Like other Roboadvisors, Betterment charges an “assets under management” fee every year. At 0.25% of assets under management, that comes out to $25 per $10,000 you have invested with their base plan. For any assets above $2 million in your account, the assets under management fee drops to 0.15%.
This fee will be withdrawn from your accounts cash balance at the end of each month. Because of this, Betterment will hold a small amount of your portfolio in cash to pay these fees when the time comes. If there’s no cash available, Betterment will sell funds to cover the fee, or you can make an additional deposit.
You won’t pay this fee at most do-it-yourself investment platforms like Vanguard or Fidelity.
The other fee Betterment charges isn’t from them – it’s the expense ratio of the funds they choose. According to Betterment’s website, the average expense ratio for a portfolio ranges from 0.07% to 0.15%. Minafi recommends an expense ratio of under 0.20%, making this a good expense ratio for the service.
The big question from an expenses standpoint is if the 0.25% advisor fee is worth it for you. Tax-loss harvesting may help save you taxes if you’re investing in a brokerage account, but it’s a difficult to put a number on the savings. The advisor fee could also be worth it to you if you’d rather let someone else handle your investment choices.
Betterment’s fees are low enough that they won’t break the bank in the short-term. Once your portfolio is very large, the fees can start to add up. With $1 million invested, you’re paying Betterment $2,500 every year. That’s $2,500 that’s not being invested and growing.
Minafi’s recommendation is that Betterment is a great place to get started if you’re short on time and don’t want to learn the basic investing principles on your own. Betterment uses a similar approach to the Minafi Investor Bootcamp – with a focus on long-term, tax-optimized, diversified index fund investing. Your choice is whether you want to learn how to do this on your own, or pay Betterment to do it for you.