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I’ve said it before, and I’ll say it again: Investing is essential in building wealth.
Knowing how you can make your money work for you is a skill many people aspire to have – why else would I constantly get asked about my investing strategies (always happy to share them with you, guys)?
So, whether you need to invest isn’t a question – how you need to invest is.
Luckily, there are plenty of tools that allow you to begin your investing journey. That’s why companies like Vanguard and Betterment saw the light of day.
But which one of these investment tools is a better choice for you?
That’s another golden question, which 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!
Betterment is probably the most well-known of robo-advisors. Founded in 2008, Betterment is based in N.Y. and has managed over $15 billion of assets (as of the start of 2019).
Not surprisingly, that number continues to grow.
Before you begin investing with Betterment, you’ll be asked to complete a short quiz (e.g., questions about your income, age, risk tolerance, and retirement goals) which will help determine what kind of portfolio will work for your financial status and needs.
Betterment charges a 0.25% fee – 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.
There is a Premium plan for those whose accounts are worth $100,000 or more. On the program, you will have access to a Certified Financial Planner and more personal guidance on how to best manage and grow your money.
Interestingly, many of the exchange-traded funds (ETFs) Betterment offers come from Vanguard.
For more information about Betterment, read my full Betterment review.
Founded in 1975, Vanguard is the largest provider of mutual funds and the second biggest provider of ETFs in the U.S. Vanguard has about $5.2 trillion in global assets under management as of January 2019 (some of those assets are 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 Comparison
Now let’s 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 having to manually select investments, rebalance as and when needed, performing 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. 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 a fee of 0.3% ($150 for every $50,000 invested) to manage that for you as part of their Vanguard Personal Advisor Services.
On the other hand, Betterment charges 0.25%, but 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.
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 it 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 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.
Vanguard has several excellent educational tools, such as:
- 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 other features include:
- 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 Vanguard and Betterment are 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 (although no-one says that you should – Betterment could be your first choice even when you have enough experience to go it alone!).
That was what I did – first started out with Betterment, then started investing with Vanguard directly because I have the time, interest, and skills required to rebalance my own portfolio.
Betterment does make things super easy – and is an exceptional tool for Millennials looking to grow their money. Several financial bloggers use it – and I can confidently say that it is a solid choice for anyone looking to start investing.
Vanguard, on the other hand, is excellent if you enjoy managing your own money – and know what you’re doing.
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 – and there are few better choices out there.
Invest with Betterment or Vanguard Today!
So, there you have it. No winner, just two equally impressive contestants.
I hope that my detailed 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.
As someone with many years of investment experience, I can confidently say both of these tools offer some excellent investment strategies for low fees.