Enter your initial investment, recurring contributions, and expected rate of return into the calculator to estimate your potential Betterment returns.
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Betterment Return Formula
The following equation estimates the future value of an investment with an initial deposit and equal monthly contributions, assuming a constant annual return converted to a monthly rate and contributions made at the end of each month.
\mathrm{BTR}=I(1+r)^{12T}+C\left(\frac{(1+r)^{12T}-1}{r}\right)- Where BTR is the Betterment return (estimated final portfolio value)
- I is the initial investment ($)
- C is the monthly contribution ($ per month)
- r is the monthly rate of return (decimal form), calculated as r = R/12
- R is the annual return (decimal form)
- T is the total time (years), so 12T is the number of months
If the return is 0% (so r = 0), this simplifies to: BTR = I + C × (12T).
What is a Betterment Return?
Definition:
A Betterment return typically refers to an estimate of how much your investments, managed through Betterment or similar platforms, might grow over a specific time period based on contributions and assumed market returns.
How to Calculate Betterment Return?
Example Problem:
The following example outlines the steps and information needed to calculate the Betterment Return.
First, determine the initial investment. In this example, the initial investment is $5,000.
Next, determine your monthly contribution. Here, you plan to contribute $200 per month.
Next, determine the expected annual rate of return. In this example, the annual return is 8%, or 0.08 in decimal form. The monthly rate is r = 0.08/12.
Finally, calculate the Betterment return using the formula above (with T = 10 years, so 12T = 120 months):
BTR = I(1 + r)12T + C × [((1 + r)12T − 1) / r]
BTR = $5,000 × (1 + 0.08/12)120 + $200 × [((1 + 0.08/12)120 − 1) / (0.08/12)]
BTR ≈ $47,689.49
FAQ
How do fees affect my Betterment returns?
Investment management and platform fees reduce your overall returns by cutting into the growth of your portfolio. While Betterment’s fees are often lower than those of many traditional advisors, they still have an impact over time, making it important to include them in any long-term projections.
Can I change my recurring contributions or asset allocation?
Yes, most automated investment platforms, including Betterment, allow you to adjust your contribution amounts and asset allocation. Changing these factors will affect your future returns and risk exposure.
Does an 8% rate of return always hold true?
Long-term market returns have sometimes averaged in the high single digits for broad, diversified stock-heavy portfolios, but this is not guaranteed. Actual returns can vary widely based on market conditions, economic factors, fees, taxes, and the portfolio’s asset allocation.