Betterment Reveals Tax-Coordinated Portfolios

The new product automates the process of optimizing asset location to boost an investor's cumulative after-tax returns.

Automated investment advice provider Betterment has launched a new adviser tool that helps investors consider how to best allocate savings/investments across taxable, tax-deferred and tax-exempt accounts.

Choosing wisely how one allocates assets among these account types can significantly improve the after-tax value of savings, Betterment explains. To this end, the Tax-Coordinated Portfolio product helps investors manage multiple accounts as a single portfolio, “placing less tax-efficient investments into more favorably taxed accounts.”

Betterment says its own research shows that in one generalized scenario, saving wisely in all three types of accounts improved the end-value of savings by as much as 15% over 30 years. (Also see, “Taxes Often a Surprise Expense in Retirement.”)

“Asset location is the closest thing there is to a free lunch in wealth creation,” states Boris Khentov, vice president of operations and a tax attorney at Betterment. “Customers saving for retirement in more than one type of account should be using it to increase their after-tax returns. However, doing it properly is a complex, mathematically rigorous, and continuous process.”

The goal for Betterment’s Tax-Coordinated Portfolio is to “automate this sophisticated strategy every step of the way, helping our customers make the most of their investments.”

More information on Betterment and the firm’s entrance into the employer-sponsored retirement plans marketplace is available here.