Automated investing is become more popular since so many people are interested in saving for their future but generally have very little knowledge about investing. This is where investing services like Betterment and Wealthfront come in. Both Betterment and Wealthfront are considered top automated investing services right now, making it hard to figure out which one will work best for you. We’ve done some investigating into both services for you, and this is what we’ve found.
Betterment vs. Wealthfront
In many cases, these two services are carbon copies of each other. They are both automated investing services, both their fees are a percentage of your investment, they both deal in ETFs and offer IRA options for customers. So to really break down the differences, we need to delve deep into how each service works and what they have to offer their customers so we can do a true comparison of Betterment versus Wealthfront.
What Is Wealthfront?
Wealthfront is an automated investing service that specializes in creating portfolios of ETFs (exchange-traded fund) for its clients based on the client’s needs. The automated system adjusts your investments for you based on the market, so your investments are as lucrative as possible. It is a worry-free way to invest your money. It offers one of the most tax-efficient models of any of the other robo-advisor investors we’ve seen, and its new portfolio review tool gives it an edge over many of the top automated investing sites out there. Wealthfront also offers IRA options and trusts, which gives you a variety of investing options to choose from.
- Best For: Easy, cheap investing. Wealthfront’s automated investing service allows you to invest your money with them while they do all the heavy lifting of actually investing the money based on your goals and risk tolerance.
- Price: Wealthfront has the most straightforward pricing of any investing service. It will manage your investments for free if they are under $10,000. If your investments are more than $10,000, they just charge a 0.25 percent annual fee. No other fees or costs are associated with your Wealthfront account.
- Features: Wealthfront has a few more options than some of its automated investing counterparts. Its main investing product deals with a diversified portfolio in ETFs, which is monitored based on the changing markets. Customers also have the option of investing in a variety of IRAs, and Wealthfront also can set up trusts for you.
- Other highlights: The biggest highlight for Wealthfront is that it will handle your investment for free if you invest less than $10,000. It also has one of the most aggressive tax loss harvesting plans to help you pay less in taxes based on your investments.
- Customer Service: Of any of the robo-advisor investing services, Wealthfront has some of the best customer service, with phone service during business hours during the week and 24/7 email support for any issues you may have.
|FEES||INVESTING OPTIONS||MINIMUM INVESTMENT||STL RATING|
|0.25 percent of investment,|
free for under $10,000 investment
|Stocks and Bond ETFs, IRAs, Trusts||$500|
What Are Wealthfront’s Fees?
When it comes to fees, Wealthfront is the best. First of all, the first $10,000 you invest is managed for free, and with a minimum deposit of $500, you can be fee-free for quite some time. Second, when you do cross the $10,000 threshold, there is a flat rate of 0.25 percent no matter how much money you have invested, which is a nice change from Betterment’s complicated tier system. There are no other fees associated with investing with Wealthfront. In addition, if you refer your friends to Wealthfront, you can get free investment management for an extra $5,000 of investment, so a total investment of $15,000 can be managed for free.
Wealthfront’s Portfolio Review Tool
Wealthfront has just launched a new portfolio review tool that allows any investor, not just Wealthfront customers, to evaluate their portfolios based on a number of factors, including taxes, fees and diversification. It will let you know where you can improve your investment account and where you are giving away money in fees, taxes and mis-investing. Right now, it is only available for taxable investments but rumor has it they are working on a retirement investment accounts review tool now.
How Is Wealthfront’s Performance?
Wealthfront has only been around since 2011, which makes the fact that it now holds almost $3 billion in assets that it manages a really incredible feat. In just five years, it has risen faster than any other automated investment service out there. In addition, they have their own in-house made algorithm to help give them the best return on your investment, and offer adjustments to your investments based on market changes for no extra cost. In general, Wealthfront gets the highest ratings from independent online reviews and has a stellar record when it comes to customer service and doing what the customer needs without charging extra.
What Is Betterment?
Betterment is an automated investing service that focuses your investments on ETFs (exchange-traded fund) to diversify your portfolio. In the most basic terms, you invest a certain amount of money with them, and they in turn invest it in a variety of ETFs with an advanced algorithm that picks the best investing options for your needs. It offers the ultimate in hands-off investing, which many people find to be its greatest asset. It also offers a goal-based investing strategy that can make it easier for everyday investors to understand how to invest.
- Best For: Automated Investing. Betterment is the lazy man’s best friend and is also great for anyone just starting out in investing, since it automates trading for you. All you do is fund your account and answer questions about the types of investments you want, and Betterment will do all the heavy lifting for you.
- Price: The benefit of Betterment is there are no complicated fees, just a percentage charged depending on how much you’ve invested. It’s 0.35 percent for under $10,000, 0.25 percent for $10,000-$99,999, and 0.15 percent for anything over $100,000.
- Features: Since Betterment is an automated service, it doesn’t offer a lot of options when it comes to investing. Its main platform invests in both stock and bond ETFs to create your portfolio. You can also set up various forms of IRAs through Betterment, which will then tailor your investments based on your goals.
- Other highlights: You can currently get three months of free trading if you invest more than $5,000 or six months free if you invest more than $100,000.
- Customer Service: Since Betterment does all the heavy lifting for you, of course there are going to be questions, which Betterment is more than capable of answering. You can also get financial planning advice via Betterment.
|Fees||Investing Options||Minimum Investment||STL Rating|
|0.35 percent of investment|
|Stocks and Bond ETFs, IRAs||$0|
What Are Betterment’s Fees?
Betterment has a pretty simple method for its fees, although not as simple as Wealthfront. The annual percentage they charge is based on your investment amount. If you invest under $10,000, it is 0.35 percent annually. If you invest between $10,000 and $99,999, the fee is 0.25 percent annually. If you invest more than $100,000, you are charged 0.15 percent annually. The fees obviously are used as an incentive to invest more, so your rate is lower. If you are investing under $10,000, you will also have to pay a $3/month management charge if you don’t auto-deposit at least $100 in your account each month. Betterment’s fee structure definitely favors those with more money to invest, so if you are looking to invest $100,000 or more, this may be the best automated investing service for you.
Betterment’s Goal-Based Algorithm
One of the big benefits of Betterment is the way they go about talking to their clients about investments. When you first sign up for Betterment, it will ask you a lot of questions about your goals and risk tolerance. It will then give you goal options based on different criteria, like having a safety net for unexpected expenses, how much you should save for retirement and what you should be putting in general investment accounts. This goal-based strategy gives a more personal feeling to the investment process and makes things a little easier to understand for the everyday investor.
How Is Betterment’s Performance?
Since Betterment was founded in 2008, it has amassed more than $3 billion in assets that it manages for other people. That means their clients have invested $3 billion with the company, which is a pretty ringing endorsement of how well the company performs. While there are no specific numbers of how Betterment performs from portfolio to portfolio, its algorithm for investing has proven to be effective enough to provide steady growth over the eight years it has been in business.
What Is Tax-Efficient Investing?
Tax efficiency is a measure of how much of an investment’s return is left over after taxes are paid, so tax-efficienct investing is a strategy that maximizes the investment’s return based on current tax laws. Basically, you want to be investing in a way that minimizes the amount of taxes you have to pay on investments while maximizing the return you can get on those investments.
If you are looking for an automated investing service with the most tax-efficient investing, Wealthfront is your best bet. First, Wealthfront offers daily tax-loss harvesting on all taxable accounts, which basically means selling off a security that has experienced a loss so as to offset taxes on both gains and income. As an automated investor, Wealthfront will then replace that security with a similar security.
Second, Wealthfront offers tax-optimized direct investing on accounts that are more than $100,000. Tax-optimized direct investing relates to purchases indexes, which tax-loss harvesting is really hard to do on. So Wealthfront will purchase all the stocks within the index individually so it can easily do tax-loss harvesting on those stocks.
While both of these services offer a great experience all around, Wealthfront is probably your best bet when it comes to automated investing. First, it doesn’t charge you for managing investments under $10,000. It has a more streamlined fee structure and has a tax efficiency plan that can save you thousands in the long run. Not to mention its new portfolio review tool, which helps put you in the driver’s seat of your own investments.