Investing

Three ways it can pay to automate your investing Our managed offering adds value beyond a DIY approach. Here’s how. Key takeaways Portfolio construction is just the beginning. Betterment’s automated investing is designed to help you manage risk, maximize returns, and minimize leg work. Tax-smart features help you keep more of what you earn. Fully-automated Tax Coordination and tax-loss harvesting seek out efficiencies hard to replicate by hand. Navigation helps keep your goals on track. Automated rebalancing, effortless glide paths, and recurring deposits make it easier to stay the course through market ups and downs. Peace of mind is part of the return. Automation frees up time and headspace, letting you live your life instead of worrying about your portfolio. With the arrival of self-directed investing at Betterment, you can choose from thousands of individual stocks and ETFs on your own, including the very same funds we research and select for our curated portfolios. So if you can now buy the same low-cost investments, why pay someone (i.e., us) to manage them for you? It’s a fair question, and to help answer it, it helps to understand why our portfolio construction is just the beginning of the story. It's not just the Betterment portfolio you see today, but the one you see tomorrow (and in the weeks, months, and years that follow) that captures the full value of our expertise and technology. The ongoing optimization and evolution of your portfolio, in other words, is where our automated investing really shines. Sometimes the benefits are tangible. Sometimes they’re emotional. But regardless of how you frame it, we’re constantly working in the background to deliver value in three big ways. Tax savings: keeping more of what you earn Navigation: keeping your investing on-track Calm: keeping your sanity—and your spare time 1. Tax savings: keeping more of what you earn One of the most reliable ways to increase your returns is lowering the taxes owed on your investments. And here's the first way Betterment’s managed portfolios can pay off. Our trading algorithms take tax optimization to a level that’s practically impossible to replicate on your own. Take our Tax Coordination feature, which uses the flexibility of our portfolios to locate assets strategically across Betterment traditional IRAs/401(k)s, Roth IRAs/401(k)s, and taxable accounts. This mathematically-rigorous spin on asset location can help more of your earnings grow tax-free. Then there’s our fully-automated tax-loss harvesting, a feature designed to free up money to invest that would've otherwise gone to Uncle Sam. Our technology regularly scans accounts to identify harvesting opportunities, then goes to work. It’s how we harvested nearly $60 million in losses for customers during the tariff-induced market volatility of Spring 2025. Betterment does not provide tax advice. TLH is not suitable for all investors. Learn more. It’s also a big reason why nearly 70% of customers using our tax-loss harvesting feature had their taxable advisory fee covered by likely tax savings.1 And with the upcoming addition of direct indexing to Betterment’s automated investing, our harvesting capabilities will only continue to grow. 1Based on 2022-2023. Tax Loss Harvesting (TLH) is not suitable for all investors. Consider your personal circumstances before deciding whether to utilize Betterment’s TLH feature. Fee coverage and estimated tax savings based on Betterment internal calculations. See more in disclosures. 2. Navigation: keeping your investing on-track It’s easy to veer off-course when managing your own investing. Life happens, calendars fill up, and the next thing you know, your portfolio starts to drift. When you pay for automated investing, however, you not only get our guidance upfront, you benefit from technology designed to get you to your destination with less effort. As markets ebb and flow, for example, we automatically rebalance your portfolio to maintain your desired risk level. And the “glide path” that automatically lowers your risk as your goal nears? It just happens in eligible portfolios. No research or calendar reminders needed. Our management also helps steer your investing toward a time-tested path to long-term wealth. Most of our portfolios are globally diversified so you take advantage when overseas markets outperform. And we encourage recurring deposits so you buy more shares when prices are low. Recent research by Morningstar helps quantify the value of this “dollar-cost averaging” approach. They found investors lost out on roughly 15% of the returns their funds generated due in large part to jumping in and out of the market. Betterment customers using recurring deposits, meanwhile, earned nearly ~4% higher annual returns.2 It turns out it’s easier to stay the course with a little help. 2Based on Betterment’s internal calculations for the Core portfolio over 5 years. Users in the “auto-deposit on” groups earned an additional 0.6% over the last year and 1.6% annualized over 10 years. See more in disclosures. 3. Calm: Keeping your sanity—and your spare time Our automation can save you time—two hours for each rebalance alone3—but the value of automating your investing is more than just time saved. It’s quality time spent. How much of your finite energy, in other words, are you spending worrying about your money? We can’t erase all of your anxiety, but our team and our tech can empower you to build wealth with confidence and ease, with an emphasis on the ease. 3Based on internal data for a client with one account subject to Betterment’s TaxMin methodology and no other tax features enabled. Betterment will not automatically rebalance a portfolio until it meets or exceeds the required account balance. Between market volatility and a constant barrage of scary headlines, the world is stressful enough right now. There’s little need to add portfolio optimization and upkeep to the list. That is, of course, unless you enjoy it. But many of us don’t. The majority of Betterment customers we surveyed said they hold most of their assets in managed accounts, with self-directed investing serving as a side outlet for exploration. That’s why we offer both ways to invest at Betterment. The payoff is personal Investing performance and price are often measured down to the hundredth of a percentage point. That’s “zero point zero one percent” (0.01%), also known as a “basis point" or "bip" for short. Here at Betterment, it’s our mission to make every one of the 25 bips we most commonly charge worth it. We measure our portfolio’s performance after those fees, so you see what you’ve really earned. And we don’t stop there. With direct indexing and fully paid securities lending coming soon to automated investing, you’ll get even more ways to make your money work harder.

How we make market downturns less scary And how it can benefit your investing’s bottom line. The recent round of tariffs and trade wars have roiled markets, offering the latest example of investing’s inherent volatility. The fact that market drops do happen, and happen with some regularity, means that managing them is not only possible but paramount. "It's not about whether you're right or wrong," the investor George Soros once quipped. "But how much money you make when you're right, and how much you lose when you're wrong." Mitigating losses, in other words, matters just as much as maximizing gains. And this is true for two important reasons: The bigger the loss, the more tempted you may be to sell assets and lock in those losses. The bigger the loss, the less fuel for growth you have when the market does rebound. Point A is psychological, while Point B is mathematical, so let’s take each one separately. In the process, we’ll explain how we build our portfolios to not only weather the storm, but soak up as many rays as possible when the sun shines again. Smoothing out your investing journey Imagine you’re given a choice of rides: one’s a hair-raising roller coaster, the other a bike ride through a series of rolling hills. Sure, thrill seekers may choose the first option, but we think most investors would prefer the latter, especially if the ride in question lasts for decades. So to smooth things out, we diversify. Owning a mix of asset types can help soften the blow on your portfolio when any one particular type underperforms. Our Core portfolio, for example, features a blend of asset types like U.S. stocks and global bonds. The chart below shows how those asset types have performed individually since 2018, compared with the blended approach of a 90% stocks, 10% bonds allocation of Core. As you can see, Core avoids the big losses that individual asset classes experience on the regular. That’s one reason why through all the ups and downs of the past 15 years, it’s delivered ~10% in composite annual-weighted returns after fees since its launch1. 1As of 12/31/2025, and inception date 9/7/2011. Composite annual time-weighted returns: 20.1% over 1 year, 9.3% over 5 years, and 10.1% over 10 years. Composite performance calculated based on the dollar-weighted average of actual client time-weighted returns for the Core portfolio at 90/10 allocation, net of fees, includes dividend reinvestment, and excludes the impact of cash flows. Performance not guaranteed, investing involves risk. Core’s exposure to global bonds and international stocks has also helped its cause, given their outperformance relative to U.S. stocks year-to-date amidst the current market volatility of 2025. A smoother ride can take your money farther Downside protection is all the more important when considering the “math of losses.” We’ll be the first to admit it’s hard math to follow, but it boils down to this: as a portfolio’s losses rack up, the gains required to break even grow exponentially. The chart below illustrates this with losses in blue, and the gains required to be made whole in orange. Notice how their relationship is anything but 1-to-1. This speaks to the previously-mentioned Point B: The bigger your losses, the less fuel for growth you have in the future. Investors call this “volatility drag,” and it’s why we carefully weigh the risk of an investment against its expected returns. By sizing them up together, expressed as the Sharpe ratio, we can help assess whether the reward of any particular asset justifies its risk. This matters because building long-term wealth is a marathon, not a race. It pays to pace yourself. And yet, there will still be bumps in the road Because no amount of downside protection will get rid of market volatility altogether. It’s okay to feel worried during drops. But hopefully, with more information on our portfolio construction and automated tools like tax loss harvesting, you can ride out the storm with a little more peace-of-mind. And if you’re looking for even more reassurance, consider upgrading to Betterment Premium and talking with our team of advisors.

The pitfalls of comparing portfolio returns How to take stock of your stocks (and bonds)—here, there, everywhere. Investing can feel like a leap of faith. You pick a portfolio. You deposit money. Then, you wait. Trouble is, it takes a while for compound growth to do its thing. Using the Rule of 72 and historical stock returns, it takes roughly a decade for every dollar invested to double. That’s a lot of time for second-guessing. You may peek at your portfolio returns and wonder, “Could I be doing better?” Don’t worry; it’s normal to question whether we’re making the right choices with our money. But comparing different portfolios can be tricky. Variables abound. There’s the composition of the portfolios themselves, but also their fees and tax treatments. So whether you’re sizing us up with rival money managers, or with the stock indexes you see most often in the news, we’re here to help you level set. The ABCs of apples-to-apples comparisons Let’s start with a statistic we’re quite proud of: Since its launch, our Core portfolio’s average annual return has been ~10% after fees*. Those are the returns of real Betterment customers, minus fees, and taking the timing of deposits and withdrawals out of the equation. This helps focus more on the performance of the portfolio itself. *As of 12/31/2025, and inception date 9/7/2011. Composite annual time-weighted returns: 20.1% over 1 year, 9.3% over 5 years, and 10.1% over 10 years. Composite performance calculated based on the dollar-weighted average of actual client time-weighted returns for the Core portfolio at 90/10 allocation, net of fees, includes dividend reinvestment, and excludes the impact of cash flows. Performance not guaranteed, investing involves risk. So, is 10% good? Well, it depends on the comparison. Stock indexes like the S&P 500 and Dow Jones dominate the news, but they’re hardly comprehensive. For one, they exclude bonds, a lower-yield staple of many portfolios. There’s a reason why regardless of the portfolio, we recommend holding at least some bonds. They help temper market volatility and preserve precious capital. Secondly, popular indexes also largely ignore international markets. The S&P, for example, typically represents less than half the value of all investable stocks in the world. Our globally-diversified portfolios, meanwhile, spread things out in service of a smoother investing journey. We're built for the long run, and history has shown that American and International assets take turns outperforming each other every 10-15 years. So the modest amount of international exposure in many of our portfolios means this: you're in a better position to profit when the pendulum swings the other way. Now, taking all of this to heart isn't easy. Not when the S&P returns 20% in a given year. At moments like these, it’s perfectly normal to feel FOMO when looking at the returns of your globally-hedged investing. To keep the faith, it helps to keep the right benchmark(s) in mind. Not all diversification is created equal We’re not alone in offering globally-diversified portfolios. But two portfolios, even with similar stock-to-bond ratios, can take very different paths to the same end goal. Tax optimization, market timing, and fund fees can all impact your investing’s bottom line as well. Some investors compare providers by investing a little with each, waiting a few months, then comparing the balances. This sort of trialing, however, may not tell you much. When it comes to our portfolios, you can find better comparisons in two particular ETFs that seek to track a wide swath of the market: ACWI for stocks and AGG for bonds. See how your Betterment portfolio stacks up against them in the Performance section for any goal or account. Simply scroll down to “Portfolio returns,” click “Add comparison,” and pick from the available allocations of stocks and bonds. We show your “Total return” by default at Betterment, otherwise known as the portfolio’s total growth for a given time period. You can also see this expressed as an “Annualized” return, or the yearly growth rate you often see advertised with other investments. Putting your performance in perspective Comparison may be the thief of joy, but it’s okay, prudent even, to evaluate your investing returns on occasion. Once or twice a year is plenty. The key is to steer clear of common pitfalls along the way. Like comparing your globally-diversified apple to someone else’s all-U.S. orange. Or cherry-picking a small sample size instead of a longer, more-reliable track record. It’s easier said than done. That’s why we bake more relevant comparisons right into the Betterment app. It’s also why we produce content like this. Because if there’s a silver lining to the slow snowballing of compound growth, it’s that you have plenty of time to brush up on the basics.

How we keep your Betterment account and investments safe So you can invest with peace of mind All investing comes with some risk. But that risk should be based on the market, not your broker. That’s why we safeguard both your Betterment account and your investments with multiple security measures, all so you can log in and invest or save with peace of mind. Here’s a sampling. Four ways we keep your Betterment account safe Two-factor authentication Two-factor authentication (2FA) adds an extra layer of security to your account, like an extra lock on a door. Besides your regular password, 2FA requires a second form of verification such as a code texted to your phone (good) or one served up by an authenticator app like Google Authenticator (even more secure). This helps ensure that even if someone manages to get hold of your Betterment password, they still can't access your account without a second form of verification. Encryption Every time you interact with us, whether on our website or our app, your data is protected by encrypted connections. This means that the information transmitted between your device and our servers is scrambled in a way that only we can understand. Password hashing When you create a password for your Betterment account, it's not stored in plain text. Instead, we use a process called hashing, which converts your password into a unique string of characters. This way, even if our systems were breached, your actual password would remain unknown and unusable by unauthorized parties. App passwords Connecting third-party apps to your Betterment account (or vice versa) unlocks several benefits. You can easily track your net worth on Betterment, for example. Or quickly import your Betterment tax forms to certain tax prep software. When a third-party app asks for your Betterment credentials, instead of using your regular login, we ask you to create a password specifically for that app. In the scenario the third-party app’s connection is compromised, you can easily revoke its read-only access to your Betterment account. Note that some apps may use the OAuth standard, which lets you use your regular login while maintaining a similar level of security as an app password. TurboTax is one such example. Four ways we keep your investments safe Easy verification of holdings Transparency is one of our key principles, so we make it easy to verify everything is in its right place. We not only show each trade made on your behalf and the precise number of shares in which you’re invested, we also list each fractional share sold and the respective gross proceeds and cost basis for each. You can find all this information in the Holdings and Activity tabs for each of your goals. Independent oversight We regularly undergo review by independent auditors. This means auditors reconcile every share and every dollar we say we have against our actual holdings. They also spot check random customer accounts and verify that account statements match our internal records. And they ask questions if anything is even a penny off. No commingling of funds Your funds are kept separate from Betterment’s operational funds. This means that your investments are held in your name and are never mixed with our company finances. In the unlikely event we face financial difficulties, your assets remain secure and untouched. SIPC insurance To add another layer of protection, your Betterment securities are insured by the Securities Investor Protection Corporation (SIPC). This insurance covers up to $500,000 per customer, including a $250,000 limit for cash claims. While SIPC doesn’t protect against market losses, it does provide a safety net in case of a brokerage failure. An explanatory brochure is available upon request or at sipc.org. How you can help Be on the lookout for suspicious phone calls, texts, and emails (odd-looking URLs, typo-riddled messages, etc.) and know that Betterment will never ask you for your password or 2FA code except when logging in or editing your personal information in the app. Use a strong, unique password for your account. If you receive any unexpected or suspicious communications or have questions, please email fraud@betterment.com.

Betterment’s portfolio construction methodology Learn more about the process that underpins all the portfolios we build on behalf of customers. Table of contents Introduction Global diversification and asset allocation Portfolio optimization Tax management using municipal bonds The Value Tilt portfolio strategy The Innovative Technology portfolio strategy The Socially Responsible Investing portfolio strategies Conclusion Citations I. Introduction Betterment builds investment portfolios designed to help you make the most of your money and live the life you want. This guide lays out our portfolio construction process, one informed by real-world evidence and systematic decision-making. The Betterment Core portfolio serves as the foundation for all of the globally-diversified portfolios we construct. From there, specific adjustments are applied to other portfolios based on the investment objective of their particular strategies. These adjustments include additional allocations to value-focused or innovative stocks, or adherence to Socially Responsible Investing (SRI) criteria. For more information on the third-party portfolios we offer, such as the Goldman Sachs Smart Beta portfolio, see their respective pages and disclosures. When building a portfolio, any investment manager faces two main tasks: asset class selection and portfolio optimization. We detail our approach to these in the sections that follow. Our fund selection process, while equally as important, is covered in a separate methodology. II. Global diversification and asset allocation An optimal asset allocation is one that lies on the efficient frontier, which is a set of portfolios that seek to achieve the maximum objective for any given feasible level of risk. The objective of most long-term portfolio strategies is to maximize return for a given level of risk, which is measured in terms of volatility—the dispersion of those returns. In line with our approach of making systematic decisions backed by research, Betterment’s asset allocation is based on a theory by economist Harry Markowitz called Modern Portfolio Theory.1 A major tenet of Modern Portfolio Theory is that any asset included in a portfolio should not be assessed by itself, but rather, its potential risk and return should be analyzed as a contribution to the whole portfolio. Modern Portfolio Theory seeks to maximize expected return given an expected risk level or, equivalently, minimize expected risk given an expected return. Other forms of portfolio construction may legitimately pursue other objectives, such as optimizing for income, or minimizing loss of principal. Asset class selection Our approach to asset allocation starts with a universe of investable assets, which could be thought of as the “global market” portfolio.2 To capture the exposures of the asset classes for the global market portfolio, we evaluate available exchange-traded funds (ETFs) that represent each class in the theoretical market portfolio. We base our asset class selection on ETFs because this aligns portfolio construction with our fund selection methodology. All of our portfolios are constructed of the following asset classes: Stocks U.S. stocks International developed market stocks Emerging market stocks Bonds U.S. short-term treasury bonds U.S. inflation-protected bonds U.S. investment-grade bonds U.S. municipal bonds International developed market bonds Emerging market bonds We select U.S. and international developed market stocks as a core part of the portfolio. Historically, stocks exhibit a high degree of volatility, but provide some degree of inflation protection. Even though significant historical drawdowns, such as the global financial crisis in 2008 and pandemic outbreak in 2020, demonstrate the possible risk of investing in stocks, longer-term historical data and our forward expected returns calculations suggest that developed market stocks remain a core part of any asset allocation aimed at achieving positive returns. This is because, over the long term, developed market stocks have tended to outperform bonds on a risk-adjusted basis. To achieve a global market portfolio, we also include stocks from less developed economies, called emerging markets. Generally, emerging market stocks tend to be more volatile than U.S. and international developed stocks. And while our research shows high correlation between this asset class and developed market stocks, their inclusion on a risk-adjusted basis is important for global diversification. Note that we exclude frontier markets, which are even smaller than emerging markets, due to their widely-varying definition, extreme volatility, small contribution to global market capitalization, and cost to access. We incorporate bond exposure because, historically, bonds have a low correlation with stocks, and they remain an important way to dial down the overall risk of a portfolio. To promote diversification and leverage various risk and reward tradeoffs, we include exposure to several asset classes of bonds. Asset classes excluded from Betterment portfolios While Modern Portfolio Theory would have us craft a portfolio to represent the total market, including all available asset classes, we exclude some asset classes whose cost and/or lack of data outweighs the potential benefit gained from their inclusion. Our portfolio construction process excludes commodities and natural resources asset classes. Specifically, while commodities represent an investable asset class in the global financial market, we have excluded commodities ETFs because of their low contribution to a global stock/bond portfolio's risk-adjusted return. In addition, real estate investment trusts (REITs), which tend to be well marketed as a separate asset class, are not explicitly included in our portfolios. We do provide exposure to real estate, but as a sector within stocks. Adding additional real estate exposure by including a REIT asset class would overweight the exposure to real estate relative to the overall market. Incorporating awareness of a benchmark Before 2024, we managed our portfolios in a “benchmark agnostic” manner, meaning we did not incorporate consideration of global stock and bond indices in our portfolio optimization, though we have always sought to optimize the expected risk-adjusted return of the portfolios we construct for clients. The “risk” element of this statement represents volatility and the related drawdown potential of the portfolio, but it could also represent the risk in the deviation of the portfolio’s performance relative to a benchmark. In an evolution of our investment process, in 2024 we updated our portfolio methodology to become “benchmark aware,” as we now calibrate our exposures based on a custom benchmark that expresses our preference for diversifying across global stocks and bonds. A benchmark, which comes in the form of a broad-based market index or a combination of indices, serves as a reference point when approaching asset allocation, understanding investment performance, and aligning the expectations of portfolio managers and clients. In our case, we created a custom benchmark that most closely aligns with our future expectations for global markets. The custom benchmark we have selected is composed of: The MSCI All Country World stock IMI index (MSCI ACWI IMI) The Bloomberg U.S. Universal Bond index The S&P US Treasury Bond 0-1 Year Index (for <40% stock allocations) Our custom benchmark is composed of 101 risk levels of varying percentage weightings of the stock and bond indexes, which correspond to the 101 risk level allocations in our Core portfolio. At low risk levels (allocations that are less than 40% stocks), we layer an allocation to the S&P US Treasury Bond 0-1 Year Index, which represents short-term bonds, into the blended benchmark. We believe that incorporating this custom benchmark into our process reinforces the discipline of carefully evaluating the ways in which our portfolios’ performance could veer from global market indices and deviate from our clients’ expectations. We have customized the benchmark with 101 risk levels so that it serves clients’ varying investment goals and risk tolerances. As we will explore in the following section, establishing a benchmark allows us to apply constraints to our portfolio optimization that ensures the portfolio’s asset allocation does not vary significantly from the geographic and market-capitalization size exposures of a sound benchmark. Our benchmark selection also makes explicit that the portfolio delivers global diversification rather than the more narrowly-concentrated and home-biased exposures of other possible benchmarks such as the S&P 500. III. Portfolio optimization As an asset manager, we fine-tune the investments our clients hold with us, seeking to maximize return potential for the appropriate amount of risk each client can tolerate. We base this effort on a foundation of established techniques in the industry and our own rigorous research and analysis. While most asset managers offer a limited set of model portfolios at a defined risk scale, our portfolios are designed to give customers more granularity and control over how much risk they want to take on. Instead of offering a conventional set of three portfolio choices—aggressive, moderate, and conservative—our portfolio optimization methods enable our Core portfolio strategy to be customized to 101 different stock-bond risk levels. Optimizing portfolios Modern Portfolio Theory requires estimating variables such as expected-returns, covariances, and volatilities to optimize for portfolios that sit along an efficient frontier. We refer to these variables as capital market assumptions (CMAs), and they provide quantitative inputs for our process to derive favorable asset class weights for the portfolio strategy. While we could use historical averages to estimate future returns, this is inherently unreliable because historical returns do not necessarily represent future expectations. A better way is to utilize the Capital Asset Pricing Model (CAPM) along with a utility function which allows us to optimize for the portfolio with a higher return for the risk that the investor is willing to accept. Computing forward-looking return inputs Under CAPM assumptions, the global market portfolio is the optimal portfolio. Since we know the weights of the global market portfolio and can reasonably estimate the covariance of those assets, we can recover the returns implied by the market.3 This relationship gives rise to the equation for reverse optimization: μ = λ Σ ωmarket Where μ is the return vector, λ is the risk aversion parameter, Σ is the covariance matrix, and ωmarket is the weights of the assets in the global market portfolio.5 By using CAPM, the expected return is essentially determined to be proportional to the asset’s contribution to the overall portfolio risk. It’s called a reverse optimization because the weights are taken as a given and this implies the returns that investors are expecting. While CAPM is an elegant theory, it does rely on a number of limiting assumptions: e.g., a one period model, a frictionless and efficient market, and the assumption that all investors are rational mean-variance optimizers.4 In order to complete the equation above and compute the expected returns using reverse optimization, we need the covariance matrix as an input. This matrix mathematically describes the relationships of every asset with each other as well as the volatility risk of the assets themselves. In another more recent evolution of our investment process, we also attempt to increase the robustness of our CMAs by averaging in the estimates of expected returns and volatilities published by large asset managers such as BlackRock, Vanguard, and State Street Global Advisors. We weight the contribution of their figures to our final estimates based on our judgment of the external provider’s methodology. Constrained optimization for stock-heavy portfolios After formulating our CMAs for each of the asset classes we favor for inclusion in our portfolio methodology, we then solve for target portfolio allocation weights (the specific set of asset classes and the relative distribution among those asset classes in which a portfolio will be invested) with the range of possible solutions constrained by limiting the deviation from the composition of the custom benchmark. To robustly estimate the weights that best balance risk and return, we first generate several thousand random samples of 15 years of expected returns for the selected asset classes based on our latest CMAs, assuming a multivariate normal distribution. For each sample of 15 years of simulated expected return data, we find a set of allocation weights subject to constraints that provide the best risk-return trade-off, expressed as the portfolio’s Sharpe ratio, i.e., the ratio of its return to its volatility. Averaging the allocation weights across the thousands of return samples gives a single set of allocation weights optimized to perform in the face of a wide range of market scenarios (a “target allocation”). The constraints are imposed to make the portfolio weights more benchmark-aware by setting maximum and minimum limits to some asset class weights. These constraints reflect our judgment of how far the composition of geographic regions within the portfolio’s stock and bond allocations should differ from the breakdown of the indices used in the benchmark before the risk of significantly varied performance between the portfolio strategy and the benchmark becomes untenable. For example, the share of the portfolio’s stock allocation assigned to international developed stocks should not be profoundly different from the share of international developed stocks within the MSCI ACWI IMI. We implement caps on the weights of emerging market stocks and bonds, which are often projected to have high returns in our CMAs, and set minimum thresholds for U.S. stocks and bonds. This approach not only ensures our portfolio aligns more closely with the benchmark, but it also mitigates the risk of disproportionately allocating to certain high expected return asset classes. Constrained optimization for bond-heavy portfolios For Betterment portfolios that have more than or equal to a 60% allocation of bonds, the optimization approach differs in that expected returns are maximized for target volatilities assigned to each risk level. These volatility targets are determined by considering the volatility of the equivalent benchmark. Manually established constraints are designed to manage risk relative to the benchmark, instituting a declining trend in emerging market stock and bond exposures as stock allocations (i.e., the risk level) decreases. Meaning that investors with more conservative risk tolerances have reduced exposures to emerging market stocks and bonds because emerging markets tend to have more volatility and downside-risk relative to more established markets. Additionally, as the stock allocation percentage decreases, we taper the share of international and U.S. aggregate bonds within the overall bond allocation, and increase the share of short-term Treasury, short-term investment grade, and inflation-protected bonds. This reflects our view that investors with more conservative risk tolerances should have increased exposure to short-term Treasury, short-term investment grade, and inflation-protected bonds relative to riskier areas of fixed income. The lower available risk levels of our portfolios demonstrate capital preservation objectives, as the shorter-term fixed income exposures likely possess less credit and duration risk. Clients invested in the Core portfolio at conservative allocation levels will likely therefore not experience as significant drawdowns in the event of waves of defaults or upward swings in interest rates. Inflation-protected securities also help buffer the lower risk levels from upward drafts in inflation. IV. Tax management using municipal bonds For investors with taxable accounts, portfolio returns may be further improved on an after-tax basis by utilizing municipal bonds. This is because the interest from municipal bonds is exempt from federal income tax. To take advantage of this, we incorporate municipal bonds within the bond allocations of taxable accounts. Other types of bonds remain for diversification reasons, but the overall bond tax profile is improved by incorporating municipal bonds. For investors in states with some of the highest tax rates—New York and California—Betterment can optionally replace the municipal bond allocation with a more narrow set of bonds for that specific state, further saving the investor on state taxes. Betterment customers who live in NY or CA can contact customer support to take advantage of state-specific municipal bonds. V. The Value Tilt portfolio strategy Existing Betterment customers may recall that historically the Core portfolio held a tilt to value companies, or businesses that appear to be potentially undervalued based on metrics such as price-to-earnings (P/E) ratios. Recent updates, however, have deprecated this explicit tilt that was expressed via large-, mid-, and small-capitalization U.S. value stock ETFs, while maintaining some exposure to value companies through broad market U.S. stock funds. We no longer favor allocating to value stock ETFs within our portfolio methodology in large part as a result of our adoption of a broad market benchmark, which highlights the idiosyncratic nature of such tilts, sometimes referred to as “off benchmark bets.” We believe our chosen benchmark that represents stocks through the MSCI ACWI IMI, which holds a more neutral weighting to value stocks, more closely aligns with the risk and return expectations of Betterment’s diverse range of client types across individuals, financial advisors, and 401(k) plan sponsors. Additionally, as markets have grown more efficient and value factor investing more popularized, potentially compressing the value premium, we have a marginally less favorable view of the forward-looking, risk-adjusted return profile of the exposure. That being said, we have not entirely lost conviction in the research supporting the prudence of value investing. The value factor’s deep academic roots drove decisions to incorporate the value tilt into Betterment’s portfolios from our company’s earliest days. For investors who wish to remain invested in a value strategy, we have added the Value Tilt portfolio, a separate option from the Core portfolio, to our investing offering. The Value Tilt portfolio maintains the Core portfolio’s global diversification across stocks and bonds while including a sleeve within the stock allocation of large-, mid-, and small-capitalization U.S. value funds. We calibrated the size of the value fund exposure based on a certain target historical tracking error to the backtested performance of the latest version of the Core portfolio. Based on this approach, investors should expect the Value Tilt portfolio to generally perform similarly to Core, with the potential to under- or outperform based on the return of U.S. value stocks. With the option to select between the Value Tilt portfolio or a Core portfolio now without an explicit allocation to value, the investment flexibility of the Betterment platform has improved. VI. The Innovative Technology portfolio strategy In 2021, Betterment launched the Innovative Technology portfolio to provide access to the thematic trend of technological innovation. The portfolio’s investment premise is based upon the thesis that, over the long term, the companies innovating and disrupting their respective industries are shaping our global economy and may be the winners of the next industrial revolution. Some of these themes the portfolio seeks to provide increased exposure to are: Artificial intelligence Alternative finance Clean energy Manufacturing Biotechnology Similar to the Value Tilt portfolio, the Core portfolio is used as the foundation of construction for the Innovative Technology portfolio. With this portfolio strategy, we calibrated the size of the innovative technology funds’ exposure based on a certain target historical tracking error to the backtested performance of the latest version of the Core portfolio. Through this process, the Innovative Technology portfolio maintains the same globally-diversified, low-cost approach that is found in Betterment’s investment philosophy. The portfolio, however, has increased exposure to risk given that innovation requires a long-term view, and may face uncertainties along the way. It may outperform or underperform depending on the return experience of the innovative technology funds’ exposure and the thematic landscape. To learn more, read the Innovative Technology portfolio disclosure. VII. The Socially Responsible Investing portfolio strategies Betterment introduced its first Socially Responsible Investing (SRI) portfolio in 2017 and has since expanded the options to include three distinct portfolios: Broad Impact, Social Impact, and Climate Impact. These SRI portfolios are built on the same foundational principles as the Core portfolio, utilizing various asset classes to create globally-diversified portfolios. However, they incorporate socially-responsible ETFs that align with specific Environmental, Social, and Governance (ESG) and shareholder engagement mandates, tailored to each SRI focus. Betterment’s SRI approach emphasizes three core dimensions: Reducing exposure to companies engaged in unsustainable activities Increasing investments in those addressing environmental and social challenges Allocating to funds that utilize shareholder engagement to promote responsible corporate behavior. This methodology ensures diversified, cost-efficient portfolios that resonate with investors' values. For more information, read our full Socially Responsible Investing portfolios methodology. VIII. Conclusion After setting the strategic weight of assets in our various Betterment portfolios, the next step in implementing the portfolio construction process is our fund selection methodology, which selects the appropriate ETFs for the respective asset exposure in a generally low-cost, tax-efficient way. In keeping with our philosophy, that process, like our portfolio construction process, is executed in a systematic, rules-based way, taking into account the cost of the fund and the liquidity of the fund. Beyond ticker selection is our established process for allocation management—how we advise downgrading risk over time. The level of granularity in allocation management provides the flexibility to align to multiple goals with different timelines and circumstances. Most of our portfolios contain 101 individualized risk levels (each with a different percentage of the portfolio invested in stocks vs. bonds, informed by your financial goals, time horizon and risk tolerance). Finally, our overlay features of automated rebalancing, tax-loss harvesting, and our methodology for automatic asset location, which we call Tax Coordination, are designed to be used to help further maximize individualized, after-tax returns. Together these processes put our principles into action, to help each and every Betterment customer maximize value while invested at Betterment and when they take their money home. IX. Citations 1 Markowitz, H., "Portfolio Selection".The Journal of Finance, Vol. 7, No. 1. (Mar., 1952), pp. 77-91. 2 Black F. and Litterman R., Asset Allocation Combining Investor Views with Market Equilibrium, Journal of Fixed Income, Vol. 1, No. 2. (Sep., 1991), pp. 7-18. Black F. and Litterman R., Global Portfolio Optimization, Financial Analysts Journal, Vol. 48, No. 5 (Sep. - Oct., 1992), pp. 28-43. 3 Litterman, B. (2004) Modern Investment Management: An Equilibrium Approach. 4 Note that the risk aversion parameter is essentially a free parameter. 5 Ilmnen, A., Expected Returns.

Refreshed portfolios are right around the corner New actively-managed bonds, fine-tuned U.S. exposure, and lower crypto costs highlight this year’s portfolio updates. Key takeaways As part of our automated investing offering, we regularly update our portfolios to ensure they reflect the latest long-term market forecasts. This year’s updates will be rolling out soon and require no action on the part of Betterment customers. They include a new actively-managed bond fund, small tweaks to U.S. stock and bond allocations, and lower crypto ETF costs. Between tariffs, AI, and shutdowns, investors faced all sorts of uncertainty in 2025. But if you're invested in a Betterment-built portfolio, you don't have to worry whether your investing is keeping up with the times. That’s because we update our portfolios each year based on the latest long-term forecasts. These updates include adjusting the weights of various asset classes, as well as swapping in new funds that deliver lower costs and/or better exposure. They're just a few of the ways our automated investing delivers value, and they’ll be rolling out soon. So without further ado, let’s preview what's new for 2026: Expanded access to bond markets Fine-tuned U.S. exposure Lower crypto ETF costs Expanded access to bond markets Passive investing—tracking preset indexes or lists of investments—is still the bedrock of our portfolio strategy thanks to its low costs and strong track record, but it has limitations in the world of fixed income. That’s because many passively-managed bond funds reflect only a portion of the total market. And it’s these under-represented sectors—high-yield and securitized offerings, among others—that can help investors capitalize on changing market conditions like falling interest rates. So to take advantage of these opportunities, we’re making a new actively-managed bond fund a central piece of the following portfolios’ bond allocations: Core Innovative Tech Value Tilt Flexible portfolio US-only portfolio (exclusive to Betterment Premium and not available in Betterment 401(k)s) While the bond market is relatively ripe for active management, much of that edge hinges on the expertise of the team who manages the fund. That’s why when using these types of funds in our portfolios, we use a robust quantitative and qualitative method to size up fund managers. Fine-tuned U.S. exposure Similar to last year, we’re making minor adjustments to our allocation of U.S. stocks. This allocation breaks down along three subasset classes, with each defined by their underlying companies’ current market valuations: Small-cap (less than $2 billion) Mid-cap (between $2 billion and $10 billion) Large-cap (more than $10 billion) We’re dialing down exposure to mid-cap stocks—bringing their allocation in line with small-cap—and in turn increasing our allocation to large-cap stocks. These changes apply to the same portfolios above, and better align them with the relative size of each subasset class within the stock market. Beyond these tweaks, some risk levels of our portfolios (including all three of our Socially Responsible Investing portfolios) may see modest increases in exposure to short-term Treasuries. This helps smooth out the glide path for customers using our auto-adjust feature and de-risk their investing as target dates near. Lower crypto ETF costs In the Betterment Crypto ETF portfolio (not available in Betterment 401(k)s), we’re increasing our bitcoin allocation to align with its market capitalization weight. Further changes include swapping in lower-cost funds, which reduces the portfolio’s weighted average expense ratio by 0.10%. As part of our fund selection methodology, we continually look for opportunities to lower investing costs as new funds become available. For more information on the Crypto ETF portfolio, please see the portfolio disclosure. Sit back and enjoy the switch Similar to last year’s portfolio updates, we’ll gradually implement this year’s changes in the weeks to come, with our technology designed to seek the most tax-efficient path for taxable accounts. Tax-advantaged accounts such as Betterment IRAs and Betterment 401(k)s won’t see any tax impact as a result of these updates. To find the refreshed portfolio weights, check out the relevant portfolio pages on our website. Customers can also see their updated holdings in the Betterment app with only a few clicks. It’s yet another example of how we make it easy to be invested.