Betterment vs Robinhood

Both Betterment and Robinhood are standouts in making low-cost investing accessible to customers regardless of net worth. They have different ways of going about it, however. Betterment helps clients build well-diversified portfolios, while Robinhood enables low-cost stock investing. Learn more about Betterment vs Robinhood to see which option is best for you.

Betterment is Better for:Robinhood is Better for:
Passive InvestorsActive Investors
Algorithm-Enabled DiversificationChoosing Your Own Securities
Retirement AccountsCrypto Investing
Custodial AccountsIPOs
Socially Responsible PortfoliosMargin Investing
Low-Risk InvestingOptions Investing
Beginner InvestorsExperienced Investors
Low Management FeesCommission-Free Trading

Both Betterment and Robinhood allow you to start investing with no minimum deposit. Additionally, they both will enable the purchase of fractional shares, meaning that any investor can buy their offered assets regardless of price.

They do fulfill two radically different investing styles, however. If you could only choose one, Modest Money will help you decide which is better.

There is little duplication between Betterment and Robinhood in terms of the investment services they offer, so if you are interested in both portfolio and individual securities investing, you may want to consider getting both accounts.

Let’s look at some comparisons:

Betterment robinhood
Management Fees (AUM)

0.25% (0.15% for balances > $2 million)

0

Premium Subscription

0.40% AUM (0.30% for balances > $2 million)

$5 per month for Robinhood Gold

Other Fees

No

Regulatory fees, paper statements

Security Types

Stock and bond ETFs

ETFs, options, crypto, IPOs

Investment Portfolio Styles

Betterment Core Smart Beta Innovative Technologies Broad Impact Climate Impact Social Impact Betterment Cash BlackRock Target Impact Flexible Portfolio

Build your own portfolio with stocks, options, crypto, ETFs, no automatic portfolio option

Active or Passive?

Passive with some customizations in asset classes

Active

Investment Advice from Traditional Advisors?

Yes, with a Premium subscription or by paying $199/$299

No

Minimum Opening Balance

$0 ($10 for high-yield cash)

$0

Tax-Loss Harvesting

Yes

No Robinhood tax loss harvesting

Supported Accounts

Traditional, Roth, SEP,
Inherited IRA Individual taxable accounts Joint taxable accounts with rights of survivorship Trust accounts Cash reserve Checking Account

Taxable investment accounts

Earned APY on Cash Accounts

0.10% on cash reserve

0.30% on cash management

Crypto Investing

Yes, expert-managed crypto portfolios

Yes

Best Use

Tax-advantaged accounts

Trading Individual Securities

Current Promotion

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Modest Money Overall Rating
4.9 rating based on 5 ratings
5.0 rating based on 5 ratings

Betterment vs Robinhood: Determining Factors?

The choice between Betterment and Robinhood comes down to whether you want active or passive investing. Which is optimal for you depends on if you want to benefit from automated portfolio investing or choose your own securities.

Betterment has been around since 2008 when it established itself as the first robo-advisor. Since then, it has expanded its services to become one of the most diverse robo-advisors anywhere.

Robinhood’s online trading platform has only been around since 2015, but it has made up for lost time by making itself into one of the cheapest platforms for trading options and stocks, including fractional shares. You can also access Robinhood automatic investing for stocks and ETFs.

While their results are superior, their services vary. Here is Modest Money’s analysis of multiple factors to help you decide which platform is best for you.

Factor 1: Investment Fees

Investment fees might affect your choice of platforms.

Robinhood Beats Betterment for Fees

  • Betterment charges 0.25% annual fee for balances less than $2 million
  • Robinhood does not charge trading commissions or management fees
  • Robinhood’s fee-free trading platform has less fees than Betterment

Betterment Fees

The Betterment fee structure is simple, charging 0.25% assets under management (AUM) for balances under $2 million. Betterment discounts management fees to 0.15% for balances over $2 million.

This is a low fee for a managed account but average for robo-advisors. While not as resource intensive as portfolios managed by human advisors, you are still paying them to make decisions for you. Management fees are the primary source of revenue for Betterment.

Betterment’s tax-loss harvesting might offset some or all these management fees plus some capital gains taxes. Optimal tax-loss harvesting strategies are automated and available at no additional charge when investing with Betterment.

To open a Betterment account with a 0.25% management fee, you can click here to receive current promotions.

Robinhood Fees

Does Robinhood have fees? Robinhood does not charge management fees or commission fees. Robinhood makes the bulk of its revenue by referring trades to market makers, known as pay for order flow. Robinhood also generates income through margin interest and premium subscription fees.

While pay for order flow can be controversial, commission-free trading was unheard of a few years ago. Detractors of the practice argue that it might incentivize brokers to route trades in their own financial interests instead of at the best price.

Brokers argue that pay for order flow allows them to pass commission savings to their customers, which certainly seems to be the case with Robinhood.

You can click here to open a Robinhood brokerage account for unlimited commission-free trading.

Robinhood’s Fees are Cheaper

Though not everyone approves of its revenue model, Robinhood is probably your best bet for cheap trading.

You might want to monitor the first few trades with them to ensure you are paying market prices for securities. Still, unless you notice any gross deviations, you are probably better off with Robinhood than you are with any company that charges you trading fees.

Robinhood also allows you to enter the field of crypto investing at no cost, unlike other prominent cryptocurrency exchanges like Coinbase.

Factor 2: Passive vs Active Trading

The critical difference between Betterment and Robinhood is the type of trading each firm offers.

You should choose the firm that closely matches your trading style. Read on to find out what the trading structures of Betterment and Robinhood look like.

Robinhood and Betterment Support Different Trading Styles

  • Betterment is better for passive investments
  • Robinhood provides access to active investing
  • Choose Betterment or Robinhood Based on Trading Style Preference

Betterment Trading

As a robo-advisor, Betterment specializes in automated portfolio investing. That means a computer algorithm will optimize your portfolio based on your risk tolerance level. As a passive investment company, Betterment keeps your costs low by relying on cheap index ETFs.

Index ETFs are a lower-cost way to grow your money compared with mutual funds. Mutual funds can have high load fees and are often not as nimbly exchanged as more liquid ETFs.

Betterment supports conservative, moderate, and aggressive risk levels. Their default is the Betterment Core portfolio, but you can select one of these other portfolios:

  • Goldman Sachs Smart Beta
  • Innovative Technologies
  • Broad Impact
  • Climate Impact
  • Social Impact
  • Betterment Cash
  • BlackRock Target Impact
  • Flexible Portfolio

Within these portfolios, you can opt to adjust asset class weights or change your recommended risk tolerance level as you like.

Three of these portfolios—Broad Impact, Climate Impact, and Social Impact—enable you to enter the world of socially responsible investing.

With its recent acquisition of crypto-advisor Makara, Betterment is in the process of making cryptocurrency portfolios available to investors.

Most investors probably should have some or all their net-worth in passively managed portfolios like Betterment. Their costs are low, and they maximize your returns while diversifying your risk according to modern portfolio theory.

Betterment also has automatic rebalancing. This is a valuable feature of passive investing because your target asset weights will drift over time as assets appreciate at different rates. Rebalancing helps restore the target allocations you set for your portfolio.

Robinhood Trading

Robinhood is perfect for people who want to actively choose their own stocks, ETFs, options, bonds, and even crypto. If you’re an active trader or want to be, Robinhood might be a perfect choice for you.

Robinhood allows you to invest in:

  • More than 5,000 U.S. stocks
  • Options contracts
  • More than 650 foreign stocks
  • Exchange-traded funds (ETF)
  • Initial public offerings (IPOs)
  • Bitcoin, Bitcoin Cash, Bitcoin SV
  • Ethereum, Ethereum Classic
  • Dogecoin
  • Litecoin

You can actively build a well-rounded, diversified portfolio with Robinhood with all these asset types. However, you will be making your own choices as Robinhood does not have a passive option.

You can create a well-diversified portfolio of ETFs that almost resembles passive investing. However, you will not benefit from passive features like automatic tax-loss harvesting and portfolio rebalancing.

Betterment Enables Passive Investing While Robinhood Supports Active Investing

With Betterment, you can set up long-term, risk-managed portfolios that are virtually guaranteed to pay off by the time you retire.

With Robinhood, you can use your financial talents for shorter-term investment gains in the stock market.

Over the long term, passive investing is the fastest way to grow your wealth, but this does not mean people should avoid active investing altogether. Having elements of both in your overall portfolio can be the most potent strategy.

Factor 3: Account Types

The ability to have multiple investment accounts that combine taxable and tax-advantaged account types is attractive to many investors, as is the ability to add checking, savings, and credit card account options to investment accounts.

Betterment Tops Robinhood in Account Types

  • Betterment has nine different account types
  • Robinhood only has taxable brokerage accounts
  • Betterment has eight more account types than Robinhood

Betterment Account Types

Betterment offers the following account types:

  • Traditional IRA
  • Roth IRA
  • SEP IRA
  • Inherited IRA
  • Individual taxable accounts
  • Joint taxable accounts with rights of survivorship
  • Trust accounts
  • Cash reserve
  • Online checking account

While Betterment lacks a tax-advantaged education account, you can set up multiple other accounts under the same roof.

For instance, you can max out your Roth IRA, save additional retirement money with a traditional IRA, and have an individual taxable account to grow your money for mid-term investment goals like a new house or car. Instead of keeping a checking or savings account at a bank, you can open a cash reserve account and online checking account with Betterment.

This variety is sufficient for many people to keep most of their accounts managed by Betterment.

Robinhood Account Types

Robinhood only has taxable investment accounts. Robinhood only supports one account per customer, which is compatible with the type of investing it supports. Under most circumstances, you would not want to use a retirement account to trade options and pick your own stocks.

While it is one of the newer platforms, Robinhood is a voluntary member of the Financial Regulatory Authority. The Securities Investor Protection Corporation (SIPC) protects the money you invest with Robinhood.

While it does not have a checking or savings account option, you can have cash management with your taxable investment account. This allows Robinhood to “sweep” your non-invested money into partner banks. Under the cash management feature, FDIC insurance will protect your uninvested money, and it will earn an 0.30% APY.

Betterment Has More Account Types Than Robinhood

If you are the type of investor who finds value in simplicity, Betterment is a superior option. Its wealth of different account types makes it easy to save money, take care of day-to-day expenses, and invest in multiple accounts.

If, on the other hand, you do not care how many different platforms you have and intend to do some active investing, then opening a taxable investment account with Robinhood might be better for you. After all, you can always keep your retirement accounts somewhere else, perhaps with Betterment.

Factor 4: Minimum Account Balance Requirements

It wasn’t long ago that you couldn’t set up an investment account at all unless you were willing to put $3,000, $5,000, or even $10,000 into it right away.

With the rise of robo-advisors and more automated trading, you don’t have to throw a lot of money at a broker to buy securities.

Betterment and Robinhood Do Not Have Minimums

  • Betterment’s investment accounts do not have account minimums
  • Robinhood does not require a minimum investment
  • Betterment and Robinhood are equally low in minimum balances

Betterment Minimums

There is no Betterment minimum deposit requirement to open an investment account. They do not need minimum balances to keep open.

One caveat to this is Betterment’s cash reserve account. To open a cash reserve account, you’ll need to deposit $10 to start, but you don’t have to keep a minimum balance for the account to stay open.

Money deposited in Betterment’s cash reserve account earns a 0.10% annual percentage yield (APY).

Robinhood Minimums

No minimum balance is required to buy stocks, ETFs, options, or crypto with Robinhood. You can literally begin buying stocks and crypto simply by opening an account and depositing a dollar in it to start trading.

One of the ways that Betterment and Robinhood can enable asset trading without account minimums is because both allow trading of fractional shares. This means small investors can purchase pieces of even the most expensive stocks.

Betterment and Robinhood Minimums

Betterment and Robinhood are equally significant when it comes to not requiring investors to deposit or maintain minimum balances to open accounts and begin trading.

Factor 5: Premium Options

All the factors we’ve evaluated so far have been for basic accounts, but what about premium options?

Sometimes these premium options can be the ultimate factor in choosing which investment platform is best for you.

Robinhood Gold Tops Betterment Premium

  • Betterment Premium has access to human advisors
  • Robinhood Gold has research and investing tools
  • Robinhood Gold cost is a cheaper and better premium option

Betterment Premium

Betterment allows you to opt into Betterment Premium once you have $100,000 invested with them. This increases the management fee to 0.40% (0.30% for balances over $2 million).

What’s so great about Betterment Premium? In a couple of words, human advisors. With Betterment Premium, you have unlimited access to Betterment’s Certified Financial Planners. They can answer your personal finance and investment questions, as well as put you on the proper glide path to maximize your wealth potential and meet your ultimate financial goals.

If you don’t have $100,000 invested with them, you can purchase packages of sessions with Betterment’s financial advisors starting at $199.

Robinhood Gold Price and Benefits

For only $5 per month, you can upgrade from a basic account to Robinhood Gold.

Robinhood Gold has these benefits:

  • Access to up to $50,000 of your deposits instantly, without having to wait for the funds to clear and post to your account, allowing you to act on time-sensitive investment opportunities immediately.
  • Access to professional Morningstar research on more than 1,700 stocks to help you make your trading decisions
  • Nasdaq Level II market data can help you understand which way the market for particular security might move next
  • Margin investing will allow you to leverage your securities purchases to achieve even greater

Robinhood Has Better Premium Options

Betterment Premium’s access to human financial advisors makes it unique compared to virtually every other robo-advisor on the market. Unfortunately, to take advantage of Premium, you must invest $100,000, though you can still get access to Certified Financial Planners by paying a fee.

Is Robinhood Gold worth it? Well, it is one of the best-in-class premium subscription services. You can get all the added features with Robinhood Gold for a low price, and each component directly supports your active trading goals.

Robinhood: The Bottom Line

Considered as an investment brokerage app, there isn’t a Robinhood robo advisor that holds a candle to Betterment, which is almost as good as it gets. Modest Money’s only reservation is that it lacks education account options and restricts its full premium options to investors with over $100,000 in the platform.

As an active investment platform, Robinhood is as good as it gets. Modest Money’s only reservation with Robinhood is that actively purchasing your own portfolios is not as likely to achieve the same kind of long-term success as a passive, well-diversified portfolio.

Both Betterment and Robinhood are excellent investment platforms.

Betterment is Better for:Robinhood is Better for:
Passive InvestorsActive Investors
Algorithm-Enabled DiversificationChoosing Your Own Securities
Retirement AccountsCrypto Investing
Betterment Custodial AccountsIPOs
Socially Responsible PortfoliosMargin Investing
Low-Risk InvestingOptions Investing
Beginner InvestorsExperienced Investors
Low Management FeesCommission-Free Trading

Betterment

Everyone can benefit from opening one or more accounts with Betterment, especially retirement accounts. Their robo-managed portfolios are industry leaders, and you can elect socially responsible investing options to use your money to change the world for the better.

If you want to choose from among nine optimized portfolios with three risk tolerance levels and access to human advisors and open a variety of taxable and tax-advantaged accounts (with Betterment crypto investing coming), along with checking and cash reserve options, you can open a Betterment Account by clicking here.

Robinhood

Robinhood is an ideal investment platform if you want to trade stocks, dabble in options, or purchase cryptocurrency.

Robinhood Gold will allow you to take your active investing to the next level. If you elect to open an account with Robinhood, you should pay the extra $60 annually to subscribe to Robinhood Gold. It will give you more investment options.

You can click here to open a Robinhood brokerage account, and the first month of Robinhood Gold will be free.

Jeremy Biberdorf

About the Author:

Jeremy Biberdorf is the founder of Modest Money. After working many years in the website marketing industry, he decided to take on blogging full time and also get his finances headed in the right direction. Also check out his contributions to Equities.com and Benzinga.