Betterment and Wealthfront are two of the most important robo-advisors available on the market.
They helped revolutionize the investing world with ultra-low administration charges and entry to personalised, diversified portfolios that take the guesswork out of investing.
Each of those trade giants have expanded into full-service monetary firms, providing money administration accounts, retirement accounts and monetary advising instruments that make it straightforward to financial institution, make investments and save for retirement with a single app.
You truthfully can’t go incorrect with both — however these apps do differ in a couple of key methods.
You could spot a transparent winner, relying in your investing targets and private preferences.
On this information, we’ll examine their similarities in addition to their variations so you possibly can decide the one which’s best for you.
Betterment vs. Wealthfront: How Do They Evaluate?
Function | Betterment | Wealthfront | ||
---|---|---|---|---|
Account minimal stability | $0 Digital; $10 Premium | $500 | ||
Annual advisory charges | 0.25% or 0.40% | 0.25% | ||
Robo-advisor service? | Sure | Sure | ||
Computerized rebalancing for taxable accounts? | Sure | Sure | ||
Retirement accounts supplied | Trad., Roth, SEP IRAs | Trad., Roth, SEP IRAs | ||
Financial institution/checking account | Sure | Sure | ||
Debit card | Sure | Sure | ||
Faculty financial savings accounts | No | 529 plans | ||
Tax-loss harvesting | Sure | Sure | ||
Human advisor possibility? | Sure | No | ||
Are you able to decide your individual investments? | No | Sure | ||
Socially accountable investing? | 3 portfolios | 1 portfolio | ||
Customer support contact data | 646-600-8263 | 844-995-8437 |
Betterment vs. Wealthfront: Prices and Charges
Each apps provide tremendous reasonably priced entry to the market with 0.25% annual advisory charges. That’s $2.50 a yr for a $1,000 account stability.
For reference, conventional brokerage companies like Edward Jones cost yearly charges of 1% or extra. They often require more money to open an funding account, too.
And whereas micro-investing apps like Acorns and Stash allow you to begin investing with simply $1, you’ll pay a minimal $3 a month. For a $1,000 account stability, that’s $36 a yr as an alternative of $2.50.
Some on-line low cost brokerage providers like Robinhood don’t cost any yearly charges. However no price means you’re caught choosing your individual particular person investments one-by-one and miss out on the useful automated steerage and proposals a robo-advisor gives.
Betterment
You don’t want any cash to open a Betterment funding account or money account.
Betterment has two membership tiers:
- Digital Plan: An annual price of 0.25% with a $0 minimal stability.
- Premium Plan: An annual price 0.40% with a $100,000 minimal stability.
Premium plan members pay a better advisory price for entry to ongoing cellphone calls and emails with a Licensed Monetary Planner. These licensed monetary advisors can present extra personalised recommendation in your portfolios, exterior accounts, retirement targets and different monetary questions.
Digital plan members may entry personalised monetary recommendation, however for a further price.
Rich buyers get a 0.10% low cost on the portion of their family stability above $2 million.
Wealthfront
One of many largest variations between Wealthfront and Betterment is their funding minimal.
Wealthfront requires a $500 minimal deposit to start out investing. There’s a $1 minimal to open a money administration account.
After transferring $500 to open your Wealthfront account, the annual advisory price is an identical to Betterment: 0.25% of your funding portfolio stability.
Wealthfront doesn’t have a premium account like Betterment, nevertheless it does provide extra options for larger account balances, such a stock-level tax-loss harvesting for accounts over $100,000, and a Good Beta program obtainable to accounts over $500,000.
Different Charges
The one different price you’ll encounter with Betterment or Wealthfront is ETF expense ratios.
An expense ratio reveals the portion of an ETF’s funds that go towards fund administration. The decrease an ETF’s expense ratio, the extra of your cash is invested and the extra you stand to earn.
You’ll pay these fund charges with any dealer or robo-advisor, and the price is sort of low: Each firms carry expense ratios within the 0.08% to 0.13% vary on common.
Varieties of Accounts
Betterment and Wealthfront offer you choices.
You possibly can open a checking account, various kinds of funding accounts and (in Wealthfront’s case) a school financial savings account.
Betterment and Wealthfront each provide these monetary accounts:
- Particular person and joint taxable accounts
- Roth IRAs
- Conventional IRAs
- SEP IRAs
- Particular person and joint money administration accounts
- Trusts
The one distinction is Wealthfront offers customers entry to a 529 faculty financial savings plan and Betterment doesn’t.
Retirement Accounts
Wealthfront and Betterment will each suggest both a taxable account or a tax-advantaged particular person retirement account (IRA) while you enroll. Relying in your monetary targets, it would open certainly one of every.
These suggestions are based mostly on issues like your age, threat tolerance and monetary targets — data you’ll enter while you create your account.
Along with conventional, Roth and SEP IRAs, Wealthfront and Betterment additionally settle for IRA and 401(okay) rollovers.
Each apps do a superb job explaining the tax perks (and early withdrawal penalties) that include investing in an IRA.
Additionally they offer you monetary planning instruments to create your individual personalised retirement roadmap and observe your progress.
You may as well tweak the variables in your retirement plan, together with your retirement age, deliberate financial savings, estimated spending and life expectancy.
Money Administration Accounts
Each robo-advisors provide digital banking providers with no charges.
That’s proper: Betterment and Wealthfront provide financial savings/checking accounts with no overdraft charges or minimal balances.
Different similarities between their money accounts:
- Excessive-yield money account earns curiosity.
- FDIC insurance coverage as much as $1 million.
- Cellular verify deposit, invoice pay and verify writing providers obtainable.
- Joint account possibility.
Wealthfront and Betterment will each ship you debit playing cards while you open a checking account.
Wealthfront presents reimbursement at 19,000 ATMs, however Betterment is the clear winner on ATM charges.
Betterment’s Visa debit card reimburses all ATM charges worldwide. You’ll additionally skip overseas transaction charges while you use your debit card overseas.
You can begin utilizing Betterment’s banking options without cost. You’ll want $1 to open a Wealthfront money administration account.
You don’t want to take a position with both firm to entry their money administration providers.
Faculty Financial savings Accounts
If you happen to’re in search of a manner to economize for a kid’s faculty bills, Wealthfront presents 529 financial savings plans.
A 529 faculty financial savings plan is a tax-advantaged technique to save and make investments for larger training prices. Investments in a 529 account develop tax-deferred and cash might be withdrawn federal tax-free if it’s used to pay for certified larger training prices.
You received’t pay any annual charges on the primary $5,000 invested in a Wealthfront 529 plan. After $5,000, charges vary from 0.42% to 0.46%, plus expense ratios.
A 529 plan is a singular providing, since Betterment and most different robo-advisors don’t present one of these account.
Portfolio Choices and Portfolio Administration
Wealthfront and Betterment each present entry to automated portfolios with low charges and an emphasis on passive investing.
Additionally they each comply with Fashionable Portfolio Idea — an funding technique that focuses on diversified asset allocation to scale back your threat and enhance your returns. By spreading your {dollars} throughout completely different asset lessons — or classes of investments — you’ll take much less of successful if any specific safety nosedives.
Different similarities embody:
- Computerized rebalancing to keep up correct asset allocation.
- Automated portfolios consisting of change traded funds (ETFs).
- Socially accountable investing choices.
- Authorities-issued Treasury Inflation-Protected Securities (TIPS) obtainable.
Betterment focuses on goal-based funding methods. It presents customers a core funding portfolio consisting of stock- and bond-based exchange-traded funds (ETFs).
What’s an ETF? Learn our full clarification of this in style funding car.
Betterment additionally presents a couple of curated funding portfolios you possibly can select from:
- Goldman Sachs Good Beta Portfolio: This portfolio technique makes use of a non-traditional strategy to monitoring the efficiency of shares in an index (referred to as superior indexing) to enhance your returns. Betterment presents this to all customers, whereas Wealthfront requires a half-million greenback stability to entry a sensible beta possibility.
- BlackRock Goal Earnings: This 100%-bond portfolio goals for much less threat and better return from earnings whereas defending you from market volatility.
- Versatile Portfolio: This portfolio allows you to modify particular person asset class weights inside your portfolio, as an alternative of going with Betterment’s suggestions. Nonetheless, you possibly can’t select particular person firms to spend money on.
- Socially Accountable Investing Portfolios: Betterment presents three completely different socially accountable portfolios, together with focuses on local weather change and equality.
Betterment invests your cash by fractional shares — tiny parts of fairness that aren’t a full inventory or bond. Meaning all of your cash is invested from day one. Wealthfront, in distinction, doesn’t provide fractional share investing.
Nonetheless, Wealthfront presents extra alternatives for hands-on funding administration than Betterment.
In 2021, Wealthfront gave customers the choice so as to add or take away particular ETFs from a really useful portfolio or construct a completely new ETF portfolio from scratch. Customers additionally get the choice to spend money on portfolio themes like expertise and well being care.
Folks with $100,000 or extra of their Wealthfront account can decide a stock-based portfolio as an alternative of an ETF-based portfolio.
Wealthfront additionally has actual property funding trusts (REITs) together with two long-term cryptocurrency funds with publicity to Bitcoin and Ethereum. Betterment doesn’t provide publicity to those various investments.
Wealthfront presents only one socially accountable portfolio as an alternative of three, however customers can customise any funding portfolio to incorporate socially accountable choices.
Entry to Human Monetary Advisors
Automation is the fantastic thing about robo-advisors — however what if you happen to want somebody to speak to for extra personalised funding recommendation?
Wealthfront doesn’t provide this service to its purchasers.
Betterment does, nevertheless it’s not limitless entry for everybody.
Betterment Premium account customers get entry to human monetary advisors by cellphone or electronic mail without cost, whereas Betterment Digital customers can e book over-the-phone monetary planning classes for a comparatively excessive one-time price.
In different phrases, you probably have a fundamental Betterment account, anticipate to pay between $299 and $399 for as much as an hour-long name with a monetary advisor.
You probably have $100,000+ invested and pay the Premium tier 0.40% advisory price, you get ongoing entry to a staff of Licensed Monetary Planners everytime you need assistance.
Tax Technique
Each Betterment and Wealthfront use superior software program to attenuate capital beneficial properties taxes.
Each robo-advisors carry out each day tax-loss harvesting on all taxable accounts. Tax-loss harvesting is a method that sells underperforming property for a loss as a way to offset capital beneficial properties taxes.
Betterment offers customers three extra tax administration instruments:
- Tax Coordination: This function spreads investments in sure asset lessons throughout taxable accounts and tax-advantaged retirement accounts. Investments with a smaller tax chunk are positioned inside a taxable account whereas tax-heavy investments are positioned inside tax-advantaged retirement accounts.
- Charitable Giving: You possibly can help causes you care about by selecting to donate shares out of your taxable accounts to companion charities — and benefit from the tax advantages.
- Tax Influence Preview: This software allows you to see the potential tax implications of any portfolio adjustment earlier than you make it.
In the meantime, Wealthfront presents a singular tax perk for funding accounts with $100,000 or extra: stock-level tax-loss harvesting, also called direct indexing.
As an alternative of utilizing a single ETF to spend money on U.S. shares, Wealthfront’s direct indexing function replicates the index funds inside your portfolio by buying as much as 1,000 of the person shares held contained in the fund. This makes it simpler for the corporate to promote securities, offset beneficial properties and supply extra tax-loss harvesting alternatives.
One other Wealthfront tax function: TurboTax customers can straight import their tax-loss harvesting knowledge by linking their Wealthfront account data.
Monetary Planning Instruments
Betterment and Wealthfront each offer you entry to highly effective and easy-to-use on-line planning instruments.
Each robo-advisors allow you to hyperlink exterior accounts to offer a holistic, high-level take a look at your complete monetary image.
You may as well decide completely different targets, similar to saving up for a house or investing for retirement.
Betterment’s instruments allow you to see how a one-time deposit, recurring deposits and early withdrawals can impression your targets.
The corporate’s built-in retirement planning recommendation additionally considers completely different variables — together with Social Safety earnings, future spending, tax charges and inflation.
In the meantime, Wealthfront presents a free planning software referred to as Path. You don’t want a Wealthfront funding account to entry Path.
Like Betterment, Wealthfront analyzes your monetary knowledge to be sure you’re on observe to fulfill your targets.
However the Path software consists of some extra neat options. For instance, if you happen to create a house shopping for aim, Wealthfront integrates third-party knowledge from Redfin and Zillow to point out you price estimates based mostly on actual property costs in your space.
Or, if you happen to’re saving up for a kid’s faculty bills, Path can pull knowledge from the Division of Schooling to point out forecasts of tuition and value at 1000’s of U.S. universities.
Distinctive Options
These robo-advisor rivals share extra similarities than variations.
Right here’s what units them other than one another.
Wealthfront
Listed here are the options you’ll solely discover with Wealthfront.
- 529 faculty financial savings plans.
- Skill to construct your complete portfolio from scratch.
- Portfolio line of credit score: Buyers with not less than $25,000 of their accounts can borrow as much as 30% of their portfolio’s worth as a line of credit score. Rates of interest on a portfolio line of credit score vary from 2.40% to three.65%.
- Threat Parity Fund: Wealthfront’s Threat Parity Fund is a proprietary mutual fund that goals to equalize threat by investing in opposing property in your taxable account to clean out your returns.
- Two-day early direct deposit: A Wealthfront money account allows you to receives a commission as much as two days early by direct deposit.
Betterment
Right here’s what Betterment presents that Wealthfront doesn’t.
- No minimal deposit requirement to start out investing.
- Entry to unbiased monetary recommendation from human advisors for accounts with not less than $100,000.
- Fractional shares.
- Charitable giving software.
- Further tax administration options, together with Tax Coordination and a tax preview software.
- Debit card with free reimbursement on all ATM charges and overseas transaction charges.
Betterment vs. Wealthfront: Which Is Proper for You?
It’s laborious to choose a transparent winner.
Betterment and Wealthfront each make investing straightforward by providing helpful options like each day tax-loss harvesting and wealth-building instruments.
Key variations embody the choice to talk with a human advisor for larger account balances by Betterment, a 529 faculty saving plan possibility with Wealthfront and a $500 minimal distinction to start out investing.
Betterment is an efficient match if:
- You’ve got lower than $500 to start out investing.
- You might be targeted on socially accountable investing.
- You need extra tax administration instruments.
- You wish to take a passive, hands-off strategy.
- You propose to take a position greater than $100,000 and wish entry to human advisors.
- You need a debit card that doesn’t cost overseas transaction charges or ATM charges.
Wealthfront is an efficient match if:
- You need entry to stylish monetary instruments with out opening a inventory portfolio.
- You need a tax-advantaged technique to save for a kid’s faculty training.
- You wish to customise your portfolio allocation, or create your individual ETF portfolio from scratch.
- You need entry to various investments like crypto and REITs.
- You wish to open a portfolio line of credit score.
Briefly, the “finest” robo advisor for you is determined by what you need and want from an investing app.
Rachel Christian is a Licensed Educator in Private Finance and a senior author for The PNW.
This text accommodates common data and explains choices you might have, however it isn’t meant to be funding recommendation or a private advice. We won’t personalize articles for our readers, so your state of affairs might differ from the one mentioned right here. Please search a licensed skilled for tax recommendation, authorized recommendation, monetary planning recommendation or funding recommendation.