As investors face challenges such as tariffs, advancements in artificial intelligence, and operational shutdowns, those using a Betterment portfolio can rest assured. Betterment conducts annual reviews and updates to ensure investment relevance and competitiveness, reflecting the latest long-term market forecasts.
These updates involve adjustments not only in asset class allocations but also the introduction of new funds with lower expenses and enhanced market exposure. Here are the expected changes for the year ahead.
Table of Contents:
Enhancing bond investments
The core of our investment strategy remains passive investing, which tracks predefined market indexes. While this approach is known for its low costs and reliable performance, it has limitations, especially in fixed income.
Many passively managed bond funds fail to capture the entire market, missing opportunities in sectors like high-yield bonds and securitized offerings. These sectors can prove advantageous during fluctuations, such as declining interest rates. To address this, we are introducing a new actively managed bond fund that will be instrumental in the bond allocations of specific portfolios.
Importance of fund management expertise
Active management in the bond market can deliver substantial benefits, but success largely hinges on the fund management team’s expertise. Therefore, when integrating these actively managed funds, we use a thorough evaluation process that combines quantitative metrics with qualitative assessments to select the most capable fund managers.
Adjustments to stock allocations
Continuing with last year’s strategy, we are making slight modifications to our U.S. stock allocations. This allocation is divided into three sub-asset classes, defined by the current market valuations of the companies.
We are reducing exposure to mid-cap stocks, aligning their allocation more closely with small-cap stocks, while increasing investment in large-cap stocks. These changes will ensure our portfolios accurately reflect the size dynamics of the stock market.
Risk management strategies
Alongside these allocations, we are considering slight increases in risk levels across our portfolios, including all three of our Socially Responsible Investing portfolios. This involves a modest increase in exposure to short-term Treasuries, which helps stabilize returns for clients using our auto-adjust feature, particularly as their target dates approach.
Enhancements to our crypto portfolio
For clients invested in the Betterment Crypto ETF portfolio (not available through Betterment 401(k)s), we plan to increase our allocation to bitcoin to better reflect its market capitalization. Additionally, we will replace some funds with lower-cost alternatives, reducing the portfolio’s average expense ratio by 0.10%. This aligns with our ongoing commitment to pursue cost-effective solutions as new funds emerge.
Similar to last year’s updates, this year’s changes will be implemented gradually over the coming weeks. Our system is designed to execute these updates in a tax-efficient manner for taxable accounts, while Betterment IRAs and 401(k)s will not incur any tax consequences from these changes.
These updates involve adjustments not only in asset class allocations but also the introduction of new funds with lower expenses and enhanced market exposure. Here are the expected changes for the year ahead.0
These updates involve adjustments not only in asset class allocations but also the introduction of new funds with lower expenses and enhanced market exposure. Here are the expected changes for the year ahead.1