Betterment vs. Wealthfront

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Robo-advisors—online investing platforms that seek to emulate the services of a financial advisor—have grown in popularity in recent years. They’re particularly popular among beginner investors who want someone else to “just handle it” for them without paying the higher costs of a hands-on advisor.

Two of the most popular advisors in this field are Wealthfront and Betterment, but with two similar offerings, it can be tough to decide which is right for you. Today we will dive in and look at how Wealthfront and Betterment stack up, as well as some of the others.

Betterment Review

Betterment is one of the first robo-advisors, and many consider the company to be the one that started the industry. With a history going back to 2008, Betterment is focused on putting your investments into low-cost, diverse exchange-traded funds (ETFs) that match a risk profile you fill out when opening a new account.

You can get started with no minimum deposit, and Betterment invests 100 percent of your dollars automatically. You never have a cash balance in your account; everything is immediately invested based on your risk profile.

One of the features that many investors get most excited about with Betterment is tax loss harvesting. Previously only available as a manual exercise for wealthy investors, Betterment’s algorithms automatically buy and sell securities in your portfolio to capture tax losses, lowering your capital gains taxes due to the IRS.

Over time, tax loss harvesting can add up to big savings. Tax loss harvesting can offset up to $3,000 per year of ordinary income and carries forward if you go over. Betterment charges 0.25 percent on all accounts up to a $2 million balance and charges no fees beyond that.

Wealthfront Review

Wealthfront likewise came onto the scene in 2008, but its current iteration didn’t come about until 2011, giving Betterment a three-year head start in the robo-advising space. However, Wealthfront offers one unique product that gives you even better tax results than you can get with Betterment’s tax loss harvesting: Direct indexing.

Direct indexing is a tax loss harvesting strategy, but instead of investing only in broad market ETFs, Wealthfront algorithms invest directly in S&P 500 stocks. This granular control offers even more tax loss harvesting savings than Betterment’s ETF level tax-loss harvesting management. However, direct indexing is only for accounts with a balance over $100,000. Once you reach $500,000, you can join the more powerful Advanced Indexing product.

Otherwise, Wealthfront offers a more or less identical investing service to Betterment. After filling out a risk profile, Wealthfront’s automated algorithms invest in a range of ETFs. Wealthfront requires a $500 minimum deposit to open a new account and charges the same 0.25 percent fee as Betterment. There is no cap on the fee, so portfolios over $2 million pay more at Wealthfront than at Betterment. Wealthfront charges no fees on accounts below $10,000.

Other Robo-Advisors to Consider

  • Schwab Intelligent Portfolios: If you already have a relationship with Charles Schwab, you may be interested in Schwab’s robo-advising product. This is a winner because it comes with no fees. Of course, the funds you own via Schwab Intelligent Portfolios still do charge fees—no different than if you’d invested in them directly. Accounts require a $5,000 opening balance.
  • WiseBanyan: WiseBanyan offers no-fee robo-advising with no account minimum. Advanced features like tax loss harvesting, which come included in some competitor products, require an extra fee. If you are a brand-new investor with a small portfolio and are completely fee-averse, you may want to consider WiseBanyan.
  • Wealthsimple: Wealthsimple is another option with no minimum balance requirement, but charges 0.4 percent to 0.5 percent in management fees, making them higher than the average robo-advisor. Tax loss harvesting is included with Wealthsimple Black for accounts over $100,000. Wealthsimple is best known for offering socially responsible portfolio options.
  • Personal Capital: Personal Capital offers free personal finance management tools that are great for any investor and offers investment management for a fee. Personal Capital investments are managed through a hybrid robo-advisor and human advisor relationship. If you are not comfortable handing the keys over to a computer, Personal Capital is a good middle ground. The company targets investors with $100,000 or more in investable assets, but its pricing is not as competitive. Clients with up to $1 million in assets pay 0.89 percent.

    Betterment vs. Wealthfront

    Both Betterment and Wealthfront offer high-quality, trustworthy products managed by teams of professional investors looking to earn you the highest return on investment. Based on fees and tax loss harvesting options, each is better for a specific subset of investors.

    Betterment is the Best Robo-Advisor for Brand New Investors

    Thanks to no minimum opening balance, simple investment setup, and a history of leading the market for robo-advising, Betterment is the best option for new investors looking to make money in the markets with virtually no personal involvement beyond funding your account and an initial risk profile.

    Because tax loss harvesting is built in, any investor at Betterment can take advantage of opportunities formerly reserved for the wealthiest investors even with a small starting nest egg. Wealthfront does offer investors free management on portfolios below $10,000, which gives them a leg up over Betterment on that front; but no minimum to open made Betterment the winner.

    Wealthfront is the Best Robo-Advisor for Portfolios Over $500

    If you have a portfolio of $100,000 or more, Wealthfront is the strongest offering by far. Thanks to its direct indexing tax strategy, investors can get an edge over Betterment in the long-term.

    Fees are nearly between the two companies for portfolios from $10,000 to $2 million. Over $2 million, Betterment is cheaper again, but if you can get a 0.25 percent advantage from direct indexing, you are still better off with Wealthfront.

    For any investor with more than $500 to put into your new account, Wealthfront is free up to $10,000. You can’t beat free, so Wealthfront is the best option for most investors starting out with robo-advisors.

    You Can’t Go Wrong With Robo-Advising

    Betterment and Wealthfront both appeared to be risky when they first entered the market nearly a decade ago. But in the years since, robo-advising has gone from the periphery to the mainstream. New investors can’t go wrong with either. If you have been waiting to invest because you don’t know what stocks to pick, robo-advisors are perfect for you.