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Updated on Thursday, January 30, 2020
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.
|Average ETF expense ratio||0.11%||0.11%|
|Human advisors||Human assisted for clients with at least $100,000 invested||Human assisted|
|Fractional shares||Yes||No, although you can get them through dividend reinvestment programs|
|Tax loss harvesting|
|College savings options||No||No|
|Investment account types|
|Savings account option||Everyday Cash Reserve, 1.83% APY||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.
- 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.
- Everyday Cash Reserve: Betterment offers Everyday Cash Reserve, a high-yield savings account separate from your investment balance. It’s similar to savings accounts offered by online banks, and features competitive APYs on the funds you stash in savings, as well as $1 million in FDIC insurance.
- 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.
- 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.