Betterment vs. Vanguard: A Financial Planner’s Comparison
If betterment vanguard financial planner is on your radar, this short guide cuts through the noise. Here is what is worth knowing, and how to put it to work today.
Key Takeaways
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- Betterment and Vanguard both provide users with a way to invest their funds safely, but each has its own unique advantages and disadvantages...
Betterment and Vanguard both provide users with a way to invest their funds safely, but each has its own unique advantages and disadvantages.
So which is the right choice for you?
In this Betterment vs. Vanguard comparison, we’ll help you answer that question by taking an in-depth look at factors such as the two platforms’ investment offerings, features and fees.
Table of Contents
ToggleOur Take
Before we dive into the details, here’s a top-level summary of what you need to know.
The Case for Betterment
Betterment works best for those who are new to investing and may need additional help learning the ropes. As a robo-advisor, the company charges a reasonable fee to take most of the responsibility of investing off your shoulders.
Betterment doesn’t have a minimum balance, making it ideal for younger investors who might be short on cash. However, it only allows you to invest in a limited number of pre-built portfolios; you can’t pick and choose your own stocks and mutual funds.
In short, using Betterment means you’re giving up some control in order to start investing quickly and put your money in more experienced hands.
Betterment portfolios are based on modern portfolio theory, which one can say is a bit more advanced than what Vanguard offers with their Target Date retirement funds. In theory, these should offer a slightly greater reward with no additional risk.
As they offer tax-loss harvesting, Betterment is also a solid choice for hands-off investors in higher tax brackets who are looking to invest within a taxable portfolio. However, one thing to watch out for when investing in a taxable account with Betterment (or any robo-advisor) is that you can’t simply move your portfolio to another brokerage. Instead, you have to sell the entire portfolio , which means realizing capital gains from the sale , and then deposit the cash into your new brokerage.
Betterment offers a full suite of financial services, including an FDIC-insured checking account and a high-yield savings account called Cash Reserve. While most investors utilize Betterment to invest in index funds, the company also offers crypto investing and a Smart Beta portfolio that aims to beat the market.
The Case for Vanguard
Alternatively, Vanguard offers the best of both worlds. Their Target Date retirement funds allow you to utilize a completely hands-off strategy. If target date-retirement funds don’t align with your goals, there’s also Vanguard Digital Advisor, a service that automatically rebalances your portfolio. Digital Advisor fees are 0.20% for the assets you’re having Vanguard manage and primarily used for those investing for retirement.
You can also take more control over your investments , by investing in individual stocks, mutual funds and ETFs, among other vehicles , if and when you’re ready.
Additionally, numerous of Vanguard’s offerings come with relatively low fixed annual fees. That’s due in large part to the company’s unique organizational structure , it’s essentially owned by its investors, which allows it to keep its costs (and thus its fees) as low as possible.
Depending on how you set up and use your account, you may save a significant amount of money using Vanguard compared to Betterment.
One big difference between the two platforms is that Vanguard does require more capital ($1,000) to open an account. While that may not seem like a big sum to numerous investors, it can be a prohibitive barrier to those who are just getting started investing.
Vanguard portfolios follow an index fund approach but are not necessarily optimized for modern portfolio theory. As you can see, they contain fewer asset classes overall than Betterment.
Unlike Betterment, there’s no monthly fee for Vanguard users. Instead, there’s only a $20 annual fee, which can be waived by signing up for e-delivery.
For clients with larger accounts ($500,000 and above), Vanguard offers dedicated financial advisors (CFPs) to help manage your wealth.
How to Choose
Our view is that it’s key to start investing as early as possible. The market goes up and down, but it has consistently produced solid returns when viewed from a long-term perspective.
The earlier you get started, the more your investments will compound and grow over time , and the better off you’ll be when you’re ready to start drawing on those funds.
In other words, it’s about time in the market rather than timing the market.
Also, choosing a passive investment strategy , such as choosing between Betterment’s optimized portfolio and Vanguard’s Target Date funds , is really a toss-up. In all likelihood, the 10-year and 20-year returns of each will be very comparable. In other words, both are good options.
So if you have limited cash on hand, or very little knowledge about the markets, using a platform like Betterment is a excellent choice. Its low barrier to entry makes it simple to get started and you don’t need to know the first thing about investment strategy, which reduces your risk of loss.
But if you’re more comfortable with investing and have the required capital, Vanguard gives you considerably more flexibility, as well as access to features and services that will be valuable as your net worth increases.
Key Facts
BettermentVanguardMinimum Balance$0$1,000 to $3,000 (varies by account type).Supported AccountsIndividual and joint taxable accounts, IRAs (inherited, Roth IRA, SEP IRA, and traditional), and trust accounts.Brokerage, individual and joint taxable accounts, IRAs (Roth IRA, SEP IRA, and traditional), SIMPLE accounts, 401(k), 529 savings plan.Investment TypesPre-built portfolios, high-yield savings accounts.Bonds, exchange-traded funds, money markets, mutual funds, and individual stocks.Fee Structure $4 per month for investment balances under $20,000. 0.25% annual fee for balances over $20,000.Starts at $20 and varies depending on account type and usage.Human AdvisorsAccess to CERTIFIED FINANCIAL PLANNERS™ for an additional fee, or free with a Premium plan ($100,000 minimum investment required).Unlimited access with Vanguard Personal Advisor Services, which costs up to 0.30% (per year) of your assets managed on the platform and has a minimum investment of $50,000.Automatic RebalancingBetterment offers investment vehicles that rebalance automatically based on your goals and a number of factors.For an additional 0.20% annual fee, you can utilize Vanguard Digital Advisor for automatic rebalancing.Socially Responsible InvestingBetterment offers one pre-built socially responsible investment portfolio.Vanguard offers four ESG funds, which focus on environmental, social and governmental factors.Tax Loss InvestingYes.No tax-loss harvesting services are available.SIPC InsuredYes.Yes.
Originally published at thewaystowealth.com.
R.J. Weiss
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