Not all retail investors have the time or inclination to manage their own portfolio of stocks and bonds. In addition, paying a professional to assess their needs and guide them as they buy and sell securities may not be the best choice either. For such folk, using a robo-advisor offers a middle ground between the DIY and pay-a-professional approach. Betterment and Wealthfront are two of the top robo-advisors on the market. Learn which could be best for you by comparing their features and pros and cons.Similar at First Glance
Both Betterment and Wealthfront started in 2008 and currently charge a .25% annual advisory fee for digital portfolio management. More importantly, they both have a variety of similar, high-quality services that are worth going over before we discuss which is best for which type of investor.
They are both registered with the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC), but neither are FDIC insured. However, both companies are members of the Securities Investor Protection Corporation (SIPC), which protects up to $500,000 (including $250,000 for claims for cash).
Their products are managed by teams of professional investors working to earn their clients the highest return on investment. They both follow Modern Portfolio Theory to create diversified portfolios of low-cost ETFs.
Other similar or overlapping features include:
You can get many different kinds of accounts from either service, including IRAs, Roth IRAs, SEP IRAs, Rollover IRAs, individual investment, joint investment and trust investment. Both Betterment and Wealthfront also have savings account options, or the equivalent.Betterment Management Fees
Management fees at Betterment range from .25% to .40%. For ordinary digital portfolio management, Betterment costs .25%, like Wealthfront. However, Betterment Premium has a management fee of .40%. Betterment also offers 30 days of free management for each additional referral you bring in, and a full year of free management if you bring in three new users.Account Minimum
Betterment has no minimum deposit requirement for their digital portfolio management, but they have a minimum investment of $100,000 for Betterment Premium.Savings Account Option
Betterment used to just have a savings account it called “Smart Saver.” It is a low-risk bond portfolio with a current expected return of around 2.44%. However, it is subject to management fees because it is technically an investment account. In July 2019, it launched a traditional savings account that pays 2.69% interest.Goal Setting
Betterment has some simple steps that you can follow to set a goal, and each can be monitored separately. Your asset allocation is shown in a ring with equities in shades of green and fixed income in shades of blue. If you start to fall behind on meeting one of your goals, you’re encouraged to put more aside to catch up with that goal.Portfolio Options
Betterment offers five portfolio types based on Modern Portfolio Theory investment themes and principles.
Betterment prompts you to connect external accounts, like your bank and brokerage holdings, to your account so you can have a complete picture of your assets. It also makes cash transfers into your investment portfolio easier. Every goal you set can be invested in a different strategy, so your shorter-term goals, like funding a down payment on a house, will be lower risk than your longer-term goals, like retirement.Access to Human Advice
Betterment offers a second tier called Betterment Premium for those who want to interact with human advisors. If you sign up for Betterment Premium, you’ll have access to a team of financial advisors available by phone and email. It will cost you a management fee of .40% and has a minimum investment of $100,000.
If you can’t afford or don’t want Betterment Premium, you can still talk with a financial advisor by purchasing an advice package targeted to specific life events, such as marriage or retirement. Betterment’s packages include a phone call with an advisor as well as an action plan with recommendations. Package prices range from $199 to $299.Fees 0.25% Minimum $0 Best For Low maintenance, goal-based investors Wealthfront Management Fees
Wealthfront’s digital portfolio management fees are .25%. However, Wealthfront has fund fees of between 0.07% and 0.16%. In addition, the first $5,000 is managed without a fee if you sign up through a referral. You also get an extra $5,000 worth of free management for every additional referral you bring in.Account Minimum
Wealthfront has a $500 account minimum.Savings Account Option
Wealthfront offers a true savings account with a 2.24% APY.Goal Setting
Wealthfront offers very specific ways to forecast your financial needs. For example, if one of your goals is to buy a house, Wealthfront uses third-party sources like Zillow and Redfin to estimate what your house will cost. College planning includes forecasts of tuition and costs at thousands of United States universities from the Department of Education. Wealthfront shows you all of your assets and liabilities, which gives you a visual check-in on how likely you are to achieve your goals. There is even the option of figuring out how long you can take a sabbatical from work and still achieve your financial goals.Portfolio Options
In order to determine the portfolio you should invest in, Wealthfront asks you questions about your attitude towards risk and when you might need the money. Although you’re shown the exact portfolio prior to funding your account, you cannot customize the pre-set portfolio at all. However, you can put some companies on a restricted list if you’d rather not invest in them. In addition, if you have more than $100,000 in your Wealthfront investing account, you can choose a stock portfolio rather than portfolios of ETFs.Retirement Planning
Wealthfront offers retirement planning that includes Social Security projections. After all of your financial accounts are entered, like IRAs and 401(k)s, and any other investments you might have, Wealthfront shows you a picture of your current situation and your progress towards retirement. This can all be done without talking too anyone. Wealthfront’s Path planning tool helps you compare your projected retirement income with your current spending habits so you can figure out if and how you can maintain your current lifestyle in retirement.Fees 0.25% Minimum $500 Best For DIY investors looking for cheap fees Which is Best for You?
It depends on your priorities. Wealthfront offers a 529 college savings account, which is rare among robo-advisors, although fees are slightly higher because the plans include an administrative fee. Wealthfront also offers stock-level tax-loss harvesting. Betterment offers neither of these advantages.
However, Betterment offers financial-advice packages, the option to speak to a human advisor and the option of socially responsible investment portfolios. They are both excellent options, depending on your priorities.The Bottom Line
Both Wealthfront and Betterment are excellent choices if you’re looking for a robo-advisor. They both offer low, ongoing management fees, automatic rebalancing and low-cost, diversified ETF portfolios.Tips
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