Betterment vs Acorns

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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.

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.

How does Acorns work?

Acorns allows individuals to make micro-investments throughout their days, allowing very small additions to a given portfolio. Allowing your account to slowly grow over time can help you invest money that you didn’t even know you had.

Acorn allows consumers to round up to the next dollar amount with each debit or credit card purchase. This remaining amount is then included in your portfolio so that your spare change goes to work for you in your portfolio.

Acorns is a very good way to dip your toes in the market, requiring only a bank account to link to your portfolio and a smartphone to download the mobile app and start your micro-investments.

Acorns Details

Monthly Fees $1, $3, or $5
Minimum Account Balance $0
Account Types Individual and joint brokerage accounts, Roth IRA, SEP IRA, and Traditional IRA, trust accounts, and custodial accounts
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.

Acorns Portfolios

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 – VBIJR
  • Developed Markets – VEA
  • International Companies – IXUS
  • Emerging Markets – VWO
  • Real Estate – VNQ
  • Corporate Bonds – LQD
  • Government Bonds – SHY
  • Short-Term Government Bonds – SHVGBIL
  • Ultra Short-Term Government Bonds – BIL
  • Ultra Short-Term Corporate Bonds – JPSTICSH
  • 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.

For more details about Acorns, see our full Acorns review.

Acorn reviews on Reddit indicate that most users are satisfied with their experience. One Redditor answered another individual asking, “is Acorns worth it?” with a resounding yes. It is a great option for those who want to secure financial freedom while not having to constantly monitor and manage a portfolio.

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

Betterment Details 0.25% (Digital); 0.40% (Premium)
Minimum Account Balance $0
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 of index funds and that is evident from how many different ETFs it uses. In fact, it invests your money in up to 14 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: VTIITOT
  • US Large-Cap Value Stocks: VTVSCHV
  • US Mid-Cap Value Stocks: VOEIWS
  • US Small-Cap Value Stocks: VBRIWN
  • International Developed Stocks: VEAIEFA
  • International Developed Bonds: BNDX
  • Emerging Market Stocks: VWOIEMG
  • Emerging Market Bonds: EMBVWOB
  • Short-Term Treasuries: SHV
  • US Short-Term Bonds: JPST
  • Inflation-Protected Bonds: VTIP
  • US Municipal Bonds: MUBTFI
  • 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: VTIITOT
  • US Large-Cap Value Stocks: VTVSPYV
  • US Mid-Cap Value Stocks: VOEIJJ
  • US Small-Cap Value Stocks: VBRSLYV
  • International Developed Stocks: VEASCHF
  • International Developed Bonds: BNDX
  • Emerging Market Stocks: VWOSPEM
  • Emerging Market Bonds: EMBPCY
  • Short-Term Treasuries: SHV
  • US Short-Term Bonds: JPST
  • Inflation-Protected Bonds: VTIP
  • US High-Quality Bonds: AGG

Overall Betterment Returns

Betterment returns claim to exceed the market average since its inception in 2004. An average annual return of 7.3% would return a cumulative gain of 190.6% compared to a market average of 109.2% since the average investor’s portfolio since 2004.

Social media investors who search about Betterment Reddit returns. Users praise a very user-friendly interface. One Redditor loved the software’s charting system, knowing how much savings they could expect in a given year given typical market flow and steady returns on their investments.

Betterment Pros

  • Automatic rebalancing: Every portfolio eventually veers astray from its targets. Automatic 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.
  • Low management fees: Betterment's fees start at 0.25%, which is low for a fully-featured robo-advisor. The fee charged as a percentage is also better for smaller portfolios.

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.

For more details about Betterment, see our full Betterment review.

 

Betterment vs. Acorns: Comparison

  • 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.

Bob Haegele

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 Yahoo! Finance, MSN Money, and GOBankingRates. You can see more of his work on Muck Rack and Contently, or connect with him on LinkedIn.