The latest update to our Core portfolio strategy

Betterment serves as a fiduciary, performing in our shoppers’ greatest pursuits. We monitor our portfolios and overview the underlying investments regularly to optimize portfolios and enable you to obtain your funding targets. As a part of this course of, we’ve made modifications to our Core portfolio technique that we consider will assist enhance long-term risk-adjusted returns.

How we consider and handle our portfolios

The Betterment Funding Committee displays and evaluations the underlying inputs used to assemble our portfolios, together with operating simulations to gauge anticipated long-term efficiency.

• Our capital market assumptions (CMAs) signify our long-term expectations for the return and threat of assorted asset courses.
• These CMAs assist inform how we allocate throughout totally different asset courses in our portfolios, and energy our platform’s recommendation instruments

What’s modified within the Core portfolio?

Our up to date CMAs point out a shift within the anticipated risk-return profile of sure asset courses, suggesting a reallocation of goal exposures with the Core portfolio going ahead. Right here’s what meaning:

• Inside our equities basket
  • Dialed down publicity to rising markets shares whereas rising publicity to U.S. shares.
    • With rising geopolitical dangers, we consider this shift can assist scale back potential losses, particularly for portfolios holding fewer shares relative to bonds.
    • This variation additionally brings us nearer to MSCI All Nation World Index (MSCI ACWI, our inventory allocation benchmark as described under)
  • Diminished the emphasis on U.S. worth shares (“worth tilt”), shifting towards U.S. inventory publicity weighted by market capitalization.
    • Over time, we’ve noticed gradual compression within the worth issue premium as markets have develop into extra environment friendly.
    • We count on this adjustment to assist scale back threat and extra carefully align the Core portfolio with our customized benchmark indices (described under).
• Inside our fastened revenue basket
  • Diminished publicity to each rising markets and worldwide developed bonds, whereas rising publicity to U.S. bonds.
    • Much like our inventory allocations, we count on this to mitigate potential draw back threat for extra conservative allocations.
  • Elevated allocations to inflation-protected U.S. bonds.
    • This replace will assist defend shoppers with extra conservative portfolios from potential erosion threat on financial savings—offering safety towards market drawdowns, rising rates of interest, and different macroeconomic occasions that might have damaging short-term penalties.
    • This variation might be significantly related for patrons in retirement, since inflation can meaningfully eat away on the worth of your cash over time.

Growing a “benchmark conscious” portfolio technique

In an evolution of our funding course of, we’ve additionally up to date our Core portfolio development methodology to develop into extra “benchmark conscious.”

• This implies we now calibrate our exposures primarily based on a customized benchmark.
• The customized benchmark we now have chosen consists of (1) the MSCI All Nation World Index (MSCI ACWI), (2) the Bloomberg World Combination Bond index, and (3) at low threat ranges, the ICE US Treasury 1-3 Yr Index.
• This practice benchmark has various threat ranges that correspond to the Core portfolio allocations we help for quite a lot of investor threat tolerances.

Introducing the Worth Tilt portfolio technique

For purchasers who favor the potential advantages and related dangers in worth investing, we’re introducing a brand new portfolio choice: Worth Tilt. The Worth Tilt portfolio technique maintains the identical historic monitor file because the Core portfolio technique, up till the 2024 modifications the place this turns into a brand new technique.

• Whereas this portfolio contains the identical thematic asset allocation modifications because the Core portfolio technique, it maintains specific weighting in direction of U.S. worth shares.
• An enlargement of our portfolio choices, Worth Tilt is out there for all targets, new and outdated. You’ll be able to choose it inside your account.

What does all this imply for you?

• No motion is required from you to transition to the up to date Core portfolio allocations.
• We’ll handle your Core portfolio tax-efficiently and put your money flows (resembling deposits, withdrawals, dividends, contributions, and distributions) to work to help with the transition, transferring your portfolio in direction of the up to date goal allocation.
• Our algorithms will robotically work to scale back any drift between your positions and the up to date goal allocation, by (1) first buying these funds the place your portfolio is underweight when investing dividends and deposits and (2) first promoting these funds the place your portfolio is chubby, when producing money for withdrawals.
• In case you’ve enabled tax loss harvesting, we’ll use these alternatives to scale back drift as nicely.
• We don’t count on any tax influence in IRAs, 401(okay)s, and HSAs.

Contemplating potential tax influence

For taxable targets, whereas the trade-off between anticipated returns and tax influence is exclusive to every shopper (and depends upon components resembling your investing time horizon and monetary state of affairs), most clients ought to see minimal modifications to their taxes because of this transition. That’s as a result of we’re taking a gradual strategy with the portfolio migration and utilizing money flows to transition taxable accounts.

In case you would fairly be invested in one among our different managed ETF portfolio methods or want to have worth publicity in your portfolio, you’ve the choice of choosing any of those methods, together with the Worth Tilt portfolio, on our platform.

Betterment is often monitoring your investments so that you simply don’t should. Study extra about our investment philosophy and process.