Betterment Editors

Four ways we help trim your tax bill Jun 9, 2025 7:00:00 AM And why these "invisible" wins matter more than you may think. As investors, we tend to focus most on what we can see. Things like portfolio makeup, and the returns generated by those investments. No less important, however, are the less obvious things, like the taxes you never paid in the first place because of technology that quietly runs in the background. You may only think about taxes once a year, but here at Betterment, every day is Tax Day. This sort of year-round tax optimization sounds boring, but believe us, it makes a difference. Taxes can steadily eat away at your returns over the years. So any advisor worth their salt should take taxes seriously and minimize them as much as possible. These “invisible” wins are hard to spot in the moment, so let’s shine a light on them now. Here are four sophisticated ways we buy, sell, and hold your shares, all in the name of trimming your tax bill. Choosing which assets go where – Our Tax Coordination feature helps shield high-growth assets in the most tax-efficient account types. Rebalancing wisely – We take advantage of any existing cash flows to help minimize capital gains taxes while rebalancing your portfolio. Choosing which taxable shares to sell (or donate) – Our TaxMin technology helps minimize short-term capital gains taxes. Harvesting losses – When your taxable investments dip below their initial purchase price, we jump on the opportunity to “harvest” the theoretical loss and potentially lower your future tax bill. 1. Choosing which assets go where From a tax perspective, you have three main account types at your disposal when saving for retirement: Tax-deferred (traditional IRAs, 401(k)s, etc.), where taxes are paid later. Tax-exempt (Roth IRAs, 401(k)s, etc.), where taxes are paid now. Taxable, where taxes are paid both now and later. Because of their different tax treatments, certain types of investments are a better fit for certain accounts. Interest from bonds, for example, is typically taxed at a higher rate than stocks, so it often makes sense to keep them away from taxable accounts. This sorting of asset types based on tax treatments, rather than divvying them up equally across accounts, is known as asset location. And our fully-automated, mathematically-rigorous spin on it is called Tax Coordination. When Tax Coordination is turned on, the net effect is more of your portfolio's growth is shielded in a Roth account, the pot of money you crucially don't pay taxes on when withdrawing funds. To learn more about our Tax Coordination feature and whether it’s right for you, take a peek at its disclosure. 2. Rebalancing wisely When the weights of asset classes in your portfolio drift too far from their targets, our technology automatically brings them back into balance. But there's more than one way to accomplish this portfolio rebalancing. You can simply sell some of the assets that are overweight, and buy the ones that are underweight (aka "sell/buy" rebalancing), but that can realize capital gains and result in more taxes owed. So we first take advantage of any available cash flows coming into or out of your portfolio. When you make a withdrawal, for example, we intentionally liquidate overweight assets while striving to minimize your tax hit as much as possible (more on that below). And when you deposit money or receive dividends, we use those funds to beef up underweight assets. 3. Choosing which taxable shares to sell (or donate) Say there's no way around it: you need to sell an asset. Maybe cash flows aren't enough to keep your portfolio completely balanced. Or you’re withdrawing funds for a major purchase. The question then becomes: which specific assets should be sold? The IRS and many brokers follow the simple script of "first in, first out," meaning your oldest assets are sold first. This approach is easier for your broker, and it can avoid more highly-taxed short-term capital gains. But it often misses the opportunity of selling assets at a loss, and harvesting those losses for potential tax benefits. So our algorithms take a more nuanced approach to selecting shares, and we call this technology TaxMin. TaxMin is calibrated to avoid frequent small rebalance transactions and seek tax-efficient outcomes, things like avoiding wash sales and minimizing short-term capital gains. In the case of donating shares, we apply the same logic in reverse, or TaxMax as we call it. That's because when donating shares, it benefits you to choose the ones with the most gains, since any shares bought as a replacement will effectively have a reset tax bill. 4. Harvesting losses Life is full of ups and downs, and your investments are no different. At times, most notably during market downturns, the price of an asset may dip below what you paid for it. Tax loss harvesting takes advantage of these moments, selling taxable assets that fit this bill, then replacing them with similar ones so you stay invested. You can then use those harvested losses to shift taxes you owe now into the future. The strategy doesn’t make sense for everyone, but it can help some investors sprinkle tax advantages on a portion of their taxable investing. And our fully-automated spin on it takes a tax hack once reserved for the wealthy and makes it available to the masses. Happy harvesting. In conclusion, we care a lot about taxes Because it’s one of the most reliable ways to boost your returns. We can’t control the market, but tax laws? Those are set by the IRS and broadcast far and wide. And we can help you navigate them wisely. We wouldn’t be doing our job if we didn’t. So the next time you take a peek at your returns, ask yourself how much of that growth will still be there come tax time. If you’re a Betterment customer, you can rest assured we’re working tirelessly to minimize those tax drags. You may not realize it right away, and rightfully so. Live your life, and leave the tax toiling to us.

How to course correct when you simply can't stay the course May 12, 2025 3:20:36 PM De-risking during market volatility can be costly. Here’s how to do it without breaking the bank. The best course of action during market volatility is often inaction. That’s because selling riskier assets at a loss locks in those losses. It foregoes their potential for future growth, and it might also trigger capital gains taxes in the process. But if taking some sort of action feels necessary, then modestly reducing your overall risk exposure can be a reasonable alternative. Consider dialing down your existing stock allocation by a few percentage points, or lower the costs of recalibrating by using your future deposits instead. Either way, the solution may be the same: sprinkling in more bonds. Consider bonds to calm your investing nerves When people talk about diversification, equities like international stocks get most of the attention. But no less important in the role of managing risk are bonds. These are the loans given to governments and companies by investors, and while they're not completely risk-free (no asset is), the relatively-modest interest they tend to pay out can feel like a windfall when stock values are plunging. They won’t negate all of the volatility of stocks, but they can help smooth things out and preserve capital. This is why all of our recommended allocations include holding at least some bonds. One way to de-risk some of your future investing is with one of our portfolios made up of both stocks and bonds (Core, Value Tilt, etc.). We’ll recommend a risk level based on your goal, but we make it easy to dial up the bond allocation to your preference. Over time, you can slowly finetune things until your collective risk feels right. Or you can let us automatically adjust it based on your target date. We also offer two portfolios comprised entirely of bonds, each one designed for a different use: The BlackRock Target Income portfolio, designed to help you limit market volatility, preserve wealth, and generate income. The Goldman Sachs Tax-Smart Bonds portfolio, designed for high-income individuals seeking a higher after-tax yield compared to a cash account. Don’t forget about the role of cash One of the best ways to mitigate your overall financial risk is by shoring up your emergency fund, and preferably in a high-yield cash account like our Cash Reserve. Imagine losing your income stream, and how much time you'd want to get back on your feet. A good place to start is 3-6 months' worth of your essential expenses, but your right amount is whatever helps you sleep more soundly at night. Steadying the ship during unsteady times As we mentioned up front, right-sizing your risk during downturns isn’t always cheap. But there are ways to minimize the costs. Lowering your risk profile incrementally is one of them, and stretching out your safety net is another. Either way, it’s okay to recalibrate your risk tolerance from time-to-time, and you can do it wisely with Betterment.

How tax loss harvesting turns market losses into tax wins Apr 28, 2025 6:00:00 AM The tax strategy can unlock similar benefits as tax-deferred accounts Tax loss harvesting, or TLH for short, is selling an asset at a loss (which can happen especially during market downturns) primarily to offset taxes owed on capital gains or income. It shifts some of the taxes you might owe now, in other words, into the future. But the key takeaway is this: TLH can take a portion of your taxable investing and effectively turn it into tax-deferred investing. And tax-deferred investing, as we’ll quickly demonstrate, can do wonders for wealth-building. Tax me now or tax me later Take a dollar you would’ve otherwise paid in taxes today. Now invest it wisely. Odds are, it’ll be worth a lot more in the long run, even taking away any taxes you eventually owe. Depending on how your tax situation shakes out over the years, tax-deferred investing can be like Uncle Sam giving you a nearly interest-free loan to invest. This is in large part why tax-deferred accounts like traditional 401(k)s and IRAs come with restrictions. They’re reserved for retirement, namely, and their contributions are capped. But tax loss harvesting opens an entirely new door for tax-deferred investing, along with a few other side benefits. For a few types of investors in particular, it offers tremendous upside. Who TLH benefits the most Let’s start with an important caveat: While TLH offers potential value for most investors, it can be a wash or actually increase your tax burden in certain cases. But for now, let’s focus on three types of investors who can reap some of the biggest rewards from the strategy: The high-income earner Once you’ve offset all of your realized capital gains taxes for a given year, any leftover harvested losses can be used to offset taxes on up to $3,000 of ordinary income. So in the case of high earners, this means trading a high income tax rate for a relatively low long-term capital gains tax rate. The end result is both deferring and discounting your taxes. The steady saver Not only are recurring deposits a great way to start a savings habit, they also produce more harvesting opportunities. That’s because the older an investment, the less likely it drops below its initial purchase price (aka “cost basis”) and can be harvested at a loss. A steady drip of deposits, monthly for example, creates fresh crops of investments for harvesting in the near future. The tax-smart philanthropist A common misconception of tax loss harvesting is that it helps you avoid paying taxes altogether. Believe it or not, however, two scenarios exist in which you actually can cancel out your tax obligation: The first is when you donate shares to charity. As we mentioned earlier, selling and replacing shares as part of a harvest increases their future tax bill. It does this by lowering the shares’ cost basis, or the initial purchase price used to calculate capital gains. If you donate and replace these shares down the road, however, you reset their cost basis to a new, higher level. This effectively wipes out their entire tax bill(!) that had accrued to that point. In the eyes of the IRS, it’s like those capital gains never happened, and it’s one big reason why wealthy investors have long paired TLH with the practice of donating shares. The second scenario is posthumously. At that point, you won’t get a tax break, of course. But any individuals who you leave shares to will, because immediately after your death, the cost basis of your investments similarly “steps up” to their current market value. Your harvest awaits Historically-speaking, tax loss harvesting has been too time-intensive and costly to execute for all but the wealthiest of investors. But technology like ours and the low-cost trading of ETFs have made it a tax strategy for the masses. Take the market volatility of 2025 as an example. In little more than two weeks (March 26-April 10), Betterment harvested nearly $60 million in tax losses for customers. If TLH is right for you, the sooner you open and start contributing to a taxable account, the sooner you can start giving a portion of your taxable investing an edge. If you already have a Betterment taxable account, here’s how to turn on tax loss harvesting.

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.

Making sense of market volatility Mar 25, 2025 7:00:00 AM During times of market turbulence, it may be tempting to move your money to safer ground. But it’s important to consider the long-term impact of your decisions. As we've seen recently, the stock market can experience significant fluctuations, rising one day and declining the next. With market swings, tariff announcements, and policy changes flying about, you may be wondering what to do and whether now is the time to take action. You’ll hear from many financial advisors, including Betterment, that volatility is natural and often something you simply need to ride out. Which is true. While the temptation to move your money to safer ground is understandable, it’s important to consider the long-term impact of your decisions. You could miss out on growth opportunities or trigger a larger tax bill. Instead of taking immediate action, take a moment to think through your investing strategy, your financial needs, and potential next steps. Start with this question: When will I need my money? It’s impossible to time the market perfectly. But having a clear timeline for your financial goals allows you to prepare for volatile moments and even take advantage of them. A longer time horizon means you can afford to ride out downturns, while a shorter one may require different considerations. We’ll walk through four different scenarios based on time horizon and how you can align your volatility strategy with your financial goals. Staying invested at every stage in life If you’re not yet in the market: Waiting for the “perfect” time to invest often leads to missed opportunities. The best time to start is now, with a diversified portfolio that aligns with your goals. If you don’t need the money for decades: Whether we’re talking retirement, education savings, or just a healthy investing portfolio, if you’ve got decades to go, time is your greatest asset. Market volatility is normal, even if it feels chaotic. Staying invested and making consistent contributions over time will allow you to benefit from long-term growth and compounding. If you need the money in the next five to 10 years: Your investments still have time to recover from a downturn, but start thinking ahead. Make sure your portfolio reflects your risk tolerance while maintaining a focus on growth. As you get closer to your end goal, you may want to plan to shift toward a more conservative allocation of stocks to bonds, or even move money into a high-yield cash account. If you’re retired or nearly retired: In this retirement-specific case, you’re already drawing down on your investments (or will soon begin to). Remember that even though you’re “using” this money, you’ll be retired for a while, so you don’t want to miss out on growth entirely. “Have a plan that includes a mix of safe and growth-oriented investments. A cash or bond ‘bucket’ can cover short-term needs, while equities can support long-term growth,” says Betterment financial planner, Corbin Blackwell, CFP®. How Betterment can help you mitigate volatility While you can’t avoid market volatility altogether, you can take proactive steps to manage your money and financial needs during market downturns. Establishing a thoughtful investing strategy now will pay dividends in the future. Here are three things to consider as you determine your approach: Invest in a well-diversified portfolio: By investing in a diversified portfolio, your money isn’t riding the wave of any individual stock, asset type, or even a country’s performance. For example, the Betterment Core portfolio is globally diversified and has delivered 9.0% annual returns (after fees) since inception.1 Consider enabling tax loss harvesting: One silver lining strategy during market downturns is tax loss harvesting—a tax-saving tool that Betterment automates. TLH is the process of selling an asset at a loss (which can happen especially during market downturns) primarily to offset taxes owed on capital gains or income. Build and maintain an emergency fund: You should work to maintain 3-6 months of expenses. These funds should be stored in an account that’s relatively liquid but still can provide some level of growth to help keep up with inflation. Depending on your preferences for risk, growth, and liquidity, we offer a few options: Emergency Fund, our investment allocation built specifically for this use case, with 30% stocks and 70% bonds BlackRock Target Income, our 100% bond portfolios Cash Reserve, our 100% high-yield cash account The big picture If you remember nothing else, remember this: The most important thing you can do is avoid making rash decisions based on short-term market movement. Betterment is here with you every step of the way, helping ensure you make the most of your money, whether the market’s up or down. 1As of 12/31/2024, and inception date 9/7/2011. Composite annual time-weighted returns: 12.7% over 1 year, 7.9% over 5 years, and 7.8% over 10 years. Composite performance calculated based on the dollar-weighted average of actual client time-weighted returns for the Core portfolio at 90/10 allocation, net of fees, includes dividend reinvestment, and excludes the impact of cash flows. Past performance not guaranteed, investing involves risk.

ETF selection methodology Mar 20, 2025 8:00:00 AM When constructing a portfolio, Betterment focuses on exchange-traded funds (“ETFs”) with generally low costs and high liquidity. In the following piece, we detail Betterment’s investment selection methodology, including: Why ETFs Cost of Ownership (CO) Mitigating market impact Actively-managed investments Conclusion 1. Why ETFs? When constructing a portfolio, Betterment focuses on exchange-traded funds (“ETFs”) with generally low costs and high liquidity. An ETF is essentially a basket which contains underlying securities, such as stocks and bonds, and generally come in two different flavors: passive (or index tracking) and active. By design, passive index ETFs closely track their benchmarks—such as the S&P 500. On the other hand, active ETFs represent a group of hand-selected securities decided upon by a portfolio manager with the intention of beating a benchmark. Additionally, ETFs have certain structural advantages when compared to mutual funds. These include: A. Clear goals and mandates Betterment generally selects ETFs that have mandates to passively track broad-market benchmark indexes. A passive mandate explicitly restricts the fund administrator to the singular goal of replicating a benchmark rather than making active investment decisions in an effort to beat the fund’s underlying benchmark. We largely favor such transparency and lower idiosyncratic market risk, yet some asset classes may benefit from fundamental research-driven security selection, and in some instances, Betterment employs the use of active ETFs managed by experienced external portfolio management teams (more on that below). B. Intraday availability ETFs are transactable during all open market hours just like any other stock. As such, they are heavily traded by the full spectrum of equity market participants including market makers, short-term traders, buy-and-hold investors, and fund administrators themselves creating and redeeming units as needed (or increasing or decreasing the supply of ETFs based on market demand). This diverse trading activity leads to most ETFs carrying low liquidity premiums (or lower costs to transact due to competition from readily available market participants pushing prices downward) and equity-like transaction times irrespective of the underlying holdings of each fund. This generally makes ETFs fairly liquid, which makes them cheaper and easier to trade on-demand for activities like creating a new portfolio or rebalancing an existing one. C. Low-fee structures Because most benchmarks update constituents (i.e., the specific stocks and related weights that make up a broad-market index) fairly infrequently, passive index-tracking ETFs also register lower annual turnover (or the rate a fund tends to transact its holdings) and thus fewer associated costs are passed through to investors. In addition, ETFs are generally managed by their administrators as a single share class that holds all assets as a single entity. This structure naturally lends itself as a defense against administrators practicing fee discrimination across the spectrum of available investors. With only one share class, ETFs are investor-type agnostic. The result is that ETF administrators provide the same exposures and low fees to the entire spectrum of potential buyers. Where actively-managed ETFs are utilized in Betterment portfolios, fees and expenses remain a critical aspect of our decision making.Our selection process will favor active over passive when we strongly believe the value added by an active manager outweighs its likely higher expense ratio.. D. Tax efficiency In the case when a fund (irrespective of its specific structure) sells holdings that have experienced capital appreciation, the capital gains generated from those sales must, by law, be accrued and distributed to shareholders by year-end in the form of distributions. These distributions increase tax liabilities for all of the fund’s shareholders. With respect to these distributions, ETFs offer a significant tax advantage for shareholders over mutual funds. Because mutual funds are not exchange traded, the only available counterparty available for a buyer or seller is the fund administrator. When a shareholder in a mutual fund wishes to liquidate their holdings in the fund, the fund’s administrator must sell securities in order to generate the cash required to satisfy the redemption request. These redemption-driven sales generate capital gains that lead to distributions for not just the redeeming investor, but all shareholders in the fund. Mutual funds thus effectively socialize the fund’s tax liability to all shareholders, leading to passive, long-term investors having to help pay a tax bill for all intermediate (and potentially short-term) shareholder transactions. Because ETFs are exchange-traded, the entire market serves as potential counterparties to a buyer or seller. When a shareholder in an ETF wishes to liquidate their holdings in the fund, they simply sell their shares to another investor just like that of a single company’s equity shares. The resulting transaction would only generate a capital gain or loss for the seller and not all investors in the fund. In addition, ETFs enjoy a slight advantage when it comes to taxation on dividends paid out to investors. After the passing of the Jobs and Growth Tax Relief Reconciliation Act of 2003, certain qualified dividend payments from corporations to investors are only subject to the lower long-term capital gains tax rather than standard income tax (which is still in force for ordinary, non-qualified dividends). Qualified dividends have to be paid by a domestic corporation (or foreign corporation listed on a domestic stock exchange) and must be held by both the investor and the fund for 61 of the 120 days surrounding the dividend payout date. As a result of active mutual funds’ higher turnover, a higher percentage of dividends paid out to their investors violate the holding period requirement and increase investor tax profiles. E. Investment flexibility The maturation and growth of the global ETF market over the past few decades has led to the development of an immense spectrum of products covering different asset classes, markets, styles, and geographies. The result is a robust market of potential portfolio components which are versatile, extremely liquid, and easily substitutable. Despite all the advantages of ETFs, it is still important to note that not all ETFs are exactly alike or equally beneficial to an investor. Betterment’s investment selection process seeks to select ETFs that provide exposure to the desired asset classes. For certain asset classes where markets are more efficient, we seek to achieve these asset class exposures through passively managed ETFs due to its cost-effectiveness. Alternatively, where Betterment utilizes active management, we conduct rigorous analysis and due diligence to best understand the trade-off of benchmark deviation for potential performance benefit. The cornerstone of Betterment’s approach to investment selection is our “Cost of Ownership” or CO, allowing us to effectively rank and select ETFs based upon their fees to hold and cost to trade. 2. Cost of Ownership (CO) The Cost of Ownership (“CO”) is Betterment’s fund scoring method, used to rate funds for inclusion in the Betterment portfolio. CO takes into account an ETF’s transactional costs as well as costs associated with holding funds. In addition to CO, Betterment also considers certain other qualitative factors of ETFs, particularly when Betterment considers the use of actively-managed funds. Qualitative factors may include, but are not limited to whether the ETF fulfills a desired portfolio mandate and/or exposure and due diligence interviews with portfolio management teams. CO is determined by two components, a fund’s cost-to-trade and cost-to-hold. The first, cost-to-trade, represents the cost associated with trading in and out of funds during the course of regular investing activities, such as rebalancing, cash inflows or withdrawals, and tax loss harvesting. Betterment defines the the cost-to-trade as the bid-ask spread, or the difference between the price at which you can buy a security and the price at which you can sell the same security at any given time. The second component, cost-to-hold, is represented by the ETF’s expense ratio, or the fund expenses imposed by an ETF administrator. Let’s review the specific inputs to each component in more detail: Cost-to-Trade: Bid-Ask spread Bid-Ask spread: Generally market transactions are associated with two prices: the price at which people are willing to sell a security, and the price others are willing to pay to buy it. The difference between these two numbers is known as the bid-ask spread, and can be expressed in currency or percentage terms. For example, a trader may be happy to sell a share at $100.02, but only wishes to buy it at $99.98. The bid-ask currency spread here is $.04, which coincidentally also represents a bid-ask percentage of 0.04%. In this example, if you were to buy a share, and immediately sell it, you’d end up with 0.04% less due to the spread. This is how traders and market makers make money—by providing liquid access to markets for small margins. Generally, heavily-traded securities with more competitive counterparties willing to transact will carry lower bid-ask spreads. Unlike the expense ratio, the degree to which you care about bid-ask spread likely depends on how actively you trade. Buy-and-hold investors typically care about it less compared to active traders, because they will accrue significantly fewer transactions over their intended investment horizons. Minimizing these costs is beneficial to building an efficient portfolio which is why Betterment attempts to select ETFs with narrower bid-ask spreads. Cost-to-Hold: Expense ratio Expense ratio: An expense ratio is the set percentage of the price of a single share paid by shareholders to the fund administrators every year. ETFs often collect these fees from the dividends passed through from the underlying assets to holders of the security, which result in lower total returns to shareholders. Finding cost of ownership We calculate CO as the sum of the above components: CO = "Cost-to-Trade" + "Cost-to-Hold" Where Cost-to-trade = 0.5 * bid-ask spread As mentioned above, cost-to-trade estimates the costs associated with buying and selling funds in the open market. This amount is weighted to appropriately represent the aggregate investing activities of the average Betterment client in terms of cash flows, rebalances, and tax loss harvests. Additionally, we utilize ½ of the bid-ask spread in our calculations as this mid-point is generally what customers realize in terms of trade costs. The cost-to-hold represents our expectations of the annual costs an investor will incur from owning a fund as defined by the fund’s expense ratio In many cases, cost-to-hold, which includes an ETF’s expense ratio, will be the dominant factor in the total cost calculations. Of course, one can’t hold a security without first purchasing it, so we must also account for transaction costs, which we accomplish with our cost-to-trade component. 3. Minimizing market impact Market impact, or the change in price caused by an investor buying or selling a fund, is incorporated into Betterment’s total cost number through the cost-to-trade component. This is specifically through the interaction of bid-ask spreads. However, we do review and monitor other trading-related metrics not represented specifically in the CO calculation when evaluating our universe of investable funds. Additional metrics include whether the ETF has relatively high levels of existing assets under management and average daily traded volumes. This helps to ensure that Betterment’s trading activity and holdings will not dominate the security’s natural market efficiency, which could either drive the price of the ETF up or down when trading. ETFs without an appropriate level of assets or daily trade volume might lead to a situation where Betterment’s activity on behalf of clients moves the existing market for the security. In an attempt to avoid potentially negative effects upon our investors, we generally do not consider ETFs with smaller asset bases and limited trading activity unless some other extenuating factor is present. 4. Actively-managed investments Compared to passive investments which track a broad-market index, actively-managed ones seek to outperform their benchmark index by selecting and weighting securities based on a fundamental company research or market outlook. Betterment believes that certain markets may favor active management, and therefore, are less efficient than others, resulting in an opportunity where value may be added through actively-managed investments Given this, Betterment believes that a rigorous due diligence process can help identify favorable active managers who have developed a time-tested research-driven investment process. Additionally, while active management may have the potential to add return potential, Betterment continues to hold true to its Core portfolio construction philosophy, prioritizing cost-efficiency. This results in the continued evaluation of any actively-managed investment strategies we utilize with their ability to beat the benchmark vs. their, typically, higher expense ratio. Conclusion As with any investment, ETFs are subject to market risk, including the possible loss of principal. The value of any portfolio will fluctuate with the value of the underlying securities. ETFs may trade for less than their net asset value (NAV). There is always a risk that an ETF will not meet its stated objective on any given trading day. Betterment reviews its investment selection analysis on a periodic basis to assess: the validity of existing selections, potential changes by fund administrators (raising or lowering expense ratios), and changes in specific ETF market factors,including tighter bid-ask spreads). Additionally, Betterment undertakes qualitative due diligence to enhance our selection process for actively-managed investments. Finally, at the core of our portfolio construction process, we are constantly considering the tax implications of portfolio selection changes and estimates the net benefit of transitioning between investment vehicles for our clients.

Meet the Innovative Technology Portfolio Mar 10, 2025 8:00:00 AM If you believe in the power of tech to blaze new trails, you can now tailor your investing to track the companies leading the way. The most valuable companies of today aren’t the same bunch as 20 years ago. With each generation comes new challengers and new categories (Hello, Big Tech). And while we can’t really predict the next class of top performers, innovation will likely come from parts of the economy that use technology in new and exciting applications, industries like: artificial intelligence alternative finance clean energy manufacturing biotechnology This dynamic led us to create the Innovative Technology portfolio. What is the Innovative Technology portfolio? The portfolio increases your exposure to companies pioneering the technology mentioned above and more. These innovations carry the potential to reshape the way we work and play, and in the process shape the market’s next generation of high-performing companies. Using the Core portfolio as its foundation, the Innovative Technology portfolio is built to generate long-term returns with a diversified, low-cost approach, but with increased risk. It contains many of the same investments as Core, but also includes an allocation to the SPDR S&P Kensho New Economies Composite ETF (Ticker: KOMP) and AB Disruptors ETF (Ticker: FWD). The iShares Exponential Technologies ETF (Ticker: XT) and Invesco NASDAQ 100 ETF (Ticker: QQQM) are used as secondaries for the purposes of Tax Loss Harvesting+ (“TLH”). For a more in-depth look at the portfolio’s construction, skip over to its methodology. How are pioneering companies selected? The ETFs that Betterment utilizes to gain exposure to the innovation theme take their own unique approach to security selection. For KOMP, the Kensho index that it tracks uses a special branch of artificial intelligence called “natural language processing” to screen regulatory data and identify companies helping drive the Fourth Industrial Revolution. After picking companies across more than 20 categories, each is combined into the overall index and weighted according to their risk and return profiles. On the other hand, FWD is an actively-managed ETF by AllianceBernstein which also utilizes natural language processing but additionally incorporates both top-down thematic research and bottom-up fundamental equity research to create a portfolio of global companies that are aligned with the fund’s themes of cloud infrastructure & AI, digital transactions & media, energy transition, industrial innovation, and medical innovation. Why might you choose this portfolio over Betterment’s Core portfolio? We built the Innovative Technology portfolio to have similar foundations as then equivalent stock/bond allocation of the Core portfolio. It may, however, outperform or underperform depending on the return experience of the companies invested in by KOMP and FWD. So, if you believe the emerging tech of today will drive the returns of tomorrow—and are willing to take on some additional risk to take that long-term view— this is a portfolio made with you in mind. Risk and early adoption can tend to go hand-in-hand, after all. Why invest in innovation with Betterment? Innovative technology is in our DNA. We may be the largest independent digital financial advisor now, but the “robo advisor” category barely existed when we opened shop in 2008. If you choose to invest in the Innovative Technology portfolio with Betterment, you not only get our professional, tech-forward, portfolio management tools, you also get an investment manager with first-hand experience in the field of first movers.

How we keep your Betterment account and investments safe Feb 19, 2025 9:00:00 AM So you can invest with peace of mind All investing comes with some risk. But that risk should be based on the market, not your broker. That’s why we safeguard both your Betterment account and your investments with multiple security measures, all so you can log in and invest or save with peace of mind. Here’s a sampling. Four ways we keep your Betterment account safe Two-factor authentication Two-factor authentication (2FA) adds an extra layer of security to your account, like an extra lock on a door. Besides your regular password, 2FA requires a second form of verification such as a code texted to your phone (good) or one served up by an authenticator app like Google Authenticator (even more secure). This helps ensure that even if someone manages to get hold of your Betterment password, they still can't access your account without a second form of verification. Encryption Every time you interact with us, whether on our website or our app, your data is protected by encrypted connections. This means that the information transmitted between your device and our servers is scrambled in a way that only we can understand. Password hashing When you create a password for your Betterment account, it's not stored in plain text. Instead, we use a process called hashing, which converts your password into a unique string of characters. This way, even if our systems were breached, your actual password would remain unknown and unusable by unauthorized parties. App passwords Connecting third-party apps to your Betterment account (or vice versa) unlocks several benefits. You can easily track your net worth on Betterment, for example. Or quickly import your Betterment tax forms to certain tax prep software. When a third-party app asks for your Betterment credentials, instead of using your regular login, we ask you to create a password specifically for that app. In the scenario the third-party app’s connection is compromised, you can easily revoke its read-only access to your Betterment account. Note that some apps may use the OAuth standard, which lets you use your regular login while maintaining a similar level of security as an app password. TurboTax is one such example. Four ways we keep your investments safe Easy verification of holdings Transparency is one of our key principles, so we make it easy to verify everything is in its right place. We not only show each trade made on your behalf and the precise number of shares in which you’re invested, we also list each fractional share sold and the respective gross proceeds and cost basis for each. You can find all this information in the Holdings and Activity tabs for each of your goals. Independent oversight We regularly undergo review by independent auditors. This means auditors reconcile every share and every dollar we say we have against our actual holdings. They also spot check random customer accounts and verify that account statements match our internal records. And they ask questions if anything is even a penny off. No commingling of funds Your funds are kept separate from Betterment’s operational funds. This means that your investments are held in your name and are never mixed with our company finances. In the unlikely event we face financial difficulties, your assets remain secure and untouched. SIPC insurance To add another layer of protection, your Betterment securities are insured by the Securities Investor Protection Corporation (SIPC). This insurance covers up to $500,000 per customer, including a $250,000 limit for cash claims. While SIPC doesn’t protect against market losses, it does provide a safety net in case of a brokerage failure. An explanatory brochure is available upon request or at sipc.org. How you can help In the end, the most important security measure is you. Be on the lookout for suspicious phone calls, texts, and emails (odd-looking URLs, typo-riddled messages, etc.) and know that Betterment will never ask you for your password or 2FA code except when logging in or editing your personal information in the app. Use a strong, unique password for your account, and don’t hesitate to contact us directly if you suspect a scam message and need to verify that we’ve reached out. We’ve got your back, and between the two of us, we can help keep bad actors at bay.