How we help you navigate market volatility

How we help you navigate market volatility Aug 16, 2023 12:00:00 AM At Betterment, our portfolios and automated features are designed to handle the market’s downturns. You may have been told to “sit tight and stay the course” when the market is dropping. That’s not always easy to do—unless your portfolio is designed to handle market volatility. The big idea: At Betterment, our platform was designed to help manage the inevitable downturns of the market. You can sit tight and stay the course, knowing that: Our portfolios are constructed with volatility in mind Portfolio management features such as automated rebalancing and tax loss harvesting are built to help keep you on track during downturns How we construct portfolios to weather the storm: We create diversified portfolios designed to offer relatively low costs and keep long-term performance in mind. First, we use expert-based assumptions: Our stock and bond allocation recommendations are based on assumptions, including a range of possible outcomes, in which we give slightly more weight to potential negative ones, by building in a margin of safety—otherwise known as ‘downside risk’ or uncertainty optimization. Even before you’ve invested your first dollar, your portfolio has already been designed to account for the market fluctuations like the big downturns in 2008 and in 2020. Second, we use your personal goals: Our allocation recommendations consider the amount of time you’ll be invested. For goals with a longer time horizon, we often advise that you hold a larger portion of your portfolio in stocks. For shorter-term goals, we recommended a lower stock allocation. By using your investor profile and the goal details you provide, in conjunction with our expert-based assumptions, we’re able to recommend a diversified portfolio of stock and bond ETFs that has an initial allocation recommended just for you. How our automated features keep you on track: We’ve designed three key features to navigate volatility for you. First, automated allocation adjustments: For certain goal types, our system changes your portfolio’s stock and bond allocation automatically over time to help manage risk based on your goals. We call this recommendation “auto-adjust” or a goal’s “glidepath”—a gradual reduction of stocks in favor of bonds. For most Betterment goals, we recommend that you scale down your risk as your goal’s end date gets closer, helping to reduce the chance that your balance will drastically fall if the market drops. You can use our auto-adjust feature in eligible portfolios and goal types. Second, automated portfolio rebalancing: We monitor and adjust your portfolio based on your account balance and market movements to help manage risk. Rebalancing is the process of selling and buying the necessary securities as the market fluctuates to bring the value of each allocation back to the desired level of the portfolio. When the market fluctuates, not all investments fluctuate to the same degree. For example, stocks are generally more volatile than bonds, which can create an undesired asset allocation within your portfolio. We automate that process for you and do it with potential tax implications in mind. Third, automated tax loss harvesting: Our automated software monitors your account for opportunities to harvest tax losses. Tax loss harvesting is the practice of selling a security that has experienced a loss to potentially reduce your tax bill. The sold security is replaced by a similar one, ideally maintaining an optimal asset allocation. It can be beneficial if you have a lot of short-term capital gains, which are taxed at a higher rate than long-term capital gains. Any unused losses from the current tax year can be carried over indefinitely and used in subsequent years. You can opt into tax loss harvesting, but keep in mind that everyone’s tax situation is different—and tax loss harvesting may not be suitable for yours.