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Betterment

My current experiment with robo-advisor Betterment.

Thoughts

From Evaluation
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  • Current portfolio of 85% stocks and 15% bonds has significant weaker performance vs market index (S&P500) within the same timeframe (see figure below)
  • Low annual management fee (0.25% AUM 1) compared to certain mutual fund. But still more expensive than other ETF provider like Vanguard
  • Tax-loss-harvesting feature did not justify its value
  • Tax statements provided by Betterment are clear and concise. Though I don't have experience with other institutions, so this is opinionated
  • Will it be more cost-effective if I find a way to hold directly ETF and ignore the Tax-loss-harvesting feature?

Fig. Comparison Betterment portfolio vs SPY (from 2018 to 2022) betterment-vs-spy

Update 2022-11-15:

  • Betterment changes its annual price from 0.25% into USD 4/month 2
  • If your Betterment balance is $15k, you now pay $48 per year vs. $37.50 per year. So it's $10 more expensive per year, for my account.

Footnotes

  1. Betterment pricing page. Accessed on 2022-05-07˄

  2. What are the details of December 2022's pricing change?˄

Balance

From Balance
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  • 2018-04-01
    • open General Investing taxable account at Betterment
  • 2018-06-30
    • ending balance: USD 517.38
  • 2018-12-31
    • ending balance: USD 4,119.96
  • 2019-12-31
    • ending balance: USD 14,635
  • 2020-12-31
    • ending balance: USD 18,746.04
  • 2021-12-31
    • ending balance: USD 21,568.29

Current holdings

From 2022-05-06
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Notes 2022-05-06

My current holdings in Betterment account

U.S. Value Stocks - Small Cap

  • Percentage: 5.82%
  • Current holdings:
  • Why this asset class and these ETFs?
    • U.S. Small Cap stocks typically grow at a faster pace than the typical company, and tend to represent an often-volatile segment of the market
    • Value stocks are those that trade at a lower price relative to their dividends, earnings and/or sales than the average stock
    • VBR is the primary ETF used to gain value stock exposure among companies with a small capitalization
    • The secondary ETFs, IWN and SLYV are highly correlated with VBR- Betterment's use of secondary ETFs enables Tax Loss Harvesting+

U.S. Value Stocks - Large Cap

  • Percentage: 8.82%
  • Current holdings:
  • Why this asset class and these ETFs?
    • U.S. Large Cap stocks can be defined as those in the top 70% of the capitalization of the U.S. stock market
    • VTV is the primary ETF used to gain value stock exposure among companies with a large capitalization
    • The secondary ETFs, SCHV and SPYV are highly correlated with VTV. SCHV and SPYV both have similarly low expense ratios compared to VTV

U.S. Total Stock Market

  • Percentage: 29.64%
  • Current holdings:
  • Why this asset class and these ETFs?
    • VTI is the primary ETF used to gain exposure to the entire U.S. stock market
    • The secondary ETFs, SCHB and ITOT are highly correlated with VTI. SCHB and ITOT both have low expense ratios

U.S. Value Stocks - Mid Cap:

  • Percentage: 7.07%
  • Current holdings:
  • Why this asset class and these ETFs?
    • U.S. Mid Cap stocks are typically defined as those companies between USD 1b-8b in market capitalization in the U.S.
    • Since VOE has the lowest expense ratio and tightest bid-ask spread, VOE is the primary ETF used to gain value stock exposure among companies with a medium capitalization
    • The secondary ETFs, IWS and IJJ are highly correlated with VOE

International Emerging Market Stocks:

  • Percentage: 12.98%
  • Current holdings:

    • From Vanguard FTSE Emerging Markets (VWO)
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      • Expense Ratio: 0.08%
      • Inception: 2005-03-04
      • NAV as of 2022-05-05: $41.90
      • Index tracked: FTSE Custom Emerging Markets All Cap China A Inclusion Net Tax (US RIC) Index 1

      Footnotes

      1. FTSE Russell Factsheet. Data as at: 29 April 2022. "FTSE Emerging Markets All Cap China A Inclusion Net Tax (US RIC) Index". pdf accessed on 2022-05-06˄

    • From iShares Core MSCI Emerging (IEMG)
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  • Why this asset class and these ETFs?
    • This set of holdings offers exposure to a broad collection of stocks from emerging markets, such as China, Taiwan, India, Brazil, Russia, Thailand and South Africa, among others. International Emerging Market Stocks generally involve higher expected risk compared to Developed Market Stocks, but may lead to higher growth as developing states modernize and gain wealth. Emerging market stocks are less correlated with U.S. Stocks and other developed market stocks, which makes them an important part of a diversified portfolio
    • VWO is the primary ETF used to gain exposure to stocks in international emerging markets
    • The secondary ETFs, IEMG and SPEM are highly correlated with VWO

International Developed Market Stocks:

  • Percentage: 20.60%
  • Current holdings:
  • Why this asset class and these ETFs?
    • This set of holdings offers exposure to a broad collection of stocks from non-U.S. developed markets such as United Kingdom, the European Union, Japan and others. Generally, developed market stocks have a similar risk and return profile as the U.S. Total Stock Market
    • Since VEA has the lowest expense ratio and tightest bid-ask spread, VEA is the primary ETF used to gain exposure to international developed market stocks
    • The secondary ETFs, IEFA and SCHF are highly correlated with VWO

U.S. Inflation-Protected Bonds:

  • Percentage: 1.02%
  • Current holdings:
  • Why this asset class and these ETFs?
    • U.S. Inflation-Protected Bonds are issued by the U.S. Treasury with the value of the principal indexed to inflation (but not the interest payments). This set of holdings serves to insulate a part of the portfolio from the depreciating effects of inflation, while also offering historically low correlation with other types of bonds, helping to achieve greater diversification. Additional diversification in a bond portfolio adds a layer of protection during market downturns
    • VTIP is the selected ETF used to gain exposure to U.S. Inflation-Protected Bonds due to its competitive bid-ask spread, low expense ratio and robust asset base.

U.S. Municipal Bonds:

  • Percentage: 5.82%
  • Current holdings:
  • Why this asset class and these ETFs?
    • U.S. Municipal Bonds are only included in taxable portfolios, since the interest from them is generally federally tax-exempt. The underlying bonds are issued by state and regional governments to finance capital expenditures, such as infrastructure spending. While municipal bond credit risk is slightly higher than risk-free U.S. Treasuries, it still remains very low, which is attractive for risk-averse investors. This characteristic, coupled with favorable federal tax treatment, makes municipal bonds an excellent addition to taxable portfolios
    • MUB is the primary ETF used to gain exposure to U.S. Municipal Bonds, due to its relatively high liquidity
    • The secondary ETF, TFI, is similar to MUB but has a slightly higher bid-ask spread.

U.S. High Quality Bonds:

  • Percentage: 1.57%
  • Current holdings:
  • Why this asset class and these ETFs?
    • U.S. High Quality Bonds provide exposure to the U.S. investment-grade bond market, bringing stability to portfolios, while offering higher cash income than U.S. Treasury bonds alone. The underlying bonds in this set of holdings have been rated no lower than BBB- by Standard and Poor's, or Baa3 by Moody's, minimizing credit risk. U.S. High Quality Bonds are still subject to interest rate risk. These bonds are offered by the U.S. government and high-quality u.S. corporations, and also could be comprised of mortgage-backed securities. The average bond maturity of the underlying bonds in this individual asset class is 8 years
    • AGG is the primary ETF used to gain exposure to U.S. High Quality Bonds, due to its low bid-ask spread

International Developed Market Bonds:

  • Percentage: 4.38%
  • Current holdings:
  • Why this asset class and these ETFs?
    • International Bonds are issued by non-US developed market governments and organizations, largely in Europe and the Pacific regions. The bond in this set of holdings have high credit quality and provide worldwide interest diversification for a bond portfolio, which helps to mitigate risk. These bonds are issued by a variety of countries and corporations to finance various spending needs, and the likelihood of default by these issuers is relatively low.
    • The selected ETF for International Developed Market Bonds is BNDX, due to its competitive expense ratio.

International Emerging Market Bonds:

  • Percentage: 2.28%
  • Current holdings:
  • Why this asset class and these ETFs?
    • International Emerging Market Bonds are dollar-denominated bonds issued by governments with economies that are rapidly growing and industrializing. This component offers higher expected returns than other types of bonds in the portfolio due to higher expected risk. Their unusually low correlation with other bonds results in higher risk-adjusted expected performance for the bond portion of a portfolio.

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