Asset Types

Inside the investing kitchen, part 2 Jun 24, 2025 11:25:00 AM See how we source the higher-quality, lower-cost funds that fill up your portfolio. A lot goes into the making of a single Betterment portfolio. So much that we're spreading out this showcase of our Investing team's work over three parts. In part 1, we explore how we allocate customers’ investing at a high level, and in part 3, we show how we handle thousands of trades each day to keep their portfolios humming. And here in part 2, we zoom into a topic that may be a little more relatable for the everyday investor: picking the actual investments themselves. If asset allocation is like refining a recipe, then today's topic of fund selection is all about the sourcing of higher-quality, lower-cost ingredients. And for that, we turn our eye toward a market of another kind. Josh Shrair specializes in shopping capital markets here at Betterment, picking the funds that fill up your portfolio's respective allocations. His line of work looked a little different decades ago, back when his step dad was working as a trader on Wall Street. Back then, this level of attention to portfolio construction and fund selection was typically in service of only the ultra wealthy. But now, Josh and team navigate a rapidly-expanding universe of investments on behalf of everyday investors. Why shopping for funds isn't always so simple On one hand, the recent explosion of investment options has been great for investors. Increased competition drives down costs and opens up access to newer, more niche markets. But more choice also leads to more complexity. Take Exchange Traded Funds (ETFs), our preferred building block for portfolios thanks to their transparency, tax efficiency, and lower costs. They bundle up hundreds, and sometimes thousands, of individual stocks and bonds. But even ETFs are multiplying fast. In 2024 alone, 723 new ones launched, bringing the total to nearly 4,000. To illustrate this abundance, let's say your asset allocation calls for a heaping serving of “Large Cap” stocks, meaning companies valued at $10 billion or more. Nearly 500 ETFs populate this particular corner of the ETF universe. We can narrow that group down to 30 based on the specific exposure we’re looking for, like say U.S. Large Cap companies, or the S&P 500, a list or “index” of 500 of the biggest American companies. But the due diligence is hardly done. Some ETFs that track the S&P 500 follow it faithfully, while others put their own spin on it, which can open investors up to unintended exposure. Josh Shrair (second from left) helps navigate a rapidly-expanding universe of ETFs on behalf of Betterment customers. Just as crucially, their costs are all over the place, and higher fees can erode your returns in the long run. That's why the SPDR fund is currently our Core portfolio’s primary way of achieving U.S. Large Cap stock exposure. It offers both a low cost to hold (0.02%) and a low cost to trade (0.03% at the time of writing), making for a low overall cost of ownership. "Shopping for investments is a little like buying a car," Josh says. "The total cost is way more than the sticker price." How we calculate cost of ownership Part of our role as a fiduciary, someone who's legally obligated to act in their clients' best interests, is conducting a deep and unbiased evaluation of the ETFs used in our portfolios. The process Josh and team use is entirely "open architecture," meaning we’re not obligated to use funds from any particular provider. Instead, we strive to select the most optimal ones in terms of cost and exposure. It helps that Betterment itself doesn't make, manage, and sell funds, which means we avoid the inherent conflict of interest some advisors face when they also act as a fund manager. These firms can be tempted to steer customers toward their own funds, even when a better alternative exists. So we take pride in the due diligence behind our fund selection, and that begins with our "cost of ownership" scoring methodology. It factors in the two types of costs mentioned earlier: the cost to "hold" or own a fund, also known as its expense ratio, and the cost to trade it. As you'll see in part 3 of this series, a portfolio is hardly static. Deposits come in. Withdrawals go out. Rebalancing takes place on the regular. All of this requires daily trading, so the cost of those transactions matters to your investing's bottom line. The cost-to-trade is also known as the "bid-ask spread," or the markup that traders expect when selling a share. It's how they make money, and similar to wholesalers and retailers like Costco, the bigger the fund, the smaller the margins a trader can live with. Seeking out these value buys is how we're able to deliver globally-diversified portfolios at a fraction of the cost of alternatives on the market today. And we’re never done shopping. Our preferred funds are updated multiple times throughout the year. Primed for the purchase There's a lot more to our fund selection methodology, especially for funds that aren’t tied to a specific index, but are instead made from scratch. Some fund managers like Goldman Sachs, where Josh worked earlier in his career, also blend both approaches into a “smart beta” strategy. We offer one such portfolio alongside our Betterment-built collections. But for the sake of this series, let's pretend for a moment that our tote bags are full, and we're ready to check out. It’s time to meet the team behind every transaction at Betterment.

Inside the investing kitchen, part 3 Jun 24, 2025 11:16:45 AM Order up! See how we handle thousands of trades each day to keep customers’ portfolios humming. When a chef plates a meal, they typically send it off, never to be seen again. But serving up an investing portfolio is an ongoing affair. Deposits come in. Withdrawals go out. Asset classes grow and shrink as the market moves. Rebalancing takes place on the regular. All of this requires daily trading. And this buying and selling of securities is among the most intricate and highly-regulated pieces of our operations. So while the first two parts of this series cover the recipes and ingredients behind our investing, our final course focuses on the team–and tech–behind every transaction. What happens when you hit "deposit" Cara Daly is an adventurer at heart. An avid surfer and the daughter of a flight attendant, she racks up air miles chasing waves and visiting family in Ireland. So naturally, she's gravitated toward one of the more thrill-seeking roles on our Investing team: Capital Markets. From the minute markets open each day, Cara and team monitor the action, making sure our customers' orders go smoothly. These trades can amount to hundreds of millions of dollars in a single day, and the system that executes them all is in many ways our secret sauce. It's custom-built (a rarity in the industry) and plays the role of Mission Control. When a customer clicks "deposit," for example, that single click gets translated into a series of purchases. These in turn get bundled up with other purchases of a like-kind and turned into orders, which are then executed at calibrated intervals as a part of our managed trading strategy. This sort of intentional trading is incredibly important because of the scale of our operations. We manage more than $56 billion of assets, making us the largest independent robo-advisor out there. We may not "make" markets, but our trading volume is big enough to potentially influence them. So we need to be mindful of how and when our trades get executed. “Say the market trades $10 million of a hypothetical security on any given day,” Cara says. “If our customers happen to want $20 million of it, meeting all that demand without minding the bigger context could drive up the price.” To navigate these executional challenges, we deploy multiple strategies as needed (see below for a few examples), evaluating and calibrating each on a continuous basis. Taken altogether, they help ensure our customers' purchases and sales get treated fairly in the market. Waiting out the first half hour after markets open before starting our trading. This helps sidestep some of the volatility that's common early in the day. Trading periodically throughout the day, and randomizing when customers’ orders are processed. It's possible that prices can loosely correlate with certain times of the day, so we don't want that to consistently affect any one customer. Briefly holding back on “system-generated” trading (proactive rebalancing, for example) for any particular fund if its trading reaches a certain threshold relative to its average daily volume. This helps make sure “user-directed” trading (when customers make deposits or withdrawals, to name a few examples) can continue regardless. Partnering with industry experts like Apex to route and execute orders across multiple firms, helping us stay at the forefront of the evolving market landscape. This access to different execution venues also helps seek out the most favorable terms for customers—whether that’s price, speed, or overall execution quality. Switching gears from execution to tax optimization, we also use both primary and secondary funds for most of our asset classes. These backup “tickers” come into play during times of heightened volatility in markets. Moments that can make or break an investing strategy. Acing the stress test of market volatility More often than not, it's business as usual on our Capital Markets team, and that's by design. But during stretches of extreme volatility, when trading volume really picks up and prices can swing wildly from hour to hour, it's all hands on deck. Cara and company monitor our trading system for signs that additional oversight may be needed. They ease emerging bottlenecks in real time and keep things running smoothly, at times enlisting the support of our Trading Engineering team. Cara Daly (left) helps make sure customers’ daily trading goes smoothly. Take April of 2025 for example. Early in the month, the Trump administration caught investors off guard by announcing a series of tariffs way higher and way earlier than expected. The announcement, and the inconsistent messaging that followed, set off a wild, weeks-long stretch of trading. Prices of some securities cratered in the morning only to recover by day's end. Our systems not only weathered this storm, but capitalized on it, taking advantage of small windows of time to harvest tens of millions of dollars in temporary losses for customers before prices recovered. This strategy of tax loss harvesting helps sprinkle tax advantages on a portion of customers' taxable investing, and it wouldn’t be possible without the help of those aforementioned secondary tickers. These funds help avoid “wash sales” while maintaining customers’ desired exposures and risk levels. Something delicious is simmering The image of a golden harvest is an apt one, considering this series looks at our Investing team's work through a culinary lens. Many of our customers come to us not necessarily for a single serving of returns, but to plant the seeds for self-sustaining, long-term wealth. A harvest that supports a more-fulfilling life. Cara and the rest of our Capital Markets experts are a big part of that lifecycle, tending to thousands of daily trades that optimize our customers’ portfolios over and over again. That's the beauty of using technology as a tool to expand our own capabilities and deliver results at scale. It's a people-led process. We became a trusted leader in automated money management not because of our tech, but because of the people who build and use it each day. Specialists like Cara, Josh, and Jamie—They're our secret ingredient, working in service of customers hungry for a better way to invest. Bon appétit.