Performance

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.

With U.S. markets struggling, is now the time to go global? May 7, 2025 6:00:00 AM Here’s the case for keeping a little international exposure in your investing. U.S. stocks have been the envy of the world since 2010, generating nearly 4 times the returns of their international counterparts. But since April 2, President Trump’s tariff policies have dragged down U.S. stocks and left investors unnerved. Does this mean the U.S. market is toast? Certainly not, but it does signal a potential shift in foreign investment, which means that if you haven’t already, now may be the time to consider diversifying globally. And we can help on that front. Hello, world. We're here to invest. The U.S. market is big, but it’s not the only game in town. Hundreds of billions of dollars in assets trade hands in international markets each day. It's why the Betterment Core portfolio, built on the idea that more diversification equals less risk, roughly mirrors the relative weights of global markets. Like we mentioned above, the U.S. market has been on an absolute tear the past 15 years, and even more so since 2020. This record winning streak has fueled our home bias, or the tendency for American investors to favor American markets. But history shows a pendulum that typically swings back and forth every 5 to 10 years. International markets outperformed in the 2000s, for example, and they saw a huge spike in the late 80s. So what’s an investor to do? If you're investing for the long term, the odds are good the U.S. market will hit at least one extended rough patch in that time. And in that scenario, a globally-hedged portfolio will very likely smooth out your returns from year to year. We’re seeing this start to play out in 2025, with the Betterment Core portfolio and its global diversification outperforming many common U.S.-only funds. As of 5/2/2025. Betterment Core composite actual time-weighted returns: 10.52% over 1 year, 12.35% over 5 years, and 7.30% over 10 years as of 5/2/2025. Composite performance calculated based on the dollar weighted average of actual client time-weighted returns for the Core portfolio at 90/10 allocation, net fees. Performance not guaranteed, investing involves risk. That being said, diversification is a sliding scale. There is no pass/fail, no good or bad. If you’re looking for a little more international exposure, but not to the extent of one of our pre-built portfolios, you can invest in our Flexible portfolio and tailor your allocation as you see fit. But if you’re less experienced in investing, and simply want an option that requires less work, then let us do the recalibrating for you. We update our pre-built portfolios annually, finetuning our U.S. and international exposures based on the latest long-term projections. We can’t predict when the global tides will turn, but we can make sure you don’t miss out when they do.

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-$77,000 (single) Full contribution $0-$145,999 (single) $0-$123,000 (married) $0-$229,999 (married) Partial tax deduction $77,001-$86,999 (single) Partial contribution $146,000-$160,999 (single) $123,001-$142,999 (married) $230,000-$239,999 (married) No tax deduction** $87,000 and up (single) No contribution $161,000 and up (single) $143,000 and up (married) $240,000 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.

The savvy saving move for your excess cash Aug 6, 2024 2:37:52 PM And why taking the “lump sum” leap may be in your best interest We're living in strange financial times. Inflation has taken a huge bite out of our purchasing power, yet investors are sitting on record amounts of cash, the same cash that's worth 14% less than it was just three years ago. High interest rates explain a lot of it. Who wouldn't be tempted by a 5% yield for simply socking away their money? But interest rates change, and we very well could be coming out of a period of high rates, leaving some savers with lower yields and more cash than they know what to do with. So let's start there—how much cash do you really need? Then, what should you do with the excess? How much cash do you really need? Cash serves three main purposes: Paying the bills. The average American household, as an example, spends roughly $6,000 a month. Providing a safety net. Most advisors (including us) recommend keeping at least three months' worth of expenses in an emergency fund. Purchasing big-ticket items. Think vacations, cars, and homes. Your spending levels may differ, but for the typical American, that's $24,000 in cash, plus any more needed for major purchases. If you're more risk averse—and if you're reading this, you just might be—then by all means add more buffer. It's your money! Try a six-month emergency fund. If you’re a freelancer and your income fluctuates month-to-month, consider nine months. Beyond that, however, you're paying a premium for cash that’s not earmarked for any specific purpose, and the cost is two-fold. Your cash, as mentioned earlier, is very likely losing value each day thanks to inflation, even historically-normal levels of inflation. Then there's the opportunity cost. You're missing out on the potential gains of the market. And the historical difference in yields between cash and stocks is stark, to say the least. The MSCI World Index, as good a proxy for the global stock market as there is, has generated a 8.5% annual yield since 1988. High-yield savings accounts, on the other hand, even at today’s record highs, trail that by a solid three percentage points. So once you've identified your excess cash, and you’ve set your sights on putting it to better use, where do you go from there? What should you do with the excess? Say hello to lump sum deposits. Investing by way of a lump sum deposit can feel like a leap of faith. Like diving into the deep end rather than slowly wading into shallow waters. And it feels that way for a reason! All investing comes with risk. But when you have extra cash lying around and available to invest, diving in is more likely to produce better returns over the long term, even accounting for the possibility of short-term market volatility. Vanguard crunched the numbers and found that nearly three-fourths of the time, the scales tipped in favor of making a lump sum deposit vs. spreading things out over six months. The practice of regularly investing a fixed amount is called dollar cost averaging (DCA), and it’s designed for a different scenario altogether: investing your regular cash flow. DCA can help you start and sustain a savings habit, buy more shares of an investment when prices are low, and rebalance your portfolio more cost effectively. But in the meantime, if you’ve got excess cash, diving in with a lump sum deposit makes the most sense, mathematically-speaking. And remember it’s not an either-or proposition! Savvy savers employ both strategies—they dollar cost average their cash flow, and they invest lump sums as they appear. Because in the end, both serve the same goal of building long-term wealth.

Is the S&P 500 the best investing benchmark? Sep 7, 2023 3:27:31 PM For many investors, the S&P 500 might not be the most accurate benchmark for their portfolio. Let’s find out why. The S&P 500 is an index commonly used by analysts and investors to track the health of the stock market and the general economy. But should you compare your portfolio’s performance to the S&P 500? Here are a few reasons why it may not be the best benchmark. What to remember: The S&P 500 index only includes the leading companies in the United States. If you have a diversified portfolio across global markets and industries, the S&P 500 is not an apples-to-apples comparison. Fast facts: Here are a few things to know about the S&P 500 and the global stock market when considering using an index as a benchmark. The S&P 500 index was launched in 1957 by the credit rating agency Standard and Poor's. The SEC lists six major stock market indexes on their website and there are dozens of indexes used across the world. The S&P 500 index includes 500 leading U.S. companies, representing only about 80% of the U.S. stock market and only about 42% of the global stock market. Additionally, the index is weighted by float-adjusted market capitalization which means that larger companies end up being a larger portion of the index, making it less of an apples-to-apples comparison for the global market. Economists at Goldman Sachs predict that emerging markets will grow at a faster rate than U.S. equities, making the S&P 500 even less of a global index than it is today. What’s the best index to use as a benchmark? It depends. To know which index to compare your portfolio to, you need to ask, “Which markets am I invested in?” Many Betterment portfolios are globally-diversified, making the MSCI All Country World Index (ACWI) a better benchmark than the S&P 500. The ACWI covers 47 global markets in both developed and emerging economies, representing 99% of the investable global equity market. It’s about your goals: It’s also important to remember that benchmark indexes are not designed with your goals in mind. Your personal portfolio at Betterment is meant to meet your goals, not track a general benchmark. As you invest with us, your asset allocation may change to protect your wealth and keep your investments in line with your risk appetite. Next time you see a news article reporting on recent movements of the S&P 500 you can relax knowing that your portfolio is designed for your goals, not the index’s.

The keys to understanding investment performance Jul 24, 2023 12:00:00 AM Understanding investing performance doesn’t have to be a challenge. Here’s how we simplify it for you. In this guide, we look at how we crunch numbers for you and provide two tools to analyze your returns. Plus, see four questions to ask so you understand the overall performance of an investing platform. But first, don’t fall for fallacies: Typical media coverage may skew your perspective. Avoid these two fallacies when looking at your own investing performance. The Dow/S&P 500 Fallacy: Benchmarks like the Dow Jones Industrial Average are popular, but they don’t actually tell you much about the stock market. The Dow only represents 30 US stocks. And the S&P 500 doesn’t give you a full picture of the US market—let alone the global market. The Points Fallacy: It’s common to hear reporters say things like, “Dow loses 500 points.” But it’s far more valuable to look at the percentage change. If the Dow is at 35,000 points, a 500-point drop is less than two percent. That’s not something long-term investors generally need to worry about. Instead of falling for fallacies: To know how you’re performing relative to the market, ask, “Which market?” Many Betterment portfolios are globally-diversified, making the MSCI All Country World Index a better benchmark than the S&P 500 or Dow. How Betterment simplifies looking at performance: We crunch the numbers for you, showing you three aspects of performance. Your combined accounts. We pull together all of your accounts and show their performance as one number. You can also zoom in on the account level. Your total returns. Since changes in the prices of assets in your portfolio are more volatile, and don't tell the full picture, we look at total returns which include price changes and dividends together instead of breaking them out separately. Your long-term timeline. We show your performance over as long a period as possible to help keep you focused on the long term and minimize short-term stress. Two tools to analyze your returns: We don’t encourage frequent monitoring of performance, but when you do want to review performance, we have two tools to help you understand the big picture. Tool #1: Time-weighted return. Time-weighted return is the default return you see on your Betterment accounts. When you invest, you often have deposits made over time. The time-weighted return imagines that all deposits were made on your first day of investing. Why would you want to do this? Because cash coming in and out of your portfolio at different times can distort and complicate your returns due to the nature of the constantly-fluctuating stock market. Also, if you were comparing returns across two different accounts with two different cash flow patterns, you couldn’t be sure if the difference was due to the investments or due to the timing of the cash flows. The time-weighted return can refer to a price-only return or a total return. Price return reflects only the change in the price of the asset, while total return reflects both price and reinvested income. By default, Betterment displays the total return for a more comprehensive view of performance. Tool #2: Internal rate of return. Internal rate of return can be displayed on the performance screen of each account by clicking on the “Show balance details” link. The internal rate of return is affected by each and every instance of cash flow that goes in and out of your portfolio. Cash flows at Betterment can include deposits, withdrawals, dividends, and fees. Internal rate of return does a better job of answering the question, “What are the average returns on the dollars I personally deposited into Betterment?” as opposed to “How well does Betterment design and manage the portfolios I have with them?” Looking beyond returns is important when considering an investing platform or fund. Here are four questions to ask: What are the commissions, trade fees, and assets under management (AUM) fees? How much time and effort are required of you to manage the investments? Does the investing philosophy align with your values? Does the platform offer tax efficiencies such as tax loss harvesting and asset location? (Note: Your stated returns likely won’t take into account any potential value these tools may have added.)