Betterment vs Robinhood

  • Historically low fees
  • Questionnaire generated portfolio
  • Multiple account types offered
  • No minimum balance
  • Streamlined interface
  • Offers cryptocurrency

Both Betterment and Robinhood are retail investing applications with quick and easy access to financial markets. Both apps claim to be a quick and easy way for beginning investors to establish a portfolio and set up automated transactions. This can be especially helpful for individuals who want to start investing but don’t have the time or knowledge to constantly monitor market trends.

While both apps offer similar services some differences should be considered when deciding which service to use. This article will give you the information to make an informed decision about these popular platforms for retail investors.

Robinhood Overview

Robinhood offers its customers a simplified screen display along with most of the popular terms that other popular robo-advisors offer. This includes no minimum balances to open an account. Robinhood also charges no commission on transactions or additional fees for account maintenance.

What has led to Robinhood’s rise in popularity since its 2013 launch is the application’s sheer simplicity. That led to $682 million in payment-for-order-flow revenue in 2020. While Robinhood’s simplicity is not as desirable among experienced investors, it made breaking into the market far less overwhelming to rookie investors.

The lack of complicated investment tools and graph data can make Robinhood both inviting to the inexperienced, but it will most likely make the application undesirable to those with a moderate to advanced investment background.

Robinhood Introduces Fractional Shares

Robinhood now allows the purchase of fractional shares. This means that investors no longer must purchase entire shares of a given stock at a time. This can be especially useful for investors who cannot afford to purchase a whole share of a blue-chip stock such as Apple or Tesla. These stocks can cost thousands of dollars for an entire share, making them cost-prohibitive to the average user with access to Robinhood’s fractional shares.

Robinhood Pros

  • No account minimums
  • Supports crypto trading
  • Streamlined interface

Betterment Overview

Betterment has been providing customers with an investment platform since 2008, giving it a long and stable reputation as a robo-advisor. When comparing Betterment vs. Robinhood, Betterment markets itself to beginning investors, even offering an advisory questionnaire to those new to the app. The questionnaire is not very technical, simply asking users basic questions about investment goals, income, and how aggressive the investor wishes to be.

Based on these questions, Betterment can set customers up with a software-generated portfolio, but more experienced users can customize their own portfolios if they know how they would like their assets organized. The application also offers portfolios based on investing in companies known for their moral business practices, a recent term called socially responsible investing.

Betterment’s Automation

Betterment also automates many processes for time-strapped investors. Portfolio re-balancing will automatically re-balance a client’s investment ratio if it falls outside the limits set by the user. Investors can set up recurring deposits so that money is consistently available to grow one’s assets, and dividends are also automatically reinvested to keep one’s money back into the market.

Betterment has also begun providing its clients with tools to save when filing their tax returns. Betterment claims to automatically place holdings in more tax-advantageous accounts, sell assets that are experiencing a loss, and help to calculate how much users would lose in taxes by withdrawing from their accounts.

Just like Robinhood, Betterment requires to minimum balance to be kept in one’s account, so people who don’t have a great deal of funds to start with can still begin investing with as little or as much as they want. It should be noted that the basic form of Betterment does charge a managerial fee of 0.25%, but this is very low compared to traditional brokerages.

Unlike Robinhood, Betterment offers a much wider range of account types such as trust and checking accounts as well as individual retirement accounts (IRAs). This leaves Robinhood limited depending on a potential user’s goals, as the application only provides brokerage accounts at this time.

Betterment Pros

  • Low management fees
  • Socially responsible investing
  • Tax-loss harvesting

Betterment Cons

  • Minimal customization
  • Limited compatibility with external accounts
  • No access to real estate investments

Deciding between Betterment vs. Robinhood

Feature Betterment Robinhood
Min. Investment $0 $0
Min. Investment $0 $0
Avg. ETF Expense Ratio 0.25% (Digital); 0.40% (Premium) 0.09%
Account Types Brokerage, Saving, Checking, Trust, Roth IRA, Traditional IRA, and SEP IRA Brokerage
Tax-Loss Harvesting Yes No
Financial Advisors  Available for a fee or as part of Betterment Premium Not offered
Best For Beginner investors Casual yet active traders

While both applications offer a hands-off experience for beginning investors, in the discussion of Betterment vs. Robinhood, Betterment may be a better choice for those who would rather let another party handle the specifics of investing based on the user’s goals and preferences over a long period.

Robinhood is also an accessible option for those with limited market experience, and it offers a very streamlined interface. Ultimately, Betterment offers automation while Robinhood offers a simplified experience for beginners to interact with.

Both platforms offer some resources teaching the basics of markets and investing. These are both very comparable, but users who continue with Robinhood will likely feel limited by the lack of more complex analytical tools as they gain experience.

Robinhood users who want to take a more active role in trading will likely grow out of the application’s limitations while Betterment is likely better for the investor who simply wants to put money into a portfolio for a long period of time without having to micro-manage investments or learn about market intricacies.

Whichever option you decide is best for you, you can get started with Betterment or Robinhood here.

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.