Is Betterment Worth It & Safe?

If you are considering investing with Betterment, you probably have questions about whether the fees they charge are worth it. After all, there’s a lot of competition in the robo-advisor space. You may also be concerned about the security of your investment. With big names like LinkedIn, Yahoo, and even the IRS falling prey to data breaches in the past year, can Betterment keep your money and personal information safe? Here, we’ll take a look at the bang Betterment provides for your proverbial buck.

• Review of: Is Betterment Worth It & Safe?
• Reviewed by:Janet Berry-Johnson, CPA (Forbes.com Contributor)
• Published on: January 18, 2017
• Last modified: January 18, 2017
• Betterment Promotional Offer Link? Betterment Provides Non-pay 2 Months

Betterment fees and features

Betterment offers tiered fees based on average account balance:

• $1 – $9,999 account balance: 0.35% annual fee with a $100/month recurring deposit. Without a recurring deposit, the charge a $3 flat monthly fee.
• $10,000 – $99,999 account balance: 0.25% annual fee
• $100,000+ account balance: 0.15% annual fee

Beyond that, they never charge trade fees, transaction fees or rebalancing fees.

Betterment claims their portfolios are “designed to achieve optimal returns at every level of risk.” Included in that fee structure are several features that Betterment says can help their customers enjoy 4.30% higher returns than a typical DIY investor.

Those features include:

• Tax loss harvesting that systematically finds embedded capital losses to lower investment taxes and increase after-tax returns.
• The ability to link outside accounts so Betterment can give you advice on how much you’re losing to fees and idle cash.
• Goal-based investing with algorithms that let you know if you are on track to meet your goals.
• SmartDeposit – a tool to automatically invest your excess cash
• RetireGuide – a tool that can accurately predict when you can retire, taking into account existing assets, the cost of living where you live and how much income you’ll need in retirement
• Tax-Coordinated Portfolio – this feature optimizes and automates a strategy called asset allocation. It places assets that will be highly taxed into your IRAs, where they can grow tax-free until you take distributions in retirement. Lower-taxed assets are put in taxable accounts. Betterment claims their research shows that this strategy can boost after-tax returns by an average of 0.48% each year, amounting to an extra 15% after 30 years.
• Portfolio rebalancing every time you make a deposit or receive dividends. This feature is often available only for premium accounts with other investment services.

But is it worth it?

Those features sound great, but does Betterment live up to the hype? To find out, we took a look at what several Betterment reviewers had to say.

Earlier this month, Arielle O’Shea of Nerdwallet reviewed Betterment and gave them five out of five stars, calling them “the clear leader among the startup services, with over 150,000 clients and $6 billion in assets under management.” She also noted that “Investors with $100,000 or more benefit from one of the lowest management fees available, just 0.15%.”

Larry Ludwig of InvestorJunkie also gave Betterment five out of five stars, calling them “an almost perfect investment service” due to their low fees, improved asset allocation and the constant addition of new features.

Mr. Money Mustache conducted an experiment with Betterment starting in October 2014, investing $100,000 and auto-investing another $1,000 from his bank account every month. As of December 31, 2016, he says “Betterment combines the (slight) advantages of more advanced investing, with an even simpler experience than you would get with just buying shares of [the Vanguard Total Market Index Fund],” his typical recommendation for simple, one-step investing. He goes on to say, “In exchange, [Betterment] charges a fee that is quite a bit lower than the advantage they deliver (and at least 85% less than most financial advisers), so in my view it is a win/win way to invest.”

Andrew Fiebert, host of the popular podcast Listen Money Matters reviewed Betterment and also gave it five out of five stars, praising the investment service by saying “under the hood it’s a beast of a service putting traditional brokerages to shame with both its technological prowess and solid returns.”

Is Betterment secure?

Giving out your personal information online and entrusting your money to, well, anyone can be scary. Betterment knows that online security is top-of-mind for investors these days. That’s why they use the strongest browser encryption available and store all of their data on servers in a secure facility that is safeguarded 24 hours a day.

They also use two-factor authentication, which provides an extra layer of protection every time you log in by forcing you to enter a unique verification code that is sent via a mobile authenticator app or text every time you log in. So even if your Betterment password is obtained by a hacker, your account is protected.

Betterment also offers fraud assistance and will work to recover any loss resulting from unauthorized use of your Betterment account, as long as the transaction is covered under the federal Electronic Fund Transfer Act, you notify Betterment within 60 days of the unauthorized transaction, and you’ve exercised the appropriate account safeguarding practices.

Is your investment safe?

Betterment is a member of the Securities Investor Protection Corporation (SIPC), which protects securities customers of its members up to $500,000, including $250,000 for claims of cash). If Betterment were to fail, SIPC would work to restore the securities and cash in your accounts, up to the protection limits.

Of course, SIPC does not protect against a decline in the value of your securities due to market fluctuations or protect against bad investment advice.

Handing over your money to an investment institution always comes with some risk. It’s important to do your research to make sure that anyone offering to safeguard and invest your money is legitimate and secure. Betterment may not have been around as long as some of the big-name brokerage houses, but they’ve already earned high praise from – and good returns for – many people with knowledge about the investing world.