Betterment vs Vanguard

Investing can be an intimidating and time-consuming process, as you’ll see in this Betterment vs Vanguard breakdown.

It’s why everyone from beginners to seasoned investors trust the expertise of investment companies to handle their money.

Sure, it costs to use their services but Vanguard’s Advisor’s Alpha Study shows that a using a financial advisor can increase your net returns by 3% annually.

Betterment and Vanguard are two of the most popular investment firms in the market. In this article, we’ll look at the key features offered by Betterment vs Wealthfront.

That, along with key areas where they’re similar and different. But before that, here is a quick overview of what automated advisors are.

What are Robo-Advisors?

It’s hard to find a facet of the world where technology hasn’t made its presence known. Automated advisors, or robo-advisors, uses sophisticated computer algorithms to provide you with personalized investment opportunities.

These opportunities are based on several factors, like your current finances, goals and more. Other preferences include your age, risk tolerance, investment timelines and more.

Today, most well-known investment firms are offering a hybrid solution, giving interested investors the efficiency of robo-advisors and finesse of human advisors.

Betterment: Key Features and Benefits

Based in New York, Betterment is an online investment advisor that manages over $32 billion worth of assets. Their retirement portfolio consists of 12 ETFs, six stock and six bond.

As of 2021, Vanguard manages over $7.5 trillion in assets.

Betterment is a well-known robo-advisor that helps investors in these 4 key areas:

  • Personalized guidance: Once you set up your Betterment account and fill in your preferences, the software gives you personalized investment advice based on your goals, whether it be retirement, buying a car, a house, or saving for your kid’s college fund.
  • Tax-Smart Investing: This is Betterment’s tax-focused investment solution aimed to make your investment portfolio as tax-efficient as possible. Every type of account comes with its own tax liability. Betterment recommends which combination of accounts will help you save the most on taxes.

Betterment Tax Saving Strategies

  • ETF Portfolio: Betterment uses exchange-traded funds (ETF) which are a group of securities (like stocks, bonds, commodities) that get traded on an exchange marketplace.
  • Assets location: Municipal bonds are exempt from federal taxes, and so go into a taxable account. High-tax assets go into tax-advantaged IRAs. This strategy is called Asset location and can boost your after-tax returns by an average of 0.48% per year, or 15% over 30 years. For those using Betterment’s Tax-Coordinated Portfolio™ feature, this strategy comes automated.
  • Rebalancing: Rather than selling security asset classes, Betterment rebalances using dividends and deposits which hedges your portfolio against volatility and costs less in taxes.
  • Shows impact of withdrawal: If you plan to withdraw or reallocate your funds, Betterment will give you a tax impact preview in real-time before you make the big move. They also ensure to sell your assets in a specific order, so as to minimize the transaction taxes.
  • Tax loss harvesting: Betterment’s TLH sells off losing investments to reduce your tax liability and buys a similar fund at the same time (this can offset taxes on your capital gains).
  • Retirement Planning: Betterment’s retirement tool looks at how much you have saved, along with your retirement goals to give you a projected retirement savings account plan. Betterment combs through your external accounts to highlight any asset allocation that may be anomalous to Betterment’s financial advice. Also, Betterment helps you build/manage a diversified retirement portfolio with low-cost index funds.
  • Cash Management: Betterment offers a bevy of cash management tools to help you automate savings and stay organized. You can sync your external accounts to Betterment’s dashboard, use their Smart Saver to “sweep” funds between your checking account and investment account.

Betterment Digital vs Betterment Premium

  • Minimum balance requirement: The minimum balance for Digital plan is $0, and for Premium it’s $100,000.
  • Annual fee: Digital plan has an annual fee of 0.25%, and 0.40% for premium.

Vanguard: Key Features and Benefits

Vanguard is a behemoth in the investment space that manages over $5.3 trillion in assets. They’re widely accepted as a leader in low-cost investing (stocks start at just $2). And, they’re the biggest provider of mutual funds and the second-largest provider of ETFs at low-expense ratios and low fee.

Vanguard manages over $5.3 trillion in assets.

It also holds a brokerage that encourages buy-and hold-investing. Unlike Betterment, which essentially provides you a 100% hands-off service, with Vanguard you get consultations with real human advisors.

  • Investment products: Vanguard offers Vanguard and other mutual funds, Vanguard and other ETfs, stocks,  CDs & Bonds, as well as cash options. Vanguard ETFs are commission free.
  • Short term investment options: For those looking to invest cash for their short-term needs (3-6 months), Vanguard offers 3 taxable and 6 tax-exempt money market mutual funds, and CDs which require a $10,000 minimum initial investment.
  • ETF Trading: Vanguard offers commission-free online trading on over 1,800 ETFs of Vanguard and 100 other companies.
  • Annual fee: $20 which is charged unless you sign up for their electronic delivery. Or, if you have an account balance of over $10,000 on your Vanguard assets.
  • Account types offered: Roth and Traditional IRAs. 529 Savings Plan, Individual and joint accounts. Fixed-rate and variable-rate annuities. And small business retirement account plans.
  • Get access to an advisor for a lower fee: to unlock Vanguard’s personal advisor services, you need to have at least $50,000 invested with them. And they charge a low management fee of  .30%.
  • Account minimum needed– Most funds require $1000-$3000 in investments, but for ETFs, you only need to have enough to buy 1 share.

Betterment vs Vanguard: Similarities

Both offer regular rebalancing. Betterment offers automatic rebalancing. But Vanguard rebalances on a quarterly basis or based on the client’s plan.

When it comes to tax-loss harvesting, Betterment does this automatically on a daily basis. If you are enrolled in Betterment’s premium plan, then your account will be monitored by their financial advisors. Vanguard performs tax-loss harvesting only periodically.

They both offer the same Investment Account types which are Taxable, Joint, Roth IRA, Traditional IRA, Rollover IRA, SEP-IRA, and trust accounts.

Betterment vs Vanguard: both are hybrid solutions. However, Betterment is less human-centric than Vanguard, which is less automated than its counterpart.

Betterment vs Vanguard: Differences

  • Account minimum investment: With Betterment, there’s no minimum deposit needed to start investing, but if you want to access Betterment’s CFPs, then you will need to sign up for their Premium plan which requires at least a $100,000 deposit.

On the other hand,  if you want to access Vanguard’s Roboadvisor, you’ll need to invest at least $50,000. Vanguard let’s you start an individual and joint account, Roth and traditional IRAs, UGMA/UTMA accounts for $1000-$3000. Low-cost admiral shares are available for a minimum of $3000 each.

  • Cost: Vanguard charges a brokerage account fee and mutual-fund only account fee of $20, which can be waived by signing up for their e-delivery service. Other fees depends on account types: Simple IRAs incur a $25 fee for each Vanguard mutual fund in each account, 403(b) plans has a $5 per month per participant.
  • When you hit retirement, Betterment guides your cash flow by telling you how much amount is safe to withdraw.

Betterment vs Vanguard: Fees

As far as advisory fees go, Vanguard charges 0.30% for $5 million, 0.20% for 5%-$10 million, 0.10% for $10- $25 million, and 0.05% for over $25 million.

Betterment offers a two-tiered system in which accounts with less than $100,000 incur a 0.25% annual fee and accounts with over that amount in balance get charged 0.40% in annual fees. For balances over $2 million, Betterment charges 0.15% for Digital plans and 0.30% for Premium.

This fee covers tasks associated with account administration, portfolio management, tax-optimization, rebalancing, transactions, trades, transfers along with the advice you received.

  • Features & Investments: Betterment offers the most high-tech automated features and more tax-efficient investing strategies than Vanguard. Although they both offer tax-loss harvesting which helps you capitalize on losses, this process isn’t automated in Vanguard.

When it comes to investments,  Betterment robots usually choose Vanguard funds. Vanguard has a wider selection of commission-free ETFs and mutual funds with no transaction fee, along with stocks and bonds. 

Betterment vs Vanguard: The Bottom Line

Betterment provides a hands-off investment solution. That said, you can subscribe to their Premium plan to get the guidance of a human advisor. Vanguard is traditional in that it gives you the power of making decisions.

Decisions on how you want to use your money.

It’s important to note that, you can get access to certified financial planners for just $50,000 with Vanguard (but you’ll have to invest $100,000 to access financial advisors via Betterment).

Want a stress-free investing approach? Go with Betterment, our pick for the best robo-advisor. But, if you want to have greater control over which assets to invest into, then Vanguard would be more suited for you.

Related: Whose the winner in the Betterment vs Wealthfront debate? Find out.

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