The idea of a robo-advisor can be both enticing and nerve wracking at the same time. Having your money managed by an expertly designed platform that requires minimal input from you sounds like a great way to take the stress and constant decision making out of investing. At the same time, many investors are understandably nervous about letting a robo-advisor manage one of their most precious assets – they money and investments. If you are considering using a robo-advisor, there is an excellent chance you have come across Betterment. It’s one of the oldest and best known out there. Before taking the next step and actually signing up, you should be asking yourself is Betterment safe? Fortunately, there is ample evidence that you can feel good about money you have invested with Betterment.
Betterment Overview – What Does it Do?
Simply put, Betterment lets you determine the asset mix of your portfolio (for example, 80% stocks and 20% bonds) and then does the rest. You can have some input in determining which portfolio type is used for your funds and even do some customization if you truly wish, but at the end of the day its main appeal is “set it and forget it.”
There are a number of different features that make investing with Betterment quite attractive. Many of them have been discussed in depth already. It performs functions such as tax loss harvesting and automatic dividend re-investing on your behalf, saving a lot of hassle that would come with doing those things on your own. Its fees are also quite low. Betterment Digital, which has no account minimum, charges a 0.25% management fee while Betterment Premium charges 0.4% in fees. You need a minimum balance of $100,000 to use Betterment Premium.
Is Betterment Safe?
The short answer here is yes, very safe. The longer answer can be broken down into two parts: is your money secure, and will your investments grow?
Betterment is most definitely a secure platform. You don’t need to worry that you’re investing in a scam or scheme, or that your money may disappear overnight. It has been in operation since 2008 and has more than $22 billion of assets under management, a track record of longevity that should set your mind at ease.
If you’re still concerned, it’s helpful to know that Betterment puts a fence around investor money, keeping it separate from their own funds and therefore making it much easier to return to investors in the event of a company failure. It is also insured with the Securities Investor Protection Corporation (SIPC), which guarantees account contents of up to $500,000. If that’s enough assurance for you, it may make sense to look at signing up today and trying Betterment for yourself.
All that said, you should feel confident that funds in your Betterment account will not disappear due to fraud or bankruptcy. As for the question of whether your investments will grow using Betterment, the results are pretty encouraging. Over the 16 year period of 2004-2020, average annual returns were 8.2% for accounts with a stock/bond mix of 75/25. During that same time Betterment’s portfolio grew 172.9%. This is ever so slightly below the S&P 500’s 174% return – while you may think this reflects poorly on Betterment, it’s important to remember the fact that many people pay human advisors in excess of 1% management fees (in other words, 2-4X more than Betterment’s fees) to produce returns similar to or even below the S&P 500.
Set and Forget… Mostly
It’s true that the set and forget feature of Betterment is one of its main appeals. But there are a few things you need to keep in mind in order to fully maximize your experience with Betterment. Firstly, it’s important to stay on top of the market and understand what investments are being made with your account in order to continue your growth as an investor. Betterment offers consultations with human advisors to help you understand and clarify how your money is being managed, either for free or for a fee depending on whether you are a Digital or Premium user.
While Betterment’s tax loss harvesting can reduce your overall tax bill, it’s important to remember that Betterment does not actually integrate your tax payments – you need to extract the relevant tax documents from the platform and pay your taxes yourself.
Finally, it’s worth a quick double-check that the fees make sense for your life circumstances and investment goals. It is absolutely true that Betterment fees are very competitive, but depending on the timeframe for when you need your money and the other options available to you, it makes sense to run the numbers and ensure Betterment’s fee structure is right for you.
The Final Call: Is Betterment Safe?
Hopefully the multiple layers of security outlined above will reassure you that Betterment is indeed safe. From SIPC insurance to the fencing off of investor money, your funds are there to stay as long as they retain their value in the market. If you’re looking for a top notch robo-advisor, Betterment may be the place to start.