Betterment vs Wealthfront – Which is the Best for You

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Betterment vs Wealthfront

Investments are surely your way of earning more. So, one should invest wisely and taking detailed information about before investing. So, we have brought for you a comparison of betterment and the wealthfront from which you can choose the best alternative for yourself.

Betterment vs. Wealthfront: Which is Best for You?

Though, both of them have their names in the Robo-advisor space. They also do provide us with many features that a standard Robo-advisor may not. As they both seem out to be the same initially where they both charge a 0.25{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} annual advisory fee in case of the digital portfolio. Being registered under the Financial Industry Regulatory Authority (FINRA) as well as the Securities and Exchange Commission (SEC).

So, some of the similarities existing between Betterment and the Wealthfront while analysing betterment vs wealthfront are as:

  • They were started in 2008.
  • both charge a .25{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} annual advisory fee in case of the digital portfolio.
  • They are not FDIC insured. 
  • Registered under the Financial Industry Regulatory Authority (FINRA) as well as the Securities and Exchange Commission (SEC).
  • A Modern Portfolio Theory is followed by them
  • Have membership of the Securities Investor Protection Corporation (SIPC): it provides you cover against the loss of cash and securities which do include stocks and bonds. Whereas the limit of SIPC protection is specified to be $500,000, and this $500,000 has an included amount of $250,000 for cash.
  • diversified portfolios having a lower or low cost ETFs is taken up.
  • Programmed re-balancing; your portfolio automatically gets balanced up in case if it goes out of the arrangement with the wanted allocation.
  • Tax damage reaping: There is no minimum required amount that is needed to be invested in the portfolio.
  • Withdrawal tools
  • Tailored or adaptable to the needs of individual’s portfolios
  • Computerized deposits
  • The goal set up is possible
  • Many types or kind of accounts can be opened up which are as Rollover IRA, Traditional IRA, Roth IRA, trust investment accounts, SEP IRA, taxable, joint account.

Difference between the Betterment and Wealthfront:

Difference between the two
Basis Betterment Wealthfront
Minimum Deposit Not any or no minimum deposit is there $ 500 is the minimum amount of deposit
Annual Fees 0.15 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} – 0.40 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} 0.25 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}
529 Accounts Does not provide this service This service is provided
Fractional Shares This service is provided Does not provide this service
Human Assistance This service is provided Does not provide this service, only automatic service is provided in portfolios
401(k) Assistance This service is provided Does not provide this service
Promotions It is provided Up To 1 Year for Free It is managed upto $ 5k for Free

More About Betterment and Wealthfront:

We will discuss some detailed information about the Betterment and the Wealthfront by which you can have some information about them both.

About Betterment:

the largest independent Robo-advisor industry setup is the Betterment. having investment of at least $ 13.5 billion in assets. It is a New York City-based company. And it was established in October 2008.

It uses Modern Portfolio Theory (MTP) to diversify its investments and to properly allocate its assets to different portfolios.

Betterment Signup:

While signing up for the betterment there is no need for money as you just need to fill up an ephemeral questionnaire which overall analyse your investment plans as well as your level of taking risks. Thus, afterward, your portfolio is created which is a mix of at least 14 assets of different classes. Here, you’re each and every asset is depicted by individual exchange-traded fund (ETF), by which you can trade in a variety of securities. 

You just need to create your portfolio which will be managed by the betterment on regular basis automatically. So, it performs the function of automatic dividend reinvesting, periodic rebalancing, Computerized deposits, Tax damage reaping, etc. for you and representing you. Though, there also exists taxable as well as tax-sheltered retirement accounts which are offered by the betterment.

Betterment is the best option for:

  • Intermediate investors
  • Retired individual investors
  • College going students

Types of Account in Betterment:

  • Taxable accounts (personal, joint, revocable trusts, irrevocable trusts)
  • Traditional IRA accounts (including 401(k) rollovers)
  • Roth IRA accounts
  • SEP IRA accounts
  • 401(k)

Unique Features of the Betterment:

Some of the unique features which are being offered by Betterment are as follows:

  1. One Year Free — While opting for betterment you get a one year free service from their end in case you deposit $10,000 or more amount.
  2. Tax Damage Reaping for Spouse — In case to save tax you can add your spouse account also which will maximize your tax competence.
  3. Shrewd Deposits — If you forget to deposit money into the betterment account, then there exists an option by which it directly makes deposits from your bank account.
  4. Communicate with Financial Expert through Betterment’s App — If you need any help or advice or opinion or are confused about the investment plan. Then Betterment has an option through which you can communicate to Betterment experts and take their opinions. 
  5. Tax-Coordinated Portfolio — here your tax efficiency is maximized by allocating your investments wisely between your tax overdue and taxable accounts. 
  6. Monetary Guidance Packages — An individual based guidance or opinions packages are made up to offer and assist the customers of betterment in need. Here, help is provided to individuals from licensed as well as experts’ financial persons.
  7. Generous Giving — Betterment has an option in which the individual can donate their shares or earning as charity if they desire to do so. 

Advantages of the Betterment:

Some of the advantages of the Betterment option are as follows:

  • No money is required to open up the Betterment account.
  • You do receive Human advice and assistance
  • Tax damage harvesting is provided on all the accounts in the betterment
  • A fee of 0.25 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} is charged which is quite low. It is charged on account having a balance of $ 2 million and less.
  • And account having $ 2 million and above balance, a fee of 0.15 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} is charged. 
  • large, medium, and small capital worth stocks are being included and allocated
  • Advice by experts is available
  • The smart option of Beta is available
  • Communally accountable investment options are made available
  • A Personal financial advisor is available who charges a nominal annual fee of 0.40{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} for the accounts having minimum $100,000 amount as balance
  • Outside account examination is performed which further includes 401(k) plans

Disadvantages of the Betterment:

Some of the disadvantages of the Betterment option are as follows:

  • The diversification of assets option is not available in the portfolio.
  • Instead of the low rates, the benefit of low rates is not available to the investors having less than $2 million available balance.
  • External accounts are provided but they are not considered while allocating the assets.

About Wealthfront

The second largest independent Robo-advisor is the Wealthfront having investment of at least $10 billion in assets. It is Redwood City, California based company. And it was established in October, 2011.

Wealthfront also make use of Modern Portfolio Theory (MTP) to diversify its investments and properly allocate its assets to different portfolios. The only difference among its portfolio is that it does not diversify the assets allocation, as it invests in few numbers of funds only. Apart, ordinary resource stocks and actual land investment trusts are also included in its portfolio.

Wealthfront Signup:

The signing up process of Wealthfront also starts with filling up of ephemeral questionnaire which overall analyse your investment plans as well as your level of taking risks. Here, you have required a minimum of $500 to start up the portfolio. Where Wealthfront performs the function of sporadic portfolio rebalancing, involuntary dividend reinvesting, as well as Tax damage reaping. 

Wealthfront is the Best option for:

  • Passive investors
  • Lower fees
  • Beginning investors
  • Investors who don’t want to manage money on their own

Types of Account in Wealthfront:

  • Taxable accounts (personal, joint, trust & corporate)
  • Traditional IRA accounts
  • Roth IRA accounts
  • SEP-IRA accounts (for small businesses)
  • IRA transfers
  • 401(k) rollovers
  • 529 college savings plan accounts

Unique Features of the Wealthfront:

Some of the unique features which are being offered by Wealthfront are as follows:

  1. Free Monetary Planning — All your financial plan needs are answered here by providing free planning and help from the experts. 
  2. Natural Resource as well as REIT ETFs — while allocating funds into assets it also diversify the assets into Natural Resource as well as REIT.
  3. Smart Beta (New Plan) — You can earn more on your current investments with the help of Smart Beta option of the Wealthfront in which you just need $500,000 of a minimum amount.
  4. A new feature of Cash Account — A new feature of Cash Account is offered in which an interest of approx. 2.29{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} is paid with FDIC insurance up to the amount of $1 million. You just need a minimum amount of $1 in order to open this Wealthfront cash account

Advantages of the Wealthfront:

Some of the advantages of the Wealthfront option are as follows:

  • Low investment of $ 500 is required at the beginning.
  • The annual advisory fee is low as 0.25 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} which also considers all accounts in it.
  • natural resources stocks, as well as the real estate’s stocks, are included in the portfolio.
  • Some of the Financial forecasting tools are made available.
  • You can open up your Cash account 
  • The smart option of Beta is available
  • You also have an option of Socially accountable investment 
  • 529 college investments accounts are made available
  • larger portfolio makes use of Individual stocks 

DisAdvantages of the Wealthfront:

Some of the disadvantages of the Wealthfront option are as follows:

  • The large portfolios do not have an option of reduction in fees.
  • A compulsory minimum investment of $ 500,000 is required in the smart beta option.
  • A compulsory amount of $ 500 is required to open up an account.

Comparision of the Betterment and Wealthfront:

A short comparison of both is provided in the table below:

Comparison
Features or Basis Betterment Wealthfront
Management fee 0.25 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} to 0.40 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}. 0.25 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}.
minimum Account balance $0. $500.
Types of Accounts offered Individual and joint investment accounts; IRAs; high-yield savings account.  Individual and joint investment accounts; IRAs; 529 college savings accounts; high-yield savings account.
Availability of Human advisors Yes, Human advisors are available No, Human advisors are not provided
Automatic rebalancing Available  Available
Tax-loss harvesting Available Available
Stock level tax-loss harvesting Not Available Available
SRI portfolio Available Not Available
Savings account Available Available
Charitable giving assistance Available Not Available
Portfolio line of credit Not Available Available
Fractional shares Available Not Available
College savings management Not Available Available
Retirement tools Available Available

Wealthfront vs betterment returns:

The annual investment return of betterment is under 8.8{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} whereas, the annual investment return of wealthfront is 7.62{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} in the case of portfolios which are taxable and it is 8.52{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} in case of portfolios having tax advantage. Though, the performance of betterment is noteworthy.

Betterment vs wealthfront savings account

The real estate investment trusts (REITs) saving account is offered by the weathfront, while betterment does not have a real estate investment trusts (REITs). Betterment pays 2.69 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} interest in its savings account. Though rates are quite high with wealthfront. 

Read Also: A Full Guide on Rental Car Insurance

Features Comparison of the Betterment and Wealthfront:

  • Minimum Deposit

Betterment involves no Minimum Deposit, while the Wealthfront has a minimum deposit amount of $ 500. So, here we suggest that the Betterment option seems to be a suitable one, but the investment of $ 500 is not much for any individual investor. Thus, it does not make much difference between the two.

Suggested or Better Options Available considering Minimum Deposit Is: Betterment 

  • Annual Fees

Wealthfront does not levy any annual fees up to S 500 after which it charges 0.25{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}/yr. And in case of Betterment, it charges 0.25{367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39}/yr. These annual fees would be clearer with the help of the table given below:

DEPOSIT AMOUNT BETTERMENT FEES WEALTHFRONT FEES
$ 0 – $ 499 0.25 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} per yr. N/A
$ 500 – plus 0.25 {367c01af22dc6c3a8611ff25983b0f0a247ed9fc1c45fd9103ad49b47a0c5f39} per yr. 0.25 per yr.

So, here we suggest that both the options are quite similar. 

  • Portfolio

The questionnaire filled up at the time of signing up determines the portfolio option to invest. 

While considering the Betterment Portfolio

It has an option where the investments are made in 13 ETFs, which further includes six stock funds and seven bond funds. While the choice of the six stock funds and seven bond funds depends upon an individual’s option to choose. 

Betterment Portfolio Includes:

Stocks

SECTOR ETF
US Vanguard US Total Stock Market
Large Cap Vanguard US Large-Cap Value
Mid Cap Vanguard US Mid-Cap Value
Small Cap Vanguard US Small-Cap Value
Foreign Vanguard FTSE Developed Market
Emerging Market Vanguard FTSE Emerging Markets
Socially Responsible iShares MSCI KLD 400 Social
Socially Responsible iShares MSCI KLD 400 Social

Bonds

SECTOR ETF
US TIPS Vanguard Shrt-Trm Inflation Protected
Muni iShares National AMT-Free Muni Bond
Corporate iShares Corporate Bond
Emerging Market Vanguard Emerging Markets Govt. Bond
Foreign Vanguard Total International Bond
US Short-Term iShares Short-Term Treasury Bond
US Total Vanguard US Total Bond Market

Wealthfront Portfolio Includes:

Stocks

SECTOR ETF
US Vanguard US Total Stock Market
Dividend Vanguard Dividend Appreciation
Foreign Vanguard FTSE Developed Market
Emerging Market Vanguard FTSE Emerging Markets

Bonds

SECTOR ETF
US Gov’t Vanguard US Total Bond Market
US TIPS Schwab US TIPS
Muni iShares National AMT-Free Muni Bond
Corporate iShares Corporate Bond
Emerging Market iShares JPMorgan Emerging Markets Bond

Alternatives

SECTOR ETF
Real Estate Vanguard REIT
Natural Resources Energy Select Sector SPDR
  • Apart from this Betterment also provides us the following:
  • BlackRock Target Income Portfolio offering low risk and for retired investors.
  • Goldman Sachs Smart Beta Portfolio offering high returns with high risk with the smart beta option.
  • Socially Accountable Investing Portfolio offering Socially Accountable Investing.

So, here we suggest that the Wealthfront Portfolio is more suitable option to consider.

  • Security

 While considering these from the Security Point of view, Both the Betterment and the Wealthfront provides two-factor authentication by which it is difficult or it becomes difficult to gain access to any account. So, here we suggest both the options can be considered depending upon the security of them. 

Also Read:- Volume Weighted Average Price (VWAP)- A Full Description

Conclusion:

After the deep analysis of all the factors we recommend using Betterment over Wealthfront, as human advice, no fees as well some other factors are there. Though, Wealthfront has its own stand and advantages as well. 

FAQ

Yes, you can trust betterment with your investments as well as your money as all the assets are owned by you only while investing in betterment option.

The wealthfront money is invested in exchange traded funds (ETFs). So, yes you can make money with wealthfront but your allocation of funds in portfolio are dependent upon the risk you take, which furthers affects the interest or return you receive.

Yes, you can say that the wealthfront is good for IRA accounts in which you can choose your allocation of funds across different assets available.

Betterment offers an average return of 4.3% per year. Though, these betterment return may seem out to be not a very good option to consider. But the returns are based on the market comparison.

Some of the best available Robo advisor are as follows:

  • Betterment – It is categorized as the Best due to its service offered.
  • Wealthfront – It is categorized as the Best as it offers low fees.
  • Ellevest – It is categorized as the Best for goal-based investing offered.
  • SoFi Invest – It is categorized as the Best for the educational resources.
  • Charles Schwab Intelligent Portfolios – It is categorized as the Best for its usability.

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