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Portfolios Now Include Municipal Bonds
We added a municipal bonds asset class to make your non-IRA portfolio even more tax efficient.
Portfolios Now Include Municipal Bonds We added a municipal bonds asset class to make your non-IRA portfolio even more tax efficient.In our ongoing efforts to create the most tax-efficient portfolio possible for our customers, we have added a new asset class, represented by a tax-exempt national municipal bond fund, the S&P National AMT-Free Muni Bond ETF (MUB), for primary domestic bond exposure. It will replace the US High-Quality bond index fund (AGG) in taxable portfolios. Dividends paid on this ETF are exempt from federal taxes. We will continue to use AGG, the core bond fund, in IRA accounts, where tax-free dividends do not provide the same advantage. Improved after-tax returns with municipal bonds Municipal bonds are expected to increase after-tax returns by more than 1.0% per year, as compared to the asset class they replace. Below, you can see the pre-tax yields of the two asset classes side-by-side. MUB is currently yielding significantly more than AGG even before taxes, but that could change. What won't change is the advantage built into MUB once you factor in federal taxes. At the highest possible federal rates (single, income of $400k+), nearly half of AGG's dividend is lost to taxes, while MUB's yield is unchanged. Even assuming a more common tax bracket (earning roughly $100-200k), the advantage is clear. Ticker Pre-tax yield After-tax yield (43.4%) After-tax yield (28%) MUB 2.90% 2.90% 2.90% AGG 2.20% 1.25% 1.58% The only drawback for investors is that munis are often thought to carry greater default risk than US Federal government debt. The US has yet to default in modern history, and has the ability to literally print money, which state and local governments do not. So while municipal defaults are not unheard of, they are actually quite rare as compared to corporate bonds, and relatively benign when they occur. This is because municipal bonds are often either insured privately, or have the backing of the state in the case of a default. It’s also worth noting that when a municipal bond defaults, it tends to mean you get $0.80 back, rather than $1—rather than lose all your principal. Most importantly, MUB comprises more than 2,000 muni bonds across 44 states—diversifying away any default risk for a particular issuer. Due to these factors, municipal bonds tend to have relatively high credit ratings—comparable in quality and long-term performance to the US High-Quality Bond index. What do you need to do? Nothing. Existing customers’ portfolios will automatically be transitioned to the new asset class over the coming months. We will replace AGG with MUB and reduce the weight of LQD and BNDX; we will also then increase the weight of MUB in the portfolio in order to maximize its tax-exemption benefit. Customers using our new Tax Loss Harvesting+ service will have MUB as the primary ticker for the asset class, and Barclay’s Municipal Managed Money (TFI) as the alternate. -
Introducing Betterment’s Cash Management Products
Betterment helped redefine investing with automated guidance built for you. Now, we’re ...
Introducing Betterment’s Cash Management Products Betterment helped redefine investing with automated guidance built for you. Now, we’re reshaping another part of your financial life: your cash management. When I started Betterment, the goal was to help people answer a basic, but universal, question: “What should I do with my money?” In my early career as a bank consultant, working for large banks across the United States, I noticed fundamental conflicts in the financial industry that made great financial advice inaccessible to most Americans. In creating Betterment, I sought to change the industry and to build the most customer-centric smart money manager. That desire for change evolved into our mission: To help you make the most of your money so that you can live better. And we focused all of Betterment’s efforts on that mission. We listened diligently to our customers. Developed personalized retirement guidance. Built our suite of Tax Smart tools. Incorporated personal choice into our investment options. Built and evolved our mobile app. Across our work, we listened and learned from you. We heard that while investing is a major challenge, it’s often not your first one—instead, it’s saving. For many of our customers (whose average age is 37), having more money tomorrow means managing your money better today. You want tools that make you confident you’re doing the smart thing: Increasing financial security for you and your family by setting savings goals and creating a plan to achieve them. To not worry about whether you are incurring unnecessary fees that might take advantage of you at inconvenient times. Ultimately, we believe that managing your everyday cash is essential to realizing your long-term goals. This is why we built cash management products: for your money today that can help you save and earn more for tomorrow, all in one place. Cash Management: A Solution That Helps You Save The problems we see in the banking industry today are the same fundamental flaws we saw in investing when we started Betterment: Companies aren’t customer-centric. Rather than suggesting what’s right for customers, they’re instead encouraged to do what makes the company the most money (which can often be a poor financial decision for the customer). Instead of investing for the long term, trade on the short term, some say. Instead of saving for your goals, spend what you make and borrow money later, others say. We’ve designed our cash management products to meet you where you are in your financial journey and to encourage saving that grows over time. Our first step is Cash Reserve, a cash account that can help you earn a variable rate of 0.75%*, is FDIC-insured for up to $1,000,000 once deposited at our program banks (or $2,000,000 if using a joint account)†, has no minimum balance, and only requires a $10 deposit to get started. Our second step is Checking—meant to help you manage the heartbeat of your financial life, your everyday cash flow. With this checking account, users will receive a Betterment Visa Debit Card and all ATM fees, worldwide, will be reimbursed; you won’t see any monthly maintenance fees or minimums and you’ll get access to advice on your full financial life. The same reason that we don’t put our own ETFs into portfolios is the same reason Betterment is not a bank—because we can offer you value and help you build a better life as your advisor and advocate. We want to help you make the most of your money, and a cash account is an important part of that. With Checking, we’re taking a similar approach. No checking fees‡, and all ATM fees reimbursed worldwide. A partner that works for youーeveryday. We’re pushing the boundaries of how finance serves you, helping you save more with less hassle, so that ultimately, you can live better. We’re on the path to building your self-driving wallet. When I think about what the future holds for my two young daughters and children across the United States, I can’t imagine that they’ll ever have to spend time figuring out how to intelligently allocate their paychecks across various accounts—I want them to have easy access to the right answers, from a trusted advisor. I want them to know that they’re on-track to meet goals important to them—and if not, how to get on track. I believe that technology will help make smart money management accessible to all Americans. To get there, come join us. Tell us what you want to do with your money. We can make it easy, then help you automate the most frequent, distracting, and tedious (but nevertheless valuable) tasks—just as we have with investing. With our cash management products, we bring our role as your financial advisor into your everyday life, turning your daily choices and transactions into saving for the future. We’ve built the framework for where we believe the industry can (and should) move. We believe the future is smart money management, and we’re helping lead the way. Months ago, I described why the financial industry fails to help people save: We place the responsibility to save more money on the customer, rather than taking on that challenge as investment managers and banks. Ultimately, I believe institutions that survive into the future will be accountable for what real people struggle to do: Automate their savings. We are striving for a future of smarter financial behaviorーfor a stronger middle class, empowered to thrive and pursue happiness, with the true peace of mind that comes from having a smart money manager always working for you. This brings us a significant step closer to that goal. -
Betterment Launches On Stage At TechCrunch Disrupt
Betterment officially launched our product on stage as a Battlefield Finalist at the ...
Betterment Launches On Stage At TechCrunch Disrupt Betterment officially launched our product on stage as a Battlefield Finalist at the TechCrunch Disrupt conference in New York. Today was a HUGE day for Betterment. We officially launched our product on stage as a Battlefield Finalist at the TechCrunch Disrupt conference in New York, NY. Only a handful of companies from a pool of over 500 applicants were selected to present on the "Battlefield" stage in front of a panel of technology industry experts to see who has the best startup idea. It was nerve-racking, but we made it through the first two rounds of competition today. On Wednesday we will find out if we made it to the final round of competition. We would sincerely like to thank TechCrunch for inviting us to launch our product at the conference--the exposure is invaluable for us as we try to help everyone save and invest better. We also want to thank all of the customers who have been signing up now that our doors are open for business. If you like your Betterment account, tell a friend because there's a good chance they will like it too. If you run into any issues with your account, let us know and we will make it right. It's that simple. Read TechCrunch's recap of our presentation: https://techcrunch.com/2010/05/24/betterment-wants-to-be-your-new-savings-account/#ixzz0ouWufJca
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