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Portfolio Strategy

Understanding Automatic Allocation Adjustment

Learn how we automatically adjust your risk level over time, which helps you stay on track without having to lift a finger.

Articles by Betterment Editors

By the Editorial Staff
Betterment Resource Center  |  Published: September 1, 2018


TABLE OF CONTENTS

Getting Started

Taxes


How does auto-adjust work?

The “Auto-adjust allocation” checkbox in any Betterment account allows you to have your allocation automatically adjusted over time, helping you maintain our recommended level of risk throughout the life of your goal.

We do this by systematically gliding your portfolio(s) to a lower overall risk level as you get closer to the end date of your goal. To learn more about how we automated our allocation advice, click here.

What’s the difference between having Betterment adjust my allocation vs. following Betterment’s allocation advice myself?

When you enable Betterment to adjust your allocation automatically, we aim to reduce your account’s risk as tax-efficiently as possible. Thus, your taxes can be lower than adjusting your allocation yourself. Learn more here.

How do I turn on auto-adjust?

To automatically adjust your allocation, you must first be logged in to Betterment from a browser, not the mobile app.

For existing accounts, you can edit your allocation settings from several places.

  • Within “Advice” of a specific goal, click on “Portfolio Projections” and expand the “Target allocation” section. Clicking on the “Turn on auto-adjust” button will take you to the allocation settings page where you can switch the “auto-adjust” toggle to enable or disable automatic allocation adjustment.
  • When you enable the “auto-adjust” feature, if your allocation is not following Betterment’s allocation advice, your allocation will be reset to our recommended target allocation.

If you are adding a new account, you will be prompted to review your allocation settings when opening the account. If you decide to follow Betterment’s allocation advice, you will, by default, have your allocation automatically adjusted as you near your goal completion date. If you decide that you’d rather not have your allocation adjusted, you can turn off the “auto-adjust” feature and select your own target allocation.

Which Betterment accounts can be automatically adjusted?

Any accounts opened before Dec. 14, 2017 that use the Betterment Portfolio Strategy, the Betterment SRI portfolio strategy, and the Goldman Sachs Smart Beta portfolio strategy will be enrolled to auto-adjust, as long as the account meets the following criteria:

  • The account is funded.
  • Your target allocation exactly follows Betterment’s allocation advice.
  • The account is not a Safety Net goal (as Safety Net allocation advice does not change over time).

After Dec. 14, 2017, any newly opened account that meets the above criteria will also be opted into automatically adjusting. Accounts with allocations not following Betterment’s allocation advice will not automatically adjust.

Note: This does not include Safety Net goals or Blackrock Income portfolio strategies as the allocation advice does not change over time.

How can I tell if my account is being automatically adjusted?

You can tell if your goal’s allocation is being automatically adjusted by navigating to the goal’s “Portfolio Analysis.” Here you will find messaging that reads either “Auto adjust is on” or “Auto adjust is off.”

To enable or disable this feature, simply click on the word “Adjust” below your “Target Allocation” and follow the appropriate prompts.

How often will my account allocation be automatically adjusted?

If you enable the “auto-adjust” feature on an account, Betterment will check to ensure that your target allocation is in line with our recommended moderate allocation each month. If the account’s target allocation needs to be adjusted to match our recommendation, Betterment will make that adjustment automatically. Learn more about how we notify you of allocation changes.

In certain cases, your target allocation may not change from month to month. This is normal. Recommended allocations on certain goals will not change every month. This often happens when you are far from your goal completion date, e.g., more than 20 years from the start of retirement in a retirement goal. You can see our recommended allocations through time for each goal type here.

How will I be notified when there are automatic adjustments to my allocation?

Any automatic adjustments to your target allocation will be recorded and stored within “Activity” under “Transactions.” These adjustments will be noted as an “Automatic Allocation Change.”

Automatically adjusting the target allocation, will not necessarily cause a rebalance. Rebalances will occur if the portfolio drift exceeds our 3% threshold. Additionally, we use any cash flows, including dividends, to rebalance your portfolio towards the target allocation.

If your account is rebalanced, we will send an email notifying you of the transaction.

If I use auto-adjust, how does it change Betterment’s tax advice?

Our allocation advice is designed to work alongside Betterment’s tax optimization tools, including Tax Loss Harvesting+ and Tax-Coordinated Portfolio. In fact, if you enable Betterment to automatically adjust your allocation, we can do so in a more tax-efficient way than if you adjusted your allocation manually to stay in line with our recommended allocation. Learn more here.

Will my taxes be higher or lower by letting Betterment automatically adjust my allocation?

Given that your recommended allocation is expected to change gradually over time, our system uses our rebalancing algorithm to help minimize the tax implications for your account. Learn more about how we adjust your allocation tax-efficiently here.

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