Performance

How socially responsible investing connects your holdings to your heart Learn more about this increasingly-popular category of investing. Socially responsible investing (SRI), also known as environmental, social, and governance (ESG) investing, screens for companies that consider both their returns and their responsibility to the wider world. It’s a growing market for investors, with assets totaling $30 trillion as of 2022. We launched our first SRI portfolio back in 2017, and have since expanded to a lineup of three options: Broad Impact Social Impact Climate Impact All three are globally-diversified, low-cost, and built to help align your investing with your values. So let’s explore a few ways they do that, before tackling a common question about the SRI category in general: performance. How our Social Impact portfolio lifts up underserved groups Social Impact uses the Broad Impact portfolio’s foundation while adding a trio of funds focused on helping underserved groups get on equal footing. There’s $SHE and $JUST, which screen for U.S. companies demonstrating a commitment toward gender and social equality, respectively. Then there’s $VETZ, our latest addition to the portfolio. $VETZ is the first of its kind: a publicly-traded ETF that mainly invests in loans to active and retired U.S. service members, and the survivors of fallen veterans. These types of home and small-business loans have historically helped diversify portfolios, and they also help lower borrowing costs for veterans and their families. And unlike $SHE and $JUST, which are comprised of stocks, $VETZ is an all-bond fund. So even if you have a lower appetite for risk when investing, your SRI portfolio can maintain an exposure to socially responsible ETFs. How the $VOTE fund is shaking up shareholder activism Remember the “G” in ESG? It stands for governance, or how companies go about their business. Do they open up their books when necessary? Is their leadership diverse? Are they accountable to shareholders? On that last front, there’s the $VOTE ETF found in each one of our SRI portfolios. On the surface, it seems like a garden variety index fund tracking the S&P 500. Behind the scenes, however, it’s working to push companies toward positive environmental and social practices. It does this by way of “proxy” voting, or voting on behalf of the people who buy into the fund. Engine No. 1, the investment firm that manages $VOTE, puts these proxy votes to use during companies’ annual shareholder meetings, where individual shareholders, or the funds that represent them, vote on decisions like board members and corporate goals. In 2021, Engine No. 1 stunned the corporate world by persuading a majority of ExxonMobile shareholders to vote for three new board members in the name of lowering the company’s carbon footprint. And it did all this in spite of holding just .02% of the company’s shares itself. Not a bad return on investment, huh? Does SRI sacrifice gains in the name of good? We now stand eye-to-eye with the elephant in the room: performance. Worrying about returns is common regardless of your portfolio, so it’s only natural to question how socially responsible investing in general stacks up against the alternatives. Well, the evidence points to SRI comparing quite well. According to a survey of 1,141 peer-reviewed papers and other similar meta-reviews: The performance of SRI funds has “on average been indistinguishable from conventional investing.” And while the researchers note that it’s “likely that these propositions will evolve,” they also found evidence that SRI funds may offer “downside” protection in times of social or economic crisis such as pandemics. Your socially responsible investing, in other words, is anything but a charity case. Simplifying the socially responsible space Not long ago, SRI was barely a blip on the radar of everyday investors. If you were hip to it, you likely had just two options: DIY the research and purchase of individual SRI stocks Pay a premium to buy into one of the few funds out there at the time Those days are thankfully in the past, because our portfolios make it easy to express your values through your investing. And our team of investing experts regularly seeks out new funds like $VETZ and updated SRI standards that strive to deliver more impact while helping you reach your goals. Check out our full methodology if you’re hungry for more details. And if you’re ready to invest for a better world, we’ve got you covered.

Four ways we help trim your tax bill And why these "invisible" wins matter more than you may think. As investors, we tend to focus most on what we can see. Things like portfolio makeup, and the returns generated by those investments. No less important, however, are the less obvious things, like the taxes you never paid in the first place because of technology that quietly runs in the background. You may only think about taxes once a year, but here at Betterment, every day is Tax Day. This sort of year-round tax optimization sounds boring, but believe us, it makes a difference. Taxes can steadily eat away at your returns over the years. So any advisor worth their salt should take taxes seriously and minimize them as much as possible. These “invisible” wins are hard to spot in the moment, so let’s shine a light on them now. Here are four sophisticated ways we buy, sell, and hold your shares, all in the name of trimming your tax bill. Choosing which assets go where – Our Tax Coordination feature helps shield high-growth assets in the most tax-efficient account types. Rebalancing wisely – We take advantage of any existing cash flows to help minimize capital gains taxes while rebalancing your portfolio. Choosing which taxable shares to sell (or donate) – Our TaxMin technology helps minimize short-term capital gains taxes. Harvesting losses – When your taxable investments dip below their initial purchase price, we jump on the opportunity to “harvest” the theoretical loss and potentially lower your future tax bill. 1. Choosing which assets go where From a tax perspective, you have three main account types at your disposal when saving for retirement: Tax-deferred (traditional IRAs, 401(k)s, etc.), where taxes are paid later. Tax-exempt (Roth IRAs, 401(k)s, etc.), where taxes are paid now. Taxable, where taxes are paid both now and later. Because of their different tax treatments, certain types of investments are a better fit for certain accounts. Interest from bonds, for example, is typically taxed at a higher rate than stocks, so it often makes sense to keep them away from taxable accounts. This sorting of asset types based on tax treatments, rather than divvying them up equally across accounts, is known as asset location. And our fully-automated, mathematically-rigorous spin on it is called Tax Coordination. When Tax Coordination is turned on, the net effect is more of your portfolio's growth is shielded in a Roth account, the pot of money you crucially don't pay taxes on when withdrawing funds. To learn more about our Tax Coordination feature and whether it’s right for you, take a peek at its disclosure. 2. Rebalancing wisely When the weights of asset classes in your portfolio drift too far from their targets, our technology automatically brings them back into balance. But there's more than one way to accomplish this portfolio rebalancing. You can simply sell some of the assets that are overweight, and buy the ones that are underweight (aka "sell/buy" rebalancing), but that can realize capital gains and result in more taxes owed. So we first take advantage of any available cash flows coming into or out of your portfolio. When you make a withdrawal, for example, we intentionally liquidate overweight assets while striving to minimize your tax hit as much as possible (more on that below). And when you deposit money or receive dividends, we use those funds to beef up underweight assets. 3. Choosing which taxable shares to sell (or donate) Say there's no way around it: you need to sell an asset. Maybe cash flows aren't enough to keep your portfolio completely balanced. Or you’re withdrawing funds for a major purchase. The question then becomes: which specific assets should be sold? The IRS and many brokers follow the simple script of "first in, first out," meaning your oldest assets are sold first. This approach is easier for your broker, and it can avoid more highly-taxed short-term capital gains. But it often misses the opportunity of selling assets at a loss, and harvesting those losses for potential tax benefits. So our algorithms take a more nuanced approach to selecting shares, and we call this technology TaxMin. TaxMin is calibrated to avoid frequent small rebalance transactions and seek tax-efficient outcomes, things like avoiding wash sales and minimizing short-term capital gains. In the case of donating shares, we apply the same logic in reverse, or TaxMax as we call it. That's because when donating shares, it benefits you to choose the ones with the most gains, since any shares bought as a replacement will effectively have a reset tax bill. 4. Harvesting losses Life is full of ups and downs, and your investments are no different. At times, most notably during market downturns, the price of an asset may dip below what you paid for it. Tax loss harvesting takes advantage of these moments, selling taxable assets that fit this bill, then replacing them with similar ones so you stay invested. You can then use those harvested losses to shift taxes you owe now into the future. The strategy doesn’t make sense for everyone, but it can help some investors sprinkle tax advantages on a portion of their taxable investing. And our fully-automated spin on it takes a tax hack once reserved for the wealthy and makes it available to the masses. Happy harvesting. In conclusion, we care a lot about taxes Because it’s one of the most reliable ways to boost your returns. We can’t control the market, but tax laws? Those are set by the IRS and broadcast far and wide. And we can help you navigate them wisely. We wouldn’t be doing our job if we didn’t. So the next time you take a peek at your returns, ask yourself how much of that growth will still be there come tax time. If you’re a Betterment customer, you can rest assured we’re working tirelessly to minimize those tax drags. You may not realize it right away, and rightfully so. Live your life, and leave the tax toiling to us.

Save more, sweat less with recurring deposits How one click—and the power of dollar cost averaging—can boost your returns Healthy habits like exercising, eating well, and saving are hard for a reason. They take effort, and the results aren’t always immediate. Except in the case of saving, there’s a simple hack that lowers the amount of willpower needed: setting up recurring deposits. So kick off those running shoes, because you barely have to lift a finger to start regularly putting money into the market. $2, $200, it doesn’t matter. This one deposit setting, along with a little help from something called dollar cost averaging, can lead to better returns. Our own data shows it: Betterment customers using recurring deposits earned nearly 3% higher annual returns. *Based on Betterment’s internal calculations for the Core portfolio over 5 years. Users in the “auto-deposit on” groups earned nearly an additional 2.5% over the last year and 2% annualized over 10 years. See more in disclosures. Three big reasons they fared better than those who rarely used recurring deposits include: When you set something to happen automatically, it usually happens. It's relatively easy to skip a workout or language lesson. All you need to do is … nothing. But the beauty of recurring deposits is it takes more energy to stop your saving streak than sustain it. When you regularly invest a fixed amount of money, you're doing something called dollar cost averaging, or DCA. DCA is a sneaky smart investment strategy, because you end up buying more shares when prices are low and fewer shares when prices are high. A steady drip of deposits helps keep your portfolio balanced more cost-effectively. Instead of selling overweighted assets and triggering capital gains taxes, we use recurring deposits to regularly buy the assets needed to bring your portfolio back into balance. Now it’s time for an important caveat: The benefits of dollar cost averaging don't apply if you have a chunk of money lying around that’s ripe for investing. In this scenario, slowly depositing those dollars can actually cost you, and making a lump sum deposit may very well be in your best interest. But here’s the good news: While DCA and lump sum investing are often presented in either/or terms, you can do both! In fact, many super savers do. You can budget recurring deposits into your week-to-week finances—try scheduling them a day after your paycheck arrives so you’re less likely to spend the money. Then when you find yourself with more cash than you need on hand, be it a bonus or otherwise, you can invest that lump sum. Do both, and you may like what you see when you look at your returns down the road.