Asset Types

Can a portfolio be too simple? Dec 10, 2025 2:22:50 PM Total market funds offer simplicity, but by unbundling asset classes—and adding Betterment’s automation—you can make your money work harder. Key takeaways Single-fund portfolios are easy to build, but they’re harder to optimize for taxes and costs. Using multiple funds adds the flexibility to fine-tune allocations and unlock savings. Betterment’s automation and expert-built portfolios give you the best of both worlds: easy to invest in, and built to work harder. If you’re looking to build long-term wealth, you could do worse than investing in one or two low-cost, globally-diversified total market funds. But you could potentially do better—and spend less of your limited bandwidth—by using a few more pieces and putting our technology to work in your favor. That’s the value of Betterment’s automated investing and expert-built portfolios, and it begins with (surprise!) tax optimization. Harvesting losses for tax wins, and putting your assets in the right place Targeting more than a date Splitting hairs on fund fees, so customers can save millions Harvesting losses for tax wins, and putting your assets in the right place Tax-loss harvesting can help give your taxable investing an edge, and it happens when you sell an asset for a loss and replace it with a similar one. The downside of a total market fund, however, is you have to wait for the entire fund to experience a loss. If only one piece of it dips, you can’t unbundle the assets and harvest that specific piece. It’s sell all, or sell nothing. That’s a big reason why we switched from using a single fund for U.S. stocks in our Betterment-built portfolios, opting instead for three separate funds representing small, medium, and large-sized U.S. companies. If one of them presents a harvesting opportunity, we can swap it for a similar alternative. The second area where larger fund lineups shine is asset location, or strategically divvying up your portfolio’s assets among traditional, Roth, and/or taxable accounts. Stocks with the highest potential for growth, for example, are often better-suited for traditional accounts. Let them grow tax-free, the thinking goes, then settle up with Uncle Sam when you’re retired and more likely to be in a lower tax bracket. Our mathematically-rigorous spin on asset location is called Tax Coordination, and it’s yet another way our automated investing helps you keep more of what you earn. To start taking advantage of it, simply open any combination of the three account types above and follow a few easy steps. Targeting more than a date One of the most common single-fund options for retirement savings are target date funds. They date back to the 90s and became the default option in many 401(k) plans starting in the late 2000s. The growth of target date funds has been a good thing for investors, helping move the industry toward lower-cost, automated investing. Prior to their arrival, advisors had to manually adjust the asset allocations or “glide paths” of portfolios over time. Similar to total market funds, however, the bundling of target date funds brings with it some constraints. The first constraint is their relative lack of choice. Say you were born in 1988 and are targeting a traditional retirement age of 62. Most target date fund managers give you one option—the 2050 fund. Our automated investing, on the other hand, gives you more than a handful of portfolios to choose from, including ones tailored for social responsibility and innovation. More funds also creates more levers to fine-tune your exposure, helping manage risk in all sorts of situations. Take bond-heavy portfolios as an example. Rising interest rates can erode their value, so we dial up their exposure to short-term corporate debt and U.S. Treasuries specifically to help hedge against that risk. Splitting hairs on fund fees, so customers can save millions The relatively high cost of target date funds has been trending downward, and many total market funds can be found for expense ratios of less than 0.1%. But we can squeeze out even more savings by splitting a portfolio up and shopping for better deals. A single one hundredth of a percentage point in fund fees (what’s referred to as a “basis point” or “bip” in investing lingo) may not sound like much, but we owe it to our customers to make every one count. You could pay 6 basis points (0.06%), for example, for a total world stock fund like VT. Or you could pay one-third of that for your U.S. stock allocation by breaking it up into three funds (SPYM, SPMD, and SPSM) like we do with our Core portfolio and others. Using our customers’ nearly $20 billion worth of U.S. stocks as an example, that would amount to roughly $7.6 million in combined savings each year. Flexibility to stretch your investing dollars even farther A simple portfolio can be a great place to start, but it’s not always where your money works hardest. By strategically using a few more funds, we can sprinkle tax advantages on more of your investing, optimize across account types, and potentially unlock even more cost savings. All automatically. You get the simplicity you want, but with our tech doing the heavy lifting behind the scenes.

Betterment’s trading execution methodology Nov 3, 2025 3:55:00 PM Enhancing execution quality through managed trading Betterment already manages rebalancing and tax optimization at scale—but there’s another layer of value working behind the scenes: execution. This paper focuses on how Betterment improves trade execution through intelligent design and infrastructure. Our system doesn’t just serve one segment of users; it applies equally across the platform, enabling everyone to tap into scalable benefits that were once reserved for institutions. One key aspect is our use of marketable limit orders—orders placed near or slightly better than the current market price so they can execute immediately. This type of order is designed to strike a balance between speed and price control: it seeks a fast execution while placing a guardrail on how far the price can drift. For clients, this means greater protection during periods of market volatility—helping ensure that trades don’t fill at prices significantly worse than expected. Another foundational element is our use of an omnibus trading structure. Rather than executing each individual order separately, Betterment aggregates client trades allowing us to batch and route them more efficiently. This method helps us access deeper liquidity and potentially reduce overall execution costs. Through features like scheduled trade windows, omnibus aggregation, and a design that favors round-lot execution, Betterment helps minimize structural trading disadvantages, reduce exposure to adverse selection, and increase the potential for improved pricing. These execution benefits compound with scale and are embedded directly into the trading experience. The result is greater fairness, efficiency, and cost-effectiveness for every investor on the platform. The challenge in retail execution Retail trading has evolved significantly in recent years, fueled by technological innovation and increased market accessibility. However, key structural disadvantages persist for individual investors, especially when it comes to small, odd-lot orders and immediate execution strategies. Betterment’s managed execution framework—aggregating and scheduling trades throughout the day—offers a powerful and scalable alternative designed to reduce costs, mitigate execution risk, and better align with the realities of market structure. While trades are scheduled into structured windows, they are executed multiple times during the trading day to balance timeliness with the opportunity for aggregations. Betterment does not net opposing orders; each trade is routed externally to our clearing partner. Market structure and the importance of round lots In equity markets, trade size plays a critical role in determining execution quality. A round lot—currently defined as 100 shares for the majority of tickers—is the standard unit recognized by exchanges and market makers. These trades are included in the National Best Bid and Offer (NBBO), prioritized in routing decisions, and eligible for execution in institutional venues. Even mixed-lot orders that include at least one round lot (e.g., 105 shares) benefit from this visibility, often improving pricing for the entire trade. In contrast, odd lots—any order smaller than a round lot—are excluded from the NBBO and typically experience lower priority, reduced transparency, and worse pricing. These orders dominate retail investor flows and often result in less favorable execution. Legal scholar Robert P. Bartlett III analyzed more than 3 billion U.S. equity trades in his 2021 paper and found that odd-lot orders received roughly 10% less price improvement than round lots. This is due to reduced visibility, exclusion from public quotes, and lower priority by execution venues. Trades of 99 shares were particularly disadvantaged compared to trades of 100, even when both were placed simultaneously. High-volume stocks like Amazon (AMZN) illustrated this disparity clearly—Bartlett estimated that over 30% of odd-lot trades in AMZN could have received better pricing if executed as round lots. Betterment’s managed trading approach is designed to help mitigate these penalties by systematically aggregating client flows to reach round-lot thresholds, increasing the likelihood of more favorable outcomes. Quantifying the impact: price discrepancies between lot sizes A core feature of Betterment’s execution strategy is aggregating client orders to cross the round-lot threshold wherever possible. This is not just a preference; it is a response to well-documented execution disadvantages that odd-lot orders face. To illustrate what that kind of pricing difference could mean in dollar terms, consider VTI, a highly liquid security frequently traded by Betterment clients. We selected VTI because it shares characteristics with AMZN—both are heavily traded by retail investors, benefit from high liquidity, and are broadly popular. As of May 2025, VTI trades at approximately $280 per share. If an odd-lot trade receives even just 2 basis points worse pricing than a round lot, this translates to a cost penalty of approximately $0.14 per share for odd-lot executions. For a 15-share odd-lot trade: this means a $2.10 higher cost. For someone investing $5k/month, this means roughly $30 a year in higher costs. Over a 30-year period, this could equate to more than $3,400 in missed gains, assuming 8% yearly growth. The pricing examples presented in this paper are based on internally derived simulations that reflect market behavior consistent with the cited peer-reviewed research. These examples are intended for illustrative purposes only, are not meant to communicate potential performance of any investment strategy, and are not predictive of execution outcomes for any individual trade. This pricing inefficiency compounds quickly and has significant implications when managing client assets at scale. Betterment’s execution engine is designed to help reduce this cost by structurally creating opportunities to aggregate orders into round lots. In line with our regulatory obligations, we aim to achieve best execution—a regulatory standard that requires seeking the most favorable terms reasonably available under prevailing market conditions. This includes evaluating factors such as price, speed, likelihood of execution and settlement, and overall cost. Betterment does not delay trades to form round lots, but it uses a system of time-based trade windows and an omnibus aggregation strategy to opportunistically cross the round-lot threshold when client order flow naturally aligns. This allows us to systematically access the more favorable pricing conditions typically associated with round-lot trades—potentially reducing cost and improving execution outcomes for clients. While our model is designed to improve execution quality in the aggregate, individual trade outcomes may vary depending on market volatility, order size, and venue-specific factors. Trade windows as a mechanism for better execution Most retail brokers execute trades continuously, immediately passing orders to the market. While this appears fast and transparent, it exposes clients to harmful microstructure dynamics. High-frequency traders (HFTs), for example, exploit real-time signals to capture spread value, often at the expense of slower retail flows. Betterment mitigates this by batching trades into scheduled trade windows. These windows operate throughout the day and function similarly to frequent call auctions—a concept studied by Budish, Cramton, and Shim (2015). Their research shows that batched execution reduces the arms race in trading latency, promotes fairness, and narrows spreads. Though Betterment does not run formal batch auctions, our windows are intended to serve a similar purpose: reducing predictability, concealing intent, and improving average execution. This design also lowers market impact by consolidating demand. Liquidity providers can see larger, more regular flows instead of a noisy, fragmented stream. A single larger order is more likely to attract competitive pricing because it signals meaningful interest and is easier for liquidity providers to match against existing supply. For example, multiple clients buying SPY over the same trade window are combined into one order, reducing slippage—the difference between the expected price and the actual execution price—and improving fills, or the likelihood that the entire order will be completed promptly at a desirable price. Execution in practice: Betterment’s strategy At Betterment, trades are executed in windows throughout the day. Each window consolidates similar trades—buy or sell, same ticker—into a single order, executed through an omnibus structure. Trades are routed through Apex, our clearing and trading partner, to venues offering a competitive combination of price, liquidity, and fill reliability, with round-lot opportunities prioritized. We work to achieve best execution in all trades routed through this process. This structure introduces flexibility without sacrificing fairness. Betterment does not delay execution for the sake of creating a round lot, but we design the system to allow aggregation when practical. If immediacy is necessary—such as at day-end—we will execute whatever lots are available.1 We also monitor managed accounts for rebalancing and tax-loss harvesting (TLH) opportunities. When Betterment’s trading algorithm evaluates client accounts for tax loss harvesting and rebalancing opportunities, it generally prioritizes identifying potential tax loss harvests ahead of potential rebalancing opportunities. This activity also plays a meaningful role in how we strive to optimize outcomes alongside our execution practices. When clients’ orders align, aggregation and scheduling increase the likelihood of a favorable outcome. 1Betterment reserves the right to delay trading under certain circumstances; more information about our trading practices and policies is available in our Form ADV. To support oversight of Betterment's execution quality, Betterment has established a formal Best Execution Committee tasked with oversight of execution quality. This committee performs a regular and rigorous review of trading outcomes, assessing execution quality across market centers using key metrics such as basis point deviation from market price at placement (placement strike), routing behavior, peer comparisons, and arrival price analysis. Evaluations are made across ticker, order size, and timeframes. Aggregation in action: a comparative scenario To further illustrate how aggregation leads to better execution, consider this example where three clients submit small trades around the same time. When routed individually, these odd-lot orders are exposed to the same disadvantages outlined earlier—such as worse pricing due to exclusion from the NBBO. But when aggregated into a single round-lot trade, the order gains visibility and priority, increasing the likelihood of receiving better pricing. Client Orders Without Aggregation With Aggregation Alice: Buy 35 shares Executed at $135.02 = $4,725.70 100 shares executed at $135.00 = $13,500.00 Bob: Buy 40 shares Executed at $135.01 = $5,400.40 Carol: Buy 25 shares Executed at $135.03 = $3,375.75 Total Cost Impact Total: $13,501.85 (varied, higher prices) Total: $13,500.00 (uniform, better pricing) Illustrative purposes only. Prices shown do not reflect actual client execution results. This example reinforces the earlier point about execution quality differences between odd-lot and round-lot trades—such as the estimated 2 basis point disadvantage found in high-volume stocks like VTI. A consolidated 100-share order, like the one shown here, is more likely to attract competitive pricing from liquidity providers because it is easier to match against existing supply and signals meaningful demand. This example illustrates a core insight: retail investors are disadvantaged when fragmented. But when they act collectively—via an automated platform like Betterment—they gain access to efficiencies normally reserved for large institutional traders. Delivering institutional benefits to retail investors Betterment’s model is designed to translate institutional market advantages into a retail context. Institutional desks execute trades strategically—splitting orders, timing placements, and waiting for liquidity. These techniques aren’t usually available to individuals, but Betterment’s platform replicates many of them algorithmically. By aggregating trades to reach round lots, using structured time-based execution, and accessing liquidity intelligently, Betterment customers may benefit from pricing and execution quality similar to what’s typically associated with institutional standards. This parity is especially powerful in volatile or illiquid conditions, where fragmented execution can be costly. Conclusion and client-centric outcomes Managed trading, as implemented by Betterment, is a deliberate, research-driven strategy to overcome the inherent flaws in retail execution. We combine trade scheduling, order aggregation, and a neutral fee structure to deliver meaningful advantages to individual investors. Our model does not guarantee better execution on every trade, but in the aggregate, it enhances pricing, reduces slippage, and levels the playing field. Betterment believes that balancing immediacy and opportunity is key. Betterment may wait to aggregate trades to seek improved execution, which we believe is a rational tradeoff. Betterment clients are not sacrificing control—they’re gaining efficiency. Over time, this system is designed to create small but consistent enhancements in return, aligning with our core mission: helping clients make the most of their money. References Bartlett, R. P. III. (2021). Modernizing Odd Lot Trading. Columbia Business Law Review. Budish, E., Cramton, P., & Shim, J. (2015). The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response. Quarterly Journal of Economics. American Economic Association. Research and publications on equity market structure and trading practices. NYU Stern School of Business. Faculty research on market microstructure and fairness. Australian Centre for Financial Research (ACFR). Market design and equity structure studies.

The proactive strategy behind passive investing Oct 13, 2025 11:35:02 AM And when actively-managed funds may give your portfolio an edge. Key takeaways Passive and active investing strategies both require proactive planning while differing in their end goals. Passive investing seeks to match market returns, typically by way of index or exchange traded funds that closely mirror a market. Passive funds cost significantly less on average and often perform better in more efficient asset classes like U.S. Large Cap stocks. Active investing aims to beat the market by selecting the specific securities you or a manager believe will outperform relative to their peers. Active funds cost 10x more on average, but tend to perform better in less efficient classes such as U.S. core bonds. Many institutional investors—Betterment included—employ a mix of both strategies. Of all the confusing ‘this or that’s’ of investing, few are more misleading than the choice between ‘active’ and ‘passive’ strategies. Passive sounds hands-off—but in practice, it’s anything but. Take our automated investing offering. While it uses a blend of both strategies, it falls more on the passive end of the spectrum. Yet on any given trading day, we’re … Scanning for tax loss harvesting opportunities by the minute Executing thousands of trades to keep customers’ portfolios humming Researching dozens of new funds, slotting in new options quarterly to improve our portfolios’ desired exposures at lower cost And every year, we refresh the asset weights of all our portfolios, making sure they align with the latest global market environment and long-term projections. Pretty lively for a passive strategy, no? So if passive investing is a bit of a misnomer, what exactly sets it apart from more "active" approaches? And which situations are each best suited for? For those helpful distinctions, let’s start with their respective mission statements. Two missions, two mindsets Both passive and active investing involve someone, sometimes a “retail” investor such as yourself, sometimes a single professional or an entire firm, making decisions on what to invest in. The key difference boils down to their objectives and related costs: With active investing, you're aiming to beat the market by selecting the specific securities you believe will outperform their peers. While the costs of actively-managed funds are trending downward, they’re still 10x more expensive on average than that of their passively-indexed peers. With passive investing, you're seeking to simply match a market’s returns. A lower bar, for sure, but also at a lower cost. The fees or “expense ratios” charged by passive funds often fall below 0.10%. Which is better? Well, beating the market is easier said than done, especially in the long run. Consider the S&P 500, for example, the most popular pick in the market for U.S. Large Cap stocks. Fewer than 15% of similar actively-managed funds have outperformed it for stretches of five years or longer. But that doesn't mean there’s no role to play for active investing, even for the long-term, risk-averse investor. Some markets aren't as accurately priced or “efficient” as the S&P. With the right expertise and right access to information, there’s relatively more value to be had in smaller markets like those in developing countries, and even more so in bond markets. The question then becomes, who’s the best at sniffing out those deals? When investing in an actively-managed fund, you’re investing in the team behind it as much as the securities themselves. Conducting due diligence on the team and their track record is critical. That’s why when using these types of ETFs in our portfolios, we use a robust quantitative and qualitative research approach to size up the teams behind them. There’s also the matter of niche markets, and whether a passive index fund is even available. One such example is the Academy Veteran Bond ETF (VETZ), one of the newest actively-managed funds we’ve brought on board. VETZ mainly invests in loans to active and retired U.S. service members and the survivors of fallen veterans, making it ideal for both active management and our Socially Responsible Investing’s Social Impact portfolio. Lastly, a lot of everyday investors simply enjoy directing some portion of their investing themselves. When we surveyed Betterment customers about their overall investing habits, ¾ of them said they mix in some self-directed investing alongside their managed portfolios. There’s nothing wrong with a little responsible fun like this. Picking your own securities—even alongside a managed portfolio—can be exciting and educational. And all that choice naturally leads to the next big difference between active and passive investing. The building blocks of a portfolio Some of the active/passive split can be seen in a given portfolio’s pieces, and how granular the investor gets. Do you want to start at the individual security level, picking single stocks and bonds yourself, or paying someone to do that for you? Or would you rather zoom out and start with funds that track a predetermined list or “index” of said securities? These can cover entire asset classes, like treasury bonds, or represent a “sub-asset” slice of a market, like short-term treasury bonds. Stock indexes are weighted by the current value of the companies within them. These market "capitalizations" ebb and flow, of course, so the makeup of indexes and the funds that track them naturally evolve over time. They're "self-cleansing" in that sense. Lower performers make up less and less of the index over time, just as higher performers become bigger slices. It's why the bulk of the S&P 500 today looks very different than it did 20 years ago. The shape-shifting S&P (top companies by market valuation) 2025 2005 1. Nvidia Corp (NVDA) 1. GE Aerospace (GE) 2. Microsoft Corp (MSFT) 2. Exxon Mobil Corp (XOM) 3. Apple Inc (AAPL) 3. Microsoft Corp (MSFT) 4. Alphabet Inc (GOOG) 4. Citigroup Inc (C) 5. Amazon.com Inc (AMZN) 5. Walmart Inc (WMT) Source: FactSet There's also the hybrid “smart beta” approach to index fund investing. Here, a fund manager starts with a preset index before actively tailoring it based on a set of quantitative investment factors. We offer one such option in the form of the Goldman Sachs Smart Beta portfolio, which invests more heavily in companies with at least one of the following factors: They’re cheap relative to their accounting value. They tend to be sustainably profitable over time. Their returns are relatively low in volatility. They’ve been trending strongly upward in price. Use the right tool for the job All of this may be a lot to take in. But we can simplify things by bringing it all back to the big picture. Active investing seeks to beat the market. It’s typically higher-cost, and comes with relatively higher risk. In specific use cases, however, an experienced team can outperform related indexes. Passive investing aims to replicate market returns at a lower cost, often over the long-term. It starts with the building block of funds instead of individual securities. As is so often the case with investing, this isn’t an either/or proposition. We use both strategies—and sometimes a blend—at Betterment, because each has a role to play in building wealth. Regardless of whose hands are guiding your investing, we give you the tools to grow your money with confidence.

Inside the investing kitchen, part 3 Aug 15, 2025 12:00:00 PM 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 $65 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 reduce “wash sales” while maintaining customers’ desired exposures and risk levels. Betterment does not provide tax advice. TLH is not suitable for all investors. Learn more. 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.

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.