Is it Safe to Keep Money Invested with Betterment?

When it comes to investing, keeping your money in a secure and reliable brokerage is crucial. However, is Betterment the best choice for your investment portfolio? This article aims to provide a comprehensive analysis of Betterment's safety and performance, comparing it with other well-established investment options like Vanguard, Interactive Brokers, and TD. We'll also explore why performance and reliability are key factors to consider when choosing an investment manager.

The Safety of Your Investments

When considering an investment platform, the safety of your funds should be one of your primary concerns. Betterment, despite its growing popularity, is relatively new in the market and lacks the long-standing history that comes with more established brokerages like Vanguard, Interactive Brokers, and TD. Compare it to a high security bank vault - would you rather keep your savings in a well-guarded vault or a purse? The answer is clear when one considers that the financial markets can be fraught with both intentional and unintentional fraud.

Taking into account the environment of financial misconduct, it is imperative to choose a brokerage firm that has a proven track record of reliability. Established firms like Vanguard, Interactive Brokers, and TD have been around for decades and have demonstrated their ability to securely manage and protect clients' funds. In contrast, Betterment Securities, despite its recent growth, has only been in operation for a few years. This relatively short history is a significant drawback when it comes to trust and reliability in investment management.

Performance and Reliability in Investment Management

Performance is another critical factor to consider when choosing an investment manager. Betterment, known as a "robo-broker," has received extensive analysis and comparison by experts in the field. However, the results have been less than impressive when compared to other robo-advisors.

In a recent twenty-year backtest of Betterment's current portfolio, it was observed that global stocks (Green) outperformed the Betterment full-risk portfolio (Blue). Additionally, in terms of real statistics such as the Sharpe Ratio, Betterment's portfolios lagged behind other robo-advisors in 2016. The annualized returns followed the same pattern, with Betterment portfolios yielding around 7.44 annually. The worst month saw a loss of 5.5%, while the worst day was a decline of 3.8%. These figures are based on long-term risk level analysis.

The bottom line is that Betterment's performance in 2016 was underwhelming. This raises concerns about their ability to protect and grow your investment over the long term. Critics argue that Betterment should move away from relying on outdated financial theories like Modern Portfolio Theory and focus on more advanced strategies, such as Risk-Parity and Rebalancing, to improve their performance and maintain competitive pricing.

Conclusion

While Betterment may have its merits, especially for those looking for a more hands-off, automated approach to investing, the concerns around its safety and performance cannot be ignored. Investing in a brokerage with a proven track record like Vanguard, Interactive Brokers, or TD ensures that you are entrusting your funds in a reliable and secure environment. These companies have decades of experience and a history of performance to back them, making them a safer option for your investment needs.

When it comes to your hard-earned money, the choice is clear: carefully evaluate your options and prioritize the safety and performance of your investment portfolio.