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Betterment vs Vanguard: Which Robo-Advisor Is Best for You?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Investing money with a robo-advisor is one of the easiest ways to grow your wealth in the stock market. Robo-advisors use software algorithms to manage your investment portfolio with minimal input needed from you, and charge ultra low fees. Betterment is one of the most well-known robo-advisors, while Vanguard is among the largest investment firms in the world.

Both Vanguard Personal Advisor Services and Betterment combine access to live investment advisors with automated portfolio management. Betterment is ideally suited for beginning investors with smaller portfolios. Vanguard can work well for a DIY investor who wants guidance from live investment advisors and access to a wider variety of investments, and can meet the high minimum balance required. Read on for a closer look at how Betterment and Vanguard compare.

Betterment vs. Vanguard: Feature comparison

In many ways, Betterment and Vanguard have similar offerings, but there is a big, unavoidable difference between the two: minimum balance requirements. Betterment has no minimum balance requirement, so you can start using their services even if you have very little money earmarked for investing. Vanguard Personal Advisor Services requires a minimum balance of $50,000, which makes their robo-advisor best for investors who’ve already built up a significant nest egg.

BettermentVanguard
Management fee
  • 0.25% (up to $100,000)
  • 0.40% (over $100,000)
  • 0.30%
Average ETF expense ratio0.11%0.11%
Account minimum$0$50,000
Human advisorsHuman assisted for clients with at least $100,000 investedHuman assisted
Fractional sharesYesNo, although you can get them through dividend reinvestment programs
Tax loss harvesting
College savings optionsNoNo
Investment account types
  • Individual and joint taxable
  • IRA (and Roth)
  • Rollover IRA
  • SEP IRA
  • Trust
  • Individual and joint taxable
  • IRA (and Roth)
  • Rollover IRA
  • SEP IRA and SIMPLE IRAs
  • Trust
Savings account optionSmart Saver, 2.14% APY (not FDIC-insured)No
Ease of use
 
 

Betterment vs. Vanguard: Management fees

Betterment and Vanguard Personal Advisor Services have similar management fees, with several tiers based on the size of your investment account balance. Vanguard has three tiers:

  • 0.30% for accounts with assets below $5 million
  • 0.20% for accounts with assets from $5 million to below $10 million
  • 0.10% for accounts with assets from $10 million to below $25 million

Once you surpass the $25 million tier, Vanguard offers more personal options and better pricing.

Betterment has two tiers:

  • 0.25% for accounts under $100,000
  • 0.40% for $100,000 or more

With Betterment, having a higher account balance comes with access to human-assisted management, as well as more customized portfolio options. However, it’s a bit unusual to charge more when the portfolio balance is bigger. If you were to build up a $100,000 balance with Betterment, it might be worth moving to Vanguard Personal Advisor Services because you’ll end up with a lower management fee.

Finally, separate from the management fee is the expense ratio you’ll pay on the funds held in your account. The expense ratio is basically the fee you pay for owning the fund. It covers the cost of running the fund, including administration, legal, accounting and other services. It’s a percentage of the amount you have in the fund.

Both Vanguard and Betterment have an average fund expense ratio of 0.11%. So, if you have $10,000 in a fund, you can expect to pay about $11 a year on top of the management fees. Both management fees and expense ratios are taken out of your fund directly, so you won’t get a bill.

Realize, though, that expense ratios vary by fund, and that 0.11% is only an average of what you can expect on a medium-risk portfolio. Your actual expense ratios will be different, and your portfolio’s average could be higher or lower.

Betterment vs. Vanguard: Special features

Many of the special features offered by Betterment and Vanguard are similar. For example, both companies use a process of smart asset allocation to apportion investments where they are likely to do the most good. If you have a tax-advantaged individual retirement account (IRA) and a taxable investing account, both companies look for an allocation that places assets where they are likely to provide the most benefit, such as putting a municipal bond fund in your IRA.

Both Betterment and Vanguard offer human-assisted help with your portfolio. With Vanguard, you get access to human advisors as soon as you open an account — keep in mind, the minimum balance is $50,000. With Betterment, you only get access to a live human advisor once you have a balance of $100,000.

Another difference is that, even though Vanguard has a wider variety of funds available, it doesn’t offer a specific socially responsible portfolio. So, if you’re interested in a socially responsible portfolio, Betterment might be the better choice.

Both companies offer tax loss harvesting, which helps you minimize losses and maximize gains from tax situations that arise from buying and selling stocks. Betterment uses an algorithm to look for tax loss harvesting opportunities each day. Vanguard performs tax loss harvesting only when it’s called for in your financial plan, or when you make a change to your portfolio.

Rebalancing is used to bring your portfolio back in line with your desired asset allocation. Again, Betterment is more active in its approach, using an algorithm daily to determine whether your asset allocation has strayed out of line, and automatically adjusting. Vanguard rebalances quarterly, or might rebalance less often, depending on what your individualized plan calls for.

Betterment‘s advantages

  • Set up different goals: Rather than just having one account, you can track your progress for different goals. It’s possible to designate different asset allocation mixes, depending on what you want to accomplish and when you need access to the money.
  • Portfolio projection tools: In addition to different goals, you can project possible performance for each goal. This allows you to try different ideas and tweak your regular contributions, based on what you need to do.
  • Optimize your taxes: With the help of Betterment, you can maximize your portfolio’s tax efficiency. Betterment will make sure that the right assets are in tax-advantaged and taxable accounts. Additionally, Betterment will look for chances to harvest your tax losses.
  • Smart Saver: Betterment offers Smart Saver, an account separate from your investment balance that places funds in low-risk bonds to get a return that beats most traditional savings accounts. On top of that, Smart Saver will analyze your bank account to see if you could be putting your money to better use.
  • Sync other investment accounts: If you have other investment accounts and bank accounts outside Betterment, you can sync those up and see them in your account dashboard. Betterment will include those items in its projections and even offer suggestions on management so you’re getting the most out of your money — no matter where it is.
  • Option to get human help: You can also pay to speak with a financial professional to get help planning your portfolio and your financial path. If you have the Premium plan, with more than $100,000, you do have more access to professionals and a greater degree of customization.

Vanguard‘s advantages

  • Human-assisted advising: No matter your portfolio level, Vanguard offers access to advisors. You can make an appointment via phone or online to speak with someone about your planning needs.
  • Investment choices: Because Vanguard puts together its own funds, you have access to a wide variety of options. Plus, you can invest in Vanguard‘s Admiral class funds, without having to meet the minimum, which starts at $3,000 for most index funds. This provides you with a range of low-cost fund options.
  • Low fees: One of the hallmarks of Vanguard is its low fees. The management fee starts at 0.30% when you open an account with a minimum of $50,000. This is in line with many other robo-advisors. While you’ll initially pay less with Betterment, the reality is that once you reach $100,000 in your portfolio, Betterment becomes more expensive.
  • Holistic planning: Vanguard only manages the assets you have in your Personal Advisor Services portfolio on your behalf. However, if you have other accounts, including investment, savings, retirement and trusts elsewhere, Vanguard will take a look at those and incorporate them into planning and how they manage your portfolio.

Betterment vs. Vanguard: Which is best for you?

Both Vanguard and Betterment are strong choices for investors looking for a low-cost robo-advisor with access to human professionals. However, which service you choose depends largely on where you’re at right now, and what type of experience you’re looking for.

Betterment is more automated than Vanguard, so if you’re looking for a place to stick your money and not think about it, Betterment can be the right choice. However, if you want a more personal touch, Vanguard can be the better choice — especially if you can meet the steep $50,000 minimum.

Vanguard also offers more for the DIY investor, providing access to a wider variety of funds, and the ability to personalize a long-term plan, including designating when you want to rebalance. While there are more customization options with Betterment when your portfolio reaches $100,000, Betterment is really better for the hands-off investor.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Miranda Marquit
Miranda Marquit |

Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here

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Pay Down My Debt

3 Money Tips That Don’t Help Low-Income Earners

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

stressed worker job work
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“Can you look at my finances and tell me what I can do to get ahead?”

Even though I’m not a financial professional, my friend wanted my insight. She can’t afford a financial planner, and she figured it might help to have an outside view of what’s going on with her money.

She turned to me because I write about money on the internet, and she thought I had some knowledge that might help her — despite the fact that almost everything written online about managing money is practically useless for many low-income earners.

The reality of the situation is that almost all the financial advice offered online is aimed at the middle class. Here are some of the “basic” tips that many of us take for granted, but that are basically useless for someone who isn’t earning a living wage.

3 financial tips that may not work for low-income earners

1. ‘Cut out the unnecessary spending’

Once upon a time, 17 years ago, I was pregnant and my then-husband and I were struggling to make ends meet. Both of us were in school. About once a month we splurged and spent $10 on Wendy’s. A couple years later, we were still poor and in grad school. I carried a calculator with me to the grocery store to tally up what we bought; if we had room, we could buy a $3 loaf of focaccia bread as a special treat.

Let’s be honest. That $10 a month at Wendy’s wasn’t breaking our budget. And for many people who work 40 hours a week — or more — at minimum wage jobs, spending a few bucks here and there on a fast food meal isn’t the reason that they don’t have any money at the end of the month.

My friend is in that boat right now. If she’s lucky, by the time she pays rent on her modest two-bedroom apartment (her son lives with her), she has enough money left over to pay for gas to get to and from work, groceries, and insurance. She manages to avoid getting into debt, but just barely.

While looking through my friend’s spending, I was hard-pressed to find any place to cut — she was literally already cut down to the bone. Just about everything she spent money on was a necessity. Telling low-income people to just cut out one latte a day or skip dining out twice a week isn’t practical; they aren’t spending money on these things anyway.

2. ‘Create a monthly budget so you have a plan for your money’

Sure, you can track your spending when you’re poor, but it’s frustrating. The idea is that tracking your spending will help you create a budget. And when you have a budget, you can get your spending under control and plan for the future. Unfortunately, creating a budget often feels futile to those with low incomes.

And tracking your spending to build that budget?

Well, I knew where every penny was going back in my own scarcity days. I didn’t have a budget, but I was painfully aware of the fact that I paid $435 for rent on our one-bedroom apartment and that I could spend $35 on groceries for the week. (This awareness is also why our groceries were skewed to low-cost items like ramen and canned vegetables.)

The book “Hand to Mouth: Living in Bootstrap America” by Linda Tirado makes the point that middle class financial goals focus on long-term results. You create a budget today, presumably so you can meet other, more ambitious financial goals later.

However, when you’re living hand to mouth, you’re instead adapting to short-term circumstances, Tirado points out. Budgeting isn’t truly designed for short-term goals. You might not even know what the month holds in store for you.

My friend uses her last paycheck of the month to pay the following month’s rent. There’s just enough left over to buy groceries. The bulk of another paycheck in the month goes toward paying bills — some of which might be late or almost-late. You can see how this situation of being behind, or almost behind, creates a pattern that’s practically impossible to get out of, especially if you aren’t making a living wage.

My friend is fortunate enough to manage to stay out of debt, but she’s not sure if that would still be the case if she had an unexpected expense. Like 40 percent of Americans, if she faced a $400 emergency, she would probably have to turn to debt in order to cover it.

3. ‘Start a savings account’

Telling someone who’s lucky to have $10 to spend on Wendy’s at the end of the month to start a savings account is pretty useless. Sure, back then I could have put that $10 into savings. But then I would have had nothing to look forward to. That $10 — and some months it was actually $2 for a couple of Frostys — was what we had for “fun” money.

Today, the pressure of debt exacts a heavy psychological toll on many Americans. Many low-income Americans only have a few bucks each week to spend on something that helps them cope with the realities of their lives. There are nearly 40 million people living in poverty, and we act like the reason they can’t get ahead is because they spend $5 on a value meal as they head home from working a double shift on a Saturday night.

Shaming someone working a full-time job and just getting by for making the “bad decision” of spending $5 on a value meal at the end of the week, instead of putting it in a savings account, doesn’t address the underlying problem.

For many low-income workers, starting a savings account just doesn’t make sense. First of all, they might not even qualify for a savings account. And once you get past that hurdle, it seems pointless to be saving $40 per month and still having just as bleak an outlook. Even investing that money — something that’s way out of reach for many low-income Americans — won’t provide enough to retire on.

Is making more money a viable solution? Maybe not

In the end, I had to give my friend the bad news: “I’m sorry. You just need to make more money.”

She doesn’t have a second job, so she could conceivably start a part-time gig and boost her monthly income. Her main job doesn’t pay a living wage, and she’s barely scraping by. Idaho, where we live, has one of the highest percentages of workers earning minimum wage employment in the nation. However, even though the cost of living is relatively low, it’s not low enough for many workers. In fact, 46 percent of the people in Idaho Falls, the city where I live, find themselves in or near poverty.

And this is the case in many other places around the country. In order to get ahead, many workers have to make more money. But it’s not as simple as it sounds.

My friend would have to take time away from her son if she took on another job. Can we honestly say that she doesn’t deserve a little down time with her family, just because she doesn’t have a living wage job? Additionally, her health isn’t great right now and she doesn’t have the money for doctor visits — no employer-sponsored insurance. Working another job would likely break her body down further. Can she afford more health issues?

Trying to make an additional part-time job work under these circumstances doesn’t always make sense, even if you could make more money doing it. Working 50 or 60 hours a week, just to potentially have enough to start an emergency fund, might not seem worth it to someone, especially if that extra work doesn’t come with health benefits, a retirement plan, or anything else we like to associate with “good” jobs.

My friend has a college degree (she paid off the student loans a few years ago), but it hasn’t yielded the promised decent-paying job. She could get more education, but where would she find the time to go back to school? Between one full-time job and caring for her son, that doesn’t leave much time for educational pursuits. And there’s no guarantee that this next debt-purchased degree would result in a pay increase.

Systemic issues weigh down low-income earners

No one likes to be a Debbie Downer, but there are some true systemic issues that weigh low-income earners down. And it’s not just about student loan debt weighing down millennials and keeping them from achieving financial and life milestones — although that’s definitely an issue.

Sometimes, you just don’t have the support systems in place. For example, Idaho just passed a law that expands Medicaid coverage to a portion of its population. However, this law also includes work reporting requirements. Most of those who qualify under this new eligibility already work, but now they have to go through a burdensome process of reporting.

The exact rules haven’t been worked out, but for those without internet access, or a work schedule that allows them to fill out the paperwork and turn it into an office, the reporting requirements result in additional burdens to an already-burdened segment of the workforce. Similar rules in Arkansas and Kentucky were recently struck down in the courts because the barriers resulted in lost healthcare coverage.

Access to education, safety net programs and other resources requires time or money — and sometimes both. Our system of work, especially for those making minimum wage, isn’t designed to promote an abundance of time or money.

Even driving for a rideshare company, that ubiquitous side gig of the middle class, might be out of reach for low-wage earners. Lyft requires a four-door car and, in Idaho Falls, that car must be 2005 or newer. My friend’s 2002 two-door beater wouldn’t make the cut — and her credit file is too thin to qualify for her for a reasonable rate on an auto loan, assuming she could make the payments anyway.

Bottom line

When it feels like you’re going nowhere, and you’re already living on the edge, the hard reality is that you don’t need judgment for that $1 frosty — and you certainly don’t need another article about how to trim the fat from your monthly budget so you can start saving for the future.

There are ways to get out of the paycheck to paycheck life, but the path out usually requires a support system, extra time to make more money and the health to manage it all.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Miranda Marquit
Miranda Marquit |

Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here

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Investing

CNote Review 2019

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

In recent years, finding stable, reasonable yield has been difficult for savers. A traditional savings account rarely offers an attractive yield and the bond market has been somewhat anemic in recent years. This is where CNote comes in.

CNote is a company that takes your money and invests it in community development financial institutions (CDFIs). Basically, these lenders issue loans to local governments, nonprofits and businesses owned by minorities and women. CNote invests your money with its partners and offers you a return.

CNote
Visit CNoteSecuredon CNote’s secure site
The Bottom Line: CNote offers you the chance to earn relatively stable yields that beat traditional savings accounts while allowing you to make a positive social impact in communities across the country.

  • Annual return beats that of most traditional savings accounts.
  • Investments are used for social impact.
  • CNote has no fees, but it does come with liquidity restrictions.

Who should consider CNote

CNote is meant as a savings account or bond market alternative. It’s not designed to offer inflation-beating potential returns like those seen in the stock market. Instead, it’s more likely to be appropriate for savers who are frustrated with their current yields and want a relatively stable way to boost what they’re earning each year.

Additionally, the social impact aspect of CNote could make it attractive to those looking for socially conscious ways to put their money to work. CNote’s CDFI partners invest in small businesses and community development projects, so for those who like the idea of doing good while their money earns interest, this can be an option.

However, CNote comes with limited liquidity. There are only four times a year that CNote allows for withdrawals (with 30 days’ notice), and at those times you’re limited to withdrawals of $20,000 or 10% of your balance, whichever is higher. (CNote does consider special circumstances and may allow larger or unscheduled withdrawals at their discretion.)

Those who need access to their money for goals in the medium term (four to seven years out) could benefit from CNote, but withdrawals require planning. As a result, it likely doesn’t make sense to use CNote as an emergency fund where immediate liquidity is needed.

CNote fees and features

Amount minimum to open account
  • $1
Commission$0
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $0 full account transfer fee
  • $0 partial account transfer fee
  • $0 inactivity fee
Account types
  • Individual taxable
  • Trust
Customer supportPhone, Email

Strengths of CNote

CNote offers an interesting twist on social investing with the expectation of relatively stable returns.

  • Yield that beats traditional savings accounts: One of the stand-out features is CNote’s advertised return of 2.75% APY (or more). This is much better than most traditional savings accounts. In fact, as of this writing, CNote offers returns higher than the five-year Treasury yield. That means you could see a higher yield for medium-term savings than what’s available with other savings options.
  • No fees: CNote doesn’t charge any fees. Instead, the service makes money on the difference between what they pay you in yield and what they receive from investments made with CDFI partners.
  • Social impact investing: If doing good is important to you, CNote offers a way for you to do that. Your money goes toward helping provide affordable financing to underserved communities for projects like affordable housing, community development and minority-owned businesses.
  • Trust and business accounts: You can open a CNote account as part of a trust or use it for business purposes. Depending on your needs, this can be helpful in your asset management plan.

The service is fairly straightforward and comes with no costs, but it has the potential to help you earn a higher yield on money that might otherwise be sitting in a low-yield savings account.

Drawbacks of CNote

While CNote offers an innovative way to maintain a stable yield, there are some issues that you need to be aware of before you invest.

  • Limited liquidity: This isn’t a deposit account and your money doesn’t remain immediately accessible to you. CNote isn’t simply holding your money; instead, it’s investing your money with its partners. As a result, you need to provide advance notice before withdrawing your money — and you can only withdraw at certain times during the year.
  • Yield is still too low for long-term wealth building: Even though the yield is higher than a traditional savings account, it’s still not high enough for effective long-term wealth-building. If you’re looking for a way to build your nest egg, consider Stocks, Mutual funds and ETFs.
  • No tax-advantaged options: CNote doesn’t offer you the opportunity to invest with tax advantages. There aren’t IRA or 529 options.

If you decide to use CNote, it’s important to understand how you want to use it in your overall portfolio, since there are limitations to when you can access to your money and limited usefulness as a long-term investment vehicle.

Is CNote safe?

It’s important to note that CNote isn’t a depository institution and it isn’t protected by the FDIC. That means if CNote fails, there’s no guarantee you’ll get your money back. However, the loans made by its CDFI partners to community and municipal projects are generally considered low-risk with stable returns, on par with high-quality Bonds. Most of the projects funded by CDFIs are usually vetted heavily and CDFIs impose their own requirements on borrowers.

CNote also uses what it calls Triple Protection to limit potential losses. Because CNote isn’t a holding company, they don’t keep your money; instead, it goes to CNote’s CDFI partners. CNote only contracts with partners that use government-guaranteed programs, which offer a layer of protection. CNote’s partners are also contractually obligated to repay the loans they receive from CNote, even if something goes wrong. Finally, CNote has a loan loss reserve to help cover potential losses.

However, like any investment, there is still a risk, and you could lose capital in addition to missing out on returns.

Final thoughts

If you’re interested in boosting your yield on a chunk of capital that isn’t doing much, CNote could be an interesting place to park your cash. The returns could be fairly stable and may beat what you’ll get at with a savings account. Plus, you get the added bonus of feeling good about making a positive social impact.

However, you do need to be aware of the liquidity limitations and understand that pre-planning is needed before you access the money you invest using CNote.

Open a CNote accountSecured
on CNote’s secure website

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Miranda Marquit
Miranda Marquit |

Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here