With traditional 401(k)s, participants are forced to choose between a selection of mutual funds with minimal insight into their fees, track record, or how to allocate across funds. The default portfolio, or QDIA, (Qualified Default Investment Alternative) for participant accounts is a managed account based on a participant's estimated retirement date. Participants can refine this with additional personal information such as household income and current retirement savings balances, and we recommend how much they should save to help meet their financial goals. Betterment then allocates the participant's 401(k) contributions across 12 different globally-diversified asset classes and seeks to ensure that all participants’ accounts are automatically risk managed and rebalanced on a regular basis.
The varied portfolios are designed to provide a progressively increasing amount of risk and potential return. Lower risk portfolios are designed to have more short-term government-backed bonds and less volatile stocks. As you move up the allocation spectrum, we introduce bonds and stocks with higher risk but potentially higher returns.
Betterment seeks to deliver the best expected take-home returns possible for plan participants. Take-home returns are defined as returns net of fees, and risk-borne and behavioral or financial mistakes. Our investment team and philosophy does not seek to beat the market by stock picking, sector weighting, or market timing, as most evidence shows that such efforts cost investors more than it benefits them. Our allocations are strategic, not tactical. We seek to optimize expected risk-adjusted returns by maximally diversifying client portfolios using low-cost index-tracking ETFs. In our effort to pursue individual investor alpha, we manage client portfolios on an household level, making optimal behaviors, such as rebalancing and goal tracking, systematic, with zero effort on the participants’ part.
Learn more about Betterment’s Investment Philosophy here.
This information has been provided by Betterment LLC, a registered investment advisor.
