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Investing Terms Explained

Here at Betterment, we automate all the good stuff to keep your account purring. Because you don’t deal with these things on a day-to-day basis, you might be unsure about what’s actually happening behind the scenes.

By the Editorial Staff
Betterment Resource Center | Published: July 6, 2012

Here are some terms you will hear used in conjunction with any well-managed portfolio (feel free to throw a few around at the next cocktail party):

Money Terms — Image Source: Vector Portal

Diversification

Diversifying your assets means not “putting all your eggs in one basket”. A diversified portfolio should be diversified at two levels: between asset categories and within asset categories. I’m intrigued and want to read more!

Asset Allocation

Asset allocation is an individual choice based on what you need, how long you have, and how comfortable you are with risk. At Betterment, asset allocation is based on your choice of balance between stocks and bonds. When selecting your asset allocation, it’s best to think about your savings plan in real-world terms. Are you saving for college, a down payment on a house or business, or are you getting married? Show me some examples.

Rebalancing

Rebalancing is recognized as smart practice in investing. It realigns your portfolio back to its original asset allocation. A portfolio is rebalanced by selling “extra” stocks and buying more bonds to recreate the original stock/bond ratio, for example.

At Betterment, we rebalance your portfolio dynamically and efficiently as you invest. Every time you receive a dividend or deposit more money, we invest it into the part of the portfolio that needs rebalancing. For the most part, this negates the need to sell stocks or bonds to balance out the portfolio. It’s an extremely tax efficient way to rebalance.

Rebalancing prevents you from making the classic behavioral mistake of buying high and selling low. It takes emotion out of the equation because you adjust your portfolio to its original state, regardless of whether the market’s up or down. It also protects you from unwittingly taking on more risk than you intended. Tell me more about this!

Dollar Cost Averaging

Dollar cost averaging is the practice of regularly investing a fixed amount of money regardless of market activity. This strategy lowers the average cost per share of an investment and eliminates the risk of a single investment at the wrong time. How does it do that?

Behavioral Economics

The way we manage money is inherently psychological, meaning that even when we know the right things to do, we don’t always do them. How can I overcome this cursed behavior of mine?!

Cash Analysis Methodology

Betterment's cash analysis aims to provide smart feedback when we think you have extra cash that could be earning you more value if it were in a higher yield account.

Should I Speak With A Financial Advisor?

As a robo-advisor, we give you automated advice that’s accessible through our website and mobile app. We also have a team of CERTIFIED FINANCIAL PLANNER® professionals who can help answer your burning financial questions.

Acceptable Reasons for Holding Unused Cash in Smart Saver

When you aren't yet sure when or how to spend or invest your unused cash, we offer Smart Saver, a managed account designed to handle your extra cash.

Explore your first goal

Safety Net

This is a great place to start—an emergency fund for life's unplanned hiccups. A safety net is a conservative portfolio.

Retirement

Whether it's a long way off or just around the corner, we'll help you save for the retirement you deserve.

General Investing

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.

Smart Saver

You could earn 20X more than a typical savings account with our low-risk investing account for your extra cash.