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The Pursuit Of Betterment’s New CEO (And Finding Happiness Along The Way) Betterment Founder Jon Stein announces the appointment of Sarah Kirshbaum Levy as his successor and new CEO of Betterment. It’s the fall of 2007 on the Lower East Side. My Betterment clock starts not when we launch in 2010 but as I hash out the concept in conversations with roommates and friends. I have a crazy idea: to pursue my happiness via helping Americans pursue their happiness. I write a mission statement: empower customers to do what’s best with their money so they can live better. Investing feels complicated to most people, but the best practices are known and straightforward. Why not take the smart services used by the wealthy and institutions and make them accessible to every American? People like this crazy idea, some join me, and with sweat and sacrifice, a tiny, hungry, customer-impact-obsessed company is born. I pursue Betterment’s mission doggedly. My wife (whom I met in 2006—not coincidentally—her encouragement begets a startup) calls Betterment my “first child.” I say often (usually sincerely): “I’m the luckiest person, I have the best job in the world.” At times, it feels like all of my being, every waking hour, every dream, is intertwined with my company. I am Betterment. There is nothing else. Teammates become best friends (and each other's family: I officiate weddings of Bettementers who later have Betterment babies). I star in TV ads—never imagined that career turn. Early customers email me personally for support (and some still do—love y’all, customers). We grow to $25B AUM, more than 500,000 customers, a team of more than 300, and we move the industry forward. And yet, I know we can achieve more; we have millions more Americans to reach. The Pursuit Of Our Potential For some time, I look to bring in an experienced, dynamic operating leader to help drive the company forward. The search is not initially focused on one specific role to fill; it is about finding amazing talent that could help lead Betterment to realize our full potential. The time at home this year affords more time to devote to the search process, to talk to senior operating leaders and to think about what might be needed for the next leg of the journey. I spend time with hundreds of diverse candidates. I realize that the best way to achieve our mission might be to invite a successor to lead Betterment in the next phase of growth. Due to good fortune and intense effort in a most challenging year, the company has never been in a stronger position. Each line of business is reaching new heights in 2020. We’re beating targets, well-capitalized, with wind at our backs. It’s a good time to hand over the reins. Over the summer, I connect with Sarah Kirshbaum Levy. There is something enthralling about her. I don’t want to jinx or overload it, but outside of meeting my wife, it’s hard, at present, to think of a more consequential introduction. And this is over video conference! The Pursuit Of The One Over the next few months, I spend more time with Sarah and she begins engaging with members of the team and our board. I bring her in full-time as a consultant in a trial run. What a privilege not only to recruit my successor, but to observe her building relationships, to work side by side with her as she iterates on her plan, and to see her making every meeting more open and efficient. I give her my authority to work with the team to architect plans for 2021 and beyond, and she excels. My admiration grows as she starts effectively running the company, with my proxy. My execs tell me they have so much to learn from her. The only thing that is missing is the title—and today, we give her the title. Sarah’s Pursuits Sarah started out at Disney and spent the last 20 years at Viacom, home to beloved brands including Nickelodeon, BET, MTV, and Comedy Central. Through a series of senior leadership roles, culminating in Chief Operating Officer, she’s shepherded global phenomena, from SpongeBob to The Daily Show with Trevor Noah, connecting with audiences in meaningful ways. With her experiences leading large public companies, Sarah is the right executive to lead Betterment now, as we contemplate a transition from private to public in the coming years. For someone with a “big company” pedigree, she’s remarkably down to earth and scrappy. She’s launched and grown businesses, bought and sold businesses, managed the bottom line, and driven consumer brands to win. I appreciate her “outsider” perspective. Betterment is a unique company—not just finance, not just tech, 100% customer-impact obsessed. Take it from one who’s looked: It’d be hard to find someone who’s both spent a career in financial services and can credibly lead the change we envision: to empower customers to do what’s best with their money, so they can live better. The Pursuit Of Happiness I’ve done the best work of my life at Betterment, and I have worked too hard to stop giving it my all to realize this company’s mission, whatever form those efforts may take. From my role on the board, I’ll be supporting Sarah and her team, whether it be via recruiting, investor relations, telling our story, or upholding company culture and values. A dream for me since that Lower East Side fall in 2007 has been to build a sustainable institution, to build something that will outlast me. I’ve never taken a larger step toward that accomplishment than I am today in passing the torch to Sarah. I asked Sarah what mattered most to her in her next role, and she said, without hesitation, “A brand and mission I believe in.” She’s evidenced this for me in every interaction since. I believe that she’ll more fully realize the vision I laid out years ago, and make Betterment the most beloved, most essential financial brand for this generation. And in so doing, she’ll power the pursuit of happiness for millions of Americans.

What’s An Investment Portfolio? And why it's best to choose one suited to your goals and appetite for risk. The investment portfolio that’s right for you depends on your goals and the level of risk you’re comfortable with. What do you want to accomplish? How fast do you want to reach your goals? What timeline are you working with? Your answers guide which kinds of assets might be best for your portfolio—and where you’ll want to put them. When choosing or constructing an investment portfolio, you’ll need to consider: Asset allocation: Choose the types of assets you want in your portfolio. The right asset allocation balances risk and reward according to your goals. Got big long-term plans? You may want more stocks in your portfolio. Just investing for a few years? Maybe play it safe, and lean more on bonds. In this guide, we’ll: Explain what an investment portfolio is Explore the types of assets you can put in your portfolio Discuss how risk and diversification influence your portfolio Explain how to choose the right investment portfolio What’s an investment portfolio? When it comes to your financial goals, you don’t want your success or failure to depend on a single asset. An investment portfolio is a collection of financial assets designed to reach your goals. The portfolio that can help you reach your goals depends on how much risk you’re willing to take on and how soon you hope to reach them. Whether you’re planning for retirement, building generational wealth, saving for a child’s education, or something else, the types of assets your portfolio includes will affect how much it can gain or lose—and how long it takes to achieve your goal. What assets can your portfolio include? Investment portfolios can include many kinds of financial assets. Each comes with its own strengths and weaknesses. How much of each asset you include is called asset allocation. Cash can be used right away and carries very little risk when compared to other asset classes. But unlike most other assets, cash won’t appreciate more than inflation. Stocks represent shares of a company, and they tend to be more volatile. Their value fluctuates significantly with the market. More stocks means more potential gains, and more potential losses. Bonds are like owning shares of a loan whether made directly to companies or governments. They tend to be more stable than stocks. There’s less potential for gain over time, but less risk, too. Commodities like oil, gold, and wheat are risky investments, but they’re also one of the few asset classes that typically benefit from inflation. Unfortunately, inflation is pretty unpredictable, and commodities can often underperform compared to other asset classes. Mutual funds are like bundles of assets. It’s a portfolio-in-a-box. Stocks. Bonds. Commodities. Real estate. Alternative assets. The works. For a fee, investors like you can buy into a professionally managed portfolio. Exchange traded funds (ETFs) are similar to mutual funds in composition–they’re both professionally-curated groupings of individual stocks or bonds–but ETFs have some key differences. They can be bought and sold throughout the day, just like stocks—which often makes them better for tax-loss harvesting. They also typically have lower fees as well. ETFs are an increasingly popular portfolio option. Why diversification is key to a strong portfolio Higher levels of diversification in your investment portfolio allow you to reduce your exposure to risk that hopefully will result in achieving your desired level of return. Think of your assets like legs holding up a chair. If your whole portfolio is built around a single asset, it’s pretty unstable. Regular market fluctuations could easily bring its value crashing to the floor. Diversification adds legs to the chair, building your portfolio around a set of imperfectly correlated assets. With a diverse portfolio, your gains and losses are less sensitive to the performance of any one asset class and your overall portfolio becomes less volatile. Price volatility is unavoidable, but with the right set of investments, you can lower the overall risk of your portfolio. This is why asset allocation and diversification go hand-in-hand. As you consider your goals and the level of risk you're comfortable with, that should guide the assets you choose and the ratio of assets in your portfolio. How to align your portfolio with your goal Since some asset classes like stocks and commodities have greater potential for significant gains or losses, it’s important to understand when you might want your portfolio to take on more or less risk. Bottom line: the more time you have to accomplish your goal, the less you should worry about risk. For goals with a longer time horizon, holding a larger portion of your portfolio in asset classes more likely to experience loss of value, like stocks, can also mean greater potential gains, and more time to compensate for any losses. For shorter-term goals, a lower allocation to volatile assets like stocks and commodities will help you avoid large drops in your balance right before you plan to use what you’ve saved. Over time, your risk tolerance will likely change. As you get closer to reaching retirement age, for example, you’ll want to lower your risk and lean more heavily on asset classes that deliver less volatile returns—like bonds.

The Most Common Asset Classes For Investors Every type of asset gains or loses value differently, so it helps to know what those types are and how they work. An asset class is a name for a group of assets that share common qualities and behave similarly in the market. They’re governed by the same rules and regulations, and gain or lose value based on the same factors and circumstances. Different asset classes have relatively little in common, and tend to have fluctuations in value that are imperfectly correlated. Common asset classes include: Equities (stocks) Fixed income (bonds) Cash Real Estate Commodities Cryptocurrencies Alternative investments Financial Derivatives Within these groups, there are several assets people commonly invest in. The most common types of assets for investors The three financial assets you may hear about the most are stocks, bonds, and cash. A strong investment portfolio often includes a balance of these assets, or combines them with others. Let’s take a closer look at each of these. Stocks A stock is a type of equity. It’s basically a tiny piece of a company. When you invest in stocks, you become a partial “owner” of the companies that issued those stocks. You don’t own the building, and you can’t go bossing around the employees, but you’re a shareholder. Your stock’s value is directly tied to the company’s profits, assets, and liabilities. And that means you have a stake in the company’s success or failure. Stocks are volatile assets—their value changes often—and they have historically had the greatest risk and highest returns out of these three asset categories (stocks, bonds and cash). Choosing stocks from a wide range of companies in different industries can be a smart way to diversify your portfolio. Bonds A bond represents a portion of a loan. Its value to the bondholder comes from the interest on the loan. Bonds are typically more stable than stocks—lower risk, lower reward. Bonds belong to the “fixed income” asset class, which focuses on preserving capital and income, and tend to depend on different risk variables than stocks. If a company has a bad quarter, that’s probably not going to affect the value of your bond, unless they have a really bad quarter then default on their loan. When stock markets have a bad month, investors tend to flock to safer asset classes. In those cases, returns on bonds may outperform returns from the stock market. Something else to consider with bonds is the impact of interest rates and inflation. When interest rates increase or decrease, they directly affect how much bond interest you accrue. And since bonds generate lower returns than stocks, they may struggle at times to beat inflation. Cash With cash investments, things like money market accounts and certificates of deposit (CDs), you’re basically loaning cash (often to a bank) in exchange for interest. This is usually a short-term investment, but some cash investments like CDs can lock up funds for a few years. These investments are often low-risk because you can be confident they will generate a return, even though it might be lower than returns for other types of asset classes. Cash investments offer higher liquidity, meaning you can more quickly sell or access these assets when you need the money. As such, the return you get is typically lower than what you’d achieve with other asset classes. Investors therefore tend to park the money they need to spend in the near-term in cash investments. Other common assets Those are the big three. But investors also invest in real estate, commodities, alternative asset classes, financial derivatives, and cryptocurrencies. Each of these asset classes come with their own set of risk factors and potential advantages. What about investment funds? An investment fund is a basket of assets that can include stocks, bonds, and other investments. The most common kinds of funds you can invest in are mutual funds and exchange-traded funds (ETFs). Mutual funds and ETFs are similar, but there’s a reason ETFs are gaining popularity: they’re usually cheaper. ETFs tend to be less expensive to manage and therefore typically have lower expense ratios. Additionally, mutual funds charge a fee to cover their marketing expenses. ETFs don’t. Mutual funds are also more likely to be actively managed, so they can have more administrative costs. Most ETFs are funds that simply track the performance of a specific benchmark index (e.g., the S&P 500), so there’s less overhead to manage ETFs than mutual funds. ETFs have another advantage: you can buy and sell them on the stock exchange, just like stocks. You can only sell a mutual fund once per day, at the end of the day. That’s not always the best time. Being able to sell at other times opens the door to other investment strategies, like tax-loss harvesting. How to choose the right assets When you start investing, it’s hard to know what assets belong in your investment portfolio. And it’s easy to make costly mistakes. But if you start with a goal, choosing the right assets is actually pretty easy. Say you want $100,000 to make a down payment on a house in 10 years. You have a target amount and a deadline. Now all you have to do is decide how much risk you’re willing to take on and choose assets that fit that risk level. For many investors, it’s simply a matter of balancing the ratio of stocks and bonds in your portfolio.

What Is a Tax Advisor? Attributes to Look For Since Betterment isn't a tax advisor, we often suggest that customers see a tax advisor regarding certain issues or decisions. Who exactly is a tax advisor and how should you think about picking one? Tax season is now upon us. Now that you’ve probably received all of your tax forms, you may be facing a choice for how to proceed with filing: do it yourself with tax software or hire a professional tax advisor? Although it certainly will be more expensive than using tax software, hiring a tax advisor makes sense for certain individuals, depending on their financial circumstances. Here are two important factors to consider when deciding if a tax advisor is right for you: Time: Even with tax software guiding you, filing your taxes yourself can be time consuming. You’ll need to make sure that you’ve entered or imported the data from your tax forms correctly, which often takes at least several hours, and your time is worth something. Complexity: The more complicated your financial situation, the more a tax advisor may be able to help you. Have partnership income, or income from an S corporation? Been subject to alternative minimum tax in past years? Received or exercised stock options this year? Tax software can handle these issues, but it will take time, and the risk of mistakes (and even an audit) increases. If you decide that your situation warrants professional assistance, some further questions are worth exploring: what exactly is a tax advisor and how should you think about picking one? Who counts as a tax advisor? Anyone with an IRS Prepare Tax Identification number (a “PTIN” for short) can be paid to file tax returns on behalf of others. But merely having a PTIN doesn’t tell you much about the tax preparer; tax preparers have different experience, skills, and expertise. What you really want is a tax advisor, a professional with a certification and experience level that qualifies her not only to prepare your return, but to use her knowledge of the tax code to provide advice on your financial situation. There are three different professional certifications to consider, each of which qualifies a tax advisor to practice with unlimited representation rights before the IRS. This means that in addition to preparing returns, they also are licensed to represent their clients on audits, payments and collection issues, and appeals. Certified Public Accountants (CPAs) CPAs have completed coursework in accounting, passed the Uniform CPA Examination, and are licensed by state boards of accountancy (which require that they meet experience and good character standards). Some, but not all, CPAs specialize in tax preparation and planning. You can find complaints about CPAs either by searching records with state boards of accountancy and at Better Business Bureaus. Enrolled Agents Enrolled agents are licensed by the Internal Revenue Service after they have passed a three-part examination and a background check. The IRS maintains complaints about enrolled agents on the website of its office for enrollment, and you can also find complaints on the National Association of Enrolled Agents website. Licensed Tax Attorneys Licensed attorneys have graduated from law school, passed a state bar exam, and are admitted to the bar in at least one state. Some, but not all, attorneys specialize in tax preparation and planning. Many tax attorneys have completed an additional year of law school study in a master’s program in tax (called a Tax LL.M. degree). Disciplinary actions against attorneys can be found by searching the state bar associations with which the attorney is registered. How to Select a Tax Advisor or Tax Consultant No tax advisor with one of the certifications described above is necessarily better than any of the others in all situations. Rather, what matters most is: How the advisor approaches the tax preparation process, including the specific experience the tax advisor has with issues relevant to your particular financial situation. Whether you feel comfortable with the tax advisor. How the advisor structures their fees. You may be able to screen potential advisors along several of these dimensions based on information you can find about them online; for others, an initial meeting will be critical to determine if the advisor is right for you. 1. Assess your confidence in the quality of a tax advisor's recommendations, as well as their experience. Here are a few specific factors to consider carefully when assessing the potential quality of a tax advisor's work. First, you should try to identify a tax advisor who will act ethically and with integrity. Before scheduling a meeting with a potential tax advisor, check to see if the advisor has been subject to any complaints, disciplinary actions, or other ethical infractions. When meeting with the advisor, be on the lookout for outlandish promises: if an advisor guarantees you a certain refund without having first looked at your returns, you should be wary (any promise that sounds too good to be true probably is). If the advisor suggests taking a position on a tax return that strikes you as overly aggressive (because it is not grounded in your actual financial situation) or if you simply do not understand something the advisor is saying, make sure to ask, and keep asking until you are satisfied with the answer. Having a tax advisor prepare your returns does not take away your responsibility for the accuracy of your tax return. Of course, an advisor who knowingly takes an improper position on a tax return will face consequences, but it is your return, and you can too. A good tax advisor also should provide more value than simply filling out your returns. She should help you to structure your finances in an optimal way from a tax perspective. Not every tax advisor has expertise with every nuance of the tax code, and so you’ll want to make sure that the advisor you select has significant experience with the particular issues for which you’re seeking expert advice. Of course, there are certain common issues that every good advisor should know: for example, how to maximize the value and efficacy of your charitable contributions, how to weigh the tax tradeoffs between renting and owning a home, or how to save money for or gift money to family members. For other less common situations, however, you’ll want an advisor with specific experience. If you own a business or are self-employed, if you work for a startup and own a significant number of stock options, or if some portion of your income is reported on a K-1 (because you are a partner in a business or own shares in an S corporation), you likely will be best served by finding an advisor who has worked with a significant number of clients with these tax issues. Finally, maintaining the security of your personal information is more important than ever these days, and the inputs for your taxes is some of the most sensitive information you have. There will always be some risk of data breaches, but a good tax advisor will take steps to safeguard your information. Make sure that you ask about how the tax advisor stores your personal information and what methods she uses to communicate with you regarding sensitive topics. You also should ask about whether the advisor has ever been subject to a data breach and what steps the advisor is taking to protect against future ones. 2. Assess your comfort level with the working relationship. You want to make sure you have a good rapport with your tax advisor, and that you feel like you understand each other. At your first meeting, make sure to bring three years’ worth of old tax returns for your advisor to review. Ask if you missed any deductions, and if your old returns raise any audit flags. Consider the advisor’s responses. Does the advisor seem willing to spend time with you to ask thorough questions to fully understand your situation? Or does she rush through in a way that makes you feel like she might be missing certain issues or nuances? Does the advisor explain herself in a way that is understandable to you, even though you don’t have a tax background? Or does the advisor leave you confused? A tax advisor may work by herself or be a member of a larger organization or practice. Each approach has its benefits and drawbacks. You can be sure that a solo practitioner will be the one who actually prepares your returns, but it may be harder to reach the advisor during the height of tax season, and the advisor may find it difficult to get a second opinion on tricky issues or issues outside her core areas of expertise. On the other hand, although the collective expertise of a larger practice may exceed that of even a very talented advisor practicing on her own, it may be more difficult to ensure that your return is prepared personally by your advisor. Finally, think about whether you want to work with a tax advisor who is already part of your social network, or who has been referred by a trusted family member or friend. On the one hand, having the seal of approval of someone you know and trust may help to assure you that the advisor is right for you. On the other hand, consider whether it will be harder to part ways with the advisor down the road if she fails to meet your standards. 3. Evaluate the cost of the tax advice. The final issue you’ll want to think about is cost. Tax preparation services are a low margin business (particularly with the competition that tax preparers face from low cost software), but you can expect to pay more for tax planning services or advice. The best cost structure is one where the tax advisor charges for her time or for the specific forms that the advisor completes and files. By paying for the advice itself and not a particular outcome, this cost arrangement properly aligns the incentives between your tax advisor and you. Be wary of compensation structures that create the potential for conflicts of interest between you and and your tax advisor. For example, some tax advisors may try to earn additional revenue from you by selling other services or financial products along with tax preparation. Ultimately, when it comes to cost, your goal should not be solely to minimize your combined out of pocket cost to the IRS and your advisor for this year’s tax return. Rather, you should take a longer term view, recognizing that good, personalized tax advice can help you to structure your financial life in a tax-efficient way that can pay dividends for years to come.

5 Common Roth Conversion Mistakes Learn more about Roth conversion benefits—for high earners and retirees especially—and common conversion mistakes to avoid. IRAs, as you may already know, have two popular flavors among others: Traditional IRA: Anyone can open and contribute to one, but one of the Traditional IRA’s primary appeals to investors is the ability to deduct contributions to it from their taxable income, a benefit the IRS phases out at certain income thresholds. Roth IRA: Contributions to a Roth IRA aren’t tax-deductible—you’re investing with “post-tax” dollars—but when it comes time to withdraw from the account, those withdrawals will generally be tax-free. The IRS also restricts access to a Roth IRA based on income. We go into more detail on the basics of IRAs and their respective pros and cons elsewhere. For this article, we’ll focus on the process of converting funds from a Traditional IRA to a Roth IRA—also known as a Roth conversion or, in some cases, a “Backdoor Roth”—why investors might consider one, and five common mistakes to avoid when executing one. But first, a disclaimer: Roth conversions come with all sorts of tax-centric complexities. We wouldn’t be writing this article if they didn’t. We’re not a tax advisor, nor can we provide tax advice for your specific situation, so we strongly recommend you consult one before deciding whether a Roth conversion is right for you. Why consider a Roth conversion in the first place? Before we dive into the potential tripups of a Roth conversion, let’s look at a couple typical reasons someone might consider one: You make too much money. Because the tax benefits for both of these IRA types are restricted by income, some high earners can neither deduct contributions to a Traditional IRA nor contribute directly to a Roth IRA at all. They can, however, contribute to a Roth IRA indirectly. If you have a Traditional IRA, you’re currently allowed to contribute to it first, then convert those contributions into a Roth IRA afterwards, even if your income exceeds the limits, in what some people call a “Backdoor Roth.”  You want to avoid a Traditional IRA’s Required Minimum Distributions in retirement. The IRS requires that once you reach a certain age, you must begin taking Required Minimum Distributions (RMDs) from your Traditional IRA every year, regardless of whether you want or need to. That means, in turn, that you pay taxes on any of those distributions that haven't already been taxed. A Roth IRA doesn’t require minimum distributions, so for some future retirees this could be advantageous. Five common Roth conversion mistakes to avoid Converting outside of your intended tax year You must complete a Roth conversion by a year’s end (December 31) in order for it to count toward that specific tax year’s income. Keep in mind this is different from the IRA contribution deadline for a specific tax year, which (somewhat confusingly) bleeds into the following calendar year. As we’ve mentioned before, Roth conversions require careful planning on your part (and ideally your tax advisor) to determine how much you should convert, if at all, and when. Converting too much Speaking of, the question of how much to convert is a crucial one. Blindly converting too much could push you into a higher tax bracket. A common strategy used to avoid this is called “bracket filling.” You determine your income and how much room you have until you hit the next tax bracket, then convert just enough to “fill up” your current bracket.  Of course, it can be difficult to determine your exact income. You might not know whether you’ll get a raise, for example, or how many dividends you’ll earn in investment accounts. Because of this, we highly recommend you work with a tax advisor to figure out exactly how much room you have and how much to convert. You no longer have the luxury of undoing a Roth conversion thanks to the 2017 Tax Cuts and Jobs Act. As a side note, you can squeeze more converted shares into your current bracket if the market is down since each share is worth less in that moment. To be clear, we don’t recommend making a Roth conversion solely because the market is down, but if you were already considering one, this sort of market volatility could make the conversion more efficient.  Withdrawing the converted funds too early When making a Roth conversion, you need to be mindful of what is called the “five year rule” regarding withdrawals after a conversion. As we mentioned earlier, you’ll typically pay taxes on the amount you convert at the time of conversion, and future withdrawals can be tax-free. After making a Roth conversion, however, you must wait five tax years for your full withdrawal of your converted amount to avoid taxes and penalties.   Notably, this countdown clock is based on tax years, so any conversion made during a calendar year is deemed to have taken place January 1 of that year. So even if you make a conversion in December, the clock for the five year rule starts from earlier that year in January. One more thing to keep in mind is that each Roth conversion you make is subject to its own five year period.  Paying taxes from your IRA Paying any taxes due from a conversion out of the IRA itself will make that conversion less effective. As an example, if you convert $10,000 and are in the 22% tax bracket, you’ll owe $2,200 in taxes. One option is to pay the taxes out of the IRA itself. However, this means you’ll have only $7,800 left to potentially grow and compound over time. If you’re under the age of 59 ½, the amount withheld for taxes will also be subject to a 10% early withdrawal penalty. Instead, consider paying taxes owed using excess cash or a non-retirement account you have. This will help keep the most money possible inside the Roth IRA to grow tax-free over time. Keeping the same investments Conversions can be a great tool, but don’t stop there. Once you convert, you should also consider adjusting your portfolio to take advantage of the different tax treatment of Traditional and Roth accounts. Each account type is taxed differently, which means their investments grow differently, too. You can take advantage of this by strategically coordinating which investments you hold in which accounts. This strategy is called asset location and can be quite complex. Luckily, we automated it through our Tax Coordination feature. Pairing asset location with Roth conversions can help supercharge your retirement saving even further.

How Much of Your Portfolio Should be in Crypto? Our golden rule to investing in crypto. How much to invest in crypto is a personal question all investors have to answer. We’ll get straight to our recommendation. We call it our 5% golden rule: At Betterment, we recommend investing 5% or less of your investable assets (your investable cash, stocks, bonds, mutual funds, exchange-traded funds, etc.) in crypto. Assuming you are a long-term investor, a simple way to think about this is to ask yourself how confident you are that the crypto industry will continue to grow over time. Then decide how much you want to invest into a diversified portfolio based on that, no more than 5% of your investable assets. Where does the 5% golden rule come from? Using some math with fancy terms like the Black-Litterman model, our investing experts can calculate our maximum recommended crypto allocation. To get to our recommended allocation, the model takes into consideration our analyst’s answers to two important questions: How much, by percent, will crypto outperform stocks per year? In terms of probability, how confident are you that crypto will outperform stocks? Answers to both of the questions above exist on a spectrum, meaning that individuals may have different answers to the two questions. By plugging in the answers to those two questions into the Black-Litterman model, our experts recommend no more than 5% if you have high confidence that crypto will significantly outperform stocks. Many individuals may not be as confident in crypto outperforming stocks. In this case, we would recommend allocating less than 5% to match your comfort level. Allocation then diversification. Once you settle on your preferred crypto allocation of 5% or less, remember to consider diversification. All of our Crypto Investing portfolios are designed to offer broad diversification across many crypto assets.

A Sustainable Approach to Crypto Investing See how our experts have built a Sustainable crypto portfolio. Crypto requires large amounts of computing power for its underlying blockchain technologies to operate. Some critics of cryptocurrency have even suggested that the required computing power could lead to an energy crisis. For example, each year Bitcoin uses more electricity than the entire country of Argentina, a population of around 45 million. Crypto’s sustainability has been a concern of governments and industry critics alike. Leading with Cautious Optimism The sustainability concerns around crypto are worth taking seriously. At Betterment, we see a couple of reasons for cautious optimism. Not all blockchains are the same when it comes to energy consumption. Generally, Proof of Stake blockchains are more sustainable than Proof of Work blockchains. (Proof of Work and Proof of Stake are two of the main methods to validate cryptocurrency transactions.) Some blockchains are working to improve their energy efficiency. One way to do this is by migrating from Proof of Work to Proof of Stake. Building a Sustainable Crypto Portfolio For our Sustainable Crypto portfolio, we look to balance diversification and sustainability, by looking to both cryptocurrencies that transact sustainably, and to those on networks with a path to sustainability. We start with all the crypto assets which meet our overall selection criteria, then factor in the following considerations: We keep assets that currently transact on lower energy intensive blockchains, such as Proof of Stake. We also consider keeping any assets that transact on a Proof of Work blockchain, if there is a credible roadmap to migrate to Proof of Stake. We exclude assets that transact on Proof of Work blockchains, without a credible roadmap to migrate to Proof of Stake. Ethereum: A Path to Sustainability At Betterment, we’re taking a forward-looking approach as we assess the sustainability path of any given cryptocurrency. Ethereum is a great example of a leading cryptocurrency that is moving along a path to sustainability. In September of 2022, Ethereum migrated from Proof of Work towards Proof of Stake in an event dubbed “the Merge.” It is estimated that Ethereum’s total energy use may decrease by 99.95% as a result. Ethereum is a perfect example of a crypto project that is executing on a plan to advance along the sustainability spectrum, thus making its way into our Sustainable Crypto portfolio. We believe that the Merge can be seen as analogous to a net-zero commitment made by a massive global enterprise. We expect more projects to follow in Ethereum’s footsteps, and begin to address the sustainability concerns around their operations. Moreover, as the industry evolves, we expect more projects to make sustainability their core focus.

Making Sense of Crypto Volatility Crypto is a volatile asset class. But there are things you can do to prepare for likely losses that accompany potential gains. We’ll jump straight to the point: Crypto is definitely a volatile asset class, meaning it can have large positive and negative returns. But there are things you can do to prepare for likely losses that accompany potential gains. Your secret power: Being ready for volatility There is no sugar-coating volatility in crypto, but understanding it can help set you up for long-term success. As an investor, having a plan for how you will respond to volatility ahead of time (and sticking to it) can be your secret power. When the market falls and everyone else is panic selling, you’ll know what to do. Let’s cover the basics of volatility in crypto: Volatility refers to how much crypto prices change over time. Generally, the larger the price changes, the more risky an investment tends to be, and the greater chances of both gains and losses. Crypto has been very volatile in its short life, with prices climbing and falling regularly. For example, since 2021, the price of Bitcoin has bounced around with peaks near $70,000 and lows under $20,000—this is volatility in action. 3 steps to help coast through crypto volatility You don’t have to let volatility take you for a ride. Here are three tools that you can use to manage through volatility to help keep your investments on track over the long term: Diversify your investments. If your overall investment portfolio is diversified, crypto doesn’t have to feel as daunting if it’s only a small percent of your net worth. That’s also why we recommend only 5% or less of your investable assets in crypto. Use dollar cost averaging. One method is to use dollar cost averaging to reduce risk and build up your investment over time. Using dollar cost averaging, you would deposit a consistent amount into your crypto portfolio each month. At Betterment, you can set up a scheduled deposit into your crypto portfolio to automate dollar cost averaging. This results in buying more units when prices are low and less when they’re high. You can use this approach with stocks and bonds as well. Be intentional about monitoring your portfolio. It can feel good to log in and see gains, sure. But logging in during a down period will probably just make you feel stressed. And we don’t make good decisions when we’re stressed—like panic selling for a loss. Take a break from frequently checking your performance when markets are down.

Crypto’s Value: The Opportunity to Invest in an Unknown Future Investing in crypto could be the first opportunity that all investors have had to participate in an asset class from its origin. “Investing in the future” may sound cliche but investing in crypto could be the first opportunity that all investors, regardless of wealth, have had to participate in an asset class from its origin, shaping the future of our economy.   If you think about angel investing or startups, investing in a business during its early days is risky and often limited to a select few insiders. But with crypto, these high-risk (potentially high-reward) investment opportunities are open to everyone. It’s a way for an investor to take a piece of their portfolio and invest in an unknown future—potentially a piece of the world’s future business models. The world’s future business models Crypto means different things to different people. But at its core, many legitimate crypto initiatives are trying to build businesses of the future. That’s easy to miss with thousands of coins to choose from and too many negative news headlines about crypto. At Betterment, we’ve built diverse portfolios of crypto assets with use cases that are trying to bring wider access to digital goods and services. These business models run the gamut, including: Stores of value Financial services Digital commerce Data storage Gaming and entertainment We believe that a small, diversified investment in these innovative projects belongs in the modern investment portfolio. Where do we see crypto headed in the next 1-2 years? In one sentence: Crypto is here to stay but it likely will be a bumpy ride. Crypto is still in its early years, so a lot can change (and is changing daily). Even with the ups and downs in the market, we don’t think crypto is going anywhere based on these three measures: Increased consumer adoption. Crypto ownership has more than doubled globally since 2020. Increased institutional adoption. We’re seeing increased institutional adoption from banks to retailers which haven’t shown signs of stopping even in down markets. Increased government regulation. Regulation across the globe may help the industry mature and introduce consumer protections.

How to Save with Betterment Believe it or not, there is an art to saving money. Here are Betterment’s tips on how you can save effectively for your financial goals. Believe it or not, there’s an art to saving money. It’s not a static process with rigid guidelines. How much you need to save and how you do it changes with your circumstances. You react and adjust to life. But with the right techniques and tools, you can be equipped to make the choices that are best for you, whatever your situation. Here are some tips on how to effectively save for your financial goals with Betterment. In this guide, we’ll: Help you determine how much to save Walk you through the strategy behind making deposits Explain how Betterment is built to optimize your account Talk about how you can adapt to market conditions How Betterment determines how much you need to save Tell us the goal you want to reach, your target amount, and the date you want to reach it by (your time horizon), and we’ll show you how much we recommend saving each month to help get you there. That number acts as a starting point, but it’s flexible. We’ll provide you with a goal projection and forecaster to reflect the likelihood of hitting your goal, but we can’t predict the future. But that doesn’t mean you need to constantly change the amount you save. Instead, we recommend a simple strategy called a “savings ratchet.” A savings ratchet means you increase how much you save when you have to, but you don’t decrease it afterward. By ratcheting your savings rates, you may end up with greater final portfolio values. How to choose the right deposit strategy for your goals It may not seem like a big deal, but how and when you make deposits can affect your outcome and your experience. So it’s worth considering the options and their implications. Deposit types There’s more than one way to make a deposit in Betterment. Here’s what you can do: One-time deposits are exactly what they sound like. Choose the amount to transfer and where you want it to go, and the transfer happens once. This works well when you have extra cash to invest, but it isn’t ideal as a long-term strategy. Just imagine how much time you’d spend logging in and manually making transfers over the years! Recurring deposits eliminate the manual process. You set it up once, and we’ll automatically transfer the set amount from your bank account on the frequency of your choice: weekly, every other week, monthly, or on two set dates per month. Recurring deposits are a great option if you know how much you want to deposit on an ongoing basis. We’ll send a confirmation email before a scheduled recurring deposit, giving you a chance to skip the auto-deposit if needed. Deposit timing Setting up your deposits to occur the day after each paycheck is an effective auto-deposit strategy. The extra day gives your paycheck time to settle in your bank account before we start the transfer, but you’ll usually want that transfer to happen as quickly as possible. There are three main reasons for this: Paying yourself first. Scheduling your auto-deposits for right after you get paid lets you separate your paycheck into two categories: savings and spending. From a behavioral standpoint, this protects you from yourself. Your paycheck goes toward your financial goals first, and you’re free to use any remaining cash in your checking account for other spending needs. Avoiding idle cash. When your cash sits in a traditional bank account, it typically earns very little interest at best—often none at all. In times of inflation, which is most of the time, your cash is actually losing value. Letting it sit may also tempt you to try timing the market, holding on to it for even longer because of market activity. Idle cash could cause you to miss out on dividend payments or coupon income events too. Reducing your taxes. Regular and frequent deposits and dividends can help us rebalance your portfolio more tax-efficiently, keeping you at the appropriate risk level without realizing unnecessary capital gains taxes when possible. We use the incoming cash to buy investments in asset classes where you’re underweight, instead of selling investments in asset classes where you’re overweight. Even small amounts allow us to invest your money in fractional shares. To get started with auto-deposits on a web browser, first log in then head to New Transfers and choose the deposit option. Or on the mobile app, log in and choose the Deposit button that will appear at the bottom of the screen. How Betterment helps keep your goals on track Want to stay on track to reach your goals? Then your investments are going to need some maintenance. Betterment uses five strategies aimed to optimize your account and help you reach your goals. We can automatically adjust your allocations Generally speaking, the closer your goal is, the less risk you should take. There’s less time for the market to recover, so a sudden dip could set you back. This is why our auto-adjust feature is so valuable for some goals. Here’s how it works: When setting up a goal, you tell us your time horizon. We recommend an initial risk level. If auto-adjust is eligible and selected, we gradually decrease your risk level as your eligible goal approaches its end date. All investing includes some risk. Auto-adjust can’t entirely eliminate that, but it does help protect your portfolio by gradually shifting away from riskier investments (like stocks) into safer investments (like bonds). We recommended conservative savings amounts Once you’ve set up your goals and provided a target savings amount, we provide a recommended deposit amount and cadence, based on our projections for how the market may perform. To be on the safe side and give you a bit of a buffer, we base this contribution estimate on a below-average market outcome. More specifically, we aim for a 60% likelihood of reaching your goal by the end of the investment term. We help you plan for the worst-case scenario Sometimes you want extra certainty that you’ll reach your goal in time. This might be the case when: The goal’s time horizon is not flexible. The goal is very important to you. You prefer to be conservative with your finances. If any of these apply, you may want to look at our projection graphs to see how very poor markets might affect your goal. Hovering your cursor over the graph shows not just average expected performance, but also how your goal could fare depending on market performance. The very poor market outcome is indicated by the 90% chance of having at least that amount. Many investors want a 90% chance for reaching certain goals. In that case, you may want to consider increasing your savings amount. We send you reminders to update your goals Even when markets behave as expected, changing life circumstances may require you to update your goals. It’s best practice to periodically check in on your goals and see if you need to make adjustments. You should also review your financial profile to ensure your income level, tax bracket, marital status, and address are all correct. We tell you if your goals go off track Betterment makes it easy to see how your goals are doing and whether you should make changes. Based on your goal type, its time horizon and target amount, we can provide guidance on whether your goal is on track. If it’s not, we’ll show you what changes you can make to help fix it. How Betterment’s recommendations change with the market Even with the best strategies in place, sometimes the market just doesn’t perform the way we want it to. So what happens if you’re no longer on track to reach your goal? There’s no magic solution, but Betterment has some recommendations to help your goal get back on track: Delay your goal Some goals have timelines that are more flexible than others. Moving back your timeline can give your portfolio a chance to recover. It also gives you extra time to save more. You can use the Goal Forecaster within your goal to see how big of an impact the delay could have. Downsize your goal If a smaller target amount will still let you accomplish what you need to do, you may not need to change your timeline or take other actions. You can adjust the target amount to see what effect it will have on the timeline and recommended deposits for reaching your goal. This only works if you’re willing to accept a smaller target amount for your goal. Increase your savings amount Putting more toward your goal each month can help you catch up to your original target. You can increase your auto-deposit amount at any time. It’s easier said than done, but temporarily cutting back on discretionary spending may be the key to reaching your goal. For goals like emergency funds, where you don’t want to decrease your target amount and you want to reach it as soon as possible, the short-term sacrifice can be worth the long-term security. Divert money from other goals Transferring money from another account (like a goal that’s ahead of schedule) can help get you back on track. Just be careful you aren’t robbing your future self to fulfill your immediate needs. You can transfer money between non-IRA/non-401(k) investment goals from within your account by performing a goal-to-goal transfer. Just choose the goal you want to move money out of, click on “Transfer or Rollover,” and then click “Transfer to another goal.” You’ll sometimes need a combination of more than one—or even all—of these options. For example, if you can save an extra $100 per paycheck, delay your goal by three months, and also use some money from another goal, that may be your formula to get back on track.

Why Saving for Your Kid's College isn’t a Pass-Fail Proposition Investing even a modest amount now can make a noticeable difference down the road. In the long list of priorities during the early years of parenting, saving for your kid’s college may fall somewhere between achieving rock-hard abs and learning a foreign language. It’s not usually high on the list, in other words. And while the number of 529 plans, a tax-advantaged investing account designed for education expenses, continues to grow (15.7 million), that still makes for less than 1 plan for every 4 people under the age of 18 according to the latest U.S. Census numbers. The relative lack of saving in this space should come as no surprise when you factor in the financial commitments of early childhood—daycare alone can feel like a second mortgage—but the statistic also presents an opportunity. Start saving for college a few years earlier, or even at all, and that’s more time for compound interest to potentially work its magic. The stakes are high considering the skyrocketing costs of college. Before we dive into some practical budgeting tips to address this topic, let’s pour out some whole milk for the unique struggle that is saving while also supporting a family. A financial planner’s first-person account from the parenting front lines Bryan Stiger became the proud father of a baby girl last year. He also just so happens to be a Betterment Certified Financial Planner™. So he’s uniquely situated to talk about the money management challenges facing heads of households. “Since becoming a parent, it’s been a rollercoaster for me and my wife for sure,” says Bryan. “A few other things that feel like a rollercoaster when you become a parent are your expenses and your savings.” A big part of the problem is that kids create a financial double whammy, Bryan says. They appear suddenly and start demanding, among other things, a share of your limited money supply. At the same time, they introduce a series of potential new savings goals. Think not only a college education but more immediate big ticket items like braces. When you heap these goals on top of your pre-existing ones, it can quickly feel overwhelming. So how do you save for them all? Bryan suggests you don’t. Pick and prioritize only a handful, he advises, then define those goals more clearly. While this is a personal decision, his recommended order of importance for clients usually goes something like: Retirement (contribute just enough to get your employer’s full 401(k) match, assuming they offer one) Short-term, high-priority goals High-interest debt (any loans at 8% and above) Emergency fund (3-6 months’ worth of living expenses) Retirement (come back to your tax-advantaged 401(k) and/or IRA and work to max them out) Other (home, college, etc.) Your kid’s college fund, as you can see, shouldn’t come before your personal goals. That’s because you can usually finance an education, but few banks will finance your retirement. That doesn’t mean your hopes of helping your kid with college are doomed, however. The key, according to Bryan, is to first size up your priority goals. This involves crunching some numbers and answering “How much?” and “How soon?” for each goal. In the case of college, “How much” will depend on a few factors, decisions like private vs public, in-state vs out, etc. A calculator tool such as this one from calculator.net can help you with a rough estimate.     In terms of “How soon?”—or in finance-speak, your “time horizon”—we recommend using the year your kid turns 22. That’s because parents tend to continue saving for college while their kids are enrolled. Once you have a rough idea of these two numbers, Betterment’s tools can tell you how much you should contribute each month to help increase your likelihood of meeting your goal. Do this for each of your priorities, and you very well might find you don’t have enough cash flow to cover them all. This is normal! Bryan likes to remind clients in these moments that short-term goals, by nature, won’t soak up their cash flow forever, especially if they doggedly pursue them. Once met, you can redirect that money to other pursuits like a down payment on a house – or your kid’s college. Above all, forgive yourself if you fall short When it comes to saving for your child’s education, two things are true: You have precious few years from an investing perspective for compound growth to potentially work its magic. You may not be able to save as much as you’d like—or at all in the beginning—due to higher priorities. Given these realities, it’s okay to lower the bar. If you’re still working on high-interest debt and/or an emergency fund, set a goal of achieving those in 2-5 years so you can focus elsewhere afterwards. Or set up a seemingly small recurring deposit toward an education goal now. It could be $10, $25, or $50 a month. It can still make a difference down the road. If you ease your child’s student loan burden by even a little, you’ll have done them a huge favor. It’s a favor they probably won’t fully appreciate for a while, but since when was parenting anything but a thankless job?

An Investor’s Guide To Diversification Diversification is an investing strategy that helps reduce risk by allocating investments across various financial assets. Here’s everything you need to know. In 1 minute When you invest too heavily in a single asset, type of asset, or market, your portfolio is more exposed to the risks that come with it. That’s why investors diversify. Diversification means spreading your investments across multiple assets, asset classes, or markets. This aims to do two things: Limit your exposure to specific risks Make your performance more consistent As the market fluctuates, a diverse portfolio generally remains stable. Extreme losses from one asset have less impact—because that asset doesn’t represent your entire portfolio. Maintaining a diversified portfolio forces you to see each asset in relation to the others. Is this asset increasing your exposure to a particular risk? Are you leaning too heavily on one company, industry, asset class, or market? In 5 minutes In this guide, we’ll: Define diversification Explain the benefits of diversification Discuss the potential disadvantages of diversification What is diversification? Financial assets gain or lose value based on different factors. Stocks depend on companies’ performance. Bonds depend on the borrower’s (companies, governments, etc.) ability to pay back loans. Commodities depend on public goods. Real estate depends on property. Entire industries can rise or fall based on government activity. What’s good or bad for one asset may have no effect on another. If you only invest in stocks, your portfolio’s value completely depends on the performance of the companies you invest in. With bonds, changing interest rates or loan defaults could hurt you. And commodities are directly tied to supply and demand. Diversification works to spread your investments across a variety of assets and asset classes, so no single weakness becomes your fatal flaw. The more unrelated your assets, the more diverse your portfolio. So you might invest in some stocks. Some bonds. Some fund commodities. And then if one company has a bad quarterly report, gets negative press, or even goes bankrupt, it won’t tank your entire portfolio. You can make your portfolio more diverse by investing in different assets of the same type—like buying stocks from separate companies. Better yet: companies in separate industries. You can even invest internationally, since foreign markets can potentially be less affected by local downturns. What are the benefits of diversification? There are two main reasons to diversify your portfolio: It can help reduce risk It can provide more consistent performance Here’s how it works. Lower risk Each type of financial asset comes with its own risks. The more you invest in a particular asset, the more vulnerable you are to its risks. Put everything into bonds, for example? Better hope interest rates hold. Distributing your assets distributes your risk. With a diversified portfolio, there are more factors that can negatively affect your performance, but they affect a smaller percentage of your portfolio, so your overall risk is much lower. If 100% of your investments are in a single company and it goes under, your portfolio tanks. But if only 10% of your investments are in that company? The same problem just got a whole lot smaller. Consistent performance The more assets you invest in, the less impact each one has on your portfolio. If your assets are unrelated, their gains and losses depend on different factors, so their performance is unrelated, too. When one loses value, that loss is mitigated by the other assets. And since they’re unrelated, some of your other assets may even increase in value at the same time. Watch the value of a single stock or commodity over time, and you’ll see its value fluctuate significantly. But watch two unrelated stocks or commodities—or one of each—and their collective value fluctuates less. They can offset each other. Diversification can make your portfolio performance less volatile. The gains and losses are smaller, and more predictable. Potential disadvantages of diversification While the benefits are clear, diversification can have a couple drawbacks: It creates a ceiling on potential short-term gains Diverse portfolios may require more maintenance Limits short-term gains Diversification usually means saying goodbye to extremes. Reducing your risk also reduces your potential for extreme short-term gains. Investing heavily in a single asset can mean you’ll see bigger gains over a short period. For some, this is the thrill of investing. With the right research, the right stock, and the right timing, you can strike it rich. But that’s not how it usually goes. Diversification is about playing the long game. You’re trading the all-or-nothing outcomes you can get with a single asset for steady, moderate returns. May require more maintenance As you buy and sell financial assets, diversification requires you (or a broker) to consider how each change affects your portfolio’s diversity. If you sell all of one asset and re-invest in another you already have, you increase the overall risk of your portfolio. Maintaining a diversified portfolio adds another layer to the decision-making process. You have to think about each piece in relation to the whole. A robo advisor or broker can do this for you, but if you’re managing your own portfolio, diversification may take a little more work.

5 Financial Steps To Take After Getting A Raise When you get a raise at work, consider how you can maximize your earnings to identify new financial opportunities. If you’ve recently received a raise, congratulations! You worked many long hours to deserve this, and now your hard work has paid off. Whether this pay increase was expected or whether it was a complete surprise, you may have many thoughts running through your mind, including calling your spouse or your Mom, deciding what restaurant you are dining at for a celebration, or how your new salary will give you more freedom to take that vacation you’ve been wanting to go on. While you should be excited, it’s important to take a step back to reassess your new pay and how it impacts your financial situation. Without doing so, you might find that your raise is more harmful than when you were making less money. To avoid having “raise regret”, consider these five tips. 5 Things To Do After Receiving A Raise 1. Understand your new salary. While you deserve to celebrate, you may want to hold off on making any large purchases that were unplanned and not saved for with your new cash flow. Unlike a bonus, where you receive a lump sum, your raise is going to be broken out across all pay periods. Additionally, your raise is going to be stated as an increase to your gross pay. In other words, if you receive a $5,000 annual raise, that does not mean that you are pocketing $5,000 over the course of the next year because we have to pay taxes. If you aren’t familiar with the amount of taxes you pay, it could be worthwhile to check your last few pay stubs to determine how much was going to taxes versus how much you were keeping. Also note that depending on the amount of your raise and the time of year, it may push you into a higher tax bracket. You may want to speak with your Human Resources and Payroll departments to discuss your tax withholding, as well as an accountant or qualified tax professional to see how your increased earnings could impact your personal tax situation. 2. Increase your retirement savings. If your employer offers a 401(k) plan and matches your contributions, you should consider contributing at least enough to get the full match amount. Even if you were already doing so, or your employer doesn't offer a match, increasing your retirement savings may still be a great option to consider. And, for those who are comfortable with their lifestyle prior to receiving a raise and don’t plan to make any changes, you can supercharge your savings rate at an equivalent rate. Determining how much you need to save for retirement will depend on several factors. Betterment offers retirement planning tools that can provide guidance on not only how much you should save, but the optimal accounts for you to do so based on your information. 3. Establish, or revisit, your emergency fund. Having an emergency fund is a very important financial savings goal, as it can help ensure a level of financial security for yourself and your family. An adequate emergency fund can help you cover truly large and unexpected expenses, and can also help cover your costs if you end up losing your job. It can even provide financial freedom in the case that you want to try your hand at a new career. Typically, Betterment advises that your emergency fund should cover three to six months’ worth of expenses. If you didn’t have one prior to your raise, now would be a great time to start. If you already have an emergency fund, you may need to reevaluate the amount needed if your spending does increase. 4. Pay off debt. If you have any debt, especially high interest debt, you may choose to use this new capital to pay off some of your loans quicker. You’d not only have the potential to shave years off the repayment process but save thousands of dollars in interest. Here’s a hypothetical to demonstrate. Let’s assume that you’re a single taxpayer, live in a state with no state income tax, and at the start of 2022 your pay went from $60,000 to $65,000. Assuming you don’t itemize, that would place you squarely in the 22% Federal tax bracket. If you get paid twice per month (24 times per year), your net paycheck would go from $1,950 to $2,112, an increase of $162. Now let’s say you put that extra cash to work on your hypothetical student loans, which total $50,000 at 7% interest paid over 10 years. Increasing your monthly loan payment by that $162 would allow you to pay off your loans almost three years faster, and also help you save almost $6,000 in interest payments! 5. Invest in yourself. Okay, let’s say you’re already on track with your retirement goals, have an emergency fund, and paid off your debt. What do you do then? Investing in yourself can have immense value. And the best part is, it can be done in many ways. Whether that’s taking a vacation to reset your mind after months of diligent work, taking a class to enhance your skills or learn a new one, or even making a material purchase that you feel will better your quality of life, investing in yourself can be a great way to reap the benefits of your hard earned work. If you plan on spending this extra money, just make sure that it’s within your means—don’t fall victim to lifestyle creep. Inherently, you may be a saver by nature. While it’s important to set goals, you may not have a specific goal for these additional savings—and that’s ok. By investing additional cash flow in a well-diversified portfolio, you give that money a chance to grow and be put to good use at some point down the line. Using a taxable investment account for a general investing goal, for example, will give you more flexibility relative to retirement investment accounts as to how and when these savings can be used.

Why Donating Shares Is A Smart Way To Give To Charity Donating shares lets you avoid paying taxes on capital gains, and you can still deduct the value of your gift on your tax return. In 1 minute There are many different ways for you to give back to your community. For example, giving directly to individuals in poverty, donating cash to charities, and volunteering your time are all well-known and worthwhile options. As an investor, you may have access to an option that comes with significant potential advantages: You can donate qualifying appreciated shares—or in other words, shares that are worth more today than when you acquired them. When you donate in the form of cash, you can deduct the value of that donation on your tax return. And that’s great! But by donating cash, you could be missing out on an additional tax incentive. Donate appreciated shares instead, and you could also avoid paying taxes on capital gains. That means your donation goes further while spending the same amount. And yes, you still get to deduct the value of those gifted shares on your tax return—as long as you’ve held them for at least a year. However, you should be aware that the deduction may not be exactly the same value. The IRS calculates the tax-deductible value of those shares as the average of the highest price and the lowest price on the day you made the transfer. Sometimes that means the deductible value ends up being slightly lower than the exact value you donated. Other times it ends up being slightly higher, giving you yet another benefit! But either way, the amount you save by avoiding the capital gains tax can exceed the differences in valuation. Boost your charitable giving by donating shares. In 5 minutes In this guide, we’ll: Explore donating shares instead of cash Explain how the IRS calculates these deductions Show you how Betterment makes donating shares easy You’ve been investing, planning for your future and becoming financially secure, and you’d like to pay it forward. That’s great! There are many ways to give back to your community. You might donate to charitable organizations. You might give cash directly to those in need. Or you might give of your time by volunteering. As an investor, you have a charitable super power. You can make your gifts go further and enjoy tax benefits at the same time. Why you should consider donating shares instead of cash When you have assets that have gained value, donating cash means you may not be making the most of your gift. Donations in the form of eligible shares offer two main advantages: You won’t pay capital gains taxes on the shares you donate You can deduct the value of your gift on your tax return Since you get more tax benefits, your money can stretch further. You have more left over to donate, invest, or use as you see fit. How the IRS calculates these deductions When you donate a share, you do so at a certain point in time, with an associated price. For greatest tax efficiency, you generally should only donate shares you’ve held for at least one year. At that point, the IRS lets you claim a deduction for the whole, appreciated value up to 30% of adjusted gross income. However, the price at the time of your gift isn’t necessarily the same value that’s deducted on your tax return. The IRS rules say the deductible amount for your tax filing must be the “fair market value.” And the IRS determines the fair market value by taking the average of the highest price and lowest price on the day of the transfer. Say you donate $1,000 worth of shares: 20 shares worth $50 each. During the day of your donation, the shares trade at a high price of $51 and a low of $47. The IRS will call the fair market value of all twenty shares $980. That $980 is the deductible value when you file your taxes for the year. So keep in mind that the value you plan to donate won’t necessarily match the exact value you can deduct on your taxes. However, while the numbers may be slightly lower or higher than you initially expect, the value of saving on capital gains tax by donating appreciated shares and then being able to deduct that value to lower your taxes even further, generally exceeds any differences in valuation during the day of transfer. Betterment makes donating shares easy We believe that donating securities should be as easy as donating cash. You’re trying to make a difference. You shouldn’t have to worry about math or forms. No snail mail. No walking into an office. So we streamlined the process. Here’s how: We track how much of your account is eligible to give to charity. Betterment automatically reports the amount eligible for donation, assessing which shares of your investments have been held for more than one year, and which of those have the most appreciation. We estimate the tax benefits of your gift. Before you complete a donation, we’ll let you know the expected deductible amount and potential capital gains taxes saved. We move assets from your account to a charitable organization’s account. No paperwork! With a traditional broker, your gift would have to move from your account to the organization’s brokerage account, which involves time and paperwork. But Betterment offers charities investment accounts with no advisory fees—on up to $1 million of assets—to make the gift process seamless. We provide a tax receipt once the donation is complete. We’ll email the receipt to you, and you’ll also be able to access it from your Betterment account at any time. Additionally, we take on most of the reporting for our partner charities, letting them devote their resources more efficiently to the causes you support, rather than to administrative tasks. We partner with highly-rated charities across a range of causes. These include nonprofits such as the World Wildlife Fund, Boys and Girls Clubs of America, and Givewell. Log in to your Betterment account to see the full list. Don’t see your preferred charity? Put in a request to add them! Gifting securities to charity, rather than donating cash, is a strategy that wealthy philanthropists have been employing for decades to save on capital gains taxes. We hope to democratize these benefits by helping everyday Americans use the same exact tax-saving method. Join our community of altruistic investors today and make the most of your charitable donations! If you’re already a Betterment customer, log in to donate your appreciated shares.

An Investor's Guide To Market Volatility Knowing what to do during a market downturn can be especially difficult in the moment. Here’s how to plan ahead. In 1 minute When the prices in financial markets change, that’s market volatility. More volatility means greater potential for both gains or losses. In investing, market volatility comes with the territory. Some days the market is up, and other days it’s down. It’s OK to be anxious during a dip, but preparing for market volatility can help you avoid making decisions out of fear. Two of the biggest ways you can prepare for volatility: Diversify your portfolio Build an emergency fund Diversification helps protect your portfolio by spreading out your risk. A diversified portfolio may not gain as much as some individual assets, but it likely won’t lose as much as others. An emergency fund is a financial safety net. If market volatility negatively impacts your investments, your emergency fund can help cover your expenses until the economy recovers. During a downturn, we recommend resisting the urge to change your investments. Give your portfolio time to recover. But if you can’t do that, try to keep changes small, like lowering your stock allocation so that it’s more consistent with a more conservative risk tolerance level. In general, you should invest for the long-term, but at the same time you’ll likely want a diversified portfolio that you’re comfortable holding on to even when things in the market get bad. This can increase the odds you remain in the market when it ultimately recovers and continues on its path of expected long-term growth. Still not satisfying the itch to act? High management fees or capital gains distributions (from a mutual fund) could make that market volatility more uncomfortable. Or perhaps your financial advisor isn’t sticking to your target allocation as your portfolio experiences gains and losses. In these situations, a lower-fee robo-advisor like Betterment can help alleviate that discomfort. In 5 minutes In this guide, we’ll cover: What market volatility is How to prepare for it What to do about it Nobody likes to see their finances take a nosedive. But in a volatile market, dips happen often. Market volatility refers to fluctuations in the price of investments. Some markets—like the stock market—fluctuate more than others. And in times of economic stress, markets tend to be even more volatile, so you might see some big ups and downs. It’s tempting to sell everything and bail out during dips, but that often does more harm than good. Selling your assets could lock-in losses before they have a chance to rebound from the dip, and it’s nearly impossible to predict the market’s high points and low points. Reacting to market drawdowns by moving to cash is like selling your clothes because you gained a few pounds. Sure, they may feel a little snug, but you could find yourself with a bare closet if and when your weight fluctuates the other way. Historically, the stock market has had plenty of bad days. In any given decade, you’re bound to see many drawdowns, where investment values dip frightfully low. But when you step back and look at the big picture, the market has trended upward over time. So far, the global stock market, and by extension the U.S. stock market, has always recovered from economic downturns. And while nothing in life is guaranteed, those are some pretty good odds. History shows us that experiencing short-term losses is part of the path to long-term gains. The key for investors is to expect market volatility. It’s inevitable. And that means you need to prepare for it—not simply react to it. How to prepare for market volatility Market volatility can occur at any time. So you want to be ready for it now and in the future. The main thing you can do to prepare is diversify your portfolio. Having a balance of different assets decreases your overall level of risk. While some of your assets momentarily struggle, for example, others may hold steady or even thrive. The goal is your portfolio will hopefully feel less like a rollercoaster and more like a fun hike up wealth mountain. Beyond that, you’ll want to strongly consider building an emergency fund. A good starting point is having enough to cover three to six months of expenses. This is money you want on hand if market volatility takes a turn for the worse. Even if you don’t depend on your investments for income, major economic downturns can affect your life in other ways. The poor economy could lead to layoffs, bankruptcies, and other situations that impact your job stability. Or if you have rental properties, the real estate market could be adversely affected as well. All the more reason to have an emergency fund and ride out that turbulence if the need arises. What investors should do during downturns Caught in a downturn? Don’t panic. Seriously, when the market looks grim, the best reaction is usually to do nothing. Selling off your portfolio to prevent further losses is a common investor mistake that does two things: It locks-in those losses It takes away your chance to rebound with the market Scratching an itch usually won’t prevent it from recurring. The same goes for reacting to short-term losses in your portfolio. As much as you can, you want to resist the urge to react. Still, sometimes you may feel like you have to make a change. If that’s you, the first thing to do is make sure you’re comfortable with the level of risk you’re taking. Some asset classes, like stocks, are more volatile than others. The more weighted your portfolio is toward these assets, the more vulnerable it is to changes in the market. You’ll also want to confirm that your time horizon (when you need the money) is still correct. Think of this like checking your pulse, or taking a few deep breaths. You’re making sure your investments look right—that everything is working like it’s supposed to. If you’re still feeling tempted to do something drastic like withdraw all your investments, you probably should reduce your level of risk. Even if everything looks right for your goals, making a small adjustment now could prevent you from making a bigger mistake out of panic later. Your pulse is too high. Your breaths are too rapid. Sitting at 90% stocks and 10% bonds? You might try dialing it down to 75% stocks and 25% bonds. The time may be ripe to consider a Roth conversion Our investing advice of doing nothing and staying the course is generally the direction we try to nudge you toward when markets are down. While drops in global markets can be stressful, they also provide opportunities that can be beneficial for future you. One of those strategies is implementing a Roth conversion. A Roth conversion allows you to transfer, or convert, funds from a traditional IRA to a Roth IRA. You will typically owe income taxes on the amount you convert in the year of conversion, but the tradeoff is that once inside the Roth IRA future growth and withdrawals are generally tax-free. You can take a look at other pros and cons of Roth conversions in our Help Center.  Here are a couple of reasons why you may want to consider converting your IRA when the market is down:  The balance of your Traditional IRA has dropped significantly. When the balance of your Traditional IRA drops, you’re able to convert the same number of shares at lower market prices. This means you may pay less in taxes than if you converted those same number of shares at higher market prices. Growth from a global market recovery can be better in a Roth IRA than a Traditional IRA. As global markets recover over time, the value of your converted holdings may increase. This increase in value will now take place in your Roth IRA. Down the line, when you start taking withdrawals out of your Roth IRA in retirement, you’ll be able to do so without incurring any taxes. To understand how a Roth conversion may impact your personal financial situation, we strongly recommend consulting a tax advisor and IRS Publication 590. Betterment is not a licensed tax advisor and cannot provide tax advice. Reassess where you invest Depending on your situation, another option might be to shift your investments to a financial institution like Betterment. This could save you money in other ways, which might make your current risk level feel more comfortable. Some signs this might be the right move for you: 1. Your accounts have higher management fees You can’t control how the market performs, but you don’t have to be stuck with higher fees. Switching to a lower-fee institution like Betterment could lead to less of a drag on your long-term returns. 2. Your allocation is incorrect The sooner you need to use your money, the less risk you should take. Not sure what level of risk is right for you? When you set up a financial goal with Betterment, we’ll recommend a risk level based on your time horizon and target amount. 3. You own mutual funds that pay capital gains distributions When a mutual fund manager sells underlying investments in the fund, they may make a profit (capital gains), which are then passed on to individual shareholders like you. These distributions are taxable. Even worse: mutual funds can pay out capital gain distributions even if the fund’s overall performance is down for a year. So in a volatile market, your portfolio could lose value and you may still pay taxes on gains within the fund. In contrast, most exchange traded funds (ETFs) are more tax efficient.

3 Low-Risk Ways To Earn Interest Earning interest usually means taking on risk. But with bonds and cash accounts—and investing’s potential for compound interest—you can minimize that risk. In 1 minute When you don’t have much time to reach your goal, you can’t afford to make a risky investment. Thankfully, you can earn interest without putting everything on the line. Here’s how. Bonds Bonds are one of the most common types of financial assets. They represent loans, which a business or the government uses to pay for projects and other costs. Just as you pay interest when you take out a loan, bonds pay investors interest. You’ll typically see lower returns than you might with stocks, but the risk is generally lower, too. Cash accounts Cash accounts are similar to traditional savings accounts, only they are typically designed to earn more interest (and may come with more restrictions). These are great when you need your money to be readily available to you, but still want to earn some interest. And to top it off, many cash accounts are offered at or through banks so your deposits are FDIC insured, so there’s minimal risk. Compound interest In addition to bonds and cash accounts, there’s one more way to earn interest—investing and earning compound interest, which is the interest generated from previous rounds of interest itself. That’s right. As you accrue interest on your underlying investing funds, that interest makes money and that money in turn makes more money. The longer and more frequently your interest compounds, the more you can earn. In 5 minutes Want to earn interest? You usually have to take some risk which means you could lose some money. Financial assets can gain or lose value over time. And investments that have the potential to earn greater interest often come with the risk of greater losses. But there are ways to lower your risk. If you have a short-term financial goal or you’re just cautious, you can still earn interest. It might not be much, but it will be more than you’d get keeping cash under your mattress (don’t do that). In this guide, we’ll look at: Bonds Cash accounts Compound interest Bonds Bonds are basically loans. Companies and governments use loans to fund their operations or special projects. A bond lets investors help fund (and reap the financial benefits of) these loans. They’re known as a “fixed income” asset because your investment earns interest based on a schedule and matures on a specific date. Bonds are generally lower-risk investments than stocks. The main risks associated with bonds are that interest rates can change, and companies can go bankrupt. Still, these are typically fairly stable investments (depending on the type of bond and credit quality of the issuer), making them a good option for short-term goals. With municipal bonds, you can earn tax-free interest. These bonds fund government projects, and in return for the favor, the government doesn’t tax them. Invest in your own state, and you could avoid federal and state taxes. Even when your goal is years away, including bonds in your investment portfolio can be a smart way to lower your risk and diversify your investments. Cash accounts Cash accounts seek to earn more interest than a standard savings or checking account, and they’re federally insured by the FDIC or NCUA. (This is usually the case but depends on the institution housing your deposits (i.e., banks or credit unions). Check to make sure your account is insured before depositing any money.) In most cases, there’s little risk of losing your principal. Your interest is based on the annual percentage yield (APY) promised by the bank or financial institution you open the account with. One of the great perks of a cash account is that it’s highly liquid—so you can use your money when you want. It won’t earn as much interest as an investment, but it won’t be as tied up when you need it. For short-term financial goals, a cash account works just fine. The key is to choose an account that meets your needs. Pay attention to things like minimum deposits, transaction limits, fees, and compound frequency (that’s often how it accrues interest). These differences affect how fast your savings will actually grow and how freely you can use it. Compound interest Compound interest refers to two things: The interest your investments or savings earn The interest your interest earns It’s your money making more money. If you want to build wealth for the long-term, investing and allowing your interest to compound is one of the smartest moves you can make. The sooner you invest and put your money to work, the more opportunity your money has to earn compound interest. Compound interest starts small, but can grow exponentially. Your investment has the potential to grow faster because your interest starts earning interest, too. If you start young, you have a huge advantage: time is on your side! While compound interest accrues with minimal risk, investing in the market involves varying levels of risk.