One of the more hazy concepts to quantify in behavioral investing is the concept of risk tolerance. Though it’s clear that people in general like to win more than they like to lose, there is also a well-known phenomenon that some people are more risk averse than others.

Some investors are content to endure losses of more than half of their investment portfolio if they believe that the potential reward is high enough. Others may feel uneasy with even a loss of one percent.

In general, we expect that investors who take more risk can often gain higher returns, but that doesn’t mean seeking a low-risk portfolio is the wrong move. On the contrary, steadily investing in a low-risk portfolio can be an appropriate strategy if it’s an approach you can stick with for the long-term. Betterment’s tools can help you determine the amount of risk that’s right for your financial goals and how much you should save to help reach them.

If recent market volatility has made you rethink your risk tolerance, here are four investing options at Betterment that can offer lower risk.

Smart Saver

Smart Saver is Betterment’s newest investment goal. Though it’s not a savings account, Smart Saver aims to give you a high yield on your investment while seeking to minimize your risk. We do this by investing 80% of your cash in an ETF of U.S. Treasuries and 20% in an ETF with mostly low-risk corporate bonds.

The result is an investment account that currently has an expected yield of 2.18%over 20x the national average savings account yield – while retaining very low volatility.

Though it’s important to note that the value of your Smart Saver account can fluctuate, this has historically meant maximum drawdowns – a drawdown is measured as the maximum drop in value of an investment from its all-time high –of less than 0.15%.

Alongside a potential higher yield on your investment, Smart Saver has another benefit compared to traditional savings accounts. A large portion of the dividends paid from Smart Saver come from U.S. Treasuries, which are tax-exempt at the state and local level. Bank interest from a savings account is taxed at ordinary income rates,  so Smart Saver can be an even more appealing option for investors located in states with high state and/or local taxes.

Safety Net

Betterment’s Safety Net goal is designed with the specific purpose of building you a financial emergency fund. We recommend that you think of this as a pot of money you save for an emergency, such as a temporary loss of employment or a large unexpected expense.

After you decide how much money to put into your safety net goal, we invest the money into a 40% stock/60% bond ETF portfolio. While this portfolio is riskier than the 0% stock Smart Saver portfolio, it’s likely a more appropriate allocation for your emergency fund as it can be better at combating a hidden risk to your savings goal: inflation.

As my colleague Dan Egan wrote recently, “At least a market crash has the decency of showing up in your balance. Inflation doesn’t tell you that it’s cost you”. While Smart Saver is built to help keep up with inflation in the short-term, the Safety Net goal can offer the opportunity to potentially exceed inflation while seeking to give you a buffer for rainy days.

General Investing using Betterment’s Portfolio at Low Stock Allocation

If you’re now thinking that Smart Saver is too conservative for your needs but the 40% stock allocation of the Safety Net goal is too aggressive, another option is to set your own stock allocation with Betterment’s allocation slider.

For every financial goal you set, Betterment recommends a target stock allocation but lets you adjust it from 0% to 100% stocks. Whatever allocation you choose, Betterment will help you along the way. As you move the slider, we will inform you whether your choice is “Very Conservative”, “Appropriately Conservative”, “Moderate”, “Appropriately Aggressive” or “Too Aggressive”.

While we don’t recommend that you change your allocation too drastically one way or the other, feel free to try out different allocations in our preview mode to find the portfolio that’s right for you.

Using Flexible Portfolios to Choose Assets

We build portfolios that balance a number of different asset classes—like US bonds and international stocks—to achieve a high level of diversification. However, if you want to change exposures to specific asset classes, Flexible Portfolios allows you to make changes to your allocation, and you can choose to only hold what are typically low volatility assets.

Another valid use of a Flexible Portfolio is to adjust to high concentrations in your holdings outside of Betterment. For example, if you have a large investment in US bonds in an outside account, you could use a Flexible Portfolio to shift your allocation at Betterment towards more international bonds and away from US bonds.

A Flexible Portfolio starts with the Betterment Portfolio Strategy as a baseline, and then we allow you to tune the specific allocation to your preferences. While we don’t recommend you make asset class changes, if you have specific views, you could choose only assets that generally have less volatility.

However, you should note that we have specific guidelines for appropriate uses of Flexible Portfolios, and generally, our recommendation is to only decrease risk by adjusting your allocation using your goal slider.

As you change the allocation, we will analyze the holdings and inform you whether the risk of the portfolio is suited for your goal, as well as whether the portfolio is adequately diversified.


Investing can be an emotional experience for even the most seasoned investor. Choosing a portfolio that you can stick with can be particularly important to reaching your financial goals. No matter which of the options above you may choose, Betterment will give you advice and support to help you reach your investment goals.

One of the more hazy concepts to quantify in behavioral investing is the concept of risk tolerance. Though it’s clear that people in general like to win more than they like to lose, there is also a well-known phenomenon that some people are more risk averse than others. Some investors...