The full investment of every dollar according to your desired asset allocation means that your money is getting absolutely the most value possible out of investing.
Betterment customers' trades and resulting positions can be fractional—down to 1/1,000,000th of a share.
Investing builds wealth. Holding cash doesn’t. While this is a radical simplification, it reflects a core investing principle: Over the long term, the more you have in the market, the more opportunity you have to earn returns.
Or, to put it another way: if you’ve allocated money for investment, then all of that money should always be invested, precisely in the way that you intend. At Betterment, we use fractional shares to make this happen. But in some investment services, that’s not the case. Some of your money may be sitting on the side, uninvested, and not working for you.
Let’s look at why that is, and how our consistent use of fractional shares puts you and your money in a more advantageous position.
Never leave money out of the market
As you may know, trading on an exchange can only happen in whole shares, which is why many investing platforms only allow you to trade whole shares.
But this is not really an efficient way to do things. For example, imagine that you have a portfolio with 12 ETFs, and one share of each ETF costs $100. Now you make a $90 deposit (or your ETFs pay a total of $90 of dividends). With a platform that only uses whole shares, you cannot use any of that cash—read: zero dollars—to add to your investments because it’s not enough to buy a single share of anything. So that 90 bucks will just remain uninvested, waiting for additional cash, before you can buy even a single share.
As deposits and dividends flow through this account over time, it will always have some amount of pesky cash remainder sitting there. This is sub-optimal investing and a wasted opportunity over the years.
Technology means less waste
As efficiency junkies at Betterment, we can’t stand the thought of even a penny sitting on the sidelines not earning returns. Inefficiency is our enemy. That’s why, when we launched our service in 2010, we put a lot of work into supporting fractional shares.
The full investment of every dollar according to your desired asset allocation means that your money is getting absolutely the most value possible out of investing. This is part of our thoughtful application of technology.
Down to 1/1,000,000th of a share
You can’t go to market and buy or sell fractional shares. However, a Betterment customer’s trades and resulting positions can be fractional—down to 1/1,000,000th of a share—putting every dollar to work while allowing every investing goal to be perfectly diversified according to its target allocation. This is part of Betterment’s unique sophistication.
In practice, it also makes our service equal opportunity for all investors. It means an investor with a $2,500 account receives the same diversification benefit as one with a $2.5 million account (and we don’t require a minimum balance). And every investor has the benefit of automatic, perfectly allocated dividend reinvestment, with no odd amounts just being wasted in cash.
How it works
To see how fractional shares look in a real-life example, here’s how $100,000 is actually invested at a 70% stock allocation in our portfolio.
|Ticker||Price per share (from 10/31)||Percentage in 70% stock portfolio||Dollar value in $100,000 portfolio||How many shares required?|
Note: For clarity in the table, we’ve rounded to three decimal places, but our algorithms trade to six decimal places.
What does our fractional share platform mean for you?
- You are more likely to reach your goals faster because all the money you have available for investment is always working for you. If you want to invest $100,000 that’s what we do. Not $99,987 or other smaller amount.
- You choose exactly how much to invest; we do all the math for you. You never have to think about the cost of any individual asset when you make deposits or withdrawals from your portfolio.
- Your goals are properly diversified on an ongoing basis. We’ve already discussed how Betterment strategically uses your cash flows (dividends, deposits) to rebalance your goals, keeping your tax bill low by minimizing the need to rebalance by selling. Betterment’s trading algorithms work with six decimal points of precision, using all incoming funds (even odd amounts like dividends) to shore up any imbalances in your positions, no matter how tiny.
And if you have an investment account with leftover cash just sitting there, ask yourself: If I didn’t want that money invested, why would I have put it there in the first place?
How to Use 2018’s Market Volatility to Your Advantage
The latter half of 2018 was a period of increased volatility. We view this as an opportunity for every investor.
How’d the Market Do? That’s Harder To Answer Than You Think
In taxable investing, your after-tax return—the amount you “take home”—is what’s important. Yet far too many investors focus on market performance. Let’s look at the difference.
Frequently Asked Questions about Betterment
Just starting out exploring Betterment? These are the frequently asked questions that help people find their way.
Explore your first goal
This is a great place to start—an emergency fund for life's unplanned hiccups. A safety net is a conservative portfolio.
Whether it's a long way off or just around the corner, we'll help you save for the retirement you deserve.
If you want to invest and build wealth over time, then this is the goal for you. This is an excellent goal type for unknown future needs or money you plan to pass to future generations.
How would you like to get started?
Your first step toward a smarter investing future starts here.
Create a Betterment account
Go ahead and join the smart, modern way to invest.
See what we can do for you
Tell us a bit about yourself, and we'll show you the benefits of investing with us.
Get a free investing checkup
Help us get a sense of your investing approach and see how you could improve.
Transfer a 401(k) or an IRA
Move an existing retirement account into a Betterment IRA.
Download the mobile app
Enjoy the Betterment experience anywhere on the go.