Betterment VS S&P 500

Betterment is a kingpin in the robo-advisor field, and the S&P 500 is a stock market index that tracks the performance of around 500 of the leading U.S. publicly traded companies. The biggest question you may have is if Betterment outperforms the relied-on S&P 500. Well, we’ll see.

Betterment is Better for:S&P 500 is Better for:
Rebalanced portfoliosDiversification
Tax StrategiesTimed sales
Wide variety of account typesLower fees with no investment minimum
Hands-off investorsMore active investors

It’s not hard to see that the two investment tools are quite different in what they offer. Here is a clear comparison overview.

Betterment S&P 500
Fees

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

Around 0.04%

Investment Minimum

No minimum, but the Premium plan requires a $100,000 minimum to open an account

No minimum investment amount

Tax Strategies

Tax harvesting

Taxed on gains

Investment Strategy

  • US stocks
  • Foreign stocks
  • US bonds
  • Corporate bonds
  • Municipal bonds
  • Emerging market bonds
  • Emerging markets
  • TIPS

  • US stocks
  • Foreign stocks
  • Dividend stocks
  • Real estate investments
  • Natural resources investments
  • Emerging markets

Best Use

Passive investors

Hands-on Investors

Modest Money Overall Rating
4.5 rating based on 5 ratings
4.0 rating based on 5 ratings

Betterment VS S&P 500: Determining Factors?

You can see that Betterment edges out S&P 500, but ever so slightly. What makes this difference and why did we award the winning title to Betterment? Being more suited for passive hands-off investors, Betterment can fit into the portfolio of any type of investor, and it helps with tax harvesting and automatic rebalances.

Betterment also has pre-built portfolios, and you can consult a human advisor if you wish. Of course, S&P 500 does have its advantages, so we’ll take a look at what the tools can offer in more detail.

Factor 1: Fees

The fees are a primary consideration for many investors. You won’t want to pay a high cost for services that aren’t useful. S&P 500 has very low fees, as low as 0.04%, but it just doesn’t offer the features and functions that Betterment does. Betterment takes an annual cut of 0.25% of your portfolio, but that number decreases to 0.15% if you have balances over $2 million.

Betterment charges an even higher 0.40% for the Premium users, but you do get unlimited access to financial advisors, something that will cost you a lot more outside of the platform.

Factor 2: Investment Strategies

Betterment and S&P 500 are neck and neck in the investment strategies arena. They offer some of the same types, but S&P 500 cuts out bonds altogether. However, S&P 500 does make up for it with dividend stocks, and access to real estate and natural resources investments, which Betterment does not.

Whether what S&P 500 and Betterment provide is useful to you depends on your profile, but they both offer some pretty good diversification options.

Factor 3: Returns

The returns factor is something difficult to predict since markets can be volatile, but Betterment claims to increase returns by 2.66% if tax strategies are leveraged. If Betterment can consistently deliver on these results, then it can ultimately outperform S&P 500 in the returns arena.

Factor 4: Minimums

There are no investment minimums for S&P 500, and it’s open to all investors. We find this a major pro because anyone can get in on the action. Betterment offers two plans, the Betterment Digital and Betterment Premium. While there are no minimums for Betterment Digital, you will need at least $100,000 to open an account for Betterment Premium.

Betterment

Betterment is the best tool for portfolio optimization. You can tweak it to reflect your risk tolerance and adjust based on the answers to their screening questions. Two of the best features of Betterment are dividend reinvestment and tax harvesting. The platform is also an excellent tool for investors to diversify their portfolios with a lower risk.

You can make full use of the robo-advisors, something Betterment is known for, or access their human advisors with the Premium plan. Lastly, the investment tool is intuitive and easy to use, which is not what many other platforms can say. Learn more about what Betterment can do for you here.

S&P 500

S&P 500 stands for Standard & Poor’s 500. It is a stock market index and is commonly used as a benchmark for the economy. You get dividends with the index and there are no investment minimums. It really gives beginners an edge as they can invest with any amount. Investors gain access to the leading U.S. publicly-traded companies on the market with S&P 500 and use its performance as a gauge for overall market health. 

You get dividends, a lot of flexibility with investment amounts, and offers a very simple ETF investment plan. While it isn’t exactly tax harvesting, S&P 500 allows you to get 40% of your gains taxed in the short-term rate and 60% for the long-term.

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.