferring outside investment accounts to Betterment. For most customers, our automations fully address their specific needs and a transfer can be self-serviced entirely online. For others, our online tools provide a great foundation, but there’s still a desire for more personalized advice during their transition. Qualified customers, looking for more high-touch support, have access to our Licensed Concierge and partner transfer-specialist teams, who provide personalized and dedicated guidance to customers exploring large and complex transfers to Betterment. For IRAs and 401(k)s, which can be directly transferred without creating a taxable event, we focus on investment strategy comparisons, minimizing advisor pushback, and ensuring that the accounts are moved using the most efficient transfer method available. For taxable accounts, especially those with large embedded gains, we take things a step further, offering personalized tax-impact and break-even analyses. Breaking down our taxable account guidance. As your fiduciary, we believe that transparency is key to making well-informed investment decisions. Whether you’re in the early stages of exploring if Betterment’s right for you, or fully sold and ready to get started, knowing the potential tax implications, and the trading and operational steps required to complete your transfers is important. Below, we offer a step-by-step preview into the Licensed Concierge-specific process. Step 1: Review Current Situation When a Licensed Concierge associate is connected with a new customer, our first priority is to understand the customer’s situation. We start by reviewing their current investment accounts to see if they are properly aligned to their financial goals from a fee, investment mix, and risk perspective. Misalignment in any of these areas can impact a customer’s likelihood of reaching their goals. Upon closer look, the individuals we work with are often surprised to find themselves invested in high-fee and high-risk accounts. Sometimes we learn they were referred to their advisor who charged a 1% management fee. Sometimes we discover they were sold actively managed funds that charged 1% to 2% in fund fees. Some were even do-it-themselves investors, who didn’t have the time to maintain proper account rebalancing, dividend reinvestment, or timely tax-loss harvesting. Whatever the case may be, if you’re looking to review your current situation and find that collecting the necessary information is hard to do on your own, we recommend syncing your accounts to Betterment. Our free, automated tooling will analyze your account details and let you know if you’re taking on too much (or too little) risk, paying too high of fees, or don’t have proper portfolio diversification. Syncing your accounts to Betterment will also allow our human-facing teams to better guide you, if need be. Step 2: Establish A Plan Once we understand a customer’s current situation, our next step is to put together a comprehensive assessment and action plan. While the details are unique to each customer, at a high-level, the moving parts are largely the same. Based on the firm where an account is currently held, the type of taxable account (individual, joint, trust), and the underlying investments, we are able to tell our customers: Whether making a switch to Betterment comes highly recommended based on any red flags from our Step 1 review. Whether the firm and account type can be moved electronically to Betterment through the ACATS network. Which of the current holdings (if any) can be moved to Betterment, in-kind without having to sell at the current provider first. What to expect once we receive the transferred account and begin transitioning it into the target Betterment portfolio. What the estimated tax-impact (if any) will be to move forward with the transfer to Betterment. The above information is delivered to the customer without industry jargon, so that making an official decision is as straightforward as possible. Step 3: Executing The Plan Assuming the customer would like to proceed with a transfer to Betterment, we’ll do a final check to ensure their Betterment account is set up properly. Once everything is in order from our side, we can begin implementing the transfer plan. Since it’s highly likely that our team has performed transfers from the customer’s current provider to Betterment, we’re able to be specific about what to expect throughout the process. We’ll communicate all of the steps involved, the expected timeline to complete, and when possible, we’ll handle any heavy lifting. We’ll regularly check-in and once the transfer has arrived, we’ll confirm with the customer and ensure any outstanding questions are answered. Putting it all together. Deciding whether it’s right to move money to a new provider is tough enough on its own, which is why having access to a dedicated expert can be especially valuable. With extensive onboarding and transfer experience, the Licensed Concierge and partner teams are here to ensure you fully understand how Betterment works and that your accounts are transitioned seamlessly. Interest in learning more about transferring an account to Betterment? Email us at: concierge@betterment.com. Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a qualified tax professional. This article is being provided solely for marketing and educational purposes and does not address the details of your personal situation and is not intended to be an individualized recommendation that you take any particular action, including rolling over an existing account. When deciding whether to roll over a retirement account, you should carefully consider your personal situation and preferences. Specific factors that may be relevant to you include: available investment options, fees and expenses, services, withdrawal penalties, protections from creditors and legal judgments, required minimum distributions, and treatment of employer stock. Before deciding to roll over, you should research the details of your current retirement account, consult tax and other advisors with any questions about your personal situation, and review our Form CRS relationship summary and other disclosures. Betterment’s Licensed Concierge Team offers support for individuals transferring assets to Betterment of $100,000 or more, and receives incentive compensation based on assets brought to or invested with Betterment. Betterment’s revenue varies for different offerings (e.g., Betterment Digital and Premium) and consequently Team members have an incentive to recommend the offering which results in the greatest revenue for Betterment. The marketing and solicitation activities of these individuals are supervised by Betterment to ensure that these individuals act in the client’s best interest.

Betterment’s Employee Demographics And Our Commitments To Doing Better Aug 14, 2020 12:00:00 AM We share details on the makeup of Betterment’s employees, our initiatives for diversity and inclusion, and how we’re encouraging progress within the fintech community. TABLE OF CONTENTS Betterment’s Employee Demographic Data Scaling Our Diversity And Inclusion Efforts Conclusion In June, our CEO and Founder Jon Stein made a statement: “Betterment will not stand for the unequal treatment of people of color in our company, in our communities, or in our country. We will advocate for our Black colleagues, friends, and fellow citizens and work harder to build a nation that’s just for all, where we all can pursue happiness, without fear, oppression, or unequal treatment.” Over the last two months, we’ve been hard at work learning how to live up to that promise and take a stand against racial injustice. We’ve formed a coalition with the broader fintech community, we’re increasing our transparency with our employees and our customers, and we’re investing in resources for our employees of color. We acknowledge that these initiatives are a work in progress, but we want to share them with the Betterment community. Betterment’s Employee Demographic Data First, we’d like to share the demographic data of our full-time Betterment team (293 employees as of July 7, 2020). The demographic data below is collected using the Equal Employment Opportunity Commission (EEOC) questions and selections during an employee’s onboarding process. Because of this, the type of information we collected is limited. Starting in 2020, we will provide optional opportunities for additional demographic selections (including but not limited to gender, race, and ethnicity) that are more inclusive for both employees and candidates. Full-Time Employees Leadership Team* *(defined as Director-level or higher): Product, Design, Engineering, And Analytics Teams Engineering Teams We've made progress with gender representation over the past few years, but we still have a long way to go. And our progress in racial and ethnic representation—particularly within our leadership cohort—is not where it should be. We have work to do here, and are committed to ensuring that our team better reflects the communities and customers we serve across the U.S. Scaling Our Diversity And Inclusion Efforts The conversations we’ve had internally as a community, and with your input, are helping inform and drive the sustained change we’re looking to make. We’re working toward a new normal in several ways: Fintech Coalition We recognize that the fintech industry needs to improve access to jobs, career advancement, and financial services, not only for underrepresented groups, but especially for people in the Black and brown community. To hold us and other fintech companies accountable to making this change, we spearheaded the creation of the fintech coalition. Each company that joins the coalition will publish individual plans and provide regular updates on progress toward our commitments to enhancing access to financial services, as well as job and career advancement for people in the Black and brown community. As part of the coalition, we are committed to publicly sharing our representation data on an annual basis each July. Betterment’s Call-to-Action Initiative Immediately following the murder of George Floyd, our employees formed a Call-to-Action (CTA) group. These employees have been brainstorming and executing a number of efforts to unbias our product, increase community outreach, and begin internal educational forums such as book clubs and speaker series. This group is committed to creating change over time, beginning with the following: Betterment is supporting our Black employees in “Calling Out Black” every Friday throughout the summer. Calling Out Black acknowledges the exhaustion, pain, and emotional weight our Black employees might feel in the workplace, especially during times of civil unrest due to police violence. These days provide space for our Black employees to reclaim their mental, emotional, and physical wellbeing. Beginning in 2021, Betterment will recognize Juneteenth as an annual paid holiday to commemorate the ending of slavery in the U.S. We are running a summer education series for our non-Black employees about racial inequality and anti-racist allyship, featuring guest speakers as well as small-group discussions. We’ll be working with Paradigm for a three-part Inclusive Leadership Training series beginning in late July. All managers will go through these sessions that are focused on objectivity, belonging and voice, and the growth mindset. In August, Netta Jenkins will provide company-wide training with her business Holistic Solutions, which will include a discussion forum for Black and brown employees, a session for people managers on how to manage during Black and brown trauma, and two town halls for the entire company. Improve Our Hiring Process Over the last few years, our Recruiting Team has taken steps to expand our new hire sourcing efforts and diversify our interview process. Some of these steps include: Partnering with Jopwell, the leading career advancement platform for Black, Latinx, and Native American professionals to support targeted sourcing of diverse candidates. Allocating funds on a monthly basis to post on underrepresented job boards (e.g., Women In Tech, Women In Product, Black Women in Tech, /dev/color, The Mom Project, etc.) Increasing our geographic diversity by building a remote workforce. We recognize that these efforts have failed to impact the percentage of employees of color at Betterment. Because of this, we have amplified our commitment to this area in four ways: With an employee population that is 70% white, we acknowledge that most folks refer others who look like them. We're pausing our cash referral bonus program to reallocate those funds to support diversity, equity, and inclusion (DEI) hiring initiatives. Implementing a more streamlined application process where all candidates only need a resume to apply. Continuing to reduce bias in our job descriptions by investing in technology that decodes gendered language; by excluding education requirements; and by including must-have qualities and experience only. Researching and partnering with companies that help us increase our sourcing reach. Increasing Internal Data Collection This summer, we will launch internal surveys to collect broader representation information for both employees and candidates. These surveys will include additional optional self-identification opportunities for racial and ethnic groups, as well as gender. We will share this information with leadership, ERSGs, and our Community Council on a quarterly basis, and will use this information to inform our progress and let us know where we need to focus our efforts. Amplifying Our Employee Resource Strategy Groups (ERSGs) We currently have seven active ESRGs: Black at Betterment, Latinx at Betterment, Asians of Betterment, Women of Betterment, Women in Tech, Betterparents, and Betterpride. Representatives from these groups act as facilitators between their communities and Betterment leadership, as well as participate in our Community Council, a group that meets on a regular basis to further diversity and inclusion initiatives. Through our partnership with Netta Jenkins, we’re investing time in evaluating and improving the structure and reach of our ERSGs. We want to create more open communication between these groups and company leaders, and ensure that these groups are represented as stakeholders in company initiatives. Conclusion Fintech—and Betterment—has been heralded for providing broad and equitable access to financial services, regardless of how much money someone has. While this access is a step forward, it doesn’t directly address the wealth and financial knowledge gaps felt by many people of color—particularly members of the Black and brown community—at the hands of a system that does not treat them equally. We know we haven’t done nearly enough for our community and our employees, and we must do more. Thank you for your feedback and support as we work to do just that.

The Benefits of Rolling Over Your 401(k) or 403(b) into an IRA Aug 13, 2020 12:00:00 AM Rolling over an old employer-sponsored retirement plan into an IRA can be highly beneficial. Here are three reasons to consider rolling over a 401(k) or 403(b). It might be easy to forget about 401(k)s from past employers, but you'll pay for it in the long run. Here are some reasons to consider rolling them over into one IRA. When you’ve switched jobs multiple times in your career, you may have participated in several employer-sponsored retirement plans, such as 401(k) and 403(b) plans. 401(k)s are generally provided by many for-profit employers, while 403(b) plans are most often used by the nonprofit sector. What many people don’t know is that when you leave a job, it’s important to consider carefully what you do next with your employer-sponsored plan. While working, one of the best ways to save for retirement is to fund an employer-offered plan because they often have important tax advantages and higher contribution limits than individual retirement accounts. But after you leave a job, there are several important reasons to consider rolling over funds from your 401(k) or 403(b). In this article, we’ll run through some of those reasons. 1. Accessing more investment options One of the main benefits of an IRA is that there are often more investment options than a 401(k) or 403(b) plan. If you contribute to your employer’s retirement plan, you might end up with only a few options chosen by the plan administrator. You might have to be heavily invested in company stock or you might have a limited number of high cost mutual funds to choose from. We don’t bring this up as a way of lambasting your administrator—they're simply trying to pick the options they believe should be made available to all employees—but many people don’t realize just how limi