Betterment Goldman Sachs Smart Beta: A Comprehensive Guide

Introduction

Investing can be a daunting task, especially for beginners. But with the rise of robo-advisors, it has become easier to build a diversified portfolio without the need for extensive financial knowledge. Betterment is one such robo-advisor that has been gaining popularity in recent years. In collaboration with Goldman Sachs, Betterment offers a range of investment portfolios, including their Smart Beta portfolio. In this article, we will take a closer look at what Smart Beta is and how it works.

What is Smart Beta?

Smart Beta is an investment strategy that combines the benefits of passive and active investing. It is a type of exchange-traded fund (ETF) that tracks an index, but with a twist. Unlike traditional ETFs that weight their holdings based on market capitalization, Smart Beta ETFs weight their holdings based on factors such as value, momentum, or volatility.

The goal of Smart Beta is to outperform traditional market-cap weighted indexes by exploiting market inefficiencies. By weighting holdings based on factors that have historically been proven to outperform, Smart Beta ETFs aim to provide investors with higher returns.

How does Betterment Goldman Sachs Smart Beta work?

Betterment Goldman Sachs Smart Beta portfolio is designed to provide investors with exposure to a diversified range of stocks while minimizing risk. The portfolio consists of 12 ETFs that track various market segments, including US stocks, international stocks, and fixed income.

The Smart Beta component of the portfolio is achieved through the use of two Goldman Sachs ETFs – the Goldman Sachs ActiveBeta® US Large Cap Equity ETF (GSLC) and the Goldman Sachs ActiveBeta® International Equity ETF (GSIE). These ETFs weight their holdings based on four factors – value, momentum, quality, and low volatility. By combining these factors, the ETFs aim to provide investors with a more diversified and risk-managed portfolio.

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Benefits of Betterment Goldman Sachs Smart Beta

There are several benefits to investing in the Betterment Goldman Sachs Smart Beta portfolio:

Diversification

The portfolio is designed to provide investors with exposure to a range of asset classes, including US stocks, international stocks, and fixed income. By diversifying across different segments of the market, investors can minimize their risk.

Low fees

The Betterment Goldman Sachs Smart Beta portfolio has a low expense ratio of 0.15%, which is lower than the industry average for robo-advisors. This means that investors can keep more of their returns.

Smart Beta strategy

By using a Smart Beta strategy, the portfolio aims to provide investors with higher returns than traditional market-cap weighted indexes. This is achieved by weighting holdings based on factors that have historically outperformed.

Drawbacks of Betterment Goldman Sachs Smart Beta

While the Betterment Goldman Sachs Smart Beta portfolio has several benefits, there are also some drawbacks to consider:

Passive investing

While the Smart Beta strategy is designed to outperform traditional market-cap weighted indexes, it is still a form of passive investing. This means that investors may miss out on potential gains that could be achieved through active management.

No customization

The Betterment Goldman Sachs Smart Beta portfolio is a pre-built portfolio that cannot be customized. This means that investors who want to invest in specific companies or sectors may not be able to do so.

Conclusion

The Betterment Goldman Sachs Smart Beta portfolio is a great option for investors who want exposure to a range of asset classes while minimizing risk. By using a Smart Beta strategy, the portfolio aims to provide investors with higher returns than traditional market-cap weighted indexes. While there are some drawbacks to consider, the low fees and diversification benefits make it a compelling option for many investors.

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Investing always involves risk, and it is important to do your own research before making any investment decisions. However, with the help of Betterment and Goldman Sachs, it has become easier than ever for investors to build a diversified portfolio that meets their investment goals.

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