Get new articles by email:

Oblivious Investor offers a free newsletter providing tips on low-maintenance investing, tax planning, and retirement planning.

Join over 21,000 email subscribers:

Articles are published Monday and Friday. You can unsubscribe at any time.

Betterment: A New Hands-Off Option

Last year, I came across a new brokerage firm called Betterment that promotes hands-off, passive investing with ETFs. Despite that being right up my alley, I didn’t write about Betterment at the time because I thought their costs (0.3%-0.9% per year) were just too high.

Recently, however, they dramatically reduced their costs (details below), so I thought it would make sense to take another look to see if they might be a good fit for any particular types of investors.

Before you ask: I have no affiliation with Betterment, and this post is not sponsored by them in any way. They do, however, have an affiliate program, so it wouldn’t hurt to be careful about what you read about them online. (If you don’t know what an affiliate program is, I’d encourage you to read this post.)

How Betterment Works

In short, Betterment creates an ETF portfolio for you based on your risk tolerance, and they rebalance it quarterly as well as any time the account’s allocation strays more than 5% from the desired allocation. There’s no fee for the rebalancing transactions or for putting money into or taking money out of the account.

Instead, according to their new cost structure, there is a simple ongoing fee based on the amount you have invested with them:

  • 0.35% per year for investors with less than $10,000,
  • 0.25% per year for investors with $10,000 to $100,000, and
  • 0.15% per year for investors with more than $100,000.

For Investors with Less than $100,000

For investors with less than $100,000, you only get to choose the overall stock/bond allocation. From there, Betterment breaks it down as follows:

For the stock portion of the portfolio:

  • 25% Vanguard Total Stock Market ETF
  • 25% iShares S&P 500 Value Index ETF
  • 25% Vanguard Europe Pacific ETF
  • 10% Vanguard Emerging Markets ETF
  • 8% iShares Russell Midcap Value Index ETF
  • 7% iShares Russell 2000 Value Index ETF

For the bond portion of the portfolio:

  • 50% iShares Barclays TIPS Bond ETF
  • 50% iShares Barclays 1-3 Year Treasury Bond ETF

Based on those funds’ expense ratios, an investor’s annual costs before considering Betterment’s fee would be approximately 0.17%. Once you add in Betterment’s fee, we’d be looking at all-in costs of either ~0.42% or ~0.32%, depending on whether you have more or less than $10,000 invested with them.

In other words, at these asset levels Betterment is analogous to an all-in-one fund with:

  • A value tilt for the stock portion,
  • Exclusively Treasury bonds for the bond portion, and
  • Costs that are much lower than industry averages, but still higher than what you’d pay for a LifeStrategy or Target Retirement fund at Vanguard.

For most investors at this asset level desiring a hands-off solution, I would still suggest using an all-in-one fund from Vanguard — with the exception being investors who prefer Betterment’s allocation strongly enough to pay an extra quarter of a percent for it per year.

For Investors with $100,000 or More

For investors with $100,000 or more, Betterment provides the option to create a “custom portfolio.” Frankly, I think this is where the service provides something not offered elsewhere. For investors in this category, Betterment would be a way to essentially create your own all-in-one fund. For example:

  • For investors with no choice but to own bonds in a taxable account, it could be a way to create an all-in-one fund that uses tax-exempt bonds.
  • For investors looking to tilt heavily toward REITs or small/cap value stocks, it could be a way to do that.
  • For investors looking to have a very high or very low international allocation, it could be a way to do that.

In Summary

I’m very excited about what Betterment is doing. I think it’s wonderful to have more firms in the marketplace that encourage the use of a “buy, hold, and rebalance” strategy using a diversified portfolio of low-cost funds.

At the same time, I think Vanguard is already doing a great job of meeting most investors’ needs, and they’re doing it at a lower cost.

That said, for investors who:

  • Want a hands-off solution,
  • Are not a good fit (for one reason or another) for the allocation of any of Vanguard’s LifeStrategy or Target Retirement Funds, and
  • Have $100,000 or more to invest…

…I think Betterment’s offering is worth looking into.

New to Investing? See My Related Book:


Investing Made Simple: Investing in Index Funds Explained in 100 Pages or Less

Topics Covered in the Book:
  • Asset Allocation: Why it's so important, and how to determine your own,
  • How to to pick winning mutual funds,
  • Roth IRA vs. traditional IRA vs. 401(k),
  • Click here to see the full list.

A Testimonial:

"A wonderful book that tells its readers, with simple logical explanations, our Boglehead Philosophy for successful investing." - Taylor Larimore, author of The Bogleheads' Guide to Investing


  1. That is really exciting and innovative! Not sure that I agree with the asset allocations though. On the face of it, it looks like you’re well diversified globally but in actual fact only the 10% “emerging markets” is non-euro/us. I think that’s pretty poor, considering the huge benefits of international portfolio diversification. Even moreso considering that european and us markets have been following each other almost to the % point for the past couple of years. Won’t argue that it sounds like a very cheap and hands-off solution though 🙂

  2. If you have less than $10,000 you need to have an automatic deposit of $100 a month to avoid a monthly $3 fee. If an investor is not going to do the automatic deposit then they definitely want to invest at least $10,000. The $100 monthly deposit isn’t a bad option for a beginning investor, plus they have a $25 signup bonus.

  3. My concerns are whether (a) you get anything more from this service than you would by working directly with Vanguard, (b) you truly need quarterly rebalancing, and (c) this company is likely to remain in business for the long term.

  4. Larry,

    My personal answers to those questions would be:
    a) Only if you want a hands-off option and you don’t like allocation of any of Vanguard’s lower-cost hands-off options.
    b) From what I’ve seen, annual rebalancing (or even every couple years) is just fine.
    c) Good question. I don’t personally have any information here.

  5. I think in fact you’ve said that re-balancing more frequently can be detrimental.

  6. Yes, to the extent that investment returns tend to have positive serial correlation (i.e, positive correlation from one data point to the next) over relatively short time frames, frequent rebalancing would be detrimental.

    For more on this, I defer to the far more knowledgeable William Bernstein:

  7. I think this is a great way for a novice investor to get started in passive investing. The fees, while not as low as you’d pay at vanguard, are still minimal.

    Someone brought this up on th e bogleheads forum. I couldnt believe The number of participants against this. They don’t seem to understand that this is a great way for the person that does not want to read\educate themselves about Investing to get a portfolio going. Much better than getting trapped by an edward jones broker or randomly selecting funds on their own in the name of diversity.

    Vanguard should have jumped on this a long time ago with their life stragety funds. A gauge to set asset allocation is awesome.

  8. As far as I can tell, Betterment is both a RIA and a broker-dealer. In other words, your money is deposited with Betterment Securities, not with a 3rd party broker, as most other RIA will have as a custodian (they typically use Schwab, Fidelity, etc.). This lack of separation is a concern.

  9. Thanks for your insight on Betterment.

    I have been keeping my eye on them for a quite some time as well and they seem like an ideal fit for my desired portfolio.

Disclaimer: By using this site, you explicitly agree to its Terms of Use and agree not to hold Simple Subjects, LLC or any of its members liable in any way for damages arising from decisions you make based on the information made available on this site. I am not a registered investment advisor or representative thereof, and the information on this site is for informational and entertainment purposes only and does not constitute financial advice.

Copyright 2022 Simple Subjects, LLC - All rights reserved. To be clear: This means that, aside from small quotations, the material on this site may not be republished elsewhere without my express permission. Terms of Use and Privacy Policy

My new Social Security calculator (beta): Open Social Security