4 Betterment Investing Options If You Have Low Risk Tolerance

If you’re an investor with low risk tolerance, Betterment has options that can help move forward your investing and savings goals, mediating between potential returns and your desired risk level.

Low Risk Investment Options For Your Money 2

One of the more hazy concepts to quantify in behavioral investing is the concept of risk tolerance. Though it’s clear that people in general like to win more than they like to lose, there is also a well-known phenomenon that some people are more risk averse than others.

Some investors are content to endure losses of more than half of their investment portfolio if they believe that the potential reward is high enough. Others may feel uneasy with even a loss of one percent.

In general, we expect that investors who take more risk can often gain higher returns, but that doesn’t mean seeking a low-risk portfolio is the wrong move. On the contrary, steadily investing in a low-risk portfolio can be an appropriate strategy if it’s an approach you can stick with for the long-term. Betterment’s tools can help you determine the amount of risk that’s right for your financial goals and how much you should save to help reach them.

If recent market volatility has made you rethink your risk tolerance, here are four options at Betterment that can offer lower risk.

Cash Reserve

If you’re looking to earn interest on your short-term cash or general savings, consider using Cash Reserve. It’s a high-yield cash account that can help you earn one of the highest variable rates available in the marketplace— 0.10% *.

You’ll have the ability to easily transfer your cash to any of your investment goals when you’re ready to take on more risk, but keep in mind that the transfer can take up to two business days to complete.

And, not only does Cash Reserve earn a high rate, but it also has FDIC insurance up to $1,000,000† once deposited at our program banks.

Cash Reserve is only available to clients of Betterment LLC, which is not a bank, and cash transfers to program banks are conducted through the clients’ brokerage accounts at Betterment Securities.

Safety Net

Betterment’s Safety Net goal is designed with the specific purpose of building you a financial emergency fund. We recommend that you think of this as a pot of money you save for an emergency, such as a temporary loss of employment or a large unexpected expense.

After you decide how much money to put into your Safety Net goal, we invest the money into a 30% stock/70% bond ETF portfolio. While this portfolio is riskier than a 0% stock portfolio, it’s likely a more appropriate allocation for your emergency fund as it can be better at combating a hidden risk to your savings goal: inflation.

As Dan Egan, VP of Behavioral Finance & Investing wrote recently, “At least a market crash has the decency of showing up in your balance. Inflation doesn’t tell you that it’s cost you”. While Cash Reserve is built to help keep up with inflation in the short-term, the Safety Net goal can offer the opportunity to potentially exceed inflation while seeking to give you a buffer for rainy days.

General Investing Using Betterment’s Portfolio At Low Stock Allocation

If you’re now thinking that Cash Reserve is too conservative for your needs but the 30% stock allocation of the Safety Net goal is too aggressive, another option is to set your own stock allocation with Betterment’s allocation slider.

For every financial goal you set, Betterment recommends a target stock allocation but lets you adjust it from 0% to 100% stocks. Whatever allocation you choose, Betterment will help you along the way. As you move the slider, we will inform you whether your choice is “Very Conservative”, “Appropriately Conservative”, “Moderate”, “Appropriately Aggressive” or “Too Aggressive”.

While we don’t recommend that you change your allocation too drastically one way or the other, feel free to try out different allocations in our preview mode to find the portfolio that’s right for you.

Using Flexible Portfolios to Choose Assets

We build portfolios that balance a number of different asset classes—like U.S. bonds and international stocks—to achieve a high level of diversification. However, if you want to change exposures to specific asset classes, Flexible Portfolios allows you to make changes to your allocation, and you can choose to only hold what are typically low volatility assets.

Another valid use of a Flexible Portfolio is to adjust to high concentrations in your holdings outside of Betterment. For example, if you have a large investment in U.S. bonds in an outside account, you could use a Flexible Portfolio to shift your allocation at Betterment towards more international bonds and away from U.S. bonds.

A Flexible Portfolio starts with the Betterment Portfolio Strategy as a baseline, and then we allow you to tune the specific allocation to your preferences. While we don’t recommend you make asset class changes, if you have specific views, you could choose only assets that generally have less volatility.

However, you should note that we have specific guidelines for appropriate uses of Flexible Portfolios, and generally, our recommendation is to only decrease risk by adjusting your allocation using your goal slider.

As you change the allocation, we will analyze the holdings and inform you whether the risk of the portfolio is suited for your goal, as well as whether the portfolio is adequately diversified.

Conclusion

Deciding where to place your hard earned cash can be an emotional experience for even the most seasoned financial planner. Choosing a portfolio or high-yield cash account that you can stick with can be particularly important to reaching your financial goals. No matter which of the options above you choose, Betterment will give you advice and support to help you reach your financial goals.