Money 101

Should you have an IRA even if you have a 401(k)? A 401(k) is a great place to start saving for retirement especially if your employer offers matching contributions. But an IRA can take you a step further as you plan for the future. The main idea: If you have a 401(k), consider an IRA as well. You may find that an IRA can provide additional investment choices and potentially lower fees than your 401(k) plan. Plus, having both gives you tax diversification in retirement. Know the essentials: Your 401(k) is most often offered as a benefit from your employer although if you’re self-employed you can have an individual 401(k). It’s common for employers to match your 401(k) contributions up to a percentage of your paycheck. An IRA is an account you open yourself. At Betterment, we can help you open an IRA that meets your goals with our guided process. There are two types of IRAs: Traditional and Roth. You contribute to a Traditional IRA using pre-tax income while a Roth IRA allows for contributions from post-tax income. The big benefits: An IRA in addition to your 401(k) offers 3 potential benefits: Additional investment choice: While Betterment offers the same diverse investment choices in our IRA accounts and 401(k) plans, IRAs typically have more investment options to choose from than an employer-sponsored 401(k). This can help diversify your portfolio using low-cost investments such as ETFs. Access to lower-fee investments: The fees for 401(k) investments are dictated by your employer’s plan. Since you can open an IRA on your own and invest in a range of assets, you have a larger selection of low-fee options available to you. Compare your 401(k) plan fees to IRAs to see if adding an IRA may be right for you. If you have questions about 401(k) fees, ask your HR or benefits contact at your employer. Tax diversification in retirement: Having a 401(k) and an IRA can provide tax diversification in retirement. You can contribute pre-tax dollars to your 401(k) and traditional IRA, paying tax on future withdrawals in retirement. Roth IRAs and Roth 401(k)s on the other hand allow you to contribute post-tax dollars—for example, money from your paycheck that you already paid taxes on. Your withdrawals, both on the earnings and the contributions, when you reach retirement age can be withdrawn tax-free. Bonus benefit: Having a 401(k) and an IRA allows you to put more away for retirement in tax-friendly accounts. In 2023, you can contribute up to $22,500 to a 401(k) with catch-up contributions up to an additional $7,500 if you’re 50 or older. For IRAs, you can contribute $6,500 ($7,500 if you're 50 or older), depending on your income level. Pro tips: Make sure you know how much your employer matches your 401(k) contributions. Contributions from your employer are essentially free money for your retirement savings. If you are considering an IRA in addition to your 401(k), look at all fees, including management fees and expense ratios, when selecting investments.

Is the S&P 500 the best investing benchmark? For many investors, the S&P 500 might not be the most accurate benchmark for their portfolio. Let’s find out why. The S&P 500 is an index commonly used by analysts and investors to track the health of the stock market and the general economy. But should you compare your portfolio’s performance to the S&P 500? Here are a few reasons why it may not be the best benchmark. What to remember: The S&P 500 index only includes the leading companies in the United States. If you have a diversified portfolio across global markets and industries, the S&P 500 is not an apples-to-apples comparison. Fast facts: Here are a few things to know about the S&P 500 and the global stock market when considering using an index as a benchmark. The S&P 500 index was launched in 1957 by the credit rating agency Standard and Poor's. The SEC lists six major stock market indexes on their website and there are dozens of indexes used across the world. The S&P 500 index includes 500 leading U.S. companies, representing only about 80% of the U.S. stock market and only about 42% of the global stock market. Additionally, the index is weighted by float-adjusted market capitalization which means that larger companies end up being a larger portion of the index, making it less of an apples-to-apples comparison for the global market. Economists at Goldman Sachs predict that emerging markets will grow at a faster rate than U.S. equities, making the S&P 500 even less of a global index than it is today. What’s the best index to use as a benchmark? It depends. To know which index to compare your portfolio to, you need to ask, “Which markets am I invested in?” Many Betterment portfolios are globally-diversified, making the MSCI All Country World Index (ACWI) a better benchmark than the S&P 500. The ACWI covers 47 global markets in both developed and emerging economies, representing 99% of the investable global equity market. It’s about your goals: It’s also important to remember that benchmark indexes are not designed with your goals in mind. Your personal portfolio at Betterment is meant to meet your goals, not track a general benchmark. As you invest with us, your asset allocation may change to protect your wealth and keep your investments in line with your risk appetite. Next time you see a news article reporting on recent movements of the S&P 500 you can relax knowing that your portfolio is designed for your goals, not the index’s.

Diversification: 2 truths and a lie Diversification means spreading your investments across multiple assets, asset classes, or markets. We’re big diversification fans here at Betterment. An example of a diversified investing strategy: Diversification takes many forms, but an example could include combined investments in stocks from various industries and countries along with a mix of bonds and even a high-yield cash account. Two truths and a lie: Which of the following isn’t necessarily true about diversification? Diversification requires you to do more work Diversification can help reduce risk Diversification can help provide more consistent performance If you guessed A, you’re correct! Diversification does require more work but it doesn’t have to be you that does the work. That’s where we come in. We do the heavy lifting for you. We monitor your investments and rebalance your portfolio when it reaches the minimum balance threshold to help reduce risk. Rebalancing is the process of selling and buying the necessary securities as the market fluctuates. This maintains diversification by bringing your portfolio back into line as it deviates from its target asset allocation. Plus, we offer automated tools, like recurring deposits and tax loss harvesting, to help you grow a diversified portfolio. With recurring deposits, you can grow your investment over time and the regular deposits can help us rebalance your portfolio more tax-efficiently. Tax loss harvesting is the practice of selling a security that has experienced a loss that can offset gains. Tax Loss Harvesting+ (TLH+) is not suitable for all investors. Consider your personal circumstances before deciding whether to utilize this feature. It’s true that diversification can help reduce risk. Distributing your investments across assets distributes your risk. If 100% of your money is in one stock and it collapses, you could lose nearly everything. But if only 3% of your money is in that one stock, the rest of your portfolio survives. A typical example in a Betterment portfolio could be a distribution of global and domestic stocks across industries and company sizes. That way your portfolio is less likely to experience extreme changes in value due to a single industry or geographical region. It’s also true that diversification can help provide more consistent performance. One of the goals of diversification is to invest in unrelated assets, meaning stocks and bonds that have different factors driving their value. This way, not all of your assets gain or lose value at the same time. The big picture: Diversification is all about playing the long game, tapping into the potential growth of the global markets to help manage risk over time. At Betterment, our expert-built portfolios are a recipe for diversification. You can choose from: Stock and bond portfolios, including socially responsible investing and innovative technology Cryptocurrency portfolios High-yield Cash Reserve account

Dark Mode: Investing in a new light We’ve finally flipped the (light) switch on this delightful feature, now available in our app. In the beginning, our vision was bright: make it easy and simple to start investing. Now, with the brightness turned down, we made investing easy on the eyes, too. Introducing Betterment in dark mode. In today's all-mobile, all-the-time world, we know how important it is to continue making our app experience a premium one. We place a high value on active listening and responding to our customers' needs. And this is one particular request that customers have been hoping we’d bump to the top of our list. We heard you. And as many of us on the design team are avid dark mode users ourselves—we agree! Dark mode reduces eye strain, saves battery life, and also is just kind of cool and mysterious. Close to 80% of people use their devices in dark mode and between 91% to 95% of all device users say they prefer dark mode over light mode.* But hey, if you don’t agree, light mode isn’t going anywhere, either! So what did we do? Defining Design Tokens The first step was working with our engineering team to define design tokens for every element of the user interface (UI). Design tokens are named elements that store design attributes such as color. This allows design and engineering to have a shared language over how color is used and each token can have an assigned value for both light and dark themes. Expanding Our Color Palette We also expanded our color palette to a broader range of values for each of our color primitives. This helped us when choosing colors, as we could pull from the opposite side of the scale to ensure that our UI would have the proper contrast, and remain accessible in both light and dark themes. Mapping Colors to Design Elements With our expanded color palette and design tokens in place, we then mapped every design element to a color for both light and dark themes. This mapping process ensured that when the theme switched between light and dark, each element on the screen automatically adapts to the appropriate color. Adjusting Icons and Illustrations The final step was adjusting our icons and illustrations to work in both modes. We carefully evaluated each icon and illustration, making necessary adjustments to ensure they were clearly visible and maintained their visual appeal in both light and dark modes. We think that the introduction of dark mode is about more than visual adjustments; it's a step towards creating more accessible and user-friendly digital products. We hope that sharing our journey will inspire other teams to embrace the challenge of building for dark mode. So thank you for being patient with us as we finally flip the (light) switch on this delightful feature. We love being able to listen to our customers and deliver upon their requests, any way we can. Especially when it makes your experience more personalized and user-friendly. So turn the brightness down, the ease and simplicity up, and enjoy investing in a whole new light (which is no light at all.)

Too many money goals? We can help. 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. 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.

Understand your net worth with our interactive tool Using our Connected Accounts feature, you can see your total net worth on the Betterment app. We make it simple to view your net worth. That’s your investments, cash, and debts, all on one easy-to-read screen. Why it matters: Net worth is a good indicator of your financial stability because it shows what you have left over after you pay all your debt. See your net worth: Here’s how you can see your total net worth on the Betterment desktop and mobile app. Once you’re logged in, you’ll see the Net worth section. To view your net worth, if you’re on mobile, tap the section or if you’re on desktop, click See breakdown. On the Net worth screen, you’ll see the total value of your internal Betterment accounts and your external accounts. To add external accounts, click Manage connected accounts and follow the prompts. You’ll need to do this for all external accounts to see your total net worth. Now that you know how to set up and view your net worth, what does it all mean? According to the FDIC, net worth is a better measure of financial stability than income for two reasons. Your income could be decreased due to a job loss or reduction in work hours. Your income doesn’t indicate how much debt you have or how much savings or additional assets you have. Take this example: To illustrate what net worth means, consider two people who both make $100,000 per year. Person 1 has $450,000 in cash/investments and $420,000 in debt (net worth: $30,000) Person 2 has $225,000 in cash/investments and $10,000 in debt (net worth: $215,000) All else equal, Person 2 has a higher net worth and is in a better position to create long-term wealth. The big picture: Looking at your finances beyond your income can help you plan for the future. By looking at how much debt you have in addition to savings, you can create a clearer plan for long-term wealth creation. To increase your net worth, you can either reduce liabilities (debt like loans and credit card debt) or increase assets (accounts like cash savings and investments). You have two levers to pull. At Betterment, we give you the tools to increase your net worth. You can set up goals with automated deposits using a high-yield cash account or investment account. Plus, we’ll help you estimate how much you need to save with our goal forecaster tool.