Are stocks stuck in AI’s orbit?
Are stocks stuck in AI’s orbit? Big Tech buoyed the market in 2025—We look at whether the trend will continue, and why the key to wealth remains unchanged. Key takeaways The race to build AI pushed U.S. stocks higher in 2025, even as valuations crept toward bubble territory. The technology’s long-term impact could be revolutionary, but its short-term profits may struggle to justify Big Tech’s recent spending spree. Trying to time a market downturn, however, can mean missing out on meaningful gains. To scratch the itch for action, consider diversifying globally, investing with a safety net, and dialing in a risk level you can live with. Stocks rallied in 2025, much of it on the back of Big Tech companies racing to develop transformative AI. But all of those businesses’ investments in AI infrastructure—fueled more by expectations than present-day profits—have turned up the volume on talks of an AI bubble emerging. Artificial intelligence could very well revolutionize our economy, but potentially not before the market loses patience with this early round of investing and valuations come back down to earth. So what’s an everyday investor to do? Before we suggest a few simple ways to better position yourself for the future, it can help to understand how big this AI boom may be historically-speaking, the bets behind it, and why timing its peak is so hard. The simple metric hinting at too much AI hype One of the most fundamental ways to size up whether an asset or market is overvalued in the present moment is its price-to-earnings (P/E) ratio. How much are people paying for it, in other words, relative to its current profits? If this ratio gets high enough, investors start to ask themselves whether such a steep cost is worth it for a piece of those earnings. Sometimes they seek out better deals—a big reason why international stocks outperformed in 2025—and sometimes they simply keep paying the premium. But that investing crucially becomes more and more pinned on the hopes of hypothetically larger profits down the road, not the earnings generated today. So just how big are those AI hopes right now, and how relatively expensive is it for a share of the U.S. stock market’s earnings? We’re not at dot-com bubble levels, but we’re getting close. Investors are incredibly bullish on the promise of AI, influenced in no small part by the hundreds of billions being invested by the AI companies themselves. It’s an arms race to secure the processing power they believe will be needed to power the promised AI revolution. Chips ahoy – How one tech giant’s expense is another’s earnings Training and delivering AI to market isn’t cheap. It requires sophisticated computing provided by power-hungry data centers. Many of the biggest tech companies, also known as “hyperscalers,” also provide this cloud computing infrastructure—and their spending on it is set to skyrocket in the coming years. These capital expenditures support market-wide earnings growth in a couple ways. Most directly, they drive the profits of the companies selling the computer chips that power AI. It’s no coincidence that Nvidia, the biggest chip company and benefactor of this spending, is currently the most valuable company in the S&P 500. The second way they support earnings growth is a little more indirect. And that’s because these big purchases are treated as investments, with the expense being spread out over time instead of immediately subtracted from the earnings of the companies doing the buying. This leads to the key question behind the AI bubble debate: Can all these chips and data centers deliver revenue in the next few years before the full bill comes due and eats into Big Tech’s earnings? Many analysts argue no, there’s no way the trillions of investments can pay off that quickly. Others, however, believe demand for computing power will remain strong, and point out all this spending is still small relative to our economy’s overall size. Whichever path we head down, however, no one knows exactly how fast we’ll get there. And therein lies the danger of trying to time a market peak. You could just as easily exit too early. Why timing bubbles can get you into trouble, and what to do instead If all of this is making you a little uneasy, you’re not alone. The thought of an upcoming market correction can be scary. But reeling in your investments to avoid future losses can be costly. You could just as easily miss out on the growth that’s made stocks one of the most reliable builders of wealth for centuries. Look back at the dot-com bubble itself. The “irrational exuberance” line that came to define it was coined a full three years before the market peaked. The S&P 500 more than doubled in that time. This is why the key to building wealth is keeping a long-term mindset. It’s easier said than done, so here are three concrete steps you can take today to better position yourself and your investing for the future: Diversify globally. Big Tech is by far the biggest slice of the U.S. stock market. Our globally-diversified portfolios help mitigate this risk by dedicating roughly a third of their allocation to international markets, the same markets that surged ahead in 2025 and outperformed for a decade after the dot-com bubble. Invest with a safety net. Having a healthy emergency fund makes it less likely you’ll need to touch your investments. It can also help you sleep more soundly at night. Accept your own appetite for risk. Our automated investing can suggest a target allocation of stocks and bonds, gliding that risk level down as your goal nears. But there’s no shame in craving a little less volatility. You can turn off this auto-adjust feature and manually bump up your allocation of bonds by a few percentage points. This will lower your expected returns, but sometimes it’s all you need to scratch the itch for action. Most importantly, remind yourself that however AI’s fortunes unfold in the years ahead, wealth is built over decades, not dictated by the daily headlines.
Betterment's tax lot selection methodology
Betterment's tax lot selection methodology Selecting tax lots efficiently can address and reduce the tax impact of your investments. Every time you have a transaction in a Betterment account that involves a sale—such as a withdrawal, transfer, or rebalance—Betterment’s technology determines (1) which security or securities to sell, and (2) within each security, which specific tax lots to sell. With tax-smart technology, selecting tax lots efficiently can address and reduce the tax impact of your investments. Selecting tax lots efficiently can address and reduce the tax impact of your investments. When choosing which tax lots of a security to sell, our method factors in both cost basis as well as duration held. When you make a withdrawal for a certain dollar amount from an investment account, your broker converts that amount into shares, and sells that number of shares. Assuming you are not liquidating your entire portfolio, there's a choice to be made as to which of the available shares are sold. Every broker has a default method for choosing those shares, and that method can have massive implications for how the sale is taxed. Betterment's default method seeks to reduce your tax impact when you need to sell shares. Basis reporting 101 The way investment cost basis is reported to the IRS was changed as a result of legislation that followed the financial crisis in 2008. In the simplest terms, your cost basis is what you paid for a security. It’s a key attribute of a “tax lot”—a new one of which is created every time you buy into a security. For example, if you buy $450 of Vanguard Total Stock Market ETF (VTI), and it’s trading at $100, your purchase is recorded as a tax lot of 4.5 shares, with a cost basis of $450 (along with date of purchase.) The cost basis is then used to determine how much gain you’ve realized when you sell a security, and the date is used to determine whether that gain is short or long term. However, there is more than one way to report cost basis, and it’s worthwhile for the individual investor to know what method your broker is using—as it will impact your taxes. Brokers report your cost basis on Form 1099-B, which Betterment makes available electronically to customers each tax season. Tax outcomes through advanced accounting When you buy the same security at different prices over a period of time, and then choose to sell some (but not all) of your position, your tax result will depend on which of the shares in your possession you are deemed to be selling. The default method stipulated by the IRS and typically used by brokers is FIFO (“first in, first out”). With this method, the oldest shares are always sold first. This method is the easiest for brokers to manage, since it allows them to go through your transactions at the end of the year and only then make determinations on which shares you sold (which they must then report to the IRS.) FIFO may get somewhat better results than picking lots at random because it avoids triggering short-term gains if you hold a sufficient number of older shares. As long as shares held for more than 12 months are available, those will be sold first. Since short-term tax rates are typically higher than long-term rates, this method can avoid the worst tax outcomes. However, FIFO's weakness is that it completely ignores whether selling a particular lot will generate a gain or loss. In fact, it's likely to inadvertently favor gains over losses; the longer you've held a share, the more likely it's up overall from when you bought it, whereas a recent purchase might be down from a temporary market dip. Fortunately, the IRS allows brokers to offer investors a different default method in place of FIFO, which selects specific shares by applying a set of rules to whatever lots are available whenever they sell. While Betterment was initially built to use FIFO as the default method, we’ve upgraded our algorithms to support a more sophisticated method of basis reporting, which aims to result in better tax treatment for securities sales in the majority of circumstances. Most importantly, we’ve structured it to replace FIFO as the new default—Betterment customers don’t need to do a thing to benefit from it. Betterment’s TaxMin method When a sale is initiated in a taxable account, Betterment’s algorithm first determines what security or securities to sell in order to reduce drift in the portfolio, bringing the portfolio closer to its target allocation as a part of the transaction. Once the algorithm has identified which security to sell, it needs to make a choice as to which specific tax lots of that holding will be sold. For example, if the algorithm identifies a client’s portfolio should sell VTI, and the portfolio holds 10 shares of VTI purchased at different times with different cost basis, it next needs to determine which of the 10 shares of VTI to sell that will minimize taxes on the transaction. This second choice, which specifies tax lots to sell, follows a set of rules which we call TaxMin. This method is more granular in its approach and will aim to improve the tax impact for most transactions, as compared to FIFO. How does the TaxMin method work? Realizing taxable losses instead of gains and allowing short-term gains to mature into long-term gains (which are generally taxed at a lower rate) generally results in a lower tax liability in the long run. Accordingly, TaxMin also considers the cost basis of the lot, with the goal of realizing losses before any gains, regardless of when the shares were bought. Generally, the algorithm is designed to we sell shares in a way that is intended to prioritize realizing available losses (which can mean that we can prioritize selling tax lots with a long-term loss or a short-term loss, depending on which loss type would result in minimizing taxes for the particular transaction), and when losses are not available, evaluating which securities can be sold with the lowest capital gains (similarly, which can prioritize tax lots with only short-term capital gains over those with long-term capital gains). If the identified security to sell has both short-term capital gains and long-term capital gains, Betterment’s system will generally prioritize realizing the long-term capital gains first, and if needed, followed by short-term capital gains. generating short-term capital losses, then long-term capital losses, followed by long-term capital gains and then lastly, short-term capital gains. In short, the algorithm targets selling tax looks through each category before moving to the next, but within each category, lots with the highest cost basis in order to minimize taxes on the overall transaction are targeted first. In the case of a gain, the higher the cost basis, the smaller the gain, which results in a lower tax burden. In the case of a loss, the opposite is true: the higher the cost basis, the bigger the loss (which can be beneficial, since losses can be used to offset gains). 1 TaxMin is designed to generally minimize taxes because it prioritizes selling tax lots at a loss before it sells tax lots at a gain. However, for certain groups – investors in relatively low income tax brackets, especially those who expect to be subject to higher tax rates in the future, and those who can recognize capital gains at a 0% tax rate – it may be more beneficial to prioritize selling assets at a gain in the short run. Investors with different individual tax circumstances should consider whether other offerings might provide more tax efficiency in these scenarios. Also, clients should be aware that when a client makes a change resulting in the sale of the entirety of a particular holding in a taxable account (such as a full withdrawal or certain portfolio strategy changes), tax minimization may not apply because all lots will be sold in the transaction. A simple example If you owned the following lots of the same security, one share each, and wanted to sell one share on July 1, 2021 at the price of $105 per share, you would realize $10 of long term capital gains if you used FIFO. With TaxMin, the same trade would instead realize a $16 short term loss. If you had to sell two shares, FIFO would get you a net $5 long term gain, while TaxMin would result in a $31 short term loss. To be clear, you pay taxes on gains, while losses can help reduce your bill. Purchase Price ($) Purchase Date Gain or Loss ($) FIFO Selling order TaxMin Selling order $95 1/1/20 +10 1 4 $110 6/1/20 -5 2 3 $120 1/1/21 -15 3 2 $100 2/1/21 +5 4 5 $121 3/1/21 -16 5 1 What can you expect? TaxMin automatically works to reduce the tax impact of your investment transactions in a variety of circumstances. Depending on the transaction, the tax-efficiency of various tax-lot selection approaches may vary based on the individual’s specific circumstances (including, but not limited to, tax bracket and presence of other gains or losses.) Note that Betterment is not a tax advisor and your actual tax outcome will depend on your specific tax circumstances—consult a tax advisor for licensed advice specific to your financial situation.
Betterment's Socially Responsible Investing portfolios methodology
Betterment's Socially Responsible Investing portfolios methodology Learn how we construct our Socially Responsible Investing (SRI) portfolios. Table of Contents Introduction How do we define SRI? The Challenges of SRI Portfolio Construction How is Betterment’s Broad Impact portfolio constructed? How is Betterment’s Climate Impact portfolio constructed? How is Betterment’s Social Impact portfolio constructed? Conclusion Introduction Betterment launched its first Socially Responsible Investing (SRI) portfolio in 2017, and has widened the investment options under that umbrella since then. Within Betterment’s SRI options, we currently offer a Broad Impact portfolio and two additional, more focused SRI portfolio options: a Social Impact SRI portfolio (focused on social empowerment) and a Climate Impact SRI portfolio (focused on climate-conscious investments). These portfolios represent a diversified, relatively low-cost solution constructed using exchange traded funds (ETFs), which will be continually improved upon as costs decline, more data emerges, and as a result, the availability of SRI funds broadens. How do we define SRI? Our approach to SRI has three fundamental dimensions that shape our portfolio construction mandates: Reducing exposure to investments involved in unsustainable activities and environmental, social, or governmental controversies. Increasing exposure to investments that work to address solutions for core environmental and social challenges in measurable ways. Allocating to investments that use shareholder engagement tools, such as shareholder proposals and proxy voting, to incentivize socially responsible corporate behavior. SRI is the traditional name for the broad concept of values-driven investing (many experts now favor “sustainable investing” as the name for the entire category). Our SRI approach uses SRI mandates based on a set of industry criteria known as “ESG,” which stands for Environmental, Social and Governance. ESG refers specifically to the quantifiable dimensions of a company’s standing along each of its three components. Betterment’s approach expands upon the ESG-investing framework with exposure to investments that use complementary shareholder engagement tools. Betterment does not directly select companies to include in, or exclude from, the SRI portfolios. Rather, Betterment identifies ETFs that have been classified as ESG or similar by third-parties and considers internally developed “SRI mandates” alongside other qualitative and quantitative factors to select ETFs to include in its SRI portfolios. Using SRI Mandates One aspect of improving a portfolio’s ESG exposure is reducing exposure to companies that engage in certain activities that may be considered undesirable because they do not align with specific values. These activities may include selling tobacco, military weapons, civilian firearms, as well as involvement in recent and ongoing ESG controversies. However, SRI is about more than just adjusting your portfolio to minimize companies with a poor social impact. For each Betterment SRI portfolio, the portfolio construction process considers one or more internally developed “SRI mandates.” Betterment’s SRI mandates are sustainable investing objectives that we include in our portfolios’ exposures. SRI Mandate Description Betterment SRI Portfolio Mapping ESG Mandate ETFs tracking indices which are constructed with reference to some form of ESG optimization, which promotes exposure to Environmental, Social, and Governance pillars. Broad, Climate, Social Impact Portfolios Fossil Fuel Divestment Mandate ETFs tracking indices which are constructed with the aim of excluding stocks in companies with major fossil fuels holdings (divestment). Climate Impact Portfolio Carbon Footprint Mandate ETFs tracking indices which are constructed with the aim of minimizing exposure to carbon emissions across the entire economy (rather than focus on screening out exposure to stocks primarily in the energy sector). Climate Impact Portfolio Green Financing Mandates ETFs tracking indices focused on financing environmentally beneficial activities directly. Climate Impact Portfolio Gender Equity Mandate ETFs tracking indices which are constructed with the aim of representing the performance of companies that seek to advance gender equality. Social Impact Portfolio Social Equity Mandate ETFs managed with the aim of obtaining exposures in investments that seek to advance vulnerable, disadvantaged, or underserved social groups. The Gender Equity Mandate also contributes to fulfilling this broader mandate. Social Impact Portfolio Shareholder Engagement Mandate In addition to the mandates listed above, Betterment’s SRI portfolios are constructed using a shareholder engagement mandate. One of the most direct ways a shareholder can influence a company’s decision making is through shareholder proposals and proxy voting. Publicly traded companies have annual meetings where they report on the business’s activities to shareholders. As a part of these meetings, shareholders can vote on a number of topics such as share ownership, the composition of the board of directors, and executive level compensation. Shareholders receive information on the topics to be voted on prior to the meeting in the form of a proxy statement, and can vote on these topics through a proxy card. A shareholder can also make an explicit recommendation for the company to take a specific course of action through a shareholder proposal. ETF shareholders themselves do not vote in the proxy voting process of underlying companies, but rather the ETF fund issuer participates in the proxy voting process on behalf of their shareholders. As investors signal increasing interest in ESG engagement, more ETF fund issuers have emerged that play a more active role engaging with underlying companies through proxy voting to advocate for more socially responsible corporate practices. These issuers use engagement-based strategies, such as shareholder proposals and director nominees, to engage with companies to bring about ESG change and allow investors in the ETF to express a socially responsible preference. For this reason, Betterment includes a Shareholder Engagement Mandate in its SRI portfolios. Mandate Description Betterment SRI Portfolio Mapping Shareholder Engagement Mandate ETFs which aim to fulfill one or more of the above mandates, not via allocation decisions, but rather through the shareholder engagement process, such as proxy voting. Broad, Climate, Social Impact Portfolios The Challenges of SRI Portfolio Construction For Betterment, three limitations have a large influence on our overall approach to building an SRI portfolio: 1. Many existing SRI offerings in the market have serious shortcomings. Many SRI offerings today sacrifice sufficient diversification appropriate for investors who seek market returns, and/or do not provide investors an avenue to use collective action to bring about ESG change. Betterment’s SRI portfolios do not sacrifice global diversification. Consistent with our core principle of global diversification and to ensure both domestic and international bond exposure, we’re still allocating to some funds without an ESG mandate, until satisfactory solutions are available within those asset classes. Additionally, all three of Betterment’s SRI portfolios include a partial allocation to an engagement-based socially responsible ETF using shareholder advocacy as a means to bring about ESG-change in corporate behavior. Engagement-based socially responsible ETFs have expressive value in that they allow investors to signal their interest in ESG issues to companies and the market more broadly, even if particular shareholder campaigns are unsuccessful. 2. Integrating values into an ETF portfolio may not always meet every investor’s expectations. For investors who prioritize an absolute exclusion of specific types of companies above all else, certain approaches to ESG will inevitably fall short of expectations. For example, many of the largest ESG funds focused on US Large Cap stocks include some energy companies that engage in oil and natural gas exploration, like Hess. While Hess might not meet the criteria of the “E” pillar of ESG, it could still meet the criteria in terms of the “S” and the “G.” Understanding that investors may prefer to focus specifically on a certain pillar of ESG, Betterment has made three SRI portfolios available. The Broad Impact portfolio seeks to balance each of the three dimensions of ESG without diluting different dimensions of social responsibility. With our Social Impact portfolio, we sharpen the focus on social equity with partial allocations to gender diversity and veteran impact focused funds. With our Climate Impact portfolio, we sharpen the focus on controlling carbon emissions and fostering green solutions. 3. Most available SRI-oriented ETFs present liquidity limitations. While SRI-oriented ETFs have relatively low expense ratios compared to SRI mutual funds, our analysis revealed insufficient liquidity in many ETFs currently on the market. Without sufficient liquidity, every execution becomes more expensive, creating a drag on returns. Median daily dollar volume is one way of estimating liquidity. Higher volume on a given asset means that you can quickly buy (or sell) more of that asset in the market without driving the price up (or down). The degree to which you can drive the price up or down with your buying or selling must be treated as a cost that can drag down on your returns. To that end, Betterment reassesses the funds available for inclusion in these portfolios regularly. In balancing cost and value for the portfolios, the options are limited to funds of certain asset classes such as US stocks, Developed Market stocks, Emerging Market stocks, US Investment Grade Corporate Bonds, US High Quality bonds, and US Mortgage-Backed Securities. How is Betterment’s Broad Impact portfolio constructed? Betterment’s Broad Impact portfolio invests assets in socially responsible ETFs to obtain exposure to both the ESG and Shareholder Engagement mandates, as highlighted in the table above. It focuses on ETFs that consider all three ESG pillars, and includes an allocation to an engagement-based SRI ETF. Broad ESG investing solutions are currently the most liquid, highlighting their popularity amongst investors. In order to maintain geographic and asset class diversification and to meet our requirements for lower cost and higher liquidity in all SRI portfolios, we continue to allocate to some funds that do not reflect SRI mandates, particularly in bond asset classes. How is Betterment’s Climate Impact portfolio constructed? Betterment offers a Climate Impact portfolio for investors that want to invest in an SRI strategy more focused on the environmental pillar of “ESG” rather than focusing on all ESG dimensions equally. Betterment’s Climate Impact portfolio invests assets in socially responsible ETFs and is constructed using the following mandates that seek to achieve divestment and engagement: ESG, carbon footprint reduction, fossil fuel divestment, shareholder engagement, and green financing. The Climate Impact portfolio was designed to give investors exposure to climate-conscious investments, without sacrificing proper diversification and balanced cost. Fund selection for this portfolio follows the same guidelines established for the Broad Impact portfolio, as we seek to incorporate broad based climate-focused ETFs with sufficient liquidity relative to their size in the portfolio. How can the Climate Impact portfolio help to positively affect climate change? The Climate Impact portfolio is allocated to iShares MSCI ACWI Low Carbon Target ETF (CRBN), an ETF which seeks to track the global stock market, but with a bias towards companies with a lower carbon footprint. By investing in CRBN, investors are actively supporting companies with a lower carbon footprint, because CRBN overweights these stocks relative to their high-carbon emitting peers. One way we can measure the carbon impact a fund has is by looking at its weighted average carbon intensity, which measures the weighted average of tons of CO2 emissions per million dollars in sales, based on the fund's underlying holdings. Based on weighted average carbon intensity data from MSCI, Betterment’s 100% stock Climate Impact portfolio has carbon emissions per unit sales that are more than 47% lower than Betterment’s 100% stock Core portfolio as of March 12, 2025. Additionally, a portion of the Climate Impact portfolio is allocated to fossil fuel reserve funds. Rather than ranking and weighting funds based on a certain climate metric like CRBN, fossil fuel reserve free funds instead exclude companies that own fossil fuel reserves, defined as crude oil, natural gas, and thermal coal. By investing in fossil fuel reserve free funds, investors are actively divesting from companies with some of the most negative impact on climate change, including oil producers, refineries, and coal miners such as Chevron, ExxonMobile, BP, and Peabody Energy. Another way that the Climate Impact portfolio promotes a positive environmental impact is by investing in bonds that fund green projects. The Climate Impact portfolio invests in iShares Global Green Bond ETF (BGRN), which tracks the global market of investment-grade bonds linked to environmentally beneficial projects, as determined by MSCI. These bonds are called “green bonds.” The green bonds held by BGRN fund projects in a number of environmental categories defined by MSCI including alternative energy, energy efficiency, pollution prevention and control, sustainable water, green building, and climate adaptation. How is Betterment’s Social Impact portfolio constructed? Betterment offers a Social Impact portfolio for investors that want to invest in a strategy more focused on the social pillar of ESG investing (the S in ESG). Betterment’s Social Impact portfolio invests assets in socially responsible ETFs and is constructed using the following mandates: ESG, gender equity, social equity, and shareholder engagement. The Social Impact portfolio was designed to give investors exposure to investments which promote social empowerment without sacrificing proper diversification and balanced cost. Fund selection for this portfolio follows the same guidelines established for the Broad Impact portfolio discussed above, as we seek to incorporate broad based ETFs that focus on social empowerment with sufficient liquidity relative to their size in the portfolio. How does the Social Impact portfolio help promote social empowerment? The Social Impact portfolio shares many of the same holdings as Betterment’s Broad Impact portfolio. The Social Impact portfolio additionally looks to further promote the “social” pillar of ESG investing by allocating to the following ETFs: SPDR SSGA Gender Diversity Index ETF (SHE) Academy Veteran Impact ETF(VETZ) Goldman Sachs JUST U.S. Large Cap Equity ETF (JUST) SHE is a US Stock ETF that allows investors to invest in more female-led companies compared to the broader market. In order to achieve this objective, companies are ranked within each sector according to their ratio of women in senior leadership positions. Only companies that rank highly within each sector are eligible for inclusion in the fund. By investing in SHE, investors are allocating more of their money to companies that have demonstrated greater gender diversity within senior leadership than other firms in their sector. VETZ, the Academy Veteran Impact ETF, is a US Bond ETF and is the first publicly traded ETF to primarily invest in loans to U.S. service members, military veterans, their survivors, and veteran-owned businesses. A majority of the underlying assets consist of loans to veterans or their families. The fund primarily invests in Mortgage-Backed Securities that are guaranteed by government-sponsored enterprises, such as Ginnie Mae, Fannie Mae, and Freddie Mac. The fund also invests in pools of small business loans backed by the Small Business Administration (SBA). JUST, Goldman Sachs JUST U.S. Large Cap Equity ETF, invests in U.S. companies promoting positive change on key social issues, such as worker wellbeing, customer privacy, environmental impact, and community strength, based on the values of the American public as identified by JUST Capital’s polling. Investment in socially responsible ETFs varies by portfolio allocation; not all allocations include the specific ETFs listed above. For more information about these social impact ETFs, including any associated risks, please see our disclosures. Should we expect any difference in an SRI portfolio’s performance? One might expect that a socially responsible portfolio could lead to lower returns in the long term compared to another, similar portfolio. The notion behind this reasoning is that somehow there is a premium to be paid for investing based on your social ideals and values. A white paper written in partnership between Rockefeller Asset Management and NYU Stern Center for Sustainable Business studied 1,000+ research papers published from 2015 to 2020 analyzing the relationship between ESG investing and performance. The primary takeaway from this research was that they found “positive correlations between ESG performance and operational efficiencies, stock performance, and lower cost of capital.” When ESG factors were considered in the study, there seemed to be improved performance potential over longer time periods and potential to also provide downside protection during periods of crisis. It’s important to note that performance in the SRI portfolios can be impacted by several variables, and is not guaranteed to align with the results of this study. Dividend Yields Could Be Lower Using the SRI Broad Impact portfolio for reference, dividend yields over a one-year period ending March 31, 2025 indicate that SRI income returns at certain risk levels have been lower than those of the Core portfolio. Oil and gas companies like BP, Chevron, and Exxon, for example, currently have relatively high dividend yields, and excluding them from a given portfolio can cause its income return to be lower. Of course, future dividend yields are uncertain variables and past data may not provide accurate forecasts. Nevertheless, lower dividend yields can be a factor in driving total returns for SRI portfolios to be lower than those of Core portfolios. Comparison of Dividend Yields Source: Bloomberg, Calculations by Betterment for one year period ending March 31, 2025. Dividend yields for each portfolio are calculated using the dividend yields of the primary ETFs used for taxable allocations of Betterment’s portfolios as of March 2025. Conclusion Despite the various limitations that all SRI implementations face today, Betterment will continue to support its customers in further aligning their values to their investments. Betterment may add additional socially responsible funds to the SRI portfolios and replace other ETFs as the investing landscape continues to evolve.
