The investment landscape has been marked by a plethora of uncertainties, including tariffs, the rise of artificial intelligence, and various economic shutdowns. For investors, navigating these changes can be daunting. However, those who are part of a portfolio constructed by Betterment can rest assured that their investments are being adapted to meet evolving market conditions.
Each year, Betterment conducts a thorough review of its investment portfolios, informed by the latest long-term predictions.
This annual update involves recalibrating the allocation of various asset classes and introducing new funds that promise lower costs and superior market exposure. As we look ahead, let us explore the enhancements you can expect in your portfolio.
Table of Contents:
Embracing active management in bond investments
While passive investing—aligning investments with preset indexes—forms the core of our strategy due to its cost-effectiveness and proven success, it has limitations, particularly in fixed income. Many passive bond funds capture only a fraction of the overall market, often neglecting key sectors such as high-yield and securitized offerings. These underrepresented segments can be pivotal for investors looking to capitalize on shifting market dynamics, such as declining interest rates.
To harness these opportunities, we are introducing a new actively-managed bond fund as a fundamental component of our bond allocations in select portfolios. This shift signifies a strategic move towards more dynamic management in a conducive market. The effectiveness of these funds largely relies on the expertise of their management teams. This is why we employ a comprehensive quantitative and qualitative assessment process to evaluate fund managers.
Adjustments in stock allocations
In addition to bond investments, we will make slight modifications to our allocation of U.S. stocks. This allocation is categorized into three sub-asset classes, each characterized by the current market valuations of the underlying companies. Specifically, we will reduce our exposure to mid-cap stocks to align their allocation with that of small-cap stocks, while simultaneously increasing our allocation to large-cap stocks. These updates will ensure that our portfolios reflect the actual market size distribution of each sub-asset class.
Enhancing risk management and diversification
Beyond these strategic adjustments, we are also evaluating the risk profiles of our portfolios, including all three of our Socially Responsible Investing portfolios. These portfolios may experience a modest increase in their exposure to short-term Treasuries. This enhancement aims to provide a smoother investment trajectory for clients utilizing our auto-adjust feature, thereby reducing risk as their target dates approach.
Updates in the Crypto ETF portfolio
In terms of our Betterment Crypto ETF portfolio, which is not available in Betterment 401(k)s, we are increasing our allocation to bitcoin to better match its market capitalization weight. Additionally, we will replace some funds with lower-cost alternatives, resulting in a reduction of the portfolio’s average expense ratio by 0.10%. As part of our ongoing fund selection criteria, we consistently seek ways to minimize investment costs as new options become available. For detailed insights on the Crypto ETF portfolio, please refer to the portfolio disclosure.
Like last year’s updates, we will implement these changes gradually over the coming weeks. Our platform is designed to pursue the most tax-efficient strategy for taxable accounts, ensuring minimal disruption. Clients with tax-advantaged accounts, such as Betterment IRAs and Betterment 401(k)s, will not encounter any tax repercussions from these adjustments.
To view the updated portfolio weights, visit the relevant portfolio pages on our website. Users can also easily access their updated holdings through the Betterment app with just a few clicks, exemplifying our commitment to simplifying the investment process.
Stay informed and ensure your investments remain aligned with the latest market trends by signing up for our updates.