July 29, 2019

Is Betterment Safe

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Betterment offers low fees, no minimum balance and good returns. But is it a good idea? Find out if it's safe to invest your money with this robo-advisor.

What Is Betterment?

Betterment is a robo-advisor that automatically invests your money. The software selects investments for you based on your goals and risk tolerance. It does all the work in buying/selling securities and monitoring your portfolio.

With no minimum requirements, Betterment allows everyone access into the world of investing. Here are some highlights:

  • Over $14 Billion of assets under management
  • 0.25% annual advisory fee (0.40% for Premium service)
  • $0 minimum deposit
  • Globally diversified portfolio of ETFs
  • Automatic rebalancing and tax efficient strategies
  • SIPC insured

Who Betterment is Best for:

  • Newbies who don't know how to invest on their own
  • Investors who don't have a lot of capital
  • Hands-off investors
  • Retirement planners

Can You Trust Betterment?

Betterment is a fiduciary regulated by the U.S. Securities and Exchange Commission (SEC). This means that the company is legally bound to act in your best interests. It assumes responsibility for investing your assets.

Even though Betterment automatically does the investing for you, you still own all your assets. You have full control of deposits, transfers, and withdrawals. Betterment will never withdraw or invest money without your permission.

Betterment doesn't have its own funds. So unlike some other investment advisory services, it doesn't have any motives to push its own funds. The platform provides service without conflict of interest.

Betterment Security Measures

Betterment uses these security measures to keep your data safe:

  • Industry-standard Encryption
    The platform uses 256-bit SSL encryption for connections between users and the servers.

  • Secure Servers
    All account information is encrypted and stored behind secure monitored firewalls in a 24/7 safeguarded facility.

  • Systematic Procedures
    It maintains continuous encryption, auditing, logging, backups, and safe-guarding of data.

  • Hacker Checks
    Betterment frequently runs internal and external security audits.

  • Two-factor Authentication
    It provides a second layer of security to access your account.

  • Account Ownership Verification
    When you link to external accounts, Betterment will verify that you have proper access. This prevent people from opening a Betterment account in your name and moving money out of your bank account.

Betterment is verified and certified by Digicert, a leading provider in the encryption industry.

What if Betterment Goes Out of Business?

If Betterment were to go out of business, your funds would be transferred to another brokerage of your choice. If you were to close your account, your money will be transferred back to your linked checking account.

Betterment is a member of the Securities Investor Protection Corporation (SIPC). SIPC insures investments held at brokerage firms up to $500,000 per account type.

SIPC insures up to $500,000 per account type. This means if you have multiple accounts with Betterment, each account type will be protected up to $500,000. For example:

  • If you have 2 individual taxable accounts, you are protected in total up to $500,000.

  • If you have an individual and a joint account, each account will receive $500,000 in protection.

  • If you have a Traditional IRA and Roth IRA, each account will receive $500,000 in protection.

SIPC insurance kicks in if your assets go missing during a brokerage closing. For example, if Betterment closes and you had $1,000,000 in your account, and only $500,000 were recovered, the remaining $500,000 would be covered by SIPC.

Betterment has many security measures to ensure that SIPC protection won't need to be used if they were to close down.

NOTE: The SIPC does NOT protect against investment losses due to the market.

Are There Any Risks?

All investing involves a certain level of risk. Your stocks can decline in value as the market fluctuates. Short-term losses are common (and even expected).

For long-term wealth-building goals, it's recommended that you keep your investments for at least 5 years. This way, you can ride out ups and downs in the market.

For short-term goals of less than 5 years, you may be better off storing your money in a high-yield savings account.

Betterment is transparent with their historical returns, which you can review here.

Betterment Fees

Betterment charges an annual advisory fee for its digital portfolio management service. Your fee is based on your account balance.

There are two service tiers:

  1. Digital Plan
    Up to $100,000 with a 0.25% annual fee. This basic service tier has no minimum balance requirement. This service includes:

    • Automated portfolio management
    • Automatic rebalance
    • Tax loss harvesting
    • Fractional shares investing
    • Access to Customer Support Team

    The fee is based on your account balance. Let's say you have $1,000 in your Betterment portfolio. At the 0.25% Digital service tier, your fee will be $2.50 per year.

    Betterment never charges a fee if your account balance is $0.

  2. Premium Plan
    Over $100,000 with a 0.40% annual fee
    The premium plan is optional to those with over $100,000. You get all the benefits of the Digital plan plus:

    • Proactive account management
    • Advice on investments outside of Betterment
    • Unlimited access to financial experts who can provide guidance on life events such as retirement, saving for college, etc.

Betterment Pros & Cons

Pros

  • $0 minimum to open
  • Low 0.25% annual advisory fee
  • Completely passive investing
  • Tax efficient strategies
  • Automatic rebalancing
  • Fractional shares

Cons

  • Only invests in ETFs
  • Premium service fee may be high
  • No solo 401(k)

Bottom Line

Your money is safe with Betterment. It uses industry-standard encryption and has many security measures to keep your data safe.

But keep in mind that as with any investment, there is risk that you'll lose money too.

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