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Investing

Explore Betterment’s Historical Performance

Betterment would have outperformed the average investor with an investment advisor in 88% of all periods over the last decade.

Dan Egan

By Dan Egan
Managing Director of Behavioral Finance & Investing, Betterment  |  Published: May 7, 2014

New analysis backtests Betterment portfolios against average advised portfolios.

Betterment portfolios outperformed average advised portfolios 88% of the time.

When it comes to paying your investment fees, it’s a good idea to know exactly what you are buying. In the case of working with an investment advisor, you’re usually banking on getting some alpha, or returns that are above and beyond how the market is performing.

However, as a growing body of research shows, active portfolio management by an advisor doesn’t generally lead to better results for the individual investor. To be sure, the best advisors provide holistic planning value and the sort of smart, low-fee investing approach Betterment champions.

In a new analysis, we backtested the Betterment portfolio’s historical performance against the average returns earned by an investor using an advised portfolio with data assembled by Asset Risk Consultants, an independent investment consulting company. Over more than 30,500 periods, the Betterment portfolio outperformed those advisor-managed portfolios 88% of the time. The findings echo previous research that shows that an all index fund portfolio beats portfolios with active management in the vast majority of cases.

How to compare portfolios

We’ve created an interactive widget that allows you to compare a Betterment portfolio to the returns earned by the average advised investor over the past ten years. This tool allows you to explore the data and see how a Betterment portfolio would have performed in a particular date range.

Exploring the data

  1. Select the stock and bond mix at the top.

  2. Slide the white circle to set a starting date.

  3. Hover over an ending date to see returns for a particular period.

  4. Optionally, expand the “Additional data, options, and disclosures” section where you can:
  • Toggle between percentage returns and an initial $100K investment for the summary data.
  • Turn on all portfolios at once (including a few additional benchmarks).
  • Find additional data on volatility and returns in the table.

About the data

The benchmark advised portfolio performance data comes from the ARC Private Client Indices which aggregates actual performance delivered to private clients by more than 60 major global investment managers. You can read more about the ARC methodology here. The ARC data is broken up into four slices of equity risk, or Private Client Indices (PCIs.) It is available on a monthly basis, from January 2004 through the most recent completed quarter. This analysis focused on January 2004 through April 2014 (123 months) which offers 7626 possible periods (i.e. 123 possible one month periods, one possible 123 month period, and everything in between.) For each of those 7626 periods, we compared the closest equivalent Betterment portfolio with each of the four PCIs, resulting in 30,504 comparisons. We ran 30%, 50%, 70% and 90% Betterment portfolios against the Cautious, Balanced, Steady Growth, and Equity Risk PCIs, respectively.

The Betterment portfolios won 88.66% of the comparisons. Historical performance of the Betterment portfolio is based on the underlying ETFs, always net of fees. To the extent that an ETF was not in existence over the relevant period, performance is based on the index or asset class that the ETFs tracks. For full disclosure on how we compute historical performance, see here.

This analysis was last updated on April 2014.

Contributing Authors

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