Performance

How socially responsible investing connects your holdings to your heart Learn more about this increasingly-popular category of investing. Socially responsible investing (SRI), also known as environmental, social, and governance (ESG) investing, screens for companies that consider both their returns and their responsibility to the wider world. It’s a growing market for investors, with assets totaling $30 trillion as of 2022. We launched our first SRI portfolio back in 2017, and have since expanded to a lineup of three options: Broad Impact Social Impact Climate Impact All three are globally-diversified, low-cost, and built to help align your investing with your values. So let’s explore a few ways they do that, before tackling a common question about the SRI category in general: performance. How our Social Impact portfolio lifts up underserved groups Social Impact uses the Broad Impact portfolio’s foundation while adding a trio of funds focused on helping underserved groups get on equal footing. There’s $SHE and $NACP, which screen for U.S. companies demonstrating a commitment toward gender and racial equality, respectively. Then there’s $VETZ, our latest addition to the portfolio. $VETZ is the first of its kind: a publicly-traded ETF that mainly invests in loans to active and retired U.S. service members, and the survivors of fallen veterans. These types of home and small-business loans have historically helped diversify portfolios, and they also help lower borrowing costs for veterans and their families. And unlike $SHE and $NACP, which are comprised of stocks, $VETZ is an all-bond fund. So even if you have a lower appetite for risk when investing, your SRI portfolio can maintain an exposure to socially responsible ETFs. How the $VOTE fund is shaking up shareholder activism Remember the “G” in ESG? It stands for governance, or how companies go about their business. Do they open up their books when necessary? Is their leadership diverse? Are they accountable to shareholders? On that last front, there’s the $VOTE ETF found in each one of our SRI portfolios. On the surface, it seems like a garden variety index fund tracking the S&P 500. Behind the scenes, however, it’s working to push companies toward positive environmental and social practices. It does this by way of “proxy” voting, or voting on behalf of the people who buy into the fund. Engine No. 1, the investment firm that manages $VOTE, puts these proxy votes to use during companies’ annual shareholder meetings, where individual shareholders, or the funds that represent them, vote on decisions like board members and corporate goals. In 2021, Engine No. 1 stunned the corporate world by persuading a majority of ExxonMobile shareholders to vote for three new board members in the name of lowering the company’s carbon footprint. And it did all this in spite of holding just .02% of the company’s shares itself. Not a bad return on investment, huh? Does SRI sacrifice gains in the name of good? We now stand eye-to-eye with the elephant in the room: performance. Worrying about returns is common regardless of your portfolio, so it’s only natural to question how socially responsible investing in general stacks up against the alternatives. Well, the evidence points to SRI comparing quite well. According to a survey of 1,141 peer-reviewed papers and other similar meta-reviews: The performance of SRI funds has “on average been indistinguishable from conventional investing.” And while the researchers note that it’s “likely that these propositions will evolve,” they also found evidence that SRI funds may offer “downside” protection in times of social or economic crisis such as pandemics. Your socially responsible investing, in other words, is anything but a charity case. Simplifying the socially responsible space Not long ago, SRI was barely a blip on the radar of everyday investors. If you were hip to it, you likely had just two options: DIY the research and purchase of individual SRI stocks Pay a premium to buy into one of the few funds out there at the time Those days are thankfully in the past, because our portfolios make it easy to express your values through your investing. And our team of investing experts regularly seeks out new funds like $VETZ and updated SRI standards that strive to deliver more impact while helping you reach your goals. Check out our full methodology if you’re hungry for more details. And if you’re ready to invest for a better world, we’ve got you covered.

Compound interest: The 8th wonder of the world We show you the power of compound interest and how to visualize projected compound interest on your Betterment accounts. In this article, we show you the power of compound interest and teach you how to use our tools to see how your investing accounts may grow over time. The main idea: Compound interest is when your earnings from investments are reinvested, growing even more earnings or “compounding” over time. It’s one of the ways your savings grow. How it works: Don’t worry, we won’t get into the complicated math. Let’s look at a scenario instead. But first, we need to know that three things go into creating value with compound interest: Rate of return on your investment or savings. Usually listed as a historical annualized return for stock investing or an annual percentage yield (APY) for savings and cash accounts. Frequency of compounding. For stock investing, this means how often you earn dividends and for a savings or cash account, this means how often you are paid interest. Time period for which your money is invested. The longer this is, the more time your money has to compound. Now let's look at a hypothetical scenario. Pretend two people each have $5,000 of savings. Over a five-year period, from August 2018 to July 2023, they each manage their money differently. Person 1: Keeps the $5,000 in a checking account that earns 0% interest. They still have $5,000 in July 2023 because there was no chance for their money to experience compound interest. Person 2: Invested $5,000 into an investing portfolio on August 1, 2018. With dividends reinvested, they averaged 7.4% annualized returns after fees, and on July 31, 2023, their account was worth $7,145. Compounding works the same way in savings or cash accounts that pay interest. For example, our Cash Reserve account allows you to earn a variable rate APY to compound your savings. You generally pay taxes on earnings in both investing and cash accounts, but even with taxes, your money has the potential to grow over the long term due to compound interest. Visualize compound interest on your Betterment investing account: Our mobile app and desktop platform both offer simple tools to help you see how compounding could impact your goals. Mobile app: Navigate to your investing account and view the Projection graph to see a visualization of how your account may compound over time. Desktop platform: To use the goal forecaster, navigate to your investing goal. Select the “Plan” section, then click the “Open goal forecaster” button. Our goal forecaster tool allows you to enter scenarios for deposit and target date inputs. The projection graph will show you the estimated impact of compound interest on your investment portfolio along with the chance of reaching your goal based on your inputs.

The keys to understanding investment performance Understanding investing performance doesn’t have to be a challenge. Here’s how we simplify it for you. In this guide, we look at how we crunch numbers for you and provide two tools to analyze your returns. Plus, see four questions to ask so you understand the overall performance of an investing platform. But first, don’t fall for fallacies: Typical media coverage may skew your perspective. Avoid these two fallacies when looking at your own investing performance. The Dow/S&P 500 Fallacy: Benchmarks like the Dow Jones Industrial Average are popular, but they don’t actually tell you much about the stock market. The Dow only represents 30 US stocks. And the S&P 500 doesn’t give you a full picture of the US market—let alone the global market. The Points Fallacy: It’s common to hear reporters say things like, “Dow loses 500 points.” But it’s far more valuable to look at the percentage change. If the Dow is at 35,000 points, a 500-point drop is less than two percent. That’s not something long-term investors generally need to worry about. Instead of falling for fallacies: To know how you’re performing relative to the market, ask, “Which market?” Many Betterment portfolios are globally-diversified, making the MSCI All Country World Index a better benchmark than the S&P 500 or Dow. How Betterment simplifies looking at performance: We crunch the numbers for you, showing you three aspects of performance. Your combined accounts. We pull together all of your accounts and show their performance as one number. You can also zoom in on the account level. Your total returns. Since changes in the prices of assets in your portfolio are more volatile, and don't tell the full picture, we look at total returns which include price changes and dividends together instead of breaking them out separately. Your long-term timeline. We show your performance over as long a period as possible to help keep you focused on the long term and minimize short-term stress. Two tools to analyze your returns: We don’t encourage frequent monitoring of performance, but when you do want to review performance, we have two tools to help you understand the big picture. Tool #1: Time-weighted return. Time-weighted return is the default return you see on your Betterment accounts. When you invest, you often have deposits made over time. The time-weighted return imagines that all deposits were made on your first day of investing. Why would you want to do this? Because cash coming in and out of your portfolio at different times can distort and complicate your returns due to the nature of the constantly-fluctuating stock market. Also, if you were comparing returns across two different accounts with two different cash flow patterns, you couldn’t be sure if the difference was due to the investments or due to the timing of the cash flows. The time-weighted return can refer to a price-only return or a total return. Price return reflects only the change in the price of the asset, while total return reflects both price and reinvested income. By default, Betterment displays the total return for a more comprehensive view of performance. Tool #2: Internal rate of return. Internal rate of return can be displayed on the performance screen of each account by clicking on the “Show balance details” link. The internal rate of return is affected by each and every instance of cash flow that goes in and out of your portfolio. Cash flows at Betterment can include deposits, withdrawals, dividends, and fees. Internal rate of return does a better job of answering the question, “What are the average returns on the dollars I personally deposited into Betterment?” as opposed to “How well does Betterment design and manage the portfolios I have with them?” Looking beyond returns is important when considering an investing platform or fund. Here are four questions to ask: What are the commissions, trade fees, and assets under management (AUM) fees? How much time and effort are required of you to manage the investments? Does the investing philosophy align with your values? Does the platform offer tax efficiencies such as tax loss harvesting and asset location? (Note: Your stated returns likely won’t take into account any potential value these tools may have added.)