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Show Me the Money

Setting your asset allocation is the single most important decision you will make as an investor. That’s why it is the primary focus of our advice, both within your Betterment account and on our site.

Articles by Betterment Editors
By the Editorial Staff Betterment Resource Center Published Jun. 19, 2012
Published Jun. 19, 2012
2 min read

As part of our recommendations, we often advise our customers to set and forget – to choose an allocation and stick with it, regardless of short term ups and downs in the market. After all, this is the tried and true way to optimize your long-term returns. For most investors, trying to time the market results in a loss.

While there is history, experience, and a Nobel Prize winning strategy behind that advice, sometimes the numbers tell it all.

We took a look at how Betterment accounts have performed over the past six months, and found that customers who took our initial advice or set a first allocation without touching it in the 6 months that followed, on average, performed as much as 2% more than those who changed their allocations multiple times. On an investment of $20,000 that’s $400 in just 6 months!  Here are the stats:

# of Allocation Changes Average Return
0 to 1 6.10%
2 to 5 4.58%
6 or more 4.08%

Let’s take a look at the overall trend:

As you can see, average performance consistently declines with the more allocation changes a customer makes. This trend is true regardless of average stock allocation:

Of course, those with a large percentage in stocks experienced greater volatility due to greater risk, but the numbers don’t lie: no matter what your average allocation was in the past 6 months, setting and forgetting earned you more on your investment, on average.

And while a 6-month view is helpful in terms of understanding how allocation changes impact performance in a recently volatile market, remember to keep a long-term view. Your diversified Betterment portfolio is designed to provide market returns over the long run.

In recent weeks, it may have been tempting to move that dial, but the greatest reward comes from forgetting the dial even exists.

Show you the money, you say? Set and forget, and the money will show itself.

 

Data above based on the performance of all Betterment customers who have been investing with Betterment for at least the past six months. The average asset allocation of these users is 68% stocks, 32% Treasury Bonds. The Betterment Stock Market portfolio is comprised of U.S. equities index funds VTI, IVE, IWS, and IWN, and international equities index funds VWO and VEA. The Betterment Treasury Bond portfolio is comprised of Treasury Bond Exchange Traded Funds TIP and SHY. The above results are net of investment advisory fees and reflect the reinvestment of dividends. During the past six months the S&P 500 index was up 8.13%. 

Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Past results are no guarantee of future returns.

Please consult the Investment Tools and Model Predictions section of our terms and conditions for further information regarding Betterment’s advice and these performance results.

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