The Betterment Core: Improved Portfolio Strategy

Exploring Betterment’s Investment Philosophy: A Comprehensive Guide

TABLE OF CONTENTS

1. Introduction
2. Global Diversification and Asset Allocation
3. Portfolio Optimization
4. Tax Management Using Municipal Bonds
5. The Value Tilt Portfolio Strategy
6. Innovative Technology Portfolio Strategy
7. Conclusion
8. Citations

I. Introduction

At Betterment, we are dedicated to building investment portfolios that help you achieve financial success and realize your goals. Our approach is rooted in real-world evidence and systematic decision-making to enhance the wealth of our clients. In this guide, we delve into the core principles that drive Betterment’s investment philosophy and how they are translated into actionable strategies for investors.

II. Global Diversification and Asset Allocation

Modern Portfolio Theory forms the basis of Betterment’s asset allocation strategy, aiming to maximize returns while managing risks effectively. Our Core portfolio strategy encompasses a wide range of asset classes, including equities and bonds, to ensure global diversification and optimize the risk-return profile of the portfolio.

Asset Classes Selected for Betterment’s Core Portfolio Strategy

We carefully select a mix of U.S. and international equities, along with various bond classes, to create a well-diversified portfolio. By including emerging market equities and a blend of fixed-income assets, we aim to capture global market exposures and provide stability to the portfolio.

Asset Classes Excluded from the Betterment Core Portfolio Strategy

While aiming for comprehensive market representation, we exclude asset classes that may not offer significant benefits or pose high costs. Commodities and real estate investment trusts are examples of asset classes excluded from our portfolio construction process.

III. Portfolio Optimization

Portfolio optimization at Betterment involves fine-tuning investments to maximize returns within defined risk parameters. By leveraging modern financial theories and robust research methodologies, we offer clients a range of risk levels to suit their individual preferences and goals.

Optimizing Portfolios

Through capital market assumptions and sophisticated models, we optimize asset allocation weights to achieve the most efficient portfolio construction. Our innovative approach considers forward-looking return inputs and incorporates constraints to align with benchmark exposures.

IV. Tax Management Using Municipal Bonds

For taxable accounts, Betterment leverages municipal bonds to optimize after-tax returns for investors. By strategically including municipal bonds that offer tax-exempt interest, we enhance the overall tax efficiency of the portfolio and reduce the tax burden for investors in high-tax states.

V. The Value Tilt Portfolio Strategy

While the Core portfolio strategy no longer includes a tilt towards value companies, clients can opt for the Value Tilt portfolio strategy to maintain exposure to undervalued stocks. This strategy offers a separate investment option within the Betterment platform, allowing investors to capitalize on the potential benefits of value investing.

VI. Innovative Technology Portfolio Strategy

Introducing the Innovative Technology portfolio strategy in 2021, Betterment provides access to the trending theme of technological innovation. Grounded in the Core portfolio strategy, this innovative approach offers increased exposure to technology-focused companies, aligning with the evolving landscape of disruptive technologies.

VII. Conclusion

By combining solid investment principles with cutting-edge strategies, Betterment empowers investors to optimize their portfolios and achieve their financial objectives. From asset allocation to tax-efficient management, our comprehensive approach ensures that every client can maximize their investment potential with confidence.

VIII. Citations