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Socially Responsible Investing Portfolios Methodology Learn how Betterment constructs our Socially Responsible Investing (SRI) portfolios. Table of Contents Introduction How do we define SRI? The Challenges of SRI Portfolio Construction How is Betterment’s Broad Impact portfolio constructed? How is Betterment’s Climate Impact portfolio constructed? How is Betterment’s Social Impact portfolio constructed? Conclusion Introduction Betterment launched its first Socially Responsible Investing (SRI) portfolio in 2017, and has widened the investment options under that umbrella since then. Within Betterment’s SRI options, we currently offer a Broad Impact portfolio and two additional, more focused SRI portfolio options: a Social Impact SRI portfolio (focused on social governance mandates) and a Climate Impact SRI portfolio (focused on climate-conscious investments). These portfolios represent a diversified, relatively low-cost solution constructed using exchange traded funds (ETFs), which will be continually improved upon as costs decline, more data emerges, and as a result, the availability of SRI funds broadens. How do we define SRI? Our approach to SRI has three fundamental dimensions that shape our portfolio construction mandates: Reducing exposure to investments involved in unsustainable activities and environmental, social, or governmental controversies. Increasing exposure to investments that work to address solutions for core environmental and social challenges in measurable ways. Allocating to investments that use shareholder engagement tools, such as shareholder proposals and proxy voting, to incentivize socially responsible corporate behavior. SRI is the traditional name for the broad concept of values-driven investing (many experts now favor “sustainable investing” as the name for the entire category). Our SRI approach uses SRI mandates based on a set of industry criteria known as “ESG,” which stands for Environmental, Social and Governance. ESG refers specifically to the quantifiable dimensions of a company’s standing along each of its three components. Betterment’s approach expands upon the ESG-investing framework with exposure to investments that use complementary shareholder engagement tools. Betterment does not directly select companies to include in, or exclude from, the SRI portfolios. Rather, Betterment identifies ETFs that have been classified as ESG or similar by third-parties and considers internally developed “SRI mandates” alongside other qualitative and quantitative factors to select ETFs to include in its SRI portfolios. Using SRI Mandates One aspect of improving a portfolio’s ESG exposure is reducing exposure to companies that engage in certain activities that may be considered undesirable because they do not align with specific values. These activities may include selling tobacco, military weapons, civilian firearms, as well as involvement in recent and ongoing ESG controversies. However, SRI is about more than just adjusting your portfolio to minimize companies with a poor social impact. For each Betterment SRI portfolio, the portfolio construction process considers one or more internally developed “SRI mandates.” Betterment’s SRI mandates are sustainable investing objectives that we include in our portfolios’ exposures. SRI Mandate Description Betterment SRI Portfolio Mapping ESG Mandate ETFs tracking indices which are constructed with reference to some form of ESG optimization, which promotes exposure to Environmental, Social, and Governance pillars. Broad, Climate, Social Impact Portfolios Fossil Fuel Divestment Mandate ETFs tracking indices which are constructed with the aim of excluding stocks in companies with major fossil fuels holdings (divestment). Climate Impact Portfolio Carbon Footprint Mandate ETFs tracking indices which are constructed with the aim of minimizing exposure to carbon emissions across the entire economy (rather than focus on screening out exposure to stocks primarily in the energy sector). Climate Impact Portfolio Green Financing Mandates ETFs tracking indices focused on financing environmentally beneficial activities directly. Climate Impact Portfolio Gender Equity Mandate ETFs tracking indices which are constructed with the aim of representing the performance of companies that seek to advance gender equality. Social Impact Portfolio Racial Equity Mandate ETFs tracking indices which are constructed with the aim of allocating capital to companies that seek to advance racial equality. Social Impact Portfolio Shareholder Engagement Mandate In addition to the mandates listed above, Betterment’s SRI portfolios are constructed using a shareholder engagement mandate. One of the most direct ways a shareholder can influence a company’s decision making is through shareholder proposals and proxy voting. Publicly traded companies have annual meetings where they report on the business’s activities to shareholders. As a part of these meetings, shareholders can vote on a number of topics such as share ownership, the composition of the board of directors, and executive level compensation. Shareholders receive information on the topics to be voted on prior to the meeting in the form of a proxy statement, and can vote on these topics through a proxy card. A shareholder can also make an explicit recommendation for the company to take a specific course of action through a shareholder proposal. ETF shareholders themselves do not vote in the proxy voting process of underlying companies, but rather the ETF fund issuer participates in the proxy voting process on behalf of their shareholders. As investors signal increasing interest in ESG engagement, more ETF fund issuers have emerged that play a more active role engaging with underlying companies through proxy voting to advocate for more socially responsible corporate practices. These issuers use engagement-based strategies, such as shareholder proposals and director nominees, to engage with companies to bring about ESG change and allow investors in the ETF to express a socially responsible preference. For this reason, Betterment includes a Shareholder Engagement Mandate in its SRI portfolios. Mandate Description Betterment SRI Portfolio Mapping Shareholder Engagement Mandate ETFs which aim to fulfill one or more of the above mandates, not via allocation decisions, but rather through the shareholder engagement process, such as proxy voting. Broad, Climate, Social Impact Portfolios The Challenges of SRI Portfolio Construction For Betterment, three limitations have a large influence on our overall approach to building an SRI portfolio: 1. Many existing SRI offerings in the market have serious shortcomings. Many SRI offerings today sacrifice sufficient diversification appropriate for investors who seek market returns, and/or do not provide investors an avenue to use collective action to bring about ESG change. Betterment’s SRI portfolios do not sacrifice global diversification. Consistent with our core principle of global diversification and to ensure both domestic and international bond exposure, we’re still allocating to some funds without an ESG mandate, until satisfactory solutions are available within those asset classes. Additionally, all three of Betterment’s SRI portfolios include a partial allocation to an engagement-based socially responsible ETF using shareholder advocacy as a means to bring about ESG-change in corporate behavior. Engagement-based socially responsible ETFs have expressive value in that they allow investors to signal their interest in ESG issues to companies and the market more broadly, even if particular shareholder campaigns are unsuccessful. 2. Integrating values into an ETF portfolio may not always meet every investor’s expectations. For investors who prioritize an absolute exclusion of specific types of companies above all else, certain approaches to ESG will inevitably fall short of expectations. For example, many of the largest ESG funds focused on US Large Cap stocks include some energy companies that engage in oil and natural gas exploration, like Hess. While Hess might not meet the criteria of the “E” pillar of ESG, it could still meet the criteria in terms of the “S” and the “G.” Understanding that investors may prefer to focus specifically on a certain pillar of ESG, Betterment has made three SRI portfolios available. The Broad Impact portfolio seeks to balance each of the three dimensions of ESG without diluting different dimensions of social responsibility. With our Social Impact portfolio, we sharpen the focus on social equity with partial allocations to gender and racial diversity focused funds. With our Climate Impact portfolio, we sharpen the focus on controlling carbon emissions and fostering green solutions. 3. Most available SRI-oriented ETFs present liquidity limitations. While SRI-oriented ETFs have relatively low expense ratios compared to SRI mutual funds, our analysis revealed insufficient liquidity in many ETFs currently on the market. Without sufficient liquidity, every execution becomes more expensive, creating a drag on returns. Median daily dollar volume is one way of estimating liquidity. Higher volume on a given asset means that you can quickly buy (or sell) more of that asset in the market without driving the price up (or down). The degree to which you can drive the price up or down with your buying or selling must be treated as a cost that can drag down on your returns. We expect that increased asset flows across the industry into such SRI-oriented ETFs will continue to drive down expense ratios and increase liquidity over the long-run. To that end, Betterment reassesses the funds available for inclusion in these portfolios regularly. In balancing cost and value for the portfolios, the options are limited to funds of certain asset classes such as US stocks, Developed Market stocks, Emerging Market stocks, US Investment Grade Corporate Bonds, and US High Quality bonds. How is Betterment’s Broad Impact portfolio constructed? Betterment’s Broad Impact portfolio invests assets in socially responsible ETFs to obtain exposure to both the ESG and Shareholder Engagement mandates, as highlighted in the table above. It focuses on ETFs that consider all three ESG pillars, and includes an allocation to an engagement-based SRI ETF. Broad ESG investing solutions are currently the most liquid, highlighting their popularity amongst investors. In order to maintain geographic and asset class diversification and to meet our requirements for lower cost and higher liquidity in all SRI portfolios, we continue to allocate to some funds that do not reflect SRI mandates, particularly in bond asset classes. How is Betterment’s Climate Impact portfolio constructed? Betterment offers a Climate Impact portfolio for investors that want to invest in an SRI strategy more focused on the environmental pillar of “ESG” rather than focusing on all ESG dimensions equally. Betterment’s Climate Impact portfolio invests assets in socially responsible ETFs and is constructed using the following mandates that seek to achieve divestment and engagement: ESG, carbon footprint reduction, fossil fuel divestment, shareholder engagement, and green financing. The Climate Impact portfolio was designed to give investors exposure to climate-conscious investments, without sacrificing proper diversification and balanced cost. Fund selection for this portfolio follows the same guidelines established for the Broad Impact portfolio, as we seek to incorporate broad based climate-focused ETFs with sufficient liquidity relative to their size in the portfolio. How can the Climate Impact portfolio help to positively affect climate change? The Climate Impact portfolio is allocated to iShares MSCI ACWI Low Carbon Target ETF (CRBN), an ETF which seeks to track the global stock market, but with a bias towards companies with a lower carbon footprint. By investing in CRBN, investors are actively supporting companies with a lower carbon footprint, because CRBN overweights these stocks relative to their high-carbon emitting peers. One way we can measure the carbon impact a fund has is by looking at its weighted average carbon intensity, which measures the weighted average of tons of CO2 emissions per million dollars in sales, based on the fund's underlying holdings. Based on weighted average carbon intensity data from MSCI, Betterment’s 100% stock Climate Impact portfolio has carbon emissions per unit sales that are nearly 43% lower than Betterment’s 100% stock Core portfolio as of September 30, 2023. Additionally, a portion of the Climate Impact portfolio is allocated to fossil fuel reserve funds. Rather than ranking and weighting funds based on a certain climate metric like CRBN, fossil fuel reserve free funds instead exclude companies that own fossil fuel reserves, defined as crude oil, natural gas, and thermal coal. By investing in fossil fuel reserve free funds, investors are actively divesting from companies with some of the most negative impact on climate change, including oil producers, refineries, and coal miners such as Chevron, ExxonMobile, BP, and Peabody Energy. Another way that the Climate Impact portfolio promotes a positive environmental impact is by investing in bonds that fund green projects. The Climate Impact portfolio invests in iShares Global Green Bond ETF (BGRN), which tracks the global market of investment-grade bonds linked to environmentally beneficial projects, as determined by MSCI. These bonds are called “green bonds.” The green bonds held by BGRN fund projects in a number of environmental categories defined by MSCI including alternative energy, energy efficiency, pollution prevention and control, sustainable water, green building, and climate adaptation. How is Betterment’s Social Impact portfolio constructed? Betterment offers a Social Impact portfolio for investors that want to invest in a strategy more focused on the social pillar of ESG investing (the S in ESG). Betterment’s Social Impact portfolio invests assets in socially responsible ETFs and is constructed using the following mandates: ESG, gender equity, racial equity, and shareholder engagement. The Social Impact portfolio was designed to give investors exposure to investments which promote social equity, without sacrificing proper diversification and balanced cost. Fund selection for this portfolio follows the same guidelines established for the Broad Impact portfolio discussed above, as we seek to incorporate broad based ETFs that focus on social equity with sufficient liquidity relative to their size in the portfolio. How does the Social Impact portfolio help promote social equity? The Social Impact portfolio shares many of the same holdings as Betterment’s Broad Impact portfolio. The Social Impact portfolio additionally looks to further promote the “social” pillar of ESG investing, by allocating to two ETFs that specifically focus on diversity and inclusion -- Impact Shares NAACP Minority Empowerment ETF (NACP) and SPDR SSGA Gender Diversity Index ETF (SHE). NACP is a US stock ETF offered by Impact Shares that tracks the Morningstar Minority Empowerment Index. The National Association for the Advancement of Colored People (NAACP) has developed a methodology for scoring companies based on a number of minority empowerment criteria. These scores are used to create the Morningstar Minority Empowerment Index, an index which seeks to maximize the minority empowerment score while maintaining market-like risk and strong diversification. The end result is an index which provides greater exposure to US companies with strong diversity policies that empower employees irrespective of race or nationality. By investing in NACP, investors are allocating more of their money to companies with a track record of social equity as defined by the NAACP. SHE is a US Stock ETF that allows investors to invest in more female-led companies compared to the broader market. In order to achieve this objective, companies are ranked within each sector according to their ratio of women in senior leadership positions. Only companies that rank highly within each sector are eligible for inclusion in the fund. By investing in SHE, investors are allocating more of their money to companies that have demonstrated greater gender diversity within senior leadership than other firms in their sector. For more information about these social impact ETFs, including any associated risks, please see our disclosures. Should we expect any difference in an SRI portfolio’s performance? One might expect that a socially responsible portfolio could lead to lower returns in the long term compared to another, similar portfolio. The notion behind this reasoning is that somehow there is a premium to be paid for investing based on your social ideals and values. A white paper written in partnership between Rockefeller Asset Management and NYU Stern Center for Sustainable Business studied 1,000+ research papers published from 2015-2020 analyzing the relationship between ESG investing and performance. The primary takeaway from this research was that they found “positive correlations between ESG performance and operational efficiencies, stock performance, and lower cost of capital.” When ESG factors were considered in the study, there seemed to be improved performance potential over longer time periods and potential to also provide downside protection during periods of crisis. It’s important to note that performance in the SRI portfolios can be impacted by several variables, and is not guaranteed to align with the results of this study. Dividend Yields Could Be Lower Using the SRI Broad Impact portfolio for reference, dividend yields over a one year period ending September 30, 2023 indicate that SRI income returns have been lower than those of Core portfolio. Oil and gas companies like BP, Chevron, and Exxon, for example, currently have relatively high dividend yields and excluding them from a given portfolio can cause its income return to be lower. Of course, future dividend yields are uncertain variables and past data may not provide accurate forecasts. Nevertheless, lower dividend yields can be a factor in driving total returns for SRI portfolios to be lower than those of Core portfolios. Comparison of Dividend Yields Source: Bloomberg, Calculations by Betterment for one year period ending September 30, 2023. Dividend yields for each portfolio are calculated using the dividend yields of the primary ETFs used for taxable allocations of Betterment’s portfolios as of September 2023. How does the legacy SRI portfolio compare to the current SRI portfolios? Certain clients may be invested in Betterment’s original, “legacy” SRI portfolio. There are certain differences between the legacy SRI portfolio and the current SRI portfolios. If you invested in the legacy SRI portfolio prior to October 2020 and chose not to update to one of the SRI portfolios, your legacy SRI portfolio does not include the above described enhancements to the Broad Impact portfolio. The legacy SRI portfolio may have different portfolio weights, meaning that as we introduce new asset classes and adjust the percentage any one particular asset class contributes to a current SRI portfolio, the percentage an asset class contributes to the legacy SRI portfolio will deviate from the makeup of the current SRI portfolios and Betterment Core portfolio. The legacy SRI portfolio may also have different ETFs, as compared to both the current versions of the SRI portfolios and the Betterment Core portfolio. Lastly, the legacy SRI portfolio may also have higher exposure to broad market ETFs that do not currently use social responsibility screens or engagement based tools and retain exposure to companies and industries based on previous socially responsible benchmark measures that have since been changed. Future updates to the Broad, Climate, and Social Impact portfolios will not be reflected in the legacy SRI portfolio. Conclusion Despite the various limitations that all SRI implementations face today, Betterment will continue to support its customers in further aligning their values to their investments. Betterment may add additional socially responsible funds to the SRI portfolios and replace other ETFs as more socially responsible products become available.

The Betterment Core Portfolio Strategy We continually improve the Core portfolio construction methodology over time in line with our research-focused investment philosophy. TABLE OF CONTENTS Introduction Global Diversification and Asset Allocation Portfolio Optimization Tax Management Using Municipal Bonds Conclusion Citations I. Introduction Betterment has a singular objective: to help you make the most of your money, so that you can live better. Our investment philosophy forms the basis for how we pursue that objective: Betterment uses real-world evidence and systematic decision-making to help increase our customers’ wealth. In building our platform and offering individualized advice, Betterment’s philosophy is actualized by our five investing principles. Regardless of one’s assets or specific situation, Betterment believes all investors should: Make a personalized plan. Build in discipline. Maintain diversification. Balance cost and value. Manage taxes. To align with Betterment’s investing principles, a portfolio strategy must enable personalized planning and built-in discipline for investors. The Betterment Core Portfolio Strategy is comprised of 101 individualized portfolios, in part, because that level of granularity in allocation management provides the flexibility to align to multiple goals with different timelines and circumstances. In this guide to the Betterment Core Portfolio Strategy construction process, our goal is to demonstrate how the methodology, in both its application and development, contributes to how Betterment carries out its investing principles. When developing a portfolio strategy, any investment manager faces two main tasks: asset class selection and portfolio optimization. How we select funds to implement the Betterment construction process is also guided by our investing principles, and is covered separately in our Investment Selection Methodology paper. 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 the lowest amount of risk. The objective of most long-term portfolio strategies is to maximize return, while the associated risk is measured in terms of volatility—the dispersion of those returns. In line with our investment philosophy of making systematic decisions backed by research, Betterment’s asset allocation is based on a theory by economist Harry Markowitz called Modern Portfolio Theory, as well as subsequent advancements based on that 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 optimize maximizing expected returns and minimizing expected risk. Other forms of portfolio construction may legitimately pursue other objectives, such as optimizing for income, or minimizing loss of principal. However, our portfolio construction goes beyond traditional Modern Portfolio Theory in five important ways: Estimating forward looking returns Estimating covariance Tilting specific factors in the portfolio Accounting for estimation error in the inputs Accounting for taxes in taxable accounts Asset Classes Selected for Betterment’s Core Portfolio Strategy The Betterment Core Portfolio Strategy’s asset allocation starts with a universe of investable assets. Leaning on the work of Black-Litterman, the universe of investable assets for us is the global market portfolio.2 To capture the exposures of the asset classes for the global market portfolio, Betterment evaluates 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 investment selection methodology. Betterment’s portfolios are constructed of the following asset classes: Equities U.S. Equities International developed market equities Emerging market equities 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 equities as a core part of the portfolio. Historically, equities exhibit a high degree of volatility, but provide some degree of inflation protection. Even though significant historical drawdowns, such as the global financial crisis of 2008, demonstrate the possible risk of investing in equities, longer-term historical data and our forward expected returns calculations suggest that developed market equities remain a core part of any asset allocation aimed at achieving positive returns. This is because, over the long term, developed market equities have tended to outperform bonds on a risk-adjusted basis. To achieve a global market portfolio, we also include equities from less developed economies, called emerging markets. Generally, emerging market equities tend to be more volatile than U.S. and international developed equities. And while our research shows high correlation between this asset class and developed market equities, their inclusion on a risk-adjusted basis is important for global diversification. Note that Betterment excludes 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. The Betterment Core Portfolio Strategy incorporates bond exposure because historically, bonds have a low correlation with equities, 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, the Betterment Core Portfolio Strategy includes exposure to several asset classes of bonds. Asset Classes Excluded from the Betterment Core Portfolio Strategy 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. The Betterment Core 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 the Core Portfolio Strategy. Betterment does provide exposure to real estate, but as a sector within equities. Adding additional real estate exposure by including a REIT asset class would overweight the exposure to real estate relative to the overall market. III. Portfolio Optimization While asset selection sets the stage for a globally diversified portfolio strategy, we further optimize the Betterment Core Portfolio Strategy by tilting the portfolio to drive higher return potential. While most asset managers offer a limited set of model portfolios at a defined risk scale, the Betterment Core Portfolio Strategy is 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 the Betterment Core Portfolio Strategy to contain 101 different portfolios. Optimizing Portfolios Modern Portfolio Theory requires estimating returns and covariances to optimize for portfolios that sit along an efficient frontier. 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.4 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.5 In order to complete the equation above and compute the expected returns using reverse optimization, we need the covariance matrix as an input. The covariance matrix mathematically describes the relationships of every asset with each other as well as the volatility risk of the assets themselves. Our process for estimating the covariance matrix aims to avoid skewed analysis of the conventional historical sample covariance matrix and instead employs Ledoit and Wolf’s shrinkage methodology, which uses a linear combination of a target matrix with the sample covariance to pull the most extreme coefficients toward the center, which helps reduce estimation error.6 Tilting the Betterment Portfolios based on the Fama-French Model Academic research also points to persistent drivers of returns that the market portfolio doesn’t fully capture. A framework known as the Fama-French Model demonstrates how equity returns are driven by three factors: market, value, and size.7 The underlying asset allocation of the Betterment Core Portfolio Strategy ensures the market factor is incorporated, but to gain higher returns from value and size, Betterment tilts the portfolios. For the actual mechanism of tilting, we turn to the Black-Litterman model. Black-Litterman starts with our global market portfolio as the asset allocation that an investor should take in the absence of views on the underlying assets. Then, using the Idzorek implementation of Black-Litterman, the Betterment Core Portfolio Strategy is tilted based on the level of confidence we have for our views on size and value.8 These views are computed from historical data analysis, and our confidence level is a free parameter of the implementation. Tilts are expressed, taking into account the constraints imposed by the liquidity of the underlying funds. Monte Carlo Simulations Betterment uses Monte Carlo simulations to predict alternative market scenarios. By performing an optimization of the portfolio under simulated market scenarios, Betterment averages the weights of asset classes in each scenario, which provides a more robust estimate of the optimal weights. Betterment believes this secondary optimization analysis alleviates the portfolio construction’s sensitivity to returns estimates and leads to more diversification and expected performance over a broader range of potential market outcomes. Thus, through our method of portfolio optimization, the Betterment Core Portfolio Strategy is weighted based on the tilted market portfolio, based on Fama-French, averaged by the weights produced by our Monte Carlo simulations. This portfolio construction process gives us a portfolio designed to be optimal at any risk level for not just diversification and expected future value, but also ideal for good financial planning and for managing investor behavior. 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, the Betterment Core Portfolio Strategy in taxable accounts is also tilted toward municipal bonds because interest from municipal bonds is exempt from federal income tax, which can further optimize portfolio returns. Other types of bonds remain for diversification reasons, but the overall bond tax profile is improved by tilting towards 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. Conclusion After setting the strategic weight of assets in the Betterment Core Portfolio Strategy, the next step in implementing the portfolio construction process is Betterment’s investment selection, which selects the appropriate ETFs for the respective asset exposure in a low-cost, tax-efficient way. In keeping with our philosophy, that process, like the 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—and our methodology for automatic asset location, which we call Tax Coordination. Finally, our overlay features of automated rebalancing and tax-loss harvesting 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. 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. 6 Ledoit, O. and Wolf, M., Honey, I Shrunk the Sample Covariance Matrix, Olivier Ledoit & Michael Wolf. 7 Fama, E. and French, K., (1992). "The Cross-Section of Expected Stock Returns". The Journal of Finance.47 (2): 427. 8 Idzorek, T., A step-by-step guide to the Black-Litterman Model.

A simple way to invest in Bitcoin and Ethereum Since cryptocurrencies were first released in 2009, Bitcoin and Ethereum have established themselves as the largest digital assets. What to know: At Betterment, we’ve made it easy for you to invest directly in the most well-known and adopted digital assets through our Bitcoin/Ethereum portfolio. A simple, balanced approach to crypto: Our Bitcoin (BTC) and Ethereum (ETH) portfolio simplifies investing in the largest, most liquid digital assets. Together, BTC and ETH can make up about 60% to 70% of the crypto market capitalization depending on the market conditions. The portfolio has target weights of 70% BTC and 30% ETH relative to each coin's market capitalization. Once your account has reached the balance threshold, we automatically rebalance the portfolio for you to maintain as close as possible to the 70/30 split. Fast facts: The price of Bitcoin and Ethereum are considered indicators of the overall health of the crypto markets but there are key differences between the two assets. Bitcoin, launched in 2009, and Ethereum, launched in 2015, are both digital currencies and decentralized blockchains (a distributed peer-to-peer database). The Bitcoin blockchain records BTC transactions, with the original goal of BTC being a medium of exchange and a store of value outside the control of individuals, banks, or institutions. The Ethereum blockchain is used to record ETH transactions but its distinguishing feature is ‘smart contracts’ used across industries including finance, e-commerce, and real estate. Generally, there are two other ways to invest in BTC and ETH: Investors can manually select BTC and ETH on crypto exchanges but have to take care of monitoring the market and rebalancing their investments in a crypto wallet. Exchange-traded products including ETFs and trusts provide investors with easy exposure to BTC and ETH but the price of the investment doesn’t always track the price of the digital asset, plus these investments don’t provide true ownership of the underlying cryptocurrency. Both of these approaches are considerably different than ours. The Betterment Bitcoin/Ethereum portfolio is designed to give you ownership of both BTC and ETH while we rebalance the portfolio for you as the market changes.

Three ways to get the most out of your Cash Reserve account Let's take your cash game to the next level. Here are three tips to help manage your Cash Reserve account for long-term success. You're smart. You already have a Cash Reserve account (or you want one!). And you know the value of a high-yield account with FDIC insurance up to $2 million through our program banks†. Let's take your cash game to the next level. Why it matters: A Cash Reserve account is a place to grow your savings and secure your money during volatile times. But we also give you tools and tips to make the most of your cash, whether that’s saving for a goal or using cash to eventually invest in stocks and bonds. Here are three simple ways to level up your cash skills: #1 Have multiple goals and use the goal forecaster: You can have more than one Cash Reserve account to track your savings for different purchases or needs. To set up a new Cash Reserve account: Select “New cash goal” when you are opening a Cash Reserve account. You’ll be able to name your goal and set a target amount and target date to track your progress. To use the goal forecaster: On a desktop device, navigate to your cash goal account and click the “Open goal forecaster” button. You can enter different scenarios for a recurring deposit, a one-time deposit, and a target date. Our projection graph will show you the estimated chance of reaching your goal for each scenario you enter. #2 Pay yourself first with a consistent recurring deposit from your external account: The easiest way to pay yourself first is to automate it, saving you time while increasing your savings. Why use a recurring deposit to save? Think of the amount you save monthly just like a mandatory expense, no different than a phone bill or a mortgage payment. Each month, you can automatically send money from your external checking or savings account to your Cash Reserve account getting you one step closer to reaching your goal. How do you do it? In your Betterment account, click the Deposit button, select your “to” and “from” accounts, and adjust the frequency to meet your needs. #3 Balance short-term liquidity and long-term growth: Your Cash Reserve account is liquid, meaning it’s easy to access your cash. But it’s important to strike the right balance between cash for short-term needs and investments for long-term growth. Do you have an emergency fund? If you have already saved three to six months of living expenses then you should take a look at your extra cash. If you don’t have other short-term savings goals, investing in stocks and bonds may help to grow your money over time. Are your goals short-term or long-term? A Cash Reserve account may help you achieve short-term goals since you need the money soon and don’t want to lose it if stocks fall. But for goals longer than 12 months, consider stock and bond investing. While investing involves more risk, historically, stocks have had greater long-term gains than cash. Similar to a Cash Reserve goal, you can select an investing goal and we’ll recommend a portfolio to match your target date.

A smarter way to stash your cash Our objectives are aligned with yours: we want to grow your money, so we created Cash Reserve for you. The takeaway: Cash Reserve is our high-yield cash account offering FDIC insurance. It’s different from the savings accounts that you might find at traditional banks. We’re not tied to one specific bank. We use our size and scale to access a network of program banks. By spreading customer deposits across multiple program banks, it allows us to provide you with attractive rates and higher FDIC insurance than the average savings account.* Our high-yield Cash Reserve account offers a competitive APY rate, allowing you to secure and grow your money during volatile times. Here’s how variable rates work: The rate is variable, meaning it will change with the prevailing interest rate environment. The amount banks are willing to pay on deposits is heavily influenced by the Federal Reserve, which sets the rate at which banks can loan money to each other. This is known as the Federal Funds Rate. If the Federal Reserve increases or lowers its target range, the interest rate on Cash Reserve will generally change by a similar amount. You can expect this to impact rates at other banks as well. You can feel confident that Betterment is always working to offer you competitive interest rates, no matter what the current rate environment may be. Our Cash Reserve account offers FDIC insurance up to $2 million ($4 million for joint accounts) with our program banks. That’s 8X the standard FDIC insurance.* Here’s how FDIC insurance works: By spreading customer deposits across multiple program banks (as opposed to keeping everyone’s money at one institution), we’re able to stack the standard $250,000 of FDIC insurance per institution. We originally used this approach to offer up to $1M ($2M in joint accounts) in FDIC insurance for money saved in Cash Reserve. But after the news about Silicon Valley Bank, we set to work to double the coverage amount of FDIC insurance through our program banks. Plus, we don’t charge fees on your Cash Reserve account: Betterment LLC only receives compensation from our program banks. Betterment LLC and Betterment Securities do not charge fees on your Cash Reserve balance. Why it matters: Similar to how our approach to investing is grounded in diversifying assets, Cash Reserve diversifies savings across multiple institutions. In addition to a competitive variable rate and above-average* FDIC insurance, this approach could help mitigate loss and risk in the unlikely scenario that one of our program banks fails. You can’t eliminate risk, but you can help reduce it by using technology and creative thinking.

How we help you navigate market volatility At Betterment, our portfolios and automated features are designed to handle the market’s downturns. You may have been told to “sit tight and stay the course” when the market is dropping. That’s not always easy to do—unless your portfolio is designed to handle market volatility. The big idea: At Betterment, our platform was designed to help manage the inevitable downturns of the market. You can sit tight and stay the course, knowing that: Our portfolios are constructed with volatility in mind Portfolio management features such as automated rebalancing and tax loss harvesting are built to help keep you on track during downturns How we construct portfolios to weather the storm: We create diversified portfolios designed to offer relatively low costs and keep long-term performance in mind. First, we use expert-based assumptions: Our stock and bond allocation recommendations are based on assumptions, including a range of possible outcomes, in which we give slightly more weight to potential negative ones, by building in a margin of safety—otherwise known as ‘downside risk’ or uncertainty optimization. Even before you’ve invested your first dollar, your portfolio has already been designed to account for the market fluctuations like the big downturns in 2008 and in 2020. Second, we use your personal goals: Our allocation recommendations consider the amount of time you’ll be invested. For goals with a longer time horizon, we often advise that you hold a larger portion of your portfolio in stocks. For shorter-term goals, we recommended a lower stock allocation. By using your investor profile and the goal details you provide, in conjunction with our expert-based assumptions, we’re able to recommend a diversified portfolio of stock and bond ETFs that has an initial allocation recommended just for you. How our automated features keep you on track: We’ve designed three key features to navigate volatility for you. First, automated allocation adjustments: For certain goal types, our system changes your portfolio’s stock and bond allocation automatically over time to help manage risk based on your goals. We call this recommendation “auto-adjust” or a goal’s “glidepath”—a gradual reduction of stocks in favor of bonds. For most Betterment goals, we recommend that you scale down your risk as your goal’s end date gets closer, helping to reduce the chance that your balance will drastically fall if the market drops. You can use our auto-adjust feature in eligible portfolios and goal types. Second, automated portfolio rebalancing: We monitor and adjust your portfolio based on your account balance and market movements to help manage risk. Rebalancing is the process of selling and buying the necessary securities as the market fluctuates to bring the value of each allocation back to the desired level of the portfolio. When the market fluctuates, not all investments fluctuate to the same degree. For example, stocks are generally more volatile than bonds, which can create an undesired asset allocation within your portfolio. We automate that process for you and do it with potential tax implications in mind. Third, automated tax loss harvesting: Our automated software monitors your account for opportunities to harvest tax losses. Tax loss harvesting is the practice of selling a security that has experienced a loss to potentially reduce your tax bill. The sold security is replaced by a similar one, ideally maintaining an optimal asset allocation. It can be beneficial if you have a lot of short-term capital gains, which are taxed at a higher rate than long-term capital gains. Any unused losses from the current tax year can be carried over indefinitely and used in subsequent years. You can opt into tax loss harvesting, but keep in mind that everyone’s tax situation is different—and tax loss harvesting may not be suitable for yours.