Betterment vs. Wealthfront

Betterment vs Wealthfront
  • Low Management Fees
  • Tax-Coordinated Portfolio
  • Automatic Investing
  • Free Access to Financial Planners
  • 529 Plans
  • Automatically Invest Extra Cash

Betterment and Wealthfront are two of the most popular robo-advisors and have been industry leaders for years now. However, the two also seem quite similar at first, so it may not be obvious which one you should choose.


Don't worry: we've got you covered. This post will break down the similarities and differences between the two. Thus, it will help you determine which one is right for you.

Betterment Overview

Betterment was the first robo-advisor to appear on the scene. It was founded in 2008 and changed the investing game for millions of investors.


Most of us have busy lives and don't have much time to spend researching investments and managing our portfolios. Thankfully, that is no longer a problem thanks to Betterment. All you have to do is fill out an initial questionnaire that assesses your income, risk tolerance, and investment goals. Then, it suggests a portfolio of stocks and bonds to help you meet your goals.


While you can always change your portfolio's stock/bond allocation, Betterment requires no work after the initial setup. Indeed, it allows you to put your investment strategy on autopilot. Thus, it is our favorite way to automate your investments. 


Betterment Details

Minimum Account Balance

$0

Management Fees

0.25% (Digital); 0.40% (Premium)

Account Types

Traditional IRA, Roth IRA, SEP IRA, Brokerage, Trust, Savings Account, Checking

Investment Type

Exchange-Traded Funds (ETFs)

Betterment is a robo-advisor with no minimum investment and no minimum account balance. A standard Betterment account will invest your portfolio in a broad set of stocks and bonds, thus ensuring ample diversification.


It also features a variety of account types; there is plenty more to Betterment than just brokerage accounts. You can also open an IRA or use it for a trust account. It also offers savings and even checking accounts. Plus, Betterment allows you to invest for specific purposes, such as retirement, investing in a diversified portfolio, and saving cash that earns interest.


Lastly, Betterment offers specialized portfolios, such as:

  • BlackRock Target Income
  • Climate Impact
  • Social Impact
  • Goldman Sachs Smart Beta

Betterment Fees


The only fee you pay is a management fee on your account balance (plus ETF expense ratios). The management fees are 0.25% for Betterment Digital and 0.40% for Betterment Premium.


The main perk of Betterment Premium is unlimited access to CFP® professionals. However, it requires at least a $100,000 investment. If you want to speak with a Betterment financial advisor but aren't a Premium customer, you can book a 45-minute call for $199.


As mentioned, the only other fee for Betterment are the expense ratios on funds. Those range from 0.07% to 0.15%.


Betterment Pros

  • Low Management Fees
  • Tax-Loss Harvesting
  • Automatic Rebalancing

Betterment Cons

  • Limited Portfolio Customization
  • Limited Compatibility with External Accounts
  • No Real Estate Investing

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

Wealthfront Overview

Although everyone and their online bank seems to have a robo-advisor these days, Wealthfront has been around just about as long as Betterment. In fact, it, too, was founded in 2008.


Indeed, the two seem quite similar at first. So, the question will be whether it has other advantages compared to Betterment.


But Wealthfront does have some features missing from Betterment. For example, Wealthfront has exposure to real estate--something Betterment lacks.


Wealthfront Details

Minimum Account Balance

$0

Management Fees

0.25%

Account Types

Traditional IRA, Roth IRA, SEP IRA, Brokerage, Trust, Savings Account, Checking, 529 plans

Investment Type

Exchange-Traded Funds (ETFs)

The first difference you will likely notice with Wealthfront is that it has a $500 minimum investment. While that isn't the highest you'll see (VTSAX requires at least $3k), not everyone has $500.


Wealthfront also has many of the same account types as Betterment, with the notable difference being 529 plans. These plans are useful if you have children and want to invest for their college education.


Wealthfront has a few other interesting features, too. For instance, when you reach a $25,000, you are eligible for a portfolio line of credit. In other words, you can borrow against your portfolio (up to 30% of its value). The interest rate fluctuates but is generally low.


There are a couple of other interesting features, too, such as stock-level tax-loss harvesting. To explain, it will buy and sell individual stocks instead of entire funds. There is also the Risk Parity portfolio, which tries to achieve better returns through broader exposure. However, note that both of these features require a minimum investment of $100,000, making them out of reach for most new investors.


Wealthfront Fees


Wealthfront investment accounts have a management fee of 0.25%, the same as Betterment. For 529 plans, the fees range from 0.42% to 0.46%.


Expense ratios for Wealthfront's ETFs are 0.08%, on average.


Wealthfront Pros

  • Free financial planner access
  • Automatically invest extra cash
  • 529 plans

Wealthfront Cons

  • No fractional shares
  • $500 minimum investment
  • Limited customization

Betterment vs. Wealthfront: Comparison

Feature

Betterment

Wealthfront

Min. Investment

$0

$500

Management Fees

0.25% (Digital); 0.40% (Premium)

0.25%; 0.42%-0.46% (529 Plans)

Avg. ETF Expense Ratio

0.07%-0.15%

0.08% (0.11% for Risk Parity Portfolio) 

Account Types

Traditional IRA, Roth IRA, SEP IRA, Brokerage, Trust, Savings Account, Checking

Traditional IRA, Roth IRA, SEP IRA, Brokerage, Trust, Savings Account, Checking, 529 plans

Cash Reserve APY

0.40%

0.35%

Financial Advisor Fee

$199-$299 (Free With Betterement Premium)

Free

Best For

Specialized Portfolios

Financial Planning

Betterment vs. Wealthfront: Which One is Right For You?

Betterment and Wealthfront both have some nice features, and both make it easy to get started. And the fees for these robo-advisors are comparable.


One thing we like about Betterment is that it has no minimum investment. Anyone can start investing with Betterment, no matter how much (or how little) you have to start. Thus, Betterment is ideal for those who only want to invest a small amount in the beginning. It's also good for those who don't need much guidance, as Betterment Digital charges an extra fee for financial advice.


Wealthfront is better for higher-net-worth investors. That's true not only because of the those with $100k invested gain access to the Risk Parity portfolio, but they also gain access to stock-level tax-loss harvesting.


The only feature Betterment relegates to the $100,000 investment level is CFP access, but anyone can book a one-time call with a financial advisor for a flat fee.


While both Betterment and Wealthfront are solid products, Betterment is generally better for those who are just getting started. Plus, if you open a Betterment account through our link, you can get up to one year with no management fees on Betterment.


Open an account and get up to one year free with Betterment.

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.

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