Investing

ETF selection methodology When constructing a portfolio, Betterment focuses on exchange-traded funds (“ETFs”) with generally low costs and high liquidity. In the following piece, we detail Betterment’s investment selection methodology, including: Why ETFs Cost of Ownership (CO) Mitigating market impact Actively-managed investments Conclusion 1. Why ETFs? When constructing a portfolio, Betterment focuses on exchange-traded funds (“ETFs”) with generally low costs and high liquidity. An ETF is essentially a basket which contains underlying securities, such as stocks and bonds, and generally come in two different flavors: passive (or index tracking) and active. By design, passive index ETFs closely track their benchmarks—such as the S&P 500. On the other hand, active ETFs represent a group of hand-selected securities decided upon by a portfolio manager with the intention of beating a benchmark. Additionally, ETFs have certain structural advantages when compared to mutual funds. These include: A. Clear goals and mandates Betterment generally selects ETFs that have 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 in an effort to beat the fund’s underlying benchmark. We largely favor such transparency and lower idiosyncratic market risk, yet some asset classes may benefit from fundamental research-driven security selection, and in some instances, Betterment employs the use of active ETFs managed by experienced external portfolio management teams (more on that below). B. 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. C. Low-fee structures 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 are 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. 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. Where actively-managed ETFs are utilized in Betterment portfolios, fees and expenses remain a critical aspect of our decision making.Our selection process will favor active over passive when we strongly believe the value added by an active manager outweighs its likely higher expense ratio.. D. 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. 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. E. Investment flexibility The maturation and growth of the global ETF market over the past few 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. 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. Betterment’s investment selection process seeks to select ETFs that provide exposure to the desired asset classes. For certain asset classes where markets are more efficient, we seek to achieve these asset class exposures through passively managed ETFs due to its cost-effectiveness. Alternatively, where Betterment utilizes active management, we conduct rigorous analysis and due diligence to best understand the trade-off of benchmark deviation for potential performance benefit. The cornerstone of Betterment’s approach to investment selection is our “Cost of Ownership” or CO, allowing us to effectively rank and select ETFs based upon their fees to hold and cost to trade. 2. Cost of Ownership (CO) The Cost of Ownership (“CO”) is Betterment’s fund scoring method, used to rate funds for inclusion in the Betterment portfolio. CO takes into account an ETF’s transactional costs as well as costs associated with holding funds. In addition to CO, Betterment also considers certain other qualitative factors of ETFs, particularly when Betterment considers the use of actively-managed funds. Qualitative factors may include, but are not limited to whether the ETF fulfills a desired portfolio mandate and/or exposure and due diligence interviews with portfolio management teams. CO is determined by two components, 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. Betterment defines the the cost-to-trade as the bid-ask spread, or 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, is represented by the ETF’s expense ratio, or the fund expenses imposed by an ETF administrator. Let’s review the specific inputs to each component in more detail: Cost-to-Trade: Bid-Ask spread 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 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. Finding cost of ownership We calculate CO as the sum of the above components: CO = "Cost-to-Trade" + "Cost-to-Hold" Where Cost-to-trade = 0.5 * bid-ask spread 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 client in terms of cash flows, rebalances, and tax loss harvests. Additionally, we utilize ½ of the bid-ask spread in our calculations as this mid-point is generally what customers realize in terms of trade costs. The cost-to-hold represents our expectations of the annual costs an investor will incur from owning a fund as defined by the fund’s expense ratio 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. 3. 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. However, we do review and monitor other trading-related metrics not represented specifically in the CO calculation when evaluating our universe of investable funds. Additional metrics include 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. ETFs without an appropriate level of assets or daily trade volume might lead to a situation where Betterment’s activity on behalf of clients moves the existing market for the security. In an attempt to avoid potentially negative effects upon our investors, we generally do not consider ETFs with smaller asset bases and limited trading activity unless some other extenuating factor is present. 4. Actively-managed investments Compared to passive investments which track a broad-market index, actively-managed ones seek to outperform their benchmark index by selecting and weighting securities based on a fundamental company research or market outlook. Betterment believes that certain markets may favor active management, and therefore, are less efficient than others, resulting in an opportunity where value may be added through actively-managed investments Given this, Betterment believes that a rigorous due diligence process can help identify favorable active managers who have developed a time-tested research-driven investment process. Additionally, while active management may have the potential to add return potential, Betterment continues to hold true to its Core portfolio construction philosophy, prioritizing cost-efficiency. This results in the continued evaluation of any actively-managed investment strategies we utilize with their ability to beat the benchmark vs. their, typically, higher expense ratio. Conclusion As with any investment, ETFs are subject to market risk, including the possible loss of principal. The value of any 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. Betterment reviews its investment selection analysis on a periodic basis to assess: the 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). Additionally, Betterment undertakes qualitative due diligence to enhance our selection process for actively-managed investments. Finally, at the core of our portfolio construction process, we are constantly considering the tax implications of portfolio selection changes and estimates the net benefit of transitioning between investment vehicles for our clients.

Four ways we help trim your tax bill And why these "invisible" wins matter more than you may think. When you choose an advisor to help guide your investing, you may focus only on what you can see. Things like their investment options, and the expected returns of those investments. Less obvious—but no less important—to your money’s future growth, however, is tax optimization. It sounds boring, but believe us, taxes can steadily eat away at your returns over the years. And the scary part is: you may never even notice. So any advisor worth their salt takes taxes seriously, and strives to minimize them as much as possible. These “invisible” wins are hard to spot in the moment, so let’s shine a light on them now. Here are four sophisticated ways we buy, sell, and hold your shares, all in the name of trimming your tax bill. Choosing which assets go where Rebalancing wisely Choosing which taxable shares to sell (or donate) Harvesting losses 1. Choosing which assets go where From a tax perspective, you have three main account types at your disposal when saving for retirement: Tax-deferred (traditional IRAs, 401(k)s, etc.), where taxes are paid later. Tax-exempt (Roth IRAs, 401(k)s, etc.), where taxes are paid now. Taxable, where taxes are paid both now and later. Because of their different tax treatments, certain types of investments are a better fit for certain accounts. Interest from bonds, for example, is typically taxed at a higher rate than stocks, so it often makes sense to keep them away from taxable accounts. This sorting of asset types based on tax treatments, rather than divvying them up equally across accounts, is known as asset location. And our fully-automated, mathematically-rigorous spin on it is called Tax Coordination. When Tax Coordination is turned on, the net effect is more of your portfolio's growth is shielded in a Roth account, the pot of money you crucially don't pay taxes on when withdrawing funds. To learn more about our Tax Coordination feature and whether it’s right for you, take a peek at its disclosure. 2. Rebalancing wisely When your portfolio drifts too far from its target allocation of assets, our technology automatically rebalances it. But there's more than one way to accomplish that goal. You can simply sell some of the assets that are overweight, and buy the ones that are underweight (aka "sell/buy" rebalancing), but that can realize capital gains and result in more taxes owed. So we first take advantage of any available cash flows coming into or out of your portfolio. When you make a withdrawal, for example, we intentionally liquidate overweight assets while striving to minimize your tax hit as much as possible (more on that below). And when you deposit money or receive dividends, we use those funds to beef up underweight assets. 3. Choosing which taxable shares to sell (or donate) Say there's no way around it: you need to sell an asset. Maybe cash flows aren't enough to keep your portfolio completely balanced. Or you’re withdrawing funds for a major purchase. The question then becomes: which specific assets should be sold? The IRS and many brokers follow the simple script of "first in, first out," meaning your oldest assets are sold first. This approach is easier for your broker, and it can avoid more highly-taxed short-term capital gains. But it often misses the opportunity of selling assets at a loss, and harvesting those losses for potential tax benefits. So our algorithms take a more nuanced approach to selecting shares, and we call this technology TaxMin. TaxMin is calibrated to avoid frequent small rebalance transactions and seek tax-efficient outcomes, things like avoiding wash sales and minimizing short-term capital gains. In the case of donating shares, we apply the same logic in reverse, or TaxMax as we call it. That's because when donating shares, it benefits you to choose the ones with the most gains, since any shares bought as a replacement will effectively have a reset tax bill. 4. Harvesting losses Life is full of ups and downs, and your investments are no exception. At times, their price may dip below what you paid for them. Tax loss harvesting takes advantage of these moments, selling taxable assets that fit this bill, then replacing them with similar ones. The result is you stay invested, and can then use those harvested losses to shift taxes you owe now into the future. The practice essentially sprinkles tax advantages on a portion of your taxable investing. And our fully-automated spin on it, Tax Loss Harvesting+, takes a tax strategy historically reserved for the wealthy and makes it available to the masses. Happy harvesting. In conclusion, we care about taxes Because it’s one of the most reliable ways to boost your returns. We can’t control the market, but tax laws? Those are set by the IRS and broadcast far and wide. And we can help you navigate them wisely. We wouldn’t be doing our job if we didn’t. So the next time you take a peek at your returns, ask yourself how much of that growth will still be there come tax time. If you’re a Betterment customer, you can rest assured we’re working tirelessly to minimize those tax drags. You may not realize it right away, and rightfully so. Live your life, and leave the tax toiling to us.

Sizing up your options for saving while self-employed Both solo 401(k)s and SEP IRAs offer high contribution limits, but which one is right for you? Self-employed workers wear many hats. Accounting, admin, you name it. And that doesn't even include saving for retirement. Depending on your income, you may still have access to the tax benefits of an IRA, but some folks quickly run up against its $7,000 contribution limit. They may want (or need) to save more. So what's a gig worker, small-business owner, or solo practitioner to do? Luckily, two accounts offer up to 10x the capacity for tax-advantaged investing: the solo 401(k), and the SEP IRA. In general, SEPs tend to be better for business owners planning to hire employees in the future. Solos, meanwhile, often make sense for self-employed individuals without employees other than a spouse. But the best fit for you will depend on your business model, income level, and financial goals. So to help you make a pick, let’s compare these accounts across three categories: High contribution limits Easy admin Flexibility (Roth access and small-business growth) High contribution limits You can contribute roughly the same (upwards of $70,000) to each account type annually, but solos have a slight edge in two cases: Case #1: You're over the age of 50 and playing catch-up. In this case, a solo 401(k) offers additional catch-up contributions of $7,500 each year, or $11,250 for those between the ages of 60 and 63. Case #2: Say you're a super saver, someone whose saving rate is well above the standard advice of 10-15%, but you earn less than $280,000. You'll be able to save more in a solo in this scenario, because not only can you contribute up to 25% of your income as an employer (the same as a SEP), solo 401(k)s allow you to contribute up to $23,500 as an employee as well. Advantage: solo 401(k) Easy admin Simply put, a solo 401(k) takes more work to set up, and unlike a SEP IRA, it requires annual reporting once its balance exceeds $250,000. But there's a big caveat here. If you have a trusted advisor—and a truly modern solo 401(k) offering like our own—they can handle the heavy lifting of setting one up and keeping it compliant year-in and year-out. That's in large part why we offer solo 401(k)s as an exclusive Betterment Premium offering. Premium puts a team of advisors in your corner, experts who can not only assist with all things solos, but help you make the decision of whether to open one in the first place. If you decide a Betterment solo 401(k) is right for you, a paperless and pleasant experience awaits. Advantage: Tie Flexibility Both SEPs and solos offer flexibility, but in different ways. A solo 401(k), for example, allows for Roth (aka after-tax) and/or traditional contributions. But depending on your business goals, the ability to scale your business and keep saving may be the most important type of flexibility for you. In general, SEPs allow you to quickly shift from a solo practitioner to an employer who contributes to employees’ SEP IRAs on their behalf. The only catch is you must contribute the same amount to their SEPs as you do yours. With Betterment’s solo 401(k), however, our advisors can transition the plan to a group 401(k) should you hire employees beyond your spouse. A group 401(k) requires more work to administer, but offers more flexibility than a SEP in how you structure contributions for you and your employees. Advantage: Tie So which account is right for you? The good news is both SEP IRAs and solo 401(k)s offer excellent tax advantages that can help you reach retirement quicker. We offer both at Betterment, and make it easy to open either one. Because when you’re self-employed, you’re busy running your business. Optimizing your retirement savings? Consider that one less hat for your wardrobe.

Meet the Innovative Technology Portfolio 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 really predict the next class of top performers, innovation will likely come from parts of the economy that use technology in new and exciting applications, industries like: artificial intelligence alternative finance clean energy manufacturing biotechnology This dynamic led us to create the Innovative Technology portfolio. 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 risk. It contains many of the same investments as Core, but also includes an allocation to the SPDR S&P Kensho New Economies Composite ETF (Ticker: KOMP) and AB Disruptors ETF (Ticker: FWD). The iShares Exponential Technologies ETF (Ticker: XT) and Invesco NASDAQ 100 ETF (Ticker: QQQM) are used as secondaries for the purposes of Tax Loss Harvesting+ (“TLH”). For a more in-depth look at the portfolio’s construction, skip over to its methodology. How are pioneering companies selected? The ETFs that Betterment utilizes to gain exposure to the innovation theme take their own unique approach to security selection. For KOMP, the Kensho index that it 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 more than 20 categories, each is combined into the overall index and weighted according to their risk and return profiles. On the other hand, FWD is an actively-managed ETF by AllianceBernstein which also utilizes natural language processing but additionally incorporates both top-down thematic research and bottom-up fundamental equity research to create a portfolio of global companies that are aligned with the fund’s themes of cloud infrastructure & AI, digital transactions & media, energy transition, industrial innovation, and medical innovation. Why might you choose this portfolio over Betterment’s Core portfolio? We built the Innovative Technology portfolio to have similar foundations as then equivalent stock/bond allocation of the Core portfolio. It may, however, outperform or underperform depending on the return experience of the companies invested in by KOMP and FWD. 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 take that long-term view— this is a portfolio made with you in mind. Risk and early adoption can tend to go hand-in-hand, after all. Why invest in innovation with Betterment? Innovative technology is in our DNA. We may be the largest independent digital financial advisor now, but the “robo advisor” category barely existed when we opened shop in 2008. If you choose to invest in the Innovative Technology portfolio with Betterment, you not only get our professional, tech-forward, portfolio management tools, you also get an investment manager with first-hand experience in the field of first movers.

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 In the end, the most important security measure is you. 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, and don’t hesitate to contact us directly if you suspect a scam message and need to verify that we’ve reached out. We’ve got your back, and between the two of us, we can help keep bad actors at bay.

See what's in store for our annual portfolio updates Tweaks to Core, Value Tilt, SRI, and Innovative Tech are coming soon. When you pay someone to manage your investing, it's good to know exactly what you're paying for. In one sense, you’re paying for how your shares are bought, sold, and held. Our sophisticated spins on strategies like asset location, for example, can help minimize your taxes and maximize your returns. Then there's the collections of investments themselves, and making sure these portfolios keep up with market conditions. We do this in part by regularly adjusting our portfolios' asset allocations, or the specific weights of asset classes (i.e., stocks and bonds) and subasset classes (large cap stocks, long-term bonds, etc.). Let's quickly walk through our approach to portfolio management, or feel free to skip ahead to preview the upcoming changes. How we evaluate and manage our portfolios It all starts with sizing up asset classes. We run a rigorous, data-driven process to form long-term expectations for both the returns and the risk levels of various classes. From there, we simulate thousands of paths for the market, and average the optimal asset allocations to build more robust portfolio weights. This “Monte Carlo” technique is ideal when random variables are everywhere, such as capital markets. Lastly, it’s important to reiterate that while things like interest rate shifts and federal fiscal policy can drive short-term market volatility, we manage our portfolios based on long-term outlooks. We keep an eye on the short-term, but we don’t chase trends. This year's updates, in a nutshell For starters, we're updating a handful of portfolios, ones we build and manage ourselves. We offer a few others managed by partners like Goldman Sachs and BlackRock—you can check out those allocations in the Betterment app or on our website. This year’s updates, which are much smaller in scope and scale than last year’s, will encompass these portfolios: Core Value Tilt All three Socially Responsible Investing portfolios Innovative Technology Select Betterment Premium-exclusive portfolios Here's what's changing. More U.S. exposure While we don't advise going all-in on American markets, the forecasted risk-adjusted return for the U.S. remains strong in the long run (think: decades) relative to international markets. So similar to last year’s portfolio updates, we’re dialing down the international exposure for most portfolios. Those portfolios will see: Small increases in U.S. stock and bond allocations Small decreases in international emerging market stocks and bonds Small decreases in international developed market bonds More short-term corporate bonds The biggest change this year will be felt by portfolios with larger bond allocations. We expect U.S. short-term, high-quality corporate bonds to offer higher yields without undue increases in long-term risk, so we’re increasing the exposure to them while decreasing the weight of short-term U.S. Treasuries. The yields on these types of treasury bonds, which mature in a year or less, tend to fall right along with interest rates, and a lower interest rate environment is still expected in the long run. New innovation ETF Separately, we’re diversifying the Innovative Technology portfolio by adding a new actively-managed fund. This new ETF builds on themes like AI and biotech while adding more exposure to large-cap stocks and the Information Technology sector (hardware, software, etc.) as a whole. Sit back and enjoy the switch The great thing about technology like ours is that it makes implementing updated portfolios simple. Our automated rebalancing will tax-efficiently transition customers’ portfolios to the new target weights over time. It’s yet another example of how we make it easy to be invested.