How to Use Smart Saver for Market Downturns
Market downturns can lead some investors to make hasty decisions with their money. Learn how to use Smart Saver to help manage your downturn decisions more effectively.
Smart Saver can help minimize risk for your extra cash with its 100% bond allocation while also mitigating the effects of inflation.
You can have the exact same investments as you have in SmartSaver in any Betterment goal, even Retirement goals. Just set your allocation to 100% bonds. It's the exact same thing.
To take advantage of when markets fall, you can simply move money into your investment goals by making a transfer from Smart Saver.
During most market downturns, investors can be split into four groups:
- Those who don’t follow markets and don’t know/care (the majority of our customers).
- Those who follow markets, but don’t react to them.
- Those who buy when the market falls.
- Those who sell when the market falls.
Smart Saver can help facilitate very different mindsets during market downturns. While we don’t propose timing the market, Smart Saver can help consumers fulfill their goals’ full time horizon in whichever of the four investor categories they might fall into.
A quick refresher on how Smart Saver works: It’s a low-risk investing account alternative to your savings account that could earn you a 2.15% annual yield, which is approximately 20X more when compared to other savings accounts.
Smart Saver helps you both avoid risk and take advantage of it.
We’ll review how you use Smart Saver for each of these scenarios.
Helping to Avoid Risk While Making Gains
Smart Saver puts 80% of your money in U.S. Treasuries and 20% in a mix of low duration bonds, targeting a higher yield and focusing on asset safety as well as liquidity.
When you have investing goals set up for your mid- and long-term needs—things like investing for retirement, a house, or maybe a child’s education—it’s reasonable to feel nervous about choppy markets. Betterment recommends investing for your goal’s full time horizon and waiting out the volatility. However, if you’re feeling extra nervous, it’s okay to make temporary adjustments that will help you feel more secure.
1. Using Smart Saver as a temporary holding tank for your goals.
Nervous investors during a volatile market may be more likely to cancel their auto-deposits or withdraw funds entirely from their investment goals. Because Smart Saver was created to yield income through low-risk investments, Betterment recommends switching your auto-deposits in to Smart Saver instead of your investment goals during this time. This can help ensure the continued growth of your investments while also maintaining a path to your financial goals.
Then, when markets improve, you can easily switch money from your Smart Saver account into one of your riskier investment goals.
2. Reducing Your Goals’ Allocation to 100% Bonds—Smart Saver’s portfolio
A second option for the nervous investor includes emulating Smart Saver’s portfolio allocation in order to reduce risk while keeping your funds in the same location within your Betterment account. By changing the portfolio allocation to 100% bonds, you mitigate the potential of greater losses during a market downturn by taking out your money, while ensuring that your investments are still waiting out the market volatility, allowing for continued growth.
Taking Advantage When Markets Fall
You may be the kind of investor that wants to take advantage when markets fall—you want to buy when stocks are seemingly on sale. If this is your mentality, then your ability to take advantage will probably depend on how much cash you have to invest quickly.
1. Using Smart Saver to Keep Money at the Ready
Smart Saver is an investing alternative to your savings account because its purpose is to help you save more and get it ready to invest for your goals. Smart Saver includes helpful tools to enable your savings. Cash analysis tells you when you have extra cash to save and Two-Way Sweep takes the manual transfers to and from your checking account off your shoulders. While we always suggest investing for your goals rather than waiting to time the market, if you’re going to have money set aside to take advantage of a down market, consider putting those funds in a lower-risk, higher-yield account, like Smart Saver.
When the markets fall, and you’ve used Smart Saver to save, the money you’ll invest in a riskier goal will be right there waiting.
2. Transferring Money from Smart Saver into an Investment Goal
When you have Smart Saver set up with Two-Way Sweep, this feature may be continually moving cash between your checking account and Betterment. When you find yourself ready to invest in a riskier goal, you can simply move money into these goals by making a transfer from Smart Saver.
As you move that money, we’ll automatically trade Smart Saver’s bond-only portfolio into an allocation more heavily invested in stocks, setting you up to take advantage of a potential swing in the market upward. While we don’t suggest aiming to predict which way the market will turn, the basic principle of investing when prices are cheap can still be advantageous.
Making a goal-to-goal transfer from Smart Saver to an investment goal is simple. Simply navigate to Smart Saver and select “Transfer.” From the dropdown, choose “Transfer to another goal,” and you can select the amount you’ll take from Smart Saver to go to another goal.
Remember that if you have Two-Way Sweep enabled, money that you remove from Smart Saver to go to a different investment goal will not be available for us to sweep back into your checking account to help you avoid any overdraft.
There is nothing investors can do about predicting the market. However, one thing within their power to control is how they react to it. If you consider yourself an investor in one of the four categories outlined above, the first step to help get through market volatility is knowing what kind of investor you are and how much risk you want to take. Whether you want to help avoid significant risk while still earning income or whether you want to leverage down markets, Smart Saver is a low-risk investing account for your cash in either case.
How Betterment Works During Volatile Markets
It can be difficult to ride out a market downturn when you can see it affecting your investment portfolio. We have automated features in place to address volatile markets when they occur.
How Checking Performance Might Hurt Your Performance
As your investment manager, we strive to maximize your returns and reduce your investment costs. But did you know that we also try to help you reduce your stress?
Investing’s Pain Gap: What You Put Up with To Earn Returns
Markets are frustrating—especially when you look at a year’s worth of returns. Year to year, you can easily experience what we call the pain gap. The key is to not let the pain gap create a behavior gap between your account and market performance.
Explore your first goal
This is a great place to start—an emergency fund for life's unplanned hiccups. A safety net is a conservative portfolio.
Whether it's a long way off or just around the corner, we'll help you save for the retirement you deserve.
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.