Sara Kalsman, CFP®

How to leverage your taxable investments into lending Apr 22, 2025 9:00:00 AM Examining the pros and cons of the Securities-Backed Line of Credit (SBLOC) Editor’s note: SBLOCs are offered by The Bancorp Bank, N.A., Member FDIC, to Betterment clients. Betterment is not a bank. See more below. Sometimes in life, despite your best-laid plans, you need quick access to cash. Say you bought a new home and need to bridge the gap until you sell your old one. Or a smart business opportunity presents itself. If you have a sizable amount of investments in taxable accounts, you can leverage them into a Securities-Backed Line of Credit (SBLOC), a little-known but increasingly-available form of short-term lending. Unlike many conventional loans, SBLOCs typically provide access to the line quickly after approval. And crucially, they keep your assets invested and avoid triggering capital gains taxes1. If the market drops, that means you avoid locking in those losses. And if the market goes up, that growth can help offset some of your lending costs. Plenty more details exist for this type of borrowing, so keep reading to learn more. The basics of SBLOC borrowing SBLOCs are revolving lines of credit you can use over and over again, as opposed to the one-time nature of many loans. Many lenders require at least six-figures’ worth of taxable investments to qualify for one, with credit limits often falling somewhere between 50% and 95% of the investments’ value depending on how risky they are. Betterment SBLOC powered by The Bancorp Minimum assets needed Approx. $150k in taxable assets or less, depending on their risk profile2 Maximum credit/loan available Approx. 50-95% of taxable assets2, depending on their risk profile Interest rate Variable rate3 based on assets committed Repayment options Flexible As mentioned above, one of the key benefits of SBLOCs is that your taxable assets stay invested, giving them the chance to grow. SBLOCs are also more multi-purpose than many loans, with one notable exception being that you can’t use them to buy more securities or to fund margin loans. In addition to versatility, they tend to offer competitive interest rates lower than that of a personal loan or credit card. Our SBLOC offering, which is powered by our banking partner The Bancorp, has a variable interest rate that’s tied to The Wall Street Journal prime rate and discounted based on the amount of taxable assets committed4. Short-term lending does come with risks, however, and speaking with an advisor can help you weigh those risks relative to your specific situation. That’s in large part why at Betterment, an SBLOC is offered through our Premium tier, which gives you unlimited access to our team of advisors. When (and how) the bill comes due SBLOCs offer relatively flexible payback terms, with many only requiring monthly interest payments and some (like The Bancorp’s) with an option to add the interest to the loan balance instead of paying it right away. This is known as “capitalizing” the interest. Bear in mind that if the value of your investments drops enough, your lender may make what’s called a “maintenance call” and require you to reallocate your portfolio to obtain a higher borrowing power, provide additional collateral or sell some of your assets and pay any applicable capital gains tax1. The bottom line of borrowing this way If you’re looking for quick access to capital without disrupting your investment strategy, then an SBLOC may be right for you. And if you do come to that conclusion, then we and our trusted banking partner, The Bancorp, are here to help. They were the first bank to offer SBLOCs to independent advisors in 2004, broadening access to this type of borrowing. And their simple application process can generally provide a quick turnaround, helping fund today’s plans without touching tomorrow’s dreams.

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.

Should you fill up your 401(k) first, or your IRA? Oct 24, 2024 11:30:19 AM Navigating one of retirement saving’s first forks in the road. Can you have both a 401(k) and an IRA? Yes! But having access to both accounts begs the question: Which one is more deserving of your retirement dollars? The answer, as it so often does in personal finance, depends on your situation. So let’s explore when a 401(k)-first mentality makes sense, and when it doesn't, before closing things out with a wildcard third option that might warrant both your attention and your savings. A quick refresher on retirement accounts For the sake of this conversation, we're focusing on the two most common retirement accounts: the IRA and the 401(k), including the non-profit/public equivalent 403(b) account. Both come with built-in tax advantages, annual contribution limits, and eligibility criteria: 401(k) Accessible to: Anyone whose employer offers one 2024 contribution limit: $23,500 (for those under 50) IRA Accessible to: Anyone whose Modified Adjusted Gross Income (MAGI) falls below the IRS's eligibility limits (see table below) qualifies for tax benefits. 2024 contribution limit: $7,000 (for those under 50) 2025 IRA income limits Traditional IRA* Modified Adjusted Gross Income (MAGI) Roth IRA Modified Adjusted Gross Income (MAGI) Full tax deduction $0-$79,000 (single) Full contribution $0-$149,999 (single) $0-$126,000 (married) $0-$235,999 (married) Partial tax deduction $79,001-$88,999 (single) Partial contribution $150,000-$164,999 (single) $126,001-$145,999 (married) $236,000-$245,999 (married) No tax deduction** $89,000 and up (single) No contribution $165,000 and up (single) $146,000 and up (married) $246,000 and up (married) *If covered by a retirement plan at work **Anyone is eligible to make taxable contributions to a traditional IRA Source: IRS Power ranking your retirement accounts In general, there are a few reasons why you might default to the 401(k), including but not limited to: You can contribute by way of payroll deductions and ease the sting of saving. Many employers offer matching contributions, aka free money. And you can contribute significantly more money to them than IRAs. Altogether, that's a lot of pros working in the 401(k)’s favor. But not all 401(k)s are created equal. Some providers charge more for limited investment options. According to the 24th edition of the 401k Averages Book, the average investment expense for some smaller plans1 was 1.12%. By comparison, you can invest with a Betterment IRA for an all-in fee well south of 1%. So ask your employer or 401(k) provider for help sizing up your total costs. Or take a look at your 401(k) statement for code names like: Management fees Asset-based fees Operating expenses Expense ratios If you find your 401(k) costs are significantly steeper than an IRA, consider the following order of operations: Fill up your 401(k) up to your employer’s match, assuming they offer one. Max out your IRA, assuming you’re eligible. Come back to your 401(k). On the other hand, if your 401(k)’s fees are competitive, congratulations! Things just got simpler. Consider maxing it out first before turning your attention to an IRA, or that wildcard option we mentioned earlier. A quick aside on the Health Savings Account (HSA) Sure, the name says "health," but HSAs can be repurposed for retirement savings as well. They come with a $4,150 contribution limit for individuals, and they’re available to anyone enrolled in a high-deductible health plan (HDHP). They’re also triple tax-advantaged, meaning money is tax-free going in, tax-free while it grows, and tax-free coming out, assuming it’s used for qualified expenses. That’s one more tax perk than 401(k)s and IRAs, which make you choose between either tax-deferred contributions or tax-free withdrawals. Tax-free contributions Tax-free growth Tax-free withdrawals Traditional 401(k)/IRA ✓ ✓ X Roth 401(k)/IRA X ✓ ✓ HSA ✓ ✓ ✓ So if an HDHP is right for your healthcare needs, consider prioritizing an HSA before an IRA. Between those two accounts and the 401(k), that's more than $30,000 worth of annual investing potential. Fill up those tanks, and you’ll be well on your way to retiring. Now just enjoy the ride.

Why saving for your retirement isn’t a solo climb Sep 24, 2024 11:11:26 AM And why the summit is smaller than you think. Figuring out how much you need to retire can feel like an exercise in futility, primarily because of two reasons: It’s a moving target. Our needs and, by extension, our spending changes as we age. It’s a Very Big Number. And Very Big Numbers can seem so far out of reach. So let’s simplify things for a second. We’ll share a way to quickly crunch your retirement savings number, how to make it seem less scary, then demonstrate how we do things in the Betterment app. Revising the 25x rule This popular shorthand says to multiply your annual expenses in retirement by 25 to land on your number. It’s the inverse of the 4% rule, another quick calculation for how much of your investments you can sustainably spend each year. They're both ballpark numbers, and if you’re in the early or even middle stages of your financial journey, they can be helpful. But the 25x rule has a hitch, and it’s the challenge of knowing exactly how much we’ll spend in retirement. Luckily for us, we can approximate these shifts by looking at our fellow Americans’ average spending levels by age. When we do that, we see that our spending tends to peak in middle age and declines as we approach the traditional retirement age of 65. In short, you’ll likely spend less in retirement than you do now. And that’s good news! It means you probably need less than you think to retire. So take your current spending—that’s pre-tax income, minus taxes, minus retirement saving—and adjust depending on when you want to retire before multiplying by 25. That’s your age-adjusted retirement savings number, roughly speaking. Now let’s make it seem less like Mount Everest. Because we’ll let you in on a little secret: (You don’t need to save the entire amount) As an example, we’ll make your Very Big Number a Nice Round Number, too. Say you need roughly $2,000,000 for retirement. Using the 4% rule, that’s $80,000 of spending each year. Seeing that many zeros in a savings goal can be demoralizing. But what if we said you weren’t on the hook for all of it? That a generous friend was more than willing to help. And not only help, but shoulder the majority of the load. They just work slowly, so you’ll need to be patient. Your friend, as you may have guessed, is compound growth. And you may be shocked by their share of your retirement savings. Assuming you reach your goal in 30 years, saving $2,500 a month and earning a 5% inflation-adjusted annual return, here’s how much you would have directly saved, compared with how much your “pal” chipped in. You read that right. In this scenario, compound growth is responsible for more than half of your retirement saving. Sticking with our Mount Everest metaphor, that’s like a sherpa giving you a piggy-back ride not long after leaving base camp. Now, don’t get us wrong—$900k is not nothing. But it certainly sounds more doable than $2 million, doesn’t it? And that $2,500 saved a month? That just so happens to be 2024’s combined maximum contribution for a 401(k) and IRA. Either way, it’s best to not dwell on a Very Big Number for too long. Back-of-the-napkin exercises such as these serve a purpose, to a point. So our retirement planning advice, along with adding way more nuance to your calculations, encourages you to focus simply on your desired annual spending in retirement. We help you chart a course to get there and automate your approach, all so you can forget about finances for a second. Because compound growth grows the fastest when you’re not looking.

How to talk money with your aging parents Jul 9, 2024 11:43:32 AM Talking about their financial future isn’t easy, but it’s important Talking money with your parents is no one’s idea of a good time. But as you enter middle age, and they enter their Golden years, it’s important to create an open dialogue. Because one day, you could be pressed into duty helping them manage their finances, or even stepping in with financial support yourself. Pew Research Center polled adults with an aging (65+) parent and found it’s more common than you might think. So before you buy another bouquet of flowers, or another tacky tie, consider gifting your parents an awkward but meaningful conversation on money’s role in aging with grace. Here's how. Step into their shoes, then switch mindsets If you think it's hard having this “talk” with your parents, imagine how they must feel. Maybe they're afraid their money won't last. Maybe they're too embarrassed to ask for help. From anyone, let alone someone whose diaper they once changed (and changed, and changed). This sort of empathy sets the stage for a true heart-to-heart. Sure, you could share any number of practical tips—everything from catch-up contributions and safe withdrawal strategies to (quick plug) how awesome Betterment is and how easy it is to switch—but those conversations are best left for another day. What matters most in these first few exchanges is to build trust, and to come at things through the lens of curiosity, not problem-solving. To that end, we leave you with a few suggestions. Three ways to set the table, and three icebreaker ideas Depending on your relationship with your parents, there may be no way around this: It will be awkward. Your inquiries may be met with resistance. So start getting comfortable with both possibilities. A few tips can help your odds: Pick a boring time. Steer clear of hectic holidays. Start small. Spread things out over multiple conversations. Stay curious. The questions matter more than the answers. Now, once it’s time to actually start the conversation, consider a few icebreakers: The “23andMe” angle. “I’m curious, how did your parents handle their finances as they aged? Did you ever talk about it with them?” The “I’ll go first” angle. “With the kids getting older, I’ve been thinking more and more about estate planning lately. But it’s all so overwhelming.” The CNBC angle. “Did you see the Dow just dropped [insert number] points? I know it’s easy to overreact, but it stings seeing my portfolio shrink even just a little.” Regardless of where things go from here, remember to give yourself credit. You just took the hardest step (the first one) in joining your parents on their financial journey. And if there ever does come a day when they consider joining you at Betterment, our team is here to help.

The keys to building wealth, whether you rent or buy Jun 14, 2024 4:07:01 PM There's more than one path to prosperity To rent or to buy. At some point in your life, adulting may very well boil down to this one anxiety-inducing question. But it’s really two questions wrapped in one. The first is highly-personal: “Which lifestyle is right for me, right now?” And that answer is totally up to you. It’s largely based on individual circumstance, personal preference, and how much time you can handle at The Home Depot. But the second question? It deals with dollars and cents, and it’s right up our alley. So we’re here to offer you a sigh of relief, then help you turn hypotheticals into concrete action. Is renting or buying your primary residence the smarter money move? We’re in the business of building long-term wealth, and on that topic the historical data is pretty clear: both renting and owning a home can generate large sums of wealth in the long run. In the case of homeownership, that’s assuming you live there long enough to build equity and recoup the big, additional expenses that come with purchasing and maintaining it. And with renting, that’s assuming you invest wisely the extra money you would’ve otherwise spent buying and maintaining the home. A real estate investment firm recently crunched 50 years of data (see pages 3-5 for all of their assumptions) to see exactly how each hypothetical scenario fared. Wealth after 30 years *Data shown is for illustrative purposes only, and is not reflective of any Betterment portfolio or performance. As such, this graph does not reflect any of Betterment’s management fees, transaction costs or fund expenses. Renting slightly edges out buying in this study, although a buyer with a paid-off home could arguably close the gap in subsequent years if they invest their old mortgage payments. But these nitpicks miss the point, because in terms of wealth, both people are doing just fine in this hypothetical. So let’s all take a moment to exhale, because you can do well no matter which path you take. In the case of renting, it just requires you to actually invest those savings and not spend them. And we can help with that. How to realize the potential of “renting + investing” Let’s use the median house in America as an example. It costs roughly $415,000. Here’s a rough approximation of how much money you would need, both up front and ongoing, to buy and maintain it. Keep in mind the ongoing costs listed below exclude the mortgage payment itself. Up-front expenses Amount Downpayment (20%) $83,000 Closing costs (2%) $8,300 Agent commission* (3%) $12,450 Total $103,750 Ongoing expenses Property tax** $484 Homeowners insurance $179 Maintenance $534 Total $1,197/month Pay attention to your emotions here, because they can help guide your decision making. If you can’t imagine saving and investing this much money right now, then you may struggle to afford owning the median U.S. home. And that’s okay! One's answer to the Rent vs Buy question may very well change multiple times throughout life. Just remember you can still build wealth while renting. Crunch the numbers above based on your own budget, then follow two steps to see the strategy through to the end: Start saving for those upfront costs now. Once you have that amount in hand, start investing the equivalent of those monthly non-mortgage costs via recurring deposit. Now it’s no longer a hypothetical. You’re putting those savings to work. Should you decide to buy down the road, you’ll be more financially ready—and the tradeoff will be clear as day: Buy a house. Or keep saving at your current levels. There’s no wrong answer here. Whatever you decide will be the right decision for you. And it’ll be an informed one.