Betterment vs Vanguard

What is Betterment?

Betterment is an investment advisor founded in 2008 and based in New York City. While it doesn’t have quite the long legacy that Vanguard has, Betterment has helped change the financial services industry in its own way.

That’s because Betterment was the first robo-advisor available to the public. While index funds made investing easier, robo-advisors take things a step further.

Robo-advisors like Betterment are automated, algorithm-driven investment platforms that streamline the entire process. This allows investors to simply transfer money into their account periodically; the algorithm does the rest.

In addition to its investment platform, Betterment offers a cash reserve accountchecking account, and 401(k) rollovers.

Robo-advisors like Betterment provide financial advice at a fraction of the cost of a human advisor, will providing automation for your investments.

Investing with Betterment

Typically, as with Betterment, users fill out an onboarding questionnaire to understand things like their income, risk tolerance, and years until retirement. Then, it will provide a suggested asset allocation.

For Betterment, it’s that simple: what percentage of your portfolio is made up of stocks, and what percentage is made up of bonds. That’s all you must “tell” the system and it does the rest for you.

After the initial setup, Betterment can manage your investment accounts entirely on its own. Your money is then invested in a Betterment portfolio of 14 different asset classes.

Diversification is key as the stock market can be volatile at times. That’s where Betterment’s investment strategy gets it right.

This sort of tool is excellent for those of us who lead busy lives and would rather not spend our time researching and rebalancing. Sure, the tool does have a fee, but the fee is reasonable considering how simple it is to use.

Betterment’s portfolios automatically rebalance and the platform has tax-loss harvesting.

These tools are very nice to have as they help investors maximize returns and minimize capital gains tax.

If you need more personalized investment advice, Betterment offers access to financial advisors for a per-session fee. Betterment also has a beautiful mobile app for managing your investment options on the go.

One of Betterment’s newer additions is socially responsible investing, which allows you to invest according to your values.

If you join now, you can get up to one year free with Betterment.

Betterment vs. Vanguard Personal Advisor Services

Betterment and Vanguard PAS are both excellent products, but they are suited to decidedly different groups of investors.

Vanguard PAS has a minimum investment of $50,000, while Betterment has no minimum investment. In addition, Vanguard’s management fees are slightly higher.

While beginner investors will likely prefer Betterment, PAS is a great option for very wealthy investors. Its fees are slightly higher than Betterment’s, but its fees do drop for higher portfolio balances.

For assets of $25 million or more, the fee for Vanguard PAS is just 0.05%.

Again, that is a very high bar, but it will be beneficial for some wealthy investors.

Retirement Planning

If you’d like to invest in your retirement with either Betterment or Vanguard funds, both have options for you. This includes Roth IRA, traditional and SEP IRA, and rollover IRA.

Betterment Retirement Planning

Betterment helps you manage your retirement by tracking a variety of information about your retirement outlook. It offers you an at-a-glance look at all your retirement accounts (if you have multiple), in addition to how much you have saved in total.

Then, it will let you know whether you’re on track to save enough for retirement and will offer a savings plan to help you get there. If you’re off track, Betterment will recommend changes to help you save.

Also, you can set up a Betterment IRA or a rollover 401k.

The Betterment 401(k) services not only allow for personal retirement plans, but Betterment Business even helps small business owners offer tax-advantaged plans to their employees. Betterment advertises low rates to plan and package these employees for burgeoning entrepreneurs.

Betterment Savings Plan

Vanguard Retirement Planning

One thing Vanguard users have that’s a one-up is access to real, human advisors who can answer any questions you have about retirement. Plus, Vanguard has a variety of tools & calculators to help plan for retirement. Featured calculators include:

  • Retirement plan income – what will your retirement income be?
  • Retirement nest egg – how much are you on track to save by the time you retire?
  • Retirement loan plan – what is the cost of taking a loan against your retirement plan?

In addition, Vanguard’s library includes free lessons to help you learn the basics of retirement planning and investing.

If you have external accounts, they can be added to your total to help determine whether you’re on track for retirement.

Goal Setting

Both Betterment and Vanguard have excellent goal planning to help you meet (and exceed) your financial goals. Let’s take a brief look at what each of them offers.

Betterment Goal Setting

Betterment allows you to create several types of goals, including:

The purpose of each of these goals is self-explanatory, but the guidance you receive is specifically tailored to each. Each goal is maintained separately, letting you know if you are on track for different goals.

If you have fallen behind on any of your goals, Betterment will recommend steps to help get you back on track.

Vanguard Goal Setting

Vanguard has its own set of tools to help you meet your financial goals. There, you’ll find articles, worksheets, and interactive tools to help you plan.

And because Vanguard gives you access to real financial planners, you can always call and have someone help you set the right goals for yourself. Those goals may include saving for college, an emergency fund, or other savings goals.

Account Types

Once again, both Betterment and Vanguard have you covered with just about any type of account you may need.

Betterment Account Types

  • Traditional and Roth IRA
  • SEP IRA
  • IRA transfer
  • Rollover 401(k)
  • Taxable brokerage
  • Cash account

Vanguard Account Types

  • Traditional and Roth IRA
  • 529 plans
  • Individual 401(k)
  • SEP and SIMPLE IRA
  • 403(b)
  • Annuities
  • Individual & joint taxable accounts

Both firms even offer variations upon each of these account types. For example, Vanguard 529 plans come in a variety of packages, mostly prioritized around a subscriber’s desired asset ratio and risk tolerance. A user should also consider a plan’s expense ratio. An expense ratio cover’s a plan’s operational cost, being deducted from a plan’s dividend and capital gains rather than the principal.

Fees

Betterment and Vanguard have different fee structures, with PAS favoring high net-worth clients. Meanwhile, Betterment charges a flat rate for its services.

Both have low fees, but Vanguard has a lower cost for very high net worth investors.

Betterment Fees

Betterment’s basic plan, known as Digital, charges an annual fee equal to 0.25% of your account balance.

If you want the option of professional advice from a CFP while using the Digital plan, there are Advice packages, which range from $199 to $299.

There is also the Premium plan which charges a 0.40% annual fee. The main difference with this plan is that it includes unlimited calls with Betterment’s team of Certified Financial Planners (CFP®). However, this plan has a minimum balance of $100,000.

Vanguard Fees

Vanguard PAS has pricing tiers rather than charging a flat rate. The fees start at 0.30% and then decrease based on your portfolio balance:

Portfolio Balance Fee
Up to $5 million 0.30%
> $5M to $10M 0.20%
> $10M to $25M 0.10%
> $25M 0.05%

Account Security

Both services take security seriously and have put measures in place to ensure your investment portfolio is safe. Here’s a brief look at what kind of security tools each uses.

Betterment Account Security

Betterment uses 128-bit SSL to encrypt its website. In addition, all of its data is stored on servers in a secure facility.

It offers fraud protection as well as two-factor authentication. Its feature called App Passwords allows you to use third-party password managers, too.

Vanguard Account Security

Vanguard uses 256-bit SSL to help protect its website, giving you the highest level of encryption currently available. It also offers two-factor authentication to provide an additional layer of security for your account.

It has additional features, too, such as security keys – yet another security measure. There are also text messages to alert you of any potential issues with your account.

Is Betterment Worth It?

Betterment Reddit reviews advertise the platform as an excellent option for retail investors who want to slowly invest small amounts of money at a time. With a base plan that requires no account minimum and a low 0.25% account fee, Betterment’s beginner plan is great for new or casual users.

This doesn’t mean that experienced subscribers or those looking to invest large sums of money are forgotten. For a 0.4% managerial fee and a minimum commitment of 100,000 into one’s account, Betterment Premium members gain unlimited access to a financial planner for one-on-one advice.

Is Vanguard Worth It?

Vanguard’s personal advisor service is a highly respected avenue for those who have a lot of funds to invest. Subscribers will have to commit to a $50,000 minimum account balance, but this comes with personalized tips and advice from accredited financial advisors.

The main disadvantage that Vanguard presents is that there is no automated tax-loss harvesting, so users will have to be diligent when planning their investments to maximize their tax savings.

Which One is Right for You?

Both Betterment and Vanguard have great products. But if you are just starting out and don’t yet have much to invest, Betterment will be your only option.

Thus, your financial situation will largely determine which one makes more sense.

The biggest advantage for Vanguard Personal Advisor Services is baked into its name: access to financial advisors. In addition, Vanguard PAS offers lower fees for portfolios of $5 million or more.

However, you can still gain access to financial advisors through Betterment Digital if you add an Advice package, which costs $199 or $299 per year, depending on the package.

While both are great products, Betterment is the clear winner for anyone who doesn’t have a high net worth or doesn’t need access to human financial advisors.

If you’d like to get started with Betterment, click for up to one year free.

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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.