One advantage of using Betterment is that we offer sophisticated investment advice tailored to your specific investment goals. Our product is optimized to help you achieve each goal, be it saving for a house down payment, retirement, just growing your wealth, or achieving a steady and safe income in retirement.

We’ve seen no other digital investment advisor be as intelligent and precise in giving advice: We consider your age, goal type, and time horizon to give advice about both asset allocation and required savings rate. And our advice continually adapts to your progress, keeping you and your portfolio on track.

Here’s how we do it.

Time + Diversification = Better Advice

There is a massive amount of data, research, and customization that rolls up into the guidance we deliver as you set up your account. To understand all that we’re doing behind the scenes, it might help to envision the interlocking parts of a four-dimensional puzzle, one that incorporates time, risk, diversification of assets and your personal goal.

Risk versus Time

When you invest with Betterment you’ll notice that we don’t give you a risk-tolerance questionnaire. Instead, we ask about time as it pertains to your investments: your age in relation to your goal (with retirement, say) or the time horizon to reach your goal (e.g. three years to save up a Safety Net fund).

Our advice algorithm lets you know the probability of reaching your goal—in seconds.That’s because a goal-specific time horizon is an objective measure of the potential range of outcomes which you should be exposed to. If you are investing for a longer period of time, stocks actually have less potential for loss than bonds, and vice versa for the short-term (bonds are typically less volatile than stocks). So our advice suggests an allocation that exposes you to the optimal level of objective risk, without reference to any personal self-assessment.

Thus our advice is carefully calibrated to deliver the optimal risk-adjusted returns over your specific time frame, and integrate that with the level of saving required to meet your goal. Your peace of mind matters, of course—that’s why you can choose your own risk exposure, using the asset allocation slider to ratchet up or down from our advice. If you choose to take on less risk, for example, our advice algorithm lets you know instantly the probability of reaching your goal in the accompanying chart.

Asset Allocation

Betterment’s highly diversified portfolio is a key part of our advice. Our portfolio is globally diversified, and  comprises 12 index-tracking exchange-traded funds. We chose these ETFs to offer a mix of economic growth factors that are designed to deliver as much total market performance as possible, while minimizing downside risk.

This optimized portfolio underpins the advice that you get about your goal, including the asset allocation we recommend and the suggested deposit amounts.

Glide paths

When you sign up with Betterment and select a goal for each account, time and diversification are two powerful factors that click into place within the glide path that underlie each goal. Thus the goal you pick isn’t just a name (like “Roth IRA”). Each goal comes with an asset allocation that’s based on your age and/or time horizon, and a glide path that’s similar to the graduated equity-bond allocation of target-date funds. Ultimately, this exposes you to more risk when you’re further from your goal, and less as you approach your goal.

The Betterment portfolio is not a target-date fund, however, as TDFs don’t allow you to customize your asset allocation, nor do they provide any investor guidance. Betterment’s advice platform is engineered to provide input on your investment choices that optimize your chances for success—while remaining adaptable to your unique circumstances.

Your goals

When considering our asset allocation advice, there are five general categories:


Depending on the goal you choose, we factor in the amount of your initial deposit (and frequency of scheduled auto-deposits) and your age or time horizon to arrive at specific suggestions that will keep you on track to meet your goal.

If your current parameters are unlikely to get you to your target, our advice algorithm instantly suggests specific ways you can adjust your plan:

  • You can increase your auto-deposit.
  • You can add or increase a one-time deposit to fund the account.
  • You can adjust the time until your goal is funded.
  • You can tweak several variables at once—including your asset allocation—so you can find the ideal scenario that works for you (e.g. saving more per month versus taking on more risk, etc.).

The equity strategy that anchors our advice

Needless to say, it wouldn’t serve your ends if we took a set-it-and-forget-it stance with your portfolio. So, as we mentioned above, each goal is anchored by a dynamic glide path that’s designed to deliver the best investor returns. And at Betterment you are always free to customize that advice. Every time you log in, we provide updated guidance based on how different variables may have shifted, but we leave it to you to update your account if it’s “off track.” By following our advice, you reduce the chance you’ll be taking on too much risk at any point in your time horizon.

Here are our four primary advice strategies that guide your asset allocation both when you establish your account, and over time.

1. Retirement goal (tax-advantaged IRAs or other retirement accounts)

All goals are time and risk-sensitive, but when you set up a retirement account with us, our advice strategy balances growth and stability—for pre-retirees and retirees—as you’ll see in the chart below.

Many target date glide paths dial back on equities steadily and have the least growth potential just when you’ve amassed the bulk of your nest egg. Our retirement glide path, shown below with a retirement date of 65, favors a more aggressive growth strategy, in part because of our sophisticated diversification model, and in part because we respect the fact that life expectancy is going up, and we should all plan for a longer retirement. (There is now a 40% probability that at least one member of a 35-year-old couple will live to 90!)

Investment advice retirement goal

Figure above is an example retirement goal.

2. Build Wealth

If you don’t have a specific goal, and just want to grow your savings, Build Wealth is for you. It has a glide path similar to retirement, but with a floor of 55% equities when you are 65 or older. Thus, the advice for your asset allocation is calibrated to your age, as you see in the chart below. And because the aim here is growth, the strategy is an aggressive one, never dropping below 55% (unless you choose to be more conservative).

Investment advice Build Wealth

3. Regular goal (i.e. saving for a home, wedding, car or other major expenditure)

As you can see in the chart below, our advice for a major savings goal starts with a high equity allocation when you’re 20 years out, and gradually becomes more conservative—but we keep at least half of the portfolio in stocks until you’re about five years from your goal.

 Investment advice regular goal

Advice + autonomy

The beauty of the Betterment system is that our advice, while readily available, isn’t set in stone. You always have the freedom to play with the variables and flex different factors for the best fit with your overall situation.

  • You can change your stock allocation
  • You can increase or decrease the amount of your deposits
  • You can change your time horizon

In each case, our responsive algorithm will recalculate these new inputs with your overall goal in mind, and let you know whether you’re still “On Track” to meet your goal, based on our rigorous internal calculus of your best chance of success.

Using our advice or a live advisor

How is our advice different from the input you’d get from a live financial advisor? While it’s true that a live advisor can provide a financial plan that incorporates more personal details, and that may feel different than our advice platform, the value of one doesn’t exclude the other.

As people in financial services have noted lately, the value-add of live advisors is precisely that human touch. But the value of an online investment platform like Betterment is the integration of  objective advice with the easy execution of that advice—e.g. savings and risk advice, deposits, reinvesting dividends, rebalancing, and customized asset allocation.

Second, given the high-velocity realities of the investment world today, most investors stand to benefit from Betterment’s highly efficient, data-driven methodology, which delivers responsive advice that’s reliable.