Trying to determine which robo advisors are best can be a challenge. When comparing Wealthfront vs Betterment, you will have different pros and cons then when you compare Wealthfront vs Vanguard. Assessing the impacts of short-term capital gains, long-term capital gains, tax-advantaged accounts, tax-efficient investing, management fees, and retirement accounts all come up with different recommendations when choosing robo advisors.
Bottomline upfront, choosing Vanguard, Betterment or Wealthfront will be dependant on your individual needs. Here is how to decide which of the three robo advisors is best for you:
Opening and closing an account with Wealthfront is totally free, and will not charge anything when you make a withdrawal or make any kind of transaction. Wealthfront also does not charge an advisory fee on the first $10,000 invested in their company. However, investments over $10,000, they charge monthly advisory Wealthfront fees based on an annual fee rate of 0.25%.
With Wealthfront, the only other fee you will pay is the minimal charge included in the cost of the ETFs you will possess which is around 0.08% to 0.12%.
Wealthfront is an excellent starting point for young investors. And like other robo-advisors, Wealthfront’s management fee is small because operating costs are low for an online software-managed investment firm.
Betterment comes in two varieties – Digital and Premium. With their Digital Plan, they charge an annual fee of 0.25% based on your account balance. Betterment Premium provides unlimited phone access to financial consultants in exchange for a higher fee of 0.40%.
There are also no hidden charges with Betterment as there are no withdrawal, annual, opening, or closing fees. With their promotion, you can get up to 12 months of free management if your account has at least $500,000 in assets. Deposit $5,000 to $24,999, and you get a month of free management, $25,000 to $49,999 will get you two months free; $50,000 to $99,999 will get you three months free, and $100,000 to $249,999 will get you six months free.
Aside from annual fees, you will also be paying the embedded cost of the ETFs you will own which is 0.09% to 0.17% on average for Betterment.
Expenses can make or break your long-term investments. Using Vanguard can be costly as they charge commissions for every transaction you make. For accounts with less than $50,000, they charge $7 per trade for the first 25 trades each year and $20 thereafter; $50,000 to $499,999, $7 per trade; $500,000 to $999,999, $2 per trade; $1 million to $4,999,999, first 25 trades for each year are free, $2 thereafter; and for accounts with $5 million and up, the first 100 trades for each year are free, $2 thereafter.
Aside from the abovementioned fees, they also have a $20 annual account service charge for all accounts with an average balance of less than $50,000. This is, however, waived for clients with at least $10,000 in Vanguard funds.
Vanguard has 55 commission-free ETFs. This makes automated portfolio management use Vanguard ETFs to keep investor costs down. They also have more than 2,600 no-transaction-fee mutual funds. While Vanguard’s average expense ratio is 0.18%, the typical equity mutual fund carries an expense percentage of 0.68%.
Wealthfront’s approach includes employing exchange-traded funds in up to 11 asset classes by giving investors a structured set of questions to identify risk tolerance. It uses threshold-based rebalancing, meaning portfolios are automatically rebalanced when an asset class has stirred away from its target allocation.
Wealthfront’s investment mix includes U.S. stocks, dividend stocks, foreign stocks, emerging markets, real estate and natural resources, emerging markets bonds, corporate and municipal bonds, Treasury inflation-protected securities, and the U.S. government.
Wealthfront also has a referral program. If you invite friends and they make a deposit to their account, the company will waive management fees on an additional $5,000 for each of you.
Like Betterment, Wealthfront also offers daily tax loss harvesting on all taxable accounts. If you are not familiar with tax loss harvesting, this feature automates selling of a security that has incurred a loss. In simple terms, this means investors are able to offset taxes on both gains and income by harvesting the loss (hence the term tax-loss harvesting). To maintain an optimal asset allocation and expected returns, the sold security is replaced by a similar one.
The company also boasts its Tax-Minimized Brokerage Account Transfer service where new clients who transfer in assets can benefit from. When possible, it combines existing investments into the Wealthfront portfolio and holds transferred securities that can’t be combined until personal capital gains become long-term.
They also offer a wide-range of accounts types such as Taxable, Joint, Roth IRA, Traditional IRA, Rollover IRA, SEP IRA, Trusts, Non-Profit, and 529 college savings plans. Wealthfront is one of the few robo-advisors that manages 529 college savings plans, a usual point of concern for parents. For an all-inclusive charge of 0.43% to 0.46%, the service will guide users through opening an account, suggest a savings goal, and managing the account.
Betterment is one of the few robo-advisors that require no minimum deposit to open an account. While it only applies to its Betterment Digital plan, Betterment Premium, on the other hand, requires a minimum $100,000 in funds in exchange for unlimited phone access to financial advisors.
Betterment sources its investment attitude on modern portfolio theory that stresses the benefits of diversification. While Wealthfront boasts its 11 assets classes depending on your risk tolerance and goals, Betterment uses ETFs that serve up to 12 asset classes.
What we like about Betterment is that it automatically rebalances its clients’ portfolios when cash flows in or out — either in the forms of dividends, contributions, or withdrawals — or when the distribution to an asset class drifts more than 3% from its objective.
The company’s algorithms check daily for a need to rebalance, and the company buys fractional shares, so you do not waste any invested cash in your portfolio. And because we cannot rely on automation entirely, what makes Betterment Premium accounts standout is that financial advisors monitor them.
Another unique feature of Betterment is their RetireGuide. It lets you connect your non-Betterment accounts to Betterment’s system, giving a complete presentation of all your savings and investment accounts. With this data, RetireGuide can offer across-the-board retirement planning recommendations. It also analyzes your current savings to your desired spending habits in retirement. They do this by asking you personal questions, so they know whether you’re saving enough money for when you retire.
Vanguard’s expense ratio is low, and you might assume that you’ll get what you pay for. This is not true; Vanguard cites a Lipper report showing that 93% of its fund revenues beat their peer-group averages over a 10-year span that ended in September 2016.
An even lower expense ratio: Admiral Shares are separate share classes of Vanguard mutual funds. On average, their rate is 83% lower than the industry average. However, that only applies to Vanguard Personal Advisor Services which has an investment minimum of $50,000. Although this is service won’t benefit low net-worth investors, Vanguard automatically evaluates fund accounts for Admiral Shares eligibility.
Vanguard is a retirement-oriented broker. They offer a wide-range of retirement planning resources and tools that educate their investors who can learn about the setting of goals, retirement, investment options, retirement expenses, and the benefits of converting a traditional IRA to a Roth IRA.
Unlike Betterment, Wealthfront doesn’t buy fractional shares of exchange-traded funds, which prevents investors from investing their entire deposit. Another drawback is that it always maintains a cash balance amounting to the charges you’re estimated to pay over the next year, meaning you will not get the most out of what is in your portfolio.
Wealthfront is one of the few online advisors that has strictly remained a robo-advisor, meaning it does not offer any human advice. For clients who need the option of speaking with a human, Betterment is worth considering
Betterment doesn’t have offer a direct indexing tool like Wealthfront. Direct indexing lets clients buy the single securities held by an index, rather than the ETF tracking that index. That can help single out tax-loss harvesting opportunities and save investors with taxable accounts huge amounts of money.
Many online brokers discount commissions based on volume, and Vanguard does the opposite. They increase management fees for investors who trade more than 25 times per year on account balances of less than $50,000; this means that if you are an active trader, you pay more. Add to that the fact that Vanguard doesn’t provide a trading platform and tools typically offered by brokers that support trading of stocks.
Most robo-advisors waive mutual fund minimums under some conditions. Vanguard funds, on the other hand, carry minimums of $3,000; retirement funds and the Vanguard STAR Fund have investment minimums of $1,000.
The average fee for a financial advisor is 1.3% of the portfolio’s value on an annual basis; and because robo-advisors charge less than this amount, investors can save money using them.
If you are retiring soon and you have a high account balance, Vanguard will suit you best. But if you are not and can’t meet the fund minimums or want to trade stocks regularly, look for a broker that better caters to those needs like Wealthfront and Betterment.
Betterment has shown that it’s a practical option for young investors that lack advanced financial knowledge. A Betterment account is good starting point to get the youth thinking about their future that also serves as a low-cost investment tool for experienced investors. Focusing on low fees, simple asset allocation, and goal-setting features, Betterment indeed makes investing simpler.
Wealthfront is possibly the best choice for taxable accounts and clients who don’t need human intervention. In terms of fees, Wealthfront is also the best choice if you will not invest more than $10,000. Wealthfront gives various features that are unique in the robo-advisor arena, such as its financial planning software, Path. Its selling plan allows employees who hold public company stocks to sell their company stocks commission-free. Overall, Wealthfront wins and is an excellent service for investors of all levels.
As you can see, there is no direct answer as to which is better: Betterment or Wealthfront? Nor do the pros and cons of Wealthfront vs Vanguard, Betterment vs Wealthfront, or Betterment vs Vanguard apply to everybody. While the Wealthfront review tends to show a better overall system, it lacks the human interaction that some people require to be successful.
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