Betterment vs. Wealthfront: Which is Best for You?
Betterment vs Wealthfront: Are you in search of the best Robo-adviser available? Or are you trying to compare Betterment vs Wealthfront which is best for you? Not to worry in this article all of your questions will be answered. Helping you with the best online decision platform, to decide when to invest and when not to.
- What is a Robo-Advisor?
- Betterment Review
- Wealthfront Review
- Betterment vs Wealthfront: Comparism
- Betterment vs Wealthfront: Similarities
- Which Is Better? Betterment vs Wealthfront
A typical robo-advisor collects information from clients about their financial situation and future goals through an online survey and then uses the data to offer advice and automatically invest client assets.
You should note that; the robo-advisor industry was pioneered by Betterment and Wealthfront. And while the companies started out with very similar models, they’ve slowly made changes to differentiate themselves.
What then is a Robo-advisor and how can it be of help to me.
What is a Robo-Advisor?
Robo-advisors (also spelled robo-adviser or roboadvisor) are; digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision.
They are software products that can help you manage your investments without the need to consult a financial advisor or self-manage your portfolio.
Robo-advisors are often very inexpensive and require very low opening balances. Therefore, nearly everybody can benefit from a Robo-advisor if they choose.
Benefits of Using a Robo Advisor
There are a few key advantages to outsourcing portfolio management to software:
- You can avoid investing mistakes. Investors make emotional decisions at market highs and market lows and based on gut feelings. Software doesn’t make these kinds of mistakes.
- You can automate the process. Once you open your account, the robo-advisor software takes care of the investment process. You don’t have to worry whether you should make changes to your portfolio or invest more or less in a given market sector. Also you don’t even have to log in to the account and place trades.
- You can invest a smaller amount at a lower cost. Advisory firms generally require a higher amount to initially invest and impose fees that are often higher than those charged by robo advisors. Also you don’t have to worry that a broker is making a recommendation that isn’t in your best interest.
Betterment is one of the first robo-advisors, and many consider the company to be the one that started the industry. It is dated back to 2008.
Betterment focuses on putting your investments into low-cost, diverse exchange-traded funds (ETFs) that match the risk profile you provide when opening a new account.
You can get started with no minimum deposit, and Betterment invests 100% of your dollars automatically. You never have a cash balance in your account; everything is immediately invested based on your risk profile.
Over time, tax-loss harvesting can add up to big savings. It can offset up to $3,000 per year of ordinary income and carries forward if you go over.
Betterment requires no minimum balance and charges a 0.25% annual fee, or about $25 per year for every $10,000 invested, for a regular digital account.
Wealthfront also came onto the scene in 2008, but its current iteration didn’t exist until about 2011, giving Betterment a three-year head start in the robo-advising space.
However, Wealthfront offers a product that gives you even better tax results than you can get with Betterment’s tax-loss harvesting; stock-level tax-loss harvesting (formerly known as direct indexing).
Stock-level tax-loss harvesting is similar to a regular tax-loss harvesting strategy, but instead of investing only in broad market ETFs.
Wealthfront algorithms invest directly in S&P 500 stocks. However, you only gain access to stock-level tax-loss harvesting when your taxable investment balance reaches $100,000. Once you reach $500,000, you can join the more powerful Smart Beta product.
In addition, Wealthfront requires a $500 minimum deposit to open a new account. Otherwise, Wealthfront offers a more or less identical investing service to Betterment.
After you fill out a risk profile, Wealthfront’s automated algorithms invest your money in a range of ETFs.
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Betterment vs Wealthfront: Comparism
|Annual Fees||Digital – 0.25%/year; Premium – 0.40%/year||0.25%/yr.|
|Tax Loss Harvesting||Yes||Yes|
|Promotions||Up To 1 Year Free||$5k Managed for Free|
Betterment vs Wealthfront: Similarities
Both firms offer a lot of features. First, let’s discuss the similarities between both companies.
|Investment Account Types||Traditional IRA, Roth IRA, Rollover IRA, SEP IRA, taxable, joint and trust investment accounts.|
|Automatic Rebalancing||Rebalance your portfolio if out of alignment with the desired allocation.|
|Tax-Loss Harvesting||No minimum deposit for this service.|
|Socially Responsible Investing||Both services allow you to align your beliefs and values with your investments via Socially Responsible Investing (SRI), although how each firm implements SRI is slightly different.|
|SIPC Insured||SIPC protects against the loss of cash and securities — such as stocks and bonds — held by a customer at a financially troubled SIPC-member brokerage firm. The limit of SIPC protection is $500,000, which includes $250,000 for cash.|
|Referral Program||You share a link with your friends, and you get credit. With Wealthfront, you get an additional $5,000 managed for free. Betterment offers one free month for every referral and one free year for every three referrals. Both have no limit to how much you can accrue.|
Which is Better? Betterment vs Wealthfront
Let’s take a look at the areas where Betterment and Wealthfront differ.
- Wealthfront requires a minimum of $500 to invest; Betterment doesn’t
- Wealthfront’s fees are 0.25%; Betterment’s fees are 0.25-0.40%
- Wealthfront supports 529 college savings accounts; Betterment doesn’t
- Betterment offers fractional share investing; Wealthfront doesn’t
- Betterment’s Premium level offers human assistance; Wealthfront’s advice is totally automated
In conclusion, the basic offerings at Betterment and Wealthfront are similar and fit the standard robo-advisor mold. Both include; automatic portfolio rebalancing, tax-loss harvesting and portfolios of low-cost exchange-traded funds.
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