Betterment Editors

Three steps to size up your emergency fund Dec 3, 2025 6:00:00 AM Strive for at least three months of expenses while taking these factors into consideration. Imagine losing your job, totaling your car, or landing in the hospital. How quickly would your mind turn from the shock of the event itself to worrying about paying your bills? If you’re anything like the majority of Americans recently surveyed by Bankrate, finances would add insult to injury pretty fast: Only around 2 in 5 Americans would pay for an emergency from their savings In these scenarios, an emergency fund can not only help you avoid taking on high-interest debt or backtracking on other money goals, it can give you one less thing to worry about in trying times. So how much should you have saved, and where should you put it? Follow these three steps. 1. Tally up your monthly living expenses — or use our shortcut. Coming up with this number isn’t always easy. You may have dozens of regular expenses falling into one of a few big buckets: Food Housing Transportation Medical When you create an Emergency Fund goal at Betterment, we automatically estimate your monthly expenses based on two factors from your financial profile: Your self-reported household annual income Your zip code’s estimated cost of living You’re more than welcome to use your own dollar figure, but don’t let math get in the way of getting started. 2. Decide how many months make sense for you We recommend having at least three months’ worth of expenses in your emergency fund. A few scenarios that might warrant saving more include: You support others with your income Your job security is iffy You don’t have steady income You have a serious medical condition But it really comes down to how much will help you sleep soundly at night. According to Bankrate’s survey, nearly ⅔ of people say that total is six months or more. Whatever amount you land on, we’ll suggest a monthly recurring deposit to help you get there. We’ll also project a four-year balance based on your initial and scheduled deposits and your expected return and volatility. Why four years? We believe that’s a realistic timeframe to save at least three months of living expenses through recurring deposits. If you can get there quicker and move on to other money goals, even better! 3. Pick a place to keep your emergency fund We recommend keeping your emergency fund in one of two places: cash—more specifically a low-risk, high-yield cash account—or a bond-heavy investing account. A low-risk, high-yield cash account like our Cash Reserve may not always keep pace with inflation, but it comes with no investment risk. Cash Reserve offered by Betterment LLC and requires a Betterment Securities brokerage account. Betterment is not a bank. FDIC insurance provided by Program Banks, subject to certain conditions. Learn more. An investing account is better suited to keep up with inflation but is relatively riskier. Because of this volatility, we currently suggest adding a 30% buffer to your emergency fund’s target amount if you stick with the default stock/bond allocation. There also may be tax implications should you withdraw funds. Your decision will again come down to your comfort level with risk. If the thought of seeing your emergency fund’s value dip, even for a second, gives you heartburn, you might consider sticking with a cash account. Or you can always hedge and split your emergency fund between the two. There’s no wrong answer here! Remember to go with the (cash) flow There’s no final answer here either. Emergency funds naturally ebb and flow over the years. Your monthly expenses could go up or down. You might have to withdraw (and later replace) funds. Or you simply might realize you need a little more saved to feel secure. Revisit your numbers on occasion—say, once a year or anytime you get a raise or big new expense like a house or baby—and rest easy knowing you’re tackling one of the most important financial goals out there.

Self-directed investing, the Betterment way Nov 11, 2025 7:00:00 AM See what makes Betterment’s self-directed investing different from the rest. Plus, get three tips to help develop your own investing strategy. Key takeaways We surveyed our customers and learned that 75% of them use self-directed investing elsewhere, but many want it alongside their automated investing—so we built it the Betterment way. With Betterment, you can invest your way, buying and selling thousands of stocks and ETFs with no commissions. Manage your automated portfolios, cash accounts, and self-directed trades together on one platform for a fuller view of your finances. Unlike other investing apps, Betterment’s tax impact preview lets you see the impact of a sale before you trade, so there are no tax surprises. Invest smarter with these three tips: set clear goals, plan for taxes, and keep emotions out of your investing. Recently, we surveyed our customers and learned that 75% of them use some form of self-directed investing. That was eye-opening. While our automated investing tools are designed to take the work out of wealth building, many people still want the option to pick and manage certain investments on their own. So we asked ourselves: how can we bring self-directed investing to life—the Betterment way? Our answer: combine our award-winning platform with a customer-first experience to let you buy and sell thousands of stocks and ETFs with no commissions. With Betterment’s self-directed investing, you’ll get more investing choices, the ability to see all of your investments in a consolidated place, and tax insights you won’t find anywhere else. Investing your way, all in one place Not everyone invests for the same reason. We know this because we continually solicit feedback from our customers. Some customers told us they want to invest in companies they believe in. Others find it intellectually rewarding to follow markets and make trades. And many simply like having more control over their portfolio. With Betterment’s self-directed investing, you can get that flexibility while keeping everything on one platform. Manage your automated portfolios, cash accounts, and self-directed trades side by side, with technology designed to give you a clear view of your financial life. Tax insights you won’t get anywhere else Here’s where we’re really different than the typical “stock trading” platforms. Self-directed trading often means more frequent buying and selling, which can bring a hefty and unexpected tax bill at the end of the year that catches people off guard. In fact, when we asked our customers about their biggest challenge with self-directed investing on other apps, the top answer was “managing tax implications.” We solved that challenge. At Betterment, you’ll see a tax impact preview before you sell a stock or ETF. That preview includes how the sale could affect your taxes, and even potential wash sales. A wash sale occurs when you sell a security at a loss and then repurchase the same or a substantially identical security within 30 days before or after the sale, disallowing the tax deduction for that loss. With our tax impact preview, there are no surprises or guesswork. Just clear tax insights to help you make smarter decisions. (See how tax impact preview works.) Three tips to get started with self-directed investing Self-directed investing provides you with the choice to invest your way. But you get to decide what “your way” means. To help, here are three steps to get started: Have a clear goal before you trade: Don’t just buy because something looks hot or is in the news. Ask yourself: Am I investing for long-term growth, short-term income, diversification, or some other reason? Having a clear purpose can help you avoid making impulsive trades. Think about taxes before you sell: Selling a stock or ETF can trigger capital gains taxes. Short-term gains (for investments held less than a year) are usually taxed at a higher rate than long-term gains. Using tools that preview your tax impact before you trade—like Betterment’s—can help you avoid surprises. Avoid emotional trading: Markets move fast. It’s easy to panic-sell when prices dip or chase a stock that’s soaring. Instead, set rules for yourself—like only initiating a trade at pre-set price targets or sticking to a dollar-cost averaging plan—so emotions don’t dictate your decisions. Plus, at Betterment, your trades are queued for execution and not made immediately, but they are made in a timely manner, limiting your ability to try to “time the market.”

What’s an IRA and how does it work? Nov 7, 2025 7:00:00 AM Learn more about this investment account with tax advantages that help you prepare for retirement. An Individual Retirement Account (IRA) is a type of investment account with tax advantages that helps you prepare for retirement. Depending on the type of IRA you invest in, you can make tax-free withdrawals when you retire, earn tax-free interest, or put off paying taxes until retirement. The sooner you start investing in an IRA, the more time you have to accrue interest before you reach retirement age. But an IRA isn’t the only kind of investment account for retirement planning. And there are multiple types of IRAs available. If you’re planning for retirement, it’s important to understand your options and learn how to maximize your tax benefits. If your employer offers a 401(k), it may be a better option than investing in an IRA. While anyone can open an IRA, employers typically match a portion of your contribution to a 401(k) account, helping your investment grow faster. In this article, we’ll walk you through: What makes an IRA different from a 401(k) The types of IRAs How to choose between a Roth IRA and a Traditional IRA Timing your IRA contributions IRA recharacterizations Roth IRA conversions Let’s start by looking at what makes an Individual Retirement Account different from a 401(k). How is an IRA different from a 401(k)? When it comes to retirement planning, the two most common investment accounts people talk about are IRAs and 401(k)s. 401(k)s offer similar tax advantages to IRAs, but not everyone has this option. Anyone can start an IRA, but a 401(k) is what’s known as an employer-sponsored retirement plan. It’s only available through an employer. Other differences between these two types of accounts are that: Employers often match a percentage of your contributions to a 401(k) 401(k) contributions come right out of your paycheck 401(k) contribution limits are significantly higher If your employer matches contributions to a 401(k), they’re basically giving you free money you wouldn’t otherwise receive. It’s typically wise to take advantage of this match before looking to an IRA. With an Individual Retirement Account, you determine exactly when and how to make contributions. You can put money into an IRA at any time over the course of the year, whereas a 401(k) almost always has to come from your paycheck. Note that annual IRA contributions can be made up until that year’s tax filing deadline, whereas the contribution deadline for 401(k)s is at the end of each calendar year. Learning how to time your IRA contributions can significantly increase your earnings over time. Every year, you’re only allowed to put a fixed amount of money into a retirement account, and the exact amount often changes year-to-year. For an IRA, the contribution limit for 2025 is $7,000 if you’re under 50, or $8,000 if you’re 50 or older. For a 401(k), the contribution limit for 2025 is $23,500 if you’re under 50, or $31,000 if you’re 50 or older. These contribution limits are separate, so it’s not uncommon for investors to have both a 401(k) and an IRA. And as a side note for those 50 or older, starting in 2026, 401(k) catch-up contributions must go into a Roth 401(k) specifically if you received more than $145,000 in FICA wages (salaries, commissions, etc.) the prior year. What are the types of IRAs? The challenge for most people looking into IRAs is understanding which kind of IRA is most advantageous for them. For many, this boils down to Roth and/or Traditional. The advantages of each can shift over time as tax laws and your income level changes, so this is a common periodic question for even advanced investors. As a side note, there are other IRA options suited for the self-employed or small business owner, such as the SEP IRA, but we won’t go into those here. As mentioned in the section above, IRA contributions are not made directly from your paycheck. That means that the money you are contributing to an IRA has already been taxed. When you contribute to a Traditional IRA, your contribution may be tax-deductible. Whether you are eligible to take a full, partial, or any deduction at all depends on if you or your spouse is covered by an employer retirement plan (i.e. a 401(k)) and your income level (more on these limitations later). Once funds are in your Traditional IRA, you will not pay any income taxes on investment earnings until you begin to withdraw from the account. This means that you benefit from “tax-deferred” growth. If you were able to deduct your contributions, you will pay income tax on the contributions as well as earnings at the time of withdrawal. If you were not eligible to take a deduction on your contributions, then you generally will only pay taxes on the earnings at the time of withdrawal. This is done on a “pro-rata” basis. Comparatively, contributions to a Roth IRA are not tax deductible. When it comes time to withdraw from your Roth IRA, your withdrawals will generally be tax free—even the interest you’ve accumulated. How to choose between a Roth IRA and a Traditional IRA For most people, choosing an Individual Retirement Account is a matter of deciding between a Roth IRA and a Traditional IRA. Neither option is inherently better: it depends on your income and your tax bracket now and in retirement. Your income determines whether you can contribute to a Roth IRA, and also whether you are eligible to deduct contributions made to a Traditional IRA. However, the IRS doesn’t use your gross income; they look at your modified adjusted gross income, which can be different from taxable income. With Roth IRAs, your ability to contribute is phased out when your modified adjusted gross income (MAGI) reaches a certain level. If you’re eligible for both types of IRAs, the choice often comes down to what tax bracket you’re in now, and what tax bracket you think you’ll be in when you retire. If you think you’ll be in a lower tax bracket when you retire, postponing taxes with a Traditional IRA will likely result in you keeping more of your money. If you expect to be in a higher tax bracket when you retire, using a Roth IRA to pay taxes now may be the better choice. The best type of account for you may change over time, but making a choice now doesn’t lock you into one option forever. So as you start retirement planning, focus on where you are now and where you’d like to be then. It’s healthy to re-evaluate your position periodically, especially when you go through major financial transitions such as getting a new job, losing a job, receiving a promotion, or creating an additional revenue stream. Timing IRA contributions: why earlier is better Regardless of which type of IRA you select, it helps to understand how the timing of your contributions impacts your investment returns. It’s your choice to either make a maximum contribution early in the year, contribute over time, or wait until the deadline. By timing your contribution to be as early as possible, you can maximize your time in the market, which could help you gain more returns over time. Consider the difference between making a maximum contribution on January 1 and making it on December 1 each year. Then suppose, hypothetically, that your annual growth rate is 10%. Here’s what the difference could look like between an IRA with early contributions and an IRA with late contributions: This figure represents the scenarios mentioned above.‘Deposit Early’ indicates depositing $6,000 on January 1 of each calendar year, whereas ‘Deposit Late’ indicates depositing $6,000 on December 1 of the same calendar year, both every year for a ten-year period. Calculations assume a hypothetical growth rate of 10% annually. The hypothetical growth rate is not based on, and should not be interpreted to reflect, any Betterment portfolio, or any other investment or portfolio, and is purely an arbitrary number. Further, the results are solely based on the calculations mentioned in the preceding sentences. These figures do not take into account any dividend reinvestment, taxes, market changes, or any fees charged. The illustration does not reflect the chance for loss or gain, and actual returns can vary from those above. What’s an IRA recharacterization? You might contribute to an IRA before you have started filing your taxes and may not know exactly what your Modified Adjusted Gross Income will be for that year. Therefore, you may not know whether you will be eligible to contribute to a Roth IRA, or if you will be able to deduct your contributions to a Traditional IRA. In some cases, the IRS allows you to reclassify your IRA contributions. A recharacterization changes your contributions (plus the gains or minus the losses attributed to them) from a Traditional IRA to a Roth IRA, or, from a Roth IRA to a Traditional IRA. It’s most common to recharacterize a Roth IRA to a Traditional IRA. Generally, there are no taxes associated with a recharacterization if the amount you recharacterize includes gains or excludes dollars lost. Here are three instances where a recharacterization may be right for you: If you made a Roth contribution during the year but discovered later that your income was high enough to reduce the amount you were allowed to contribute—or prohibit you from contributing at all. If you contributed to a Traditional IRA because you thought your income would be above the allowed limits for a Roth IRA contribution, but your income ended up lower than you’d expected. If you contributed to a Roth IRA, but while preparing your tax return, you realize that you’d benefit more from the immediate tax deduction a Traditional IRA contribution would potentially provide. Additionally, we have listed a few methods that can be used to correct an over-contribution to an IRA in this FAQ resource. You cannot recharacterize an amount that’s more than your allowable maximum annual contribution. You have until each year’s tax filing deadline to recharacterize—unless you file for an extension or you file an amended tax return. What’s a Roth conversion? A Roth conversion is a one-way street. It’s a potentially taxable event where funds are transferred from a Traditional IRA to a Roth IRA. There is no such thing as a Roth to Traditional conversion. It is different from a recharacterization because you are not changing the type of IRA that you contributed to for that particular year. There is no cap on the amount that’s eligible to be converted, so the sky’s the limit for those that choose to convert. We go into Roth conversions in more detail in our Help Center.

Your Betterment experience has just undergone a major upgrade Aug 18, 2025 9:57:03 AM A better way to manage your money is here. Your Betterment experience has just undergone a major upgrade, built around one idea: making managing your money more flexible and intuitive. We’ve redesigned how your accounts and goals work together, so you can organize your money the way that makes the most sense for you. What changed—and why? We’ve always believed in goal-based investing. It’s what sets Betterment apart. But in the past, each goal in Betterment was tied to a single account. That worked when needs were simpler. But you asked for more flexibility to reflect your financial life, and we’ve delivered. Now, by separating account data from goal advice, we’ve created space for more personalized guidance, clearer navigation, and more flexibility for you and your money. What you’ll see that’s new today: A cleaner design: A modern look that surfaces what matters most—no more digging through tabs. A dedicated page for each goal: Get personalized advice, projections, and next steps, all in one place. A streamlined overview of single accounts: See balances, holdings, and performance clearly, while being able to click through directly to access account details. A dedicated goal forecaster: Get insights in one place to see how actions may affect future earnings. And as a BONUS: Your Activity Page got an upgrade 🔄 Enjoy a clearer window into trades, transfers, and transactions. And we’re just getting started. We’re already building the next phase of features to make your Betterment experience more powerful and flexible. Multiple accounts in one goal: Get combined advice across different account types and tax treatments. Smarter, goal-specific advice: We’ll help you optimize every dollar for what you care about most.
 Shared goals: Soon, you’ll be able to co-own a goal with another Betterment user.
 More tailored investing guidance: Tell us your goal, and we’ll recommend the best path to get there. A faster, more user-friendly Betterment experience. To better fit your financial needs, we’ve separated account data from goal-based advice to give you more control and a better sense of ownership over your account. Whether you're planning for retirement, building an emergency fund, or simply growing your wealth through automated investing, Betterment is now better built for how you’ll manage your money. Smarter tools, personalized advice, and goal-based investing—all working together for you.

Inside the investing kitchen, part 3 Aug 15, 2025 12:00:00 PM Order up! See how we handle thousands of trades each day to keep customers’ portfolios humming. When a chef plates a meal, they typically send it off, never to be seen again. But serving up an investing portfolio is an ongoing affair. Deposits come in. Withdrawals go out. Asset classes grow and shrink as the market moves. Rebalancing takes place on the regular. All of this requires daily trading. And this buying and selling of securities is among the most intricate and highly-regulated pieces of our operations. So while the first two parts of this series cover the recipes and ingredients behind our investing, our final course focuses on the team—and tech—behind every transaction. What happens when you hit "deposit" Cara Daly is an adventurer at heart. An avid surfer and the daughter of a flight attendant, she racks up air miles chasing waves and visiting family in Ireland. So naturally, she's gravitated toward one of the more thrill-seeking roles on our Investing team: Capital Markets. From the minute markets open each day, Cara and team monitor the action, making sure our customers' orders go smoothly. These trades can amount to hundreds of millions of dollars in a single day, and the system that executes them all is in many ways our secret sauce. It's custom-built (a rarity in the industry) and plays the role of Mission Control. When a customer clicks "deposit," for example, that single click gets translated into a series of purchases. These in turn get bundled up with other purchases of a like-kind and turned into orders, which are then executed at calibrated intervals as a part of our managed trading strategy. This sort of intentional trading is incredibly important because of the scale of our operations. We manage $65 Billion+ of assets, making us the largest independent robo-advisor out there. We may not "make" markets, but our trading volume is big enough to potentially influence them. So we need to be mindful of how and when our trades get executed. “Say the market trades $10 million of a hypothetical security on any given day,” Cara says. “If our customers happen to want $20 million of it, meeting all that demand without minding the bigger context could drive up the price.” To navigate these executional challenges, we deploy multiple strategies as needed (see below for a few examples), evaluating and calibrating each on a continuous basis. Taken altogether, they help ensure our customers' purchases and sales get treated fairly in the market. Waiting out the first half hour after markets open before starting our trading. This helps sidestep some of the volatility that's common early in the day. Trading periodically throughout the day, and randomizing when customers’ orders are processed. It's possible that prices can loosely correlate with certain times of the day, so we don't want that to consistently affect any one customer. Briefly holding back on “system-generated” trading (proactive rebalancing, for example) for any particular fund if its trading reaches a certain threshold relative to its average daily volume. This helps make sure “user-directed” trading (when customers make deposits or withdrawals, to name a few examples) can continue regardless. Partnering with industry experts like Apex to route and execute orders across multiple firms, helping us stay at the forefront of the evolving market landscape. This access to different execution venues also helps seek out the most favorable terms for customers—whether that’s price, speed, or overall execution quality. Switching gears from execution to tax optimization, we also use both primary and secondary funds for most of our asset classes. These backup “tickers” come into play during times of heightened volatility in markets. Moments that can make or break an investing strategy. Acing the stress test of market volatility More often than not, it's business as usual on our Capital Markets team, and that's by design. But during stretches of extreme volatility, when trading volume really picks up and prices can swing wildly from hour to hour, it's all hands on deck. Cara and company monitor our trading system for signs that additional oversight may be needed. They ease emerging bottlenecks in real time and keep things running smoothly, at times enlisting the support of our Trading Engineering team. Cara Daly (left) helps make sure customers’ daily trading goes smoothly. Take April of 2025 for example. Early in the month, the Trump administration caught investors off guard by announcing a series of tariffs way higher and way earlier than expected. The announcement, and the inconsistent messaging that followed, set off a wild, weeks-long stretch of trading. Prices of some securities cratered in the morning only to recover by day's end. Our systems not only weathered this storm, but capitalized on it, taking advantage of small windows of time to harvest tens of millions of dollars in temporary losses for customers before prices recovered. This strategy of tax loss harvesting helps sprinkle tax advantages on a portion of customers' taxable investing, and it wouldn’t be possible without the help of those aforementioned secondary tickers. These funds help reduce “wash sales” while maintaining customers’ desired exposures and risk levels. Something delicious is simmering The image of a golden harvest is an apt one, considering this series looks at our Investing team's work through a culinary lens. Many of our customers come to us not necessarily for a single serving of returns, but to plant the seeds for self-sustaining, long-term wealth. A harvest that supports a more-fulfilling life. Cara and the rest of our Capital Markets experts are a big part of that lifecycle, tending to thousands of daily trades that optimize our customers’ portfolios over and over again. That's the beauty of using technology as a tool to expand our own capabilities and deliver results at scale. It's a people-led process. We became a trusted leader in automated money management not because of our tech, but because of the people who build and use it each day. Specialists like Cara, Josh, and Jamie—They're our secret ingredient, working in service of customers hungry for a better way to invest. Bon appétit.

Inside the investing kitchen, part 1 Jun 24, 2025 11:30:00 AM The recipe for a better portfolio, and the science behind a safer nest egg. Jamie Lee isn’t a Top Chef, but he knows his way around the kitchen. He dabbles in sous vide with the help of a sous chef (his 6-year-old daughter). He loves smoking salmon low and slow on a pair of pellet grills. And in some ways, his day job on the Betterment Investing team resembles the culinary world as well. He and his teammates work in a test kitchen of sorts, defining and refining the recipes for our low-cost, high-performing, and globally-diversified portfolios. They size up ingredients, pair flavors, and thoughtfully assemble the courses of each “meal.” All in service of customers with varying appetites for risk. It's highly-technical work, but we wouldn't be Betterment if we didn't make our methodologies as accessible as possible. So whether you're kicking the tires on our services, or you're already a customer and simply curious about the mechanics of your money machine, come along for a three-part, behind-the-scenes look at how we cook up a better portfolio. Here in part 1, we'll explore how we allocate your investing at a high level. In part 2, we'll zoom in to our process for selecting specific funds. And in part 3, we'll show you how we handle thousands of trades each day to keep our customers’ portfolios in tip-top shape. The science behind a safer nest egg Betterment customers rely on Jamie and team to do the heavy lifting of portfolio construction. They distill handfuls of asset classes, a hundred-plus risk levels, and thousands of funds into a simple yet eclectic menu of investment options. And underpinning much of this process is something called Modern Portfolio Theory, a framework developed by the late American economist Harry Markowitz. The theory revolutionized how investors think about risk, and led to Markowitz winning the Nobel Prize in 1990. Diversification lies at the heart of Modern Portfolio Theory. The more of it your investing has, the theory goes, the less risk you're exposed to. But that barely scratches the surface. One of the meatiest parts of building a portfolio (and by extension, diversifying your investing) is how much weight to give each asset class, also known as asset allocation. Broadly speaking, you have stocks and bonds. But you can slice up the pie in several other ways. There’s large cap companies or less established ones. Government debt or the corporate variety. And even more relevant as of late: American markets or international. Jamie came of age in South Korea during the late 90s. Back here in the States, the dot-com bubble was still years away from popping. But in South Korea and Asia more broadly, a financial crisis was well underway. And it changed the trajectory of Jamie’s career. His interest in and application of math shifted from computer science to the study of markets, and ultimately led to a PhD in statistics. Jamie Lee (right) helps optimize the weights of asset classes in Betterment portfolios. For Jamie, the interplay of markets at a global level is fascinating. So it’s only fitting that when optimizing asset allocations for customers, Jamie and team start with the hypothetical "global market portfolio," an imaginary snapshot of all the investable assets in the world. The current value of U.S. stocks, for example, represents about two-thirds the value of all stocks, so it's weighted accordingly in the global market portfolio. These weights are the jumping off point for a key part of the portfolio construction process: projecting future returns. Reverse engineering expected returns “Past performance does not guarantee future results.” We include this type of language in all of our communications at Betterment, but for quantitative researchers, or “quants,” like Jamie, it’s more than a boilerplate. It’s why our forecasts for the expected returns of various asset classes largely aren't based on historical performance. They're forward-looking. "Past data is simply too unreliable," says Jamie. "Look at the biggest companies of the 90s; that list is completely different from today.” So to build our forecasts, commonly referred to in the investing world as Capital Market Assumptions, we pretend for a moment that the global market portfolio is the optimal one. Since we know roughly how each of those asset classes performs relative to one another, we can reverse engineer their expected returns. This robust math is represented by a deceivingly short equation—μ = λ Σ ωmarket—which you can read more about in our full portfolio construction methodology. From there, we simulate thousands of paths for the market, factoring in both our forecasts and those of large asset managers like BlackRock to find the optimal allocation for each path. Then we average those weights to land on a single recommendation. This “Monte Carlo" style of simulations is commonly used in environments filled with variables. Environments like, say, capital markets. The outputs are the asset allocation percentages (refreshed each year) that you see in the holdings portion of your portfolio details At this point in the journey, however, our Investing team's work is hardly finished. They still need to seek out some of the most cost-effective, and just plain effective, funds that give you the intended exposure to each relevant asset class. For this, we need to head out of the test kitchen and into the market. So don’t forget your tote bag.

Inside the investing kitchen, part 2 Jun 24, 2025 11:25:00 AM See how we source the higher-quality, lower-cost funds that fill up your portfolio. A lot goes into the making of a single Betterment portfolio. So much that we're spreading out this showcase of our Investing team's work over three parts. In part 1, we explore how we allocate customers’ investing at a high level, and in part 3, we show how we handle thousands of trades each day to keep their portfolios humming. And here in part 2, we zoom into a topic that may be a little more relatable for the everyday investor: picking the actual investments themselves. If asset allocation is like refining a recipe, then today's topic of fund selection is all about the sourcing of higher-quality, lower-cost ingredients. And for that, we turn our eye toward a market of another kind. Josh Shrair specializes in shopping capital markets here at Betterment, picking the funds that fill up your portfolio's respective allocations. His line of work looked a little different decades ago, back when his step dad was working as a trader on Wall Street. Back then, this level of attention to portfolio construction and fund selection was typically in service of only the ultra wealthy. But now, Josh and team navigate a rapidly-expanding universe of investments on behalf of everyday investors. Why shopping for funds isn't always so simple On one hand, the recent explosion of investment options has been great for investors. Increased competition drives down costs and opens up access to newer, more niche markets. But more choice also leads to more complexity. Take Exchange Traded Funds (ETFs), our preferred building block for portfolios thanks to their transparency, tax efficiency, and lower costs. They bundle up hundreds, and sometimes thousands, of individual stocks and bonds. But even ETFs are multiplying fast. In 2024 alone, 723 new ones launched, bringing the total to nearly 4,000. To illustrate this abundance, let's say your asset allocation calls for a heaping serving of “Large Cap” stocks, meaning companies valued at $10 billion or more. Nearly 500 ETFs populate this particular corner of the ETF universe. We can narrow that group down to 30 based on the specific exposure we’re looking for, like say U.S. Large Cap companies, or the S&P 500, a list or “index” of 500 of the biggest American companies. But the due diligence is hardly done. Some ETFs that track the S&P 500 follow it faithfully, while others put their own spin on it, which can open investors up to unintended exposure. Josh Shrair (second from left) helps navigate a rapidly-expanding universe of ETFs on behalf of Betterment customers. Just as crucially, their costs are all over the place, and higher fees can erode your returns in the long run. That's why the SPDR fund is currently our Core portfolio’s primary way of achieving U.S. Large Cap stock exposure. It offers both a low cost to hold (0.02%) and a low cost to trade (0.03% at the time of writing), making for a low overall cost of ownership. "Shopping for investments is a little like buying a car," Josh says. "The total cost is way more than the sticker price." How we calculate cost of ownership Part of our role as a fiduciary, someone who's legally obligated to act in their clients' best interests, is conducting a deep and unbiased evaluation of the ETFs used in our portfolios. The process Josh and team use is entirely "open architecture," meaning we’re not obligated to use funds from any particular provider. Instead, we strive to select the most optimal ones in terms of cost and exposure. It helps that Betterment itself doesn't make, manage, and sell funds, which means we avoid the inherent conflict of interest some advisors face when they also act as a fund manager. These firms can be tempted to steer customers toward their own funds, even when a better alternative exists. So we take pride in the due diligence behind our fund selection, and that begins with our "cost of ownership" scoring methodology. It factors in the two types of costs mentioned earlier: the cost to "hold" or own a fund, also known as its expense ratio, and the cost to trade it. As you'll see in part 3 of this series, a portfolio is hardly static. Deposits come in. Withdrawals go out. Rebalancing takes place on the regular. All of this requires daily trading, so the cost of those transactions matters to your investing's bottom line. The cost-to-trade is also known as the "bid-ask spread," or the markup that traders expect when selling a share. It's how they make money, and similar to wholesalers and retailers like Costco, the bigger the fund, the smaller the margins a trader can live with. Seeking out these value buys is how we're able to deliver globally-diversified portfolios at a fraction of the cost of alternatives on the market today. And we’re never done shopping. Our preferred funds are updated multiple times throughout the year. Primed for the purchase There's a lot more to our fund selection methodology, especially for funds that aren’t tied to a specific index, but are instead made from scratch. Some fund managers like Goldman Sachs, where Josh worked earlier in his career, also blend both approaches into a “smart beta” strategy. We offer one such portfolio alongside our Betterment-built collections. But for the sake of this series, let's pretend for a moment that our tote bags are full, and we're ready to check out. It’s time to meet the team behind every transaction at Betterment.

Our Socially Responsible Investing portfolios methodology Mar 31, 2025 7:00:00 AM Learn how we construct 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 empowerment) 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 Social Equity Mandate ETFs managed with the aim of obtaining exposures in investments that seek to advance vulnerable, disadvantaged, or underserved social groups. The Gender Equity Mandate also contributes to fulfilling this broader mandate. 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 diversity and veteran impact 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. 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, US High Quality bonds, and US Mortgage-Backed Securities. 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 more than 47% lower than Betterment’s 100% stock Core portfolio as of March 12, 2025. 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, social equity, and shareholder engagement. The Social Impact portfolio was designed to give investors exposure to investments which promote social empowerment 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 empowerment with sufficient liquidity relative to their size in the portfolio. How does the Social Impact portfolio help promote social empowerment? 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 the following ETFs: SPDR SSGA Gender Diversity Index ETF (SHE) Academy Veteran Impact ETF(VETZ) Goldman Sachs JUST U.S. Large Cap Equity ETF (JUST) 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. VETZ, the Academy Veteran Impact ETF, is a US Bond ETF and is the first publicly traded ETF to primarily invest in loans to U.S. service members, military veterans, their survivors, and veteran-owned businesses. A majority of the underlying assets consist of loans to veterans or their families. The fund primarily invests in Mortgage-Backed Securities that are guaranteed by government-sponsored enterprises, such as Ginnie Mae, Fannie Mae, and Freddie Mac. The fund also invests in pools of small business loans backed by the Small Business Administration (SBA). JUST, Goldman Sachs JUST U.S. Large Cap Equity ETF, invests in U.S. companies promoting positive change on key social issues, such as worker wellbeing, customer privacy, environmental impact, and community strength, based on the values of the American public as identified by JUST Capital’s polling. Investment in socially responsible ETFs varies by portfolio allocation; not all allocations include the specific ETFs listed above. 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 to 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 March 31, 2025 indicate that SRI income returns at certain risk levels have been lower than those of the 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 March 31, 2025. 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 March 2025. 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 the investing landscape continues to evolve.