Investors are preparing for a year filled with challenges, including fluctuating tariffs and advancements in artificial intelligence. Market disruptions continue to shape the economic landscape. For those with a Betterment portfolio, there is reassurance in knowing that investment strategies are adapting to these changes. Each year, a thorough review and update of portfolios takes place based on the latest long-term forecasts, ensuring that investments remain competitive.
This year’s updates will include various enhancements, such as adjustments to asset class allocations and the introduction of new funds aimed at providing better exposure or lower costs.
Below are the significant updates for the evolving investment landscape.
Table of Contents:
Enhancements in bond allocations
Passive investing—tracking established indexes—has been central to our strategy due to its low fees and strong performance record. However, it has limitations, particularly in the fixed income sector. Many passive bond funds may not adequately cover the market, potentially missing key sectors like high-yield and securitized bonds. These sectors can present lucrative opportunities, especially amid changing interest rates.
Introducing active management
To tap into these underrepresented segments, we are launching a new actively-managed bond fund. This fund will play a crucial role in our bond allocations. The strategy’s success relies on the expertise of the fund management team, assessed through a comprehensive quantitative and qualitative approach. By selecting skilled managers, we aim to navigate the complexities of the bond market effectively and maximize returns for our investors.
Revising stock allocations
Alongside our bond strategy changes, we are adjusting our U.S. stock allocations. These modifications will classify stocks into three subasset classes based on the market valuations of their underlying companies. The plan includes reducing exposure to mid-cap stocks, aligning their allocation more closely with small-cap stocks, while increasing the allocation to large-cap stocks. This realignment offers a more accurate representation of each subasset class’s size within the overall market.
Managing risk effectively
We are also considering slight increases in the risk profiles of our portfolios, especially within our Socially Responsible Investing (SRI) options. This approach includes a larger allocation to short-term Treasuries, which will help stabilize investment trajectories as clients approach their target dates. These adjustments aim to provide a smoother investment experience for users utilizing our auto-adjust feature.
Crypto portfolio updates
For those invested in our Betterment Crypto ETF portfolio (not applicable to Betterment 401(k) accounts), we are enhancing our allocation to bitcoin to better reflect its market capitalization weight. Additionally, we will replace some existing funds with lower-cost alternatives, resulting in a decrease of 0.10% in the portfolio’s weighted average expense ratio. Our commitment to cost-effective investment options remains a core aspect of our fund selection methodology.
As with last year’s updates, these changes will be implemented gradually over the upcoming weeks. Our advanced technology will optimize the tax efficiency of these adjustments for taxable accounts, while tax-advantaged accounts, such as Betterment IRAs and Betterment 401(k)s, will remain unaffected by any tax implications from these updates.
To review the latest portfolio weights and understand how investments are affected, please visit the relevant portfolio pages on our website. Clients can also access their updated holdings through the Betterment app easily, reflecting our dedication to simplifying the investment process.
Stay proactive and ensure your investment strategy aligns with the latest market trends by signing up for updates.
