A smarter portfolio.

Participants no longer need to feel confused about which funds to select, or how to allocate their money across stocks and bonds — Betterment LLC, our registered investment advisor, does it automatically.

The Betterment portfolio is a globally diversified mix of stock and bond index funds, chosen to provide optimal returns at every level of risk.

Participant advice and portfolio selection is provided by Betterment LLC, an SEC registered investment adviser.

An intelligent, diversified portfolio

Betterment LLC provides a portfolio that is globally diversified. We carefully select ETFs across 12 asset classes that are invested in more than 36,000 stocks and bonds from companies and governments in over 100 countries. A properly diversified portfolio is essential to managing risk, and ultimately reaching your goals.

Our default portfolio for participant accounts is a managed account based on a participant's estimated retirement date. To properly adjust for risk, we take into account details like where a participant wants to retire, current income, savings accounts outside of Betterment, and even spousal holdings.

Why ETFs Are Better for a 401(k)

The Betterment 401(k) portfolio consists of stock and bond ETFs selected by our investment committee. Betterment for Business provides you with your Investment Policy Statement to help you document the investment choices made for your plan.

Betterment believes that ETFs are better choices for 401(k)s because they're far more likely to be passive, which usually correlates with lower cost. And the incentive structure behind them is completely transparent, making them less likely to have conflicts of interest due to hidden fees. As a fiduciary, both to the plan and the individual participant, Betterment LLC is precluded from having any conflict of interest, which means Betterment can provide truly unconflicted fund selection.

Stock ETFs

Our portfolio includes stock ETFs that efficiently capture the broad U.S. stock market, and international developed and emerging markets. Your money is invested in literally thousands of companies instantly. How much of your portfolio is made up of which stocks depends on the exact allocation you choose. Our stock ETFs include:

  • US Total Stock Market
    US Total Stock Market contains broad exposure to the entire US stock market, including growth and value companies of small, mid and large capitalizations. This asset class allows participation in the historically strong long-term growth of the US economy.

    Vanguard U.S. Total Stock Market Index ETF (VTI)

  • US Large-Cap Value Stocks
    US Large-Cap Value stocks overlap with the US Total Stock Market, but are included to tilt the portfolio toward large-size companies with low price-to-earnings ratios. Value-tilting has historically resulted in outperformance, and also increases the portfolio's dividend yield.

    Vanguard US Large-Cap Value Index ETF (VTV)

  • US Mid-Cap Value Stocks
    US Mid-Cap Value stocks overlap with the US Total Stock Market, but are included to tilt the portfolio towards companies medium size companies with low price-to-earnings ratios. Value-tilting has historically resulted in outperformance, and also increases the portfolio's dividend yield.

    Vanguard US Mid-Cap Value Index ETF (VOE)

  • US Small-Cap Value Stocks
    US Small-Cap Value stocks overlap with the US Total Stock Market, but are included to tilt the portfolio towards companies small size companies with low price-to-earnings ratios. Value-tilting has historically resulted in outperformance, and also increases the portfolio's dividend yield.

    Vanguard US Small-Cap Value Index ETF (VBR)

  • International Developed Stocks
    Developed Markets stocks provide exposure to a diverse set of companies from international developed economies including the UK, Europe, Japan, and others. It has a similar risk/return profile as broad US stocks but with lower internal correlations as compared to the US market.

    Vanguard FTSE Developed Market Index ETF (VEA)

  • Emerging Market Stocks
    Emerging Markets provide higher return potential and diversification, however it comes with higher risk compared to US or International Developed stocks. This asset helps your portfolio to grow with developing nations as they modernize and become wealthier.

    Vanguard FTSE Emerging Index ETF (VWO)

Click each ETF's ticker symbol to visit the prospectus page

Bond ETFs

Our portfolio includes bond ETFs that allow us to precisely manage the level of risk at every allocation, and improve the risk-adjusted performance of the portfolio at higher risk levels. The exact amounts of each bond ETF will depend on the allocation you choose, and is customized according to your location. Our bond ETFs include:

  • Short-Term Treasuries
    Short-Term Treasuries have maturities between one month and one year. This extremely low-risk asset class is a cash alternative that generates nominal benefit through interest payments, and de-risks the portfolio at safer allocations.

    iShares Short-Term Treasury Bond Index ETF (SHV)

  • Inflation Protected Bonds
    Inflation Protected Bonds are issued by the US Treasury with the value of the principal (but not interest payments) indexed to inflation. This allocation serves to insulate a part of the portfolio from the depreciating effects of inflation while also having historically low correlation with other asset classes.

    Vanguard Short-term Inflation-Protected Treasury Bond Index ETF (VTIP)

  • US High Quality Bonds
    US High Quality Bonds provide exposure to the US investment-grade bond market, bringing stability to the portfolio with higher income levels than US Treasuries. While the credit risk is very low, the average bond maturity of 7 years means there is some interest rate risk.

    Vanguard US Total Bond Market Index ETF (BND)

  • US Corporate Bonds
    US Corporate Bonds are issued by corporations to finance business activities. Corporate bonds generally offer much more attractive yields and opportunity for capital appreciation to compensate investors for default risk. They also diversify the fixed-income portfolio, resulting in higher risk-adjusted returns.

    iShares Corporate Bond Index ETF (LQD)

  • International Developed Bonds
    International Bonds are issued by non-US developed market governments and organizations. They have high credit quality and provide interest rate diversification for a bond portfolio, resulting in higher risk-adjusted returns.

    Vanguard Total International Bond Index ETF (BNDX)

  • Emerging Market Bonds
    Emerging Markets Bonds are dollar-denominated bonds issued by governments with economies that are rapidly growing and industrializing. This asset class is higher risk but also offers a higher expected return than developed markets' bonds or US Treasuries. Their unusually low correlation with other bonds result in higher risk-adjusted performance for the portfolio.

    iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB)

Click each ETF's ticker symbol to visit the prospectus page

Why these stock ETFs?

Our U.S. exposure covers the total U.S. market with a slight tilt towards value and small-cap stocks. The value and small-cap tilt has tended to beat the market in the long term, based on research by Nobel-prize winner Eugene Fama and Kenneth French.

By adding international stocks, we benefit from growth overseas in developed markets, including the U.K., Japan, and Europe, and achieve the same expected return with lower risk. With the emerging market stock ETF, we can capture growth in small but expanding markets such as Brazil, India, and China. This further diversifies our portfolio, and means we can reach higher expected return levels, especially at higher risk allocations.

Why these bond ETFs?

These bonds ETFs allow us to choose a precise level of risk, and then get the best possible return at that level of risk by balancing four different growth factors: U.S. interest rate risk, U.S. company credit risk, international interest rate risk, and international credit risk. When applicable, we also consider the after-tax benefits of allocating to federally tax-exempt municipal bonds.

Taking on a higher exposure to any of these factors means higher expected returns, with higher potential for short-term losses. However, by blending them together intelligently, we can maintain the return level and reduce the severity of losses.

Better Performance

Betterment would have outperformed the average private client investor in almost all periods over the last decade.

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