Betterment vs. Acorns: How Best to Invest

Bob HaegeleBy: Bob Haegele

November 1, 2020November 1, 2020

Investing is a critical part of achieving just about any type of financial goal. But saving can seem complicated and intimidating, so many of us put it off, or, worse - don’t invest at all.


These days, there are several different solutions to make investing easier. In this post, we will look at two of them - Betterment and Acorns.


Both Betterment and Acorns are excellent ways to save and invest. Both can help the average investor go from off-track to on the right path to retirement.


But they also serve different purposes and are best-suited to different types of investors.


  • Acorns: the everyday saver. This app specializes in saving small amounts of money that add up over time.
  • Betterment: for general investing, this helps investors grow their net worth and maximize returns.

In this post, we will not only compare the features of the two but also determine who will benefit the most from each.


Related: Betterment Review: Insider Investing Scoop

Acorns Overview: For the Everyday Saver

Acorns works by linking to your bank account, then any purchases made using a linked credit card or debit card are automatically rounded up to the nearest dollar amount.


Acorns will then invest the difference. It refers to this style of investing as micro-investing.


The idea behind Acorns is you are planting the seeds of wealth. That's because it takes things out of your hands and automates the entire experience.


While this won't help you grow massive amounts of wealth, it's a good way for new savers to get started.


Acorns Details

Monthly Fees

$1, $3, or $5

Minimum Account Balance

$0

Account Types

IRA & Brokerage

Investment Type

Exchange-Traded Funds (ETFs)

In addition to Invest, which we'll cover here, Acorns offers the following products:


  • Early - this product allows you to open investment accounts for your children. You can invest automatically starting at $5 per day, week, or month.
  • Later - open an individual retirement account (IRA) with Acorns and invest in your retirement. As a bonus, IRAs are tax-advantaged accounts.
  • Spend - Acorns Spend is an online checking account. Access to 55,000+ Allpoint ATMs and FDIC-insured up to $250,000.
  • Earn - a cash-back program that lets you earn money when you shop with select brands.

Acorns Fees and Features


Rather than charging a fee as a percent of your portfolio, Acorns charges $1, $3, or $5 per month. That works out to an annual fee of $12, $48, or $60.


Aside from that, there are no fees charged to manage your portfolio.


If you spend $8.25, Acorns will round up to $9.00 and 75 cents will be added to your Acorns account. Once you have at least $5 saved, Acorns invests that money in low-cost exchange-traded funds (ETFs).


Note that you can also manually deposit money into your account.


Acorns also has a program called Found Money to help you invest more. It works just like a cash-back program, allowing you to earn a percentage of your purchase back from popular  retailers.


The difference is that instead of earning the money back as cash, it will be invested in your Acorns portfolio instead.


Acorns Portfolios


Acorns offers five different portfolios. That means you can cater your portfolio precisely to your risk tolerance.


The portfolios were developed with help of Dr. Harry Markowitz who won the Nobel Prize in Economic Sciences in 1990, partly due to his work on portfolio theory.

Portfolios are designed to match different levels of risk.


More conservative portfolios are weighted more toward government bonds, while more aggressive portfolios favor stocks in large and international companies.


Acorns ETFs


According to the Acorns website, it specifically uses the following list of ETFs:



  • Large Companies - VOO
  • Medium Companies - IJH
  • Small Companies - VB, IJR
  • Developed Markets - VEA
  • International Companies - IXUS
  • Emerging Markets - VWO
  • Real Estate - VNQ
  • Corporate Bonds - LQD
  • Government Bonds - SHY
  • Short-Term Government Bonds - SHV, GBIL
  • Ultra Short-Term Government Bonds - BIL
  • Ultra Short-Term Corporate Bonds - JPST, ICSH
  • Ultra Short Term Corporate Bonds - ICSH
  • US Aggregate Bonds - AGG
  • Short Term Bonds - ISTB


Acorns Pros


  • Invest spare change: Acorns lets you invest your spare change, so you don't even have to think about it.
  • Great look & feel: Both the Acorns website and app are very aethestetically pleasing and enjoyable to use.
  • No account minimum: Acorns won't charge you a fee for not having a running balance and will invest as soon as you have at least $5.

Acorns Cons


  • No tax-loss harvesting: Tax-loss harvesting (TLH) is a nice tool that can lower tax liabilities. Beginner investors may not notice it, but high net-worth individual can save a large amount of money due to TLH.
  • Limited investment classes: It may seem like Acorns many different ETFs, but it offers less than Betterment and other robo-advisors.
  • Spare change won't cut it: Acorns emphasizes rounding up spare change, but that won't be enough to retire comfortably. However, it does allow you to deposit money manually.

Betterment Overview: For the Investor

Betterment is a robo-advisor; in fact, it was the very first robo-advisor, launched in 2008. This new form of investing has made it far easier for the everyday investor to grow their wealth.


Robo-advisors are algorithm-driven investment advisors that require little to know human intervention. That lack of human intervention also means they are usually much cheaper than a human investment advisor.


Betterment Details

Monthly Fees

$0

Minimum Account Balance

$0

Management Fees

0.25% (Digital); 0.40% (Premium)

Account Types

Traditional IRA, Roth IRA, SEP IRA, Brokerage, Trust, Savings Account, Checking

Investment Type

Exchange-Traded Funds (ETFs)

While Acorns focuses on small changes that can add up over time, Betterment is meant for those who are more committed to investing and growing their net worth.


At the same time, robo-advisors do most of the heavy lifting for you, meaning you will rarely, if ever have to do much maintenance on your portfolio.


Getting started is simple. All you have to do is answer a few questions on things like your age and annual income.


Then, it will suggest portfolios to you and their associated risk levels. Your portfolio will be split between stocks and bonds, and you can change the allocation of each at any time.


Note that most users opt for the Digital plan with the lower fees. It's totally sufficient for most users, and the 0.25% annual fee is a great value. The expense ratio for Betterment investment portfolios ranges from 0.07% to 0.15%.


In addition, Betterment offers access to human financial advisors for a per-session fee of $199 or $299.


Betterment Taxable Portfolio


Betterment uses highly diversified portfolios and that is evident from how many different ETFs it uses. In fact, it invests your money in 13 different asset classes.


Plus, it uses fractional shares to ensure your money is fully invested.


While Acorns has quite a few ETFs in its arsenal, that number is still small compared to the investment options Betterment has:



  • US Total Stock Market: VTI, ITOT
  • US Large-Cap Value Stocks: VTV, SCHV
  • US Mid-Cap Value Stocks: VOE, IWS
  • US Small-Cap Value Stocks: VBR, IWN
  • International Developed Stocks: VEA, IEFA
  • International Developed Bonds: BNDX
  • Emerging Market Stocks: VWO, IEMG
  • Emerging Market Bonds: EMB, VWOB
  • Short-Term Treasuries: SHV
  • US Short-Term Bonds: JPST
  • Inflation-Protected Bonds: VTIP
  • US Municipal Bonds: MUB, TFI
  • US High-Quality Bonds: AGG


Betterment IRA Portfolios


If you opt for a Betterment IRA, you invest in a slightly different set of ETFs:


  • US Total Stock Market: VTI, ITOT
  • US Large-Cap Value Stocks: VTV, SPYV
  • US Mid-Cap Value Stocks: VOE, IJJ
  • US Small-Cap Value Stocks: VBR, SLYV
  • International Developed Stocks: VEA, SCHF
  • International Developed Bonds: BNDX
  • Emerging Market Stocks: VWO, SPEM
  • Emerging Market Bonds: EMB, PCY
  • Short-Term Treasuries: SHV
  • US Short-Term Bonds: JPST
  • Inflation-Protected Bonds: VTIP
  • US High-Quality Bonds: AGG


Betterment Pros


  • Dynamic rebalancing: Every portfolio eventually veers astray from its targets. Dyanamic rebalancing will rebalance your portfolio automatically. No extra work required.
  • Tax-loss harvesting: Tax-loss harvesting is one of the things that make Betterment stand out as not all robo-advisors have it. Tax-loss harvesting helps reduce your tax liability, thus lowering your tax bill on your investments. Again, it requires no manual intervention.
  • Access to advisors. Betterment offers access to human advisors if you feel you need extra financial planning help.

Betterment Cons


  • Limited customization: Although it's nice to have all your investments managed for you, there's not much you can change on a Betterment portfolio. You can only specify your stock/bond allocation.

Betterment vs Acorns: Comparison

Management Fees

0.25% or 0.40%

Minimum Investment

$0

Promo
Management Fees

$1, $3, $5

Minimum Investment

$0

Promo

N/A

Management Fees

0.25%

Minimum Investment

$0

Promo
Management Fees

Varies; monthly flat fee

Minimum Investment

$50,000

Promo

N/A

  • Acorns: Everyday saving and investing.
  • Betterment: Seamless investing; tax advantages.

Both Betterment and Acorns use funds from major investment firms such as Vanguard and BlackRock. Both offer taxable accounts and IRAs.


There is no minimum balance for either investment platform, and both use some form of Modern Portfolio Theory (MPT). Both services have beautiful investment apps.


Here's how they differ:


Acorns is best for everyday saving, or micro-investing, while Betterment is best for committed investors who want a seamless experience and to minimize their tax bill.


Acorns allows users to round up their purchases. Once that running balance hits $5, the money is invested in a combination of low-cost index funds.


However investing your spare change will likely not be quite enough. In that sense, Betterment is in a way for those who have "graduated" from Acorns.


Betterment is best for hands-off investors who are serious about investing and growing their net worth.


At the same time, Betterment allows you to completely automate the whole experience. Plus, through its tax-loss harvesting, it helps high-net-worth individuals pay as little as possible in tax.


While both are quality products, neither is best for everyone. The one that is right for you largely depends upon where you are in your investing journey.

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About the Author:

Bob Haegele is a personal finance writer, entrepreneur, and dog walker. Bob has been writing about personal finance for three years and now manages several personal finance sites, including The Frugal Fellow, Modest Money, and Blooming Wealth. You can also find him contributing to popular websites such as Millennial Money, Club Thrifty, and The Good Men Project. Bob has a passion for investing and growing his net worth and wants to help others do the same.

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