Intro: Betterment Returns – Reviews, Average Returns, Performance, Rate of Return, AUM


If you’re doing research on investments, you’ve likely realized that learning the nuances of investing can be a challenging and potentially frustrating endeavor.

What’s more, the average investment advisor understands that the value of their role lies in their ability to understand investing more completely than the average person; therefore, in a sense, helping their clients understand the market fully enough to make trades on their own would be bad for business.

This imbalance of knowledge has persisted for decades. Recently, however, new companies have started to crop up with the goal of adding simplicity and transparency to the process of investing.

One such example is Betterment. In this review, we will take a broad look at the company, investigate Betterment performance, identify Betterment average returns, and help you decide whether investing your money with Betterment is the right choice for your financial goals. First, let’s get a little more background on the company.

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Betterment Overview

Betterment was founded in 2008 by Jon Stein and Eli Broverman. As noted on the Betterment website, the idea for the company came when Stein and Broverman realized that there was no easy way for the average potential investor to enter the market.

With Betterment, portfolio performance is not tied to the educated guesses of a financial advisor, because unlike most of its competitors, Betterment is not comprised of a group of financial advisors.

Instead, using long-proven historical models, Stein and Broverman created an algorithm that automatically allocates what you’re willing to invest according to your age, income, and risk profile.

What this means for the user is that they no longer have to plan their investments through a financial advisor; rather, they can take control of their investments without having to spend years learning the various ins and outs of the market.

And by allowing their consumers to create a customized plan according to their specific situation, Betterment performance has surpassed that of many of its competitors.

While having an algorithm in place is useful, its value is directly tied to the program’s ease of use. Fortunately for the consumer, Betterment has invested a lot of time and effort into ensuring that their services are easy to understand and even easier to use.

In fact, it is this ease of use that has earned them the title of “The Apple of Finance.”

Moreover, consumers seem to agree that Betterment is doing a good job; since its inception, Betterment assets under management (or AUM) have grown exponentially. From 2014 to 2015, Betterment AUM grew from $1 billion to $3 billion; from November 2015 to today, Betterment AUM has grown to a total of $5 billion.

You might be wondering, “If there are no advisors to understand the market, how can Betterment’s performance be better than that of a flesh-and-blood advisor?”

The idea of Betterment is to, in short, remove the human element that comes with investing. One of the most common mistakes investors make is “timing the market,” that is, trying to buy low and sell high.

However, historical data has shown that investing regularly without regard to the current share price (i.e., “time in the market”) consistently yields better returns.

By the same token, because Betterment is an automated system, you are able to invest your funds without emotion, and Betterment’s average returns indicate that this method of investing is a vast improvement over the traditional way of investing. How is that, you ask? Let’s take a closer look at the numbers.

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Betterment Performance

Though Betterment has only been in business since 2008, Betterment portfolio performance has surpassed that of its competitors, many of whom have existed for decades or more.

According to information gleaned from Betterment’s website, Betterment historical returns would have outperformed the average investor with an investment advisor in 88% of all periods in the last decade.

From June 2006 until now, had Betterment been able to apply its investment theories, the cumulative Betterment rate of return would be 62.9%; by comparison, private equity firms have collectively shown only a 37% return on investment.

betterment returns-min

Image Source: Betterment.com

Betterment portfolio performance is guided by two techniques: the Black-Litterman model and optimization for downside risk. By applying these methods in a flexible manner, Betterment performance is consistently greater than that of other investment advisors.

In March 2016, the company reported that the Betterment average return was around 11% for the year. This doesn’t appear to be an aberration; as we’ve noted, Betterment investment returns have exceeded most investors’ expectations. Because the company has only been around for a total of eight years, comparing Betterment historical returns to those of its competitors is a bit difficult.

However, as noted above, assuming their models had been in place for 10 years, the Betterment return rate is a clear step ahead of many of the other players in the market.

Betterment portfolio performance is also due in large part to the types of assets they hold in their portfolio. Betterment holdings consist entirely of exchange-traded funds (or ETFs), classified in two categories: stock ETFs and bond ETFs.

The stock ETFs allow for greater liquidity than a normal mutual fund would provide while also spreading around the asset allocation to minimize risk. At the same time, the bond ETFs provide lower returns but greater long-term stability, which allows Betterment’s portfolio performance to yield attractive results for investors of all risk profiles.

Additionally, ETFs tend to carry a lower cost of investing, which makes it possible for investors to spend more money investing and less on the cost of the shares themselves.



Betterment Pricing and Competition

One of the ways Betterment performance is able to outstrip that of its competition is by using a unique fee structure. Because Betterment doesn’t have to pay a team of financial advisors (who also charge a commission for trades and account management), they can afford to offer lower fees than the average investment advisor.

While the average investment advisor charges roughly 1% per year for account management, Betterment charges on a sliding scale depending on the account value.

If your Betterment assets under management are less than $10,000, your fee would be 0.35%. If your Betterment AUM are from $10,000 to $99,999, your fee is 0.25%, and if your Betterment assets under management are $100,000 or more, you pay a 0.15% fee.

Betterment’s website also has a counter of how much you can save over 20 years with them compared to a standard investment advisor.

While this is a useful figure (and certainly puts into context the amount of money you would spend on fees with another advisor), it is unclear if Betterment historical returns have factored those savings into the ROI calculation.

If that savings is already included, then Betterment’s investment returns aren’t quite as robust as their site would have you believe; after all, not spending money on fees isn’t the same as additional money returned from investments.

However, if the Betterment average returns do not factor in the money saved on fees, then it seems their investment model is as good as advertised.

Though it is tempting to compare Betterment to historically-significant financial advisors such as Chase Private Client Group, Merrill Lynch, or TIAA-CREF, the comparison would not be completely analogous.

After all, those competitors do not operate in the same space as Betterment, and their approach to investing is on a completely different wavelength.

The more apt comparison between companies would be between Betterment, Wealthfront, and Acorns. Wealthfront and Acorns both offer access to ETFs, automated investing, and lower fees than traditional investment advisors.

All three are attractive options for someone who wants to invest money but would prefer that most of the heavy lifting (like selecting the investments) be done automatically.

While Acorns is an attractive option, you also don’t get as much clarity on their selection of funds and their investment models. And while Wealthfront offers lower fees (free, in fact, for any account under $10,000), if you have any sort of significant assets, you’ll pay 0.25% over the life of your account regardless of size. Betterment, on the other hand, offers the sliding scale mentioned above.

The real tipping point is Betterment performance; Betterment’s portfolio performance has historically outperformed that of Wealthfront and Acorns, and Betterment returns significantly widen the narrow margin of difference between the three competitors. And investors agree: Betterment assets under management have outpaced Wealthfront over the last year, and the gap is only widening.

Other traditional companies such as Charles Schwab and Vanguard have taken notice and are adapting to the “robo-advising” industry.

And while Betterment assets under management fall well short of those two titans of the industry, it would not be fair to compare the two just yet; after all, many of Schwab and Vanguard’s accounts have come from existing customers, while Betterment AUM has been driven almost entirely by new business.

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Overall Review

The real determining factor when selecting an investment service is simple: How comfortable are you using it? Traditional investment advisors offer the option to speak one-on-one with a financial advisor who knows you and your financial situation, and that can help put a lot of minds at ease.

However, the steady increase of Betterment’s assets under management over the last three years indicates that consumers are no longer as concerned with having a personal touch; the only important consideration is results.

Fortunately, Betterment investment returns are the kind of results that most consumers love. Betterment’s portfolio performance indicates that they’re on the right track when it comes to selecting their investments, and based on Betterment historical returns, it’s safe to say that Betterment’s return rate will only continue to climb as the algorithm adjusts to new market trends.

The steady growth of Betterment AUM indicates that the company has done right by its current customers and is doing a very good job of convincing new clients to invest in Betterment holdings.

While Betterment performance makes a strong enough case on its own, the real determining factor is the ease of use for Betterment customers.

The company website does a great job of outlining Betterment historical returns and making them easy to understand. Additionally, the “Resources” section of the site provides important investment advice and education, so the consumer can gain a clearer idea of the current Betterment rate of return while also learning why Betterment’s returns shouldn’t be the only determining factor in selecting an investment manager.

Overall, Betterment’s portfolio performance alone makes it worthy of further investigation, but as we learned above, that isn’t why they got into this business. Betterment wants to demystify as much as possible the world of investing and make it accessible to everybody.

While Betterment returns are important, it is more important to the company that their users feel comfortable with their investment choices and secure in their financial future. Based on everything we’ve covered today, it’s clear that they’re on the right track and are a very solid option for anyone hoping to improve their financial outlook.

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