Are Betterment’s fees worth it? That’s a question many people ask when considering using the company’s services.
Pricing at Betterment is straightforward. As of January, 2023, the company offers investment management for a 0.25% annual fee, subject to a minimum fee of $4/month for investing accounts. However, investors will automatically be switched to a price of 0.25% by setting up recurring deposits totaling $250 or more or reaching a balance of $20,000 or more across all Betterment accounts.
In addition, the company offers a no-fee cash reserve account with a 3.75% APY and a checking account with no ATM fees and cash-back rewards. Additionally, for even more personalized financial guidance, Betterment has a premium service that provides access to a Certified Financial Planner™ for an additional 0.15% add-on fee.
Crypto investors can also take advantage of Betterment’s diversified crypto portfolios for a 1% annual fee + trading expenses fee. Gemini, Betterment’s cryptocurrency custodian, charges trading fees of up to 0.15% per trade.
Naturally, this raises the question of whether Betterment’s fees are worth it, particularly for DIY investors. After all, DIY-investors are likely confident in their own investing skills and they may enjoy the process of managing their own portfolio. However, as I’ve argued elsewhere, even DIY investors can benefit from using a robo-advisor like Betterment.
Here are five reasons why the company’s fees are well worth it:
1. Protection Against Common Mistakes
One of the benefits of using a robo-advisor like Betterment is that it can protect against common mistakes that can negatively impact your investments. For example, the company has processes in place to help warn against and prevent wash sales, which occur when an investor sells a security at a loss and purchases or had purchased the same security within 30 days before or after the sale. Wash sales can result in the loss being disallowed for tax purposes, but Betterment’s automated processes can help avoid this issue. Notably, wash sales also apply when securities are bought or sold within different accounts. Unfortunately, many people learn the nuances of issues like wash sales the hard way, by only realizing a mistake was made after the fact. Robo-advisors like Betterment can help guard against not knowing what you don’t know.
2. Increased After-Tax Expected Returns
Betterment’s tax coordination feature is designed to increase your after-tax expected returns by intelligently placing different assets in different types of accounts based on their tax treatment and the tax treatment of the account. For example, assets with some less preferential tax treatment, such as bonds, may be placed in tax-deferred accounts to shelter their growth from taxes, while assets subject to lower capital gains tax, such as stocks, may be placed in taxable accounts. By applying this strategy to a globally-diversified portfolio, Betterment can increase after-tax expected returns without increasing risk. Furthermore, Betterment’s tax coordination features completely automates an otherwise very complex process of implementing an asset location strategy.
3. Continued Oversight In The Event Of Incapacitation
No one likes to think about the possibility of becoming incapacitated, but it’s important to have a plan in place in case it happens. With a robo-advisor like Betterment, you can rest assured that your investments will continue to be managed on your behalf in the event that you become incapacitated. Granted, there will be legal processes to follow and what happens to your assets upon incapacitation will ultimately depend on your estate plan, but at least someone hiring a robo-advisor will know that their assets will continue to managed if they face a medical emergency.
This protection can provide a sense of security and peace of mind. This may be particularly relevant for those in retirement, as cognitive decline is a real threat that can derail the plans of otherwise entirely competent DIY investors. Furthermore, having a robo-advisor like Betterment in place can protect a spouse or partner who may not share the same passion for DIY investing. In my experience, it is not uncommon to come across couples where one person makes all of the investment decisions and the other person knows little or nothing about it. Having automated management in place can help ensure a surviving spouse or partner’s accounts will continue to be managed properly, although this may also be a situation where it is prudent to have a human advisor lined up in advance, as well.
4. Avoidance Of Emotional Trading
It’s natural to feel emotional about your investments, especially when the market is volatile. However, emotional responses to market changes can lead to impulsive decisions that may not be in your best interests. By using a robo-advisor like Betterment, you can take the emotion out of the equation and rely on automated, data-driven trading decisions. This can help you avoid straying off course and potentially making costly mistakes.
5. Time And Energy To Focus On Earning And Saving More
Investing can be time-consuming, especially if you’re doing it on your own. By relying on a robo-advisor like Betterment, you can free up more time and energy to focus on other areas of your financial life, such as earning more and saving more. This can be especially beneficial for busy professionals or those who don’t have a lot of experience in the investing world. By focusing on these higher-impact areas, you can take a proactive approach to improving your financial well-being.
Overall, Betterment’s fees provide valuable protection and potential for increased returns for your investments, as well as the convenience and peace of mind that come with automated investment management. Whether you’re a beginner or an experienced investor, Betterment has something to offer. In my personal opinion, Betterment’s fees of 0.25% are well worth the number of valuable benefits they provide.
