Betterment vs. Vanguard
Investing is essential to building wealth, so whether you need to invest isn’t really the question. The real question is how do you need to invest?
All sorts of tools can answer this question. Vanguard and Betterment, for example, both have a lot to offer new and experienced investors.
So which one of these investment tools is a better choice for you? That’s the question I’ll be answering today.
By the end of this Betterment vs. Vanguard post, you should know how these two investing platforms differ and which one of these investment companies is a better fit for your money. So, read on!
Before we get started comparing management fees, asset classes, and expense ratios for Vanguard and Betterment, I have a quick question: How much money do you have to invest?
I ask because your response could answer this Betterment vs Vanguard question while saving you some time. Vanguard requires a starting balance of $50,000 while Betterment lets you start your investing journey with $0.
So unless you’re investing $50,000 or more, you could stop reading now and open your Betterment account. Once you’ve opened your account you can always come back and read about the bells and whistles each service can provide.
Then, when you have $50,000 in your Betterment account, you can decide whether or not to transfer your account balance to Vanguard.
Betterment and Vanguard are still the most well-known of all robo-advisors. Founded in 2008, Betterment now manages over $22 billion of assets in half a million user accounts!
Not surprisingly, these numbers continue to grow every quarter.
Before you begin investing with Betterment, you’ll complete a short quiz, answering questions about your income, age, risk tolerance, and retirement goals.
Your answers help Betterment decide which kind of portfolio will work for your financial status and needs. You can override these suggestions if you want.
Betterment charges a 0.25% annual fee, charged in quarterly installments – but it does offer some highly advanced investing features which can help you invest efficiently, especially when it comes to paying tax on your investments.
Betterment’s Premium plan, for clients with $100,000 or more, charges 0.4% annually. This plan gives you access to a Certified Financial Planner and more personal guidance on how to best manage and grow your money.
Many of the exchange-traded funds (ETFs) Betterment offers are actually Vanguard funds.
For more information about Betterment, read my full Betterment review.
Founded in 1975, Vanguard is the largest provider of mutual funds and the second-largest provider of ETFs in the United States. Vanguard has about $6.2 trillion in global assets under management, some of which are also managed by Betterment.
Vanguard is considered to be the low-cost index fund pioneer – many of the other automated investment companies probably wouldn’t exist without Vanguard.
You can access automated investment as well as a human advisor, and there’s a fee of 0.30% for accounts up to $5 million. Your advisor will help you build your portfolio – as well as make sure your portfolio is tax-efficient.
Interested in learning more about Vanguard? Read my Vanguard Personal Advisor Services Review.
Betterment vs. Vanguard: A Comparison
Assuming you have $50,000 in assets and would like to decide between Betterment and Vanguard, we’ll now take a look at these investment apps in more detail – and see how Betterment and Vanguard compare across each category.
While with Vanguard you could build a portfolio yourself (using the same funds that Betterment uses), this means you’d have to manually select investments, rebalance as and when needed, and perform tax-loss harvesting and tax optimizations yourself (if it is a taxable account).
If you’re thinking, “this sounds like a handful,” well, you’re right – it can be a lot. Don’t get me wrong – it isn’t particularly tricky, but you do need to know what you’re doing and have some time on your hands.
Alternatively, you can pay Vanguard an annual fee of 0.3% ($150 for every $50,000 invested) to manage these tasks for you as part of Vanguard Personal Advisor Services.
On the other hand, Betterment charges 0.25% annually. For that fee, you get the basic Digital services – the Premium plan has a 0.40% annual fee (and the Premium offering is most similar to Vanguard Personal Advisor Services).
Betterment’s Digital plan doesn’t have an account minimum, meaning you can start investing with as little as $100!
The Premium plan, however, requires $100,000 to begin with, while Vanguard Personal Advisor Services will allow you to start with $50,000.
As I said up top, it’s a no-brainer — go with Betterment if you have less than $50,000. If you have between $50,000 and $100,000, you could pay a little less with Betterment.
For accounts later than $100,000, Vanguard can provide the best value.
Vanguard takes the lead in this department because it offers a variety of accounts and investment options.
Investors can self-manage their account (there are 140 transaction-fee-free mutual funds and 1,800 commission-free ETFs to choose from).
And if you’d prefer to leave your investment portfolio to the pros, the Vanguard Personal Advisor will build your portfolio using primarily Vanguard index funds. Additionally, since Vanguard is owned by its funds investors benefit when the company does well, which is pretty cool.
Vanguard offers these two investment vehicles:
- Vanguard Mutual Funds: Vanguard claims their expense rate is 83% less than the industry average – which means less is taken out of your funds.
- Vanguard Exchange-Traded Funds: According to Vanguard, ETFs combine diversification with lower investment minimums, as well as real-time pricing.
Betterment, on the other hand, was created to streamline investment choices down to a limited number of exchange-traded funds, which are then used to build various portfolios with varying levels of risk.
However, it does offer globally diversified exchange-traded funds, which you can choose based on your risk tolerance, and there are three main portfolios.
Betterment offers three main portfolios:
- Goldman Sachs Smart Beta: This portfolio invests based on four specific factors (good value, strong momentum, low volatility, high quality), and aims to outperform the traditional strategy.
- Socially Responsible Investing: This portfolio helps you align your values with your investments. It includes a strategy which invests in companies that meet SRI criteria.
- BlackRock Target Income: A portfolio designed for those in retirement or those seeking income with minimal capital losses.
Personal Finance Advice
Vanguard allows you to partner with the pros in helping you achieve your financial goals – if you use the Vanguard Personal Advisor Service.
Your financial advisor will make sure they understand your financial goals and help develop a personalized financial plan you are happy and comfortable with.
Betterment takes more of an automated approach. However, you can still connect with financial experts to get answers to your questions (but you do have to pay).
There are several Betterment one-on-one expert advice packages, starting from $199.
With the Premium plan, you can contact financial professionals directly and get in-depth investment advice – it’s included in the package.
Tax Loss Harvesting
What is tax loss harvesting, you ask? In short, it is a strategy based on selling mutual funds, stocks, ETFs, and other securities which are worth less than what an investor paid for them. This practice uses the loss to offset capital gains.
If you have a taxable account with Betterment, you may get additional after-tax returns with tax loss harvesting.
If you’re wondering whether tax loss harvesting is a significant benefit, I personally think there’s value in it, but it’s more beneficial for high-income earners who have a taxable investment account.
With Vanguard, there is no automated tax-loss harvesting option – and you’ll need to do the work yourself (i.e., identify lots of shares to sell, etc.). It may be something you can consider doing once you have gained some investing experience.
Both services can link to your other accounts — whether they’re other investment accounts or a simple savings account — so you can see a snapshot of your broader financial picture. This can help put your retirement planning in context.
Both services also let you invest in retirement accounts such as traditional and Roth IRAs and SEP IRAs for self-employed investors who don’t have access to 401(k)s or equivalent accounts.
Betterment shows better visual graphs that anticipate future growth in your retirement funds. I also like Betterment’s option to pay an extra fee to discuss retirement with a CFP while still paying a lower fee of 0.25 percent annually.
But the advantage still goes to Vanguard since unlimited access to a CFP is already built into your account.
We’ve covered several bases, but maybe you’re just looking for a rundown of each service’s types of accounts. If so, here you go:
Betterment Account Types:
- Individual taxable accounts
- Joint (or trust) taxable accounts
- Traditional and Roth IRAs
- SEP IRAs
- IRA transfers
- 401(k) rollovers
- High-yield savings account currently paying 0.4% interest.
Vanguard Account Types:
- Individual taxable accounts
- Joint (or trust) taxable accounts
- Traditional and Roth IRAs
- SEP IRAs
- IRA transfers
- 401(k) rollovers.
Vanguard Educational Tools:
- The Vanguard Blog: Opinions from Vanguard’s leaders and practical financial advice for all your money questions.
- Investment Insights, Research, and Commentary: You can access expert analysis and economic research to help you boost your confidence in making investment decisions.
Betterment is also right up there with additional features that will help educate and take your money further.
Betterment’s Additional Features:
- Resource Center: An excellent place to learn more about finances and get investing insight from the pros.
- Tools and Calculators: These tools and calculators were designed to help you build your financial plan.
- Research and Reports: Finally, if you’re looking to gain a deeper understanding of Betterment’s investment methodologies, check out the Research Archives.
Which One Is a Better Choice?
Are you ready for this? The answer is neither – because both of these tools are awesome.
I couldn’t choose one winner because, the truth is, both a Vanguard or a Betterment portfolio can be incredibly useful for building wealth.
I personally think Betterment is a fantastic way to start, especially if you’re relatively new to the game (even though it’s also ideal for seasoned investors who don’t really have the time or want to re-evaluate their fund options).
Betterment will educate you about your risk tolerance, your needs around your asset allocation and different account types, helping you gain knowledge before you decide to manage your own investments.
That’s what I did – first started out with a low-cost Betterment portfolio, then started investing with Vanguard directly because I have the time, interest, and skills required to rebalance my own portfolio. (Plus it’s more fun.)
Betterment does make things super easy – and is an exceptional tool for Millennials looking to grow their money. Several personal financial bloggers I know use it – and I can confidently say that it is a solid choice for anyone looking to start investing.
And — you can do all this on Betterment’s award-winning mobile app for a lower cost — and did I mention there’s no minimum investment or minimum balance requirement?
Vanguard, on the other hand, is excellent if you enjoy managing your own money – and if you know what you’re doing. The DIY crowd doesn’t need automatic rebalancing or investment strategy changes as your account reaches a target date.
So, perhaps, once you’ve gained confidence and are comfortable doing it yourself (e.g., picking funds, setting up your own automation, rebalancing, etc.), you could then open a direct fund with Vanguard.
Alternatively, if you have the required funds, you could sign up for the Vanguard Personal Advisor Service and enjoy being able to call up your own personal financial advisor anytime. After all, Vanguard is a reputable, well-established company with decades of experience in the stock market and beyond– and there are few better choices out there.
And Vanguard ETFs are the standard anyway, whether you’re working within Wealthfront, Betterment, or Vanguard itself. So why not access these funds directly?
Invest with Betterment or Vanguard Today!
So, there you have it. No winner for everyone, just two equally impressive contestants. It’s your job to choose the winner for you.
I hope that my comparison of these investment companies will make it easier for you to decide which is best suited for your preferred investment style and your financial goals.
Both of these tools offer some excellent investment strategies for low fees.