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How Brokerage Accounts Work

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.

You’ve saved up a healthy emergency fund and have a handle on your debts — what’s the next step in your financial journey? For many, learning how to invest their spare cash is a good financial move.

But taking that step can be hard, and the number of investments options you have may seem overwhelming. However, if you’re ready to start investing, consider opening a brokerage account.

What is a brokerage account?

A brokerage account is a means for investors to invest in the stock market. Brokerage accounts are operated through licensed brokerage firms. Through the account, investors can deposit funds and buy investments. The types of investments usually purchased through a brokerage account include stocks, mutual funds and bonds.

Once you set up a brokerage account, you will be able to buy and sell investments through the account. Although the account is through a firm, the investor will be the owner of the account’s assets.

Think of your brokerage account as a gateway to investing. Through the account, you will be able to make purchases and trades. The amount of flexibility you have within your account will depend on the firm you choose to work with. Let’s take a closer look at the most common requirements of these accounts.

Fees

Each brokerage firm will have a slightly different structure, but every firm will include fees of some kind. The most common fees are outlined below. Before you get started with a brokerage firm, you need to understand the fee structure.

  • Brokerage fee. An annual or monthly fee that is charged to maintain your account. The fee could include add-ons, such as access to specialized research. The fee may be a flat fee or standard percentage; some firms enforce a combination of both.
  • Transaction fee. Every time you buy or sell a stock, you will be charged a fee. It is typically a flat fee, but the amount will vary by firm. These fees can add up quickly if you make a lot of trades. Transaction fees can also apply to mutual funds.
  • Management fee. When your account is managed by a broker, they will charge a fee for that maintenance. The fee is typically a percentage of the total assets managed by the advisor. The more involvement provided by the brokerage firm, the higher the fee.

Account minimums

Many firms have account minimums in place, though the exact amounts vary widely by firm. Some accounts will require thousands of dollars as a minimum, while others will require only a small amount. Typically, accounts that offer smaller minimums will require you to make regular deposits. If your balance falls below the minimum, you will likely be charged a fee.

Eligibility

Brokerage accounts do have some limitations on who can open them. There are some basic requirements to meet, such as requiring account holders to be 18 years or older and have the money to fund the account. Both of these are fairly simple to achieve.

Depending on the brokerage firm you choose to work with, there may be other hoops to jump through. Some require more information about your employment status. Others may ask questions about your net worth. Be prepared to answer a variety of questions when you fill out the application.

Cash or margin

When you sign up for a brokerage account, you often have the choice between a cash account or a margin account. A margin account will allow the broker to lend money to the investor in order to finance investment purchases.

You will need to determine whether you want to purchase your investments with saved cash or through a loan. Typically, a cash account is a safer, cheaper option for new investors.

What to look for in a good brokerage account

The number of available brokerage firms is substantial, but don’t just choose one randomly. In the long run, it’s vital that you find the appropriate brokerage firm for your needs. Otherwise, you may be paying too much for services you don’t use.

You should be able to find one that fits your needs with a little bit of research. Before you commit, consider these factors.

Choose between a full-service broker and a discount broker. A full-service broker provides a more personalized service to each customer. You should expect access to extensive research, specialized advice and more. A discount broker allows you to perform trades but offers less personal advice. The advantage of a discount broker is that the fees involved are substantially less.

Compare the fees. Research the fees levied by each firm. Think about the frequency you plan to trade and the account balance you would like to maintain. The fees associated with each could add up quickly if you choose a bad match.

Investment opportunities. Not every brokerage firm offers every type of investment. Choose a firm that offers a variety of investment vehicles that suit your needs.

Educational resources. Some brokerage firms give you access to information about potential investment opportunities. As an investor, access to the right information can be critical to success. If you plan to do your own research on investments, having organized information in one place is a time saver.

User experience. If you’re choosing an online brokerage firm, check out the website. You want the site to be easy to navigate and conduct business through. You don’t want to sign up for an account with a firm that has an outdated website.

Perks offered. Some larger brokerage firms offer incentives to sign up. Some firms offer cash bonuses for opening an account, for example, while others offer a certain number of free trades. Take advantage of an incentive if your needs align with that firm, but don’t choose a firm based solely on the new customer perks.

How to open a brokerage account

After you choose the brokerage firm, you will need to physically open the account. Here’s what you need to do.

Collect the paperwork. As with almost everything financial, there will be paperwork involved. You will need to provide some personal information which may include your Social Security number, driver’s license, employment status, net worth and more. The type and amount of paperwork will vary by brokerage firm.

Fill out the application. The application is usually an online process that takes a few minutes. Once you have filled out the application, you will need to wait for approval.

Fund the account. When your account is approved, you’ll need to fund it. You can use a variety of methods to fund your account, including an electronic funds transfer, wire transfer or check.

Research investments. When the account is funded, you will be able to make your first investment purchase. Before you order the purchase, do some research about the investment to make sure you fully understand what you’re buying.

Make a purchase. Finally, you can make a stock purchase through your investment account. After this step, you can continue to research and purchase investments in order to grow your account.

Final thoughts

Opening a brokerage account could be the next step toward your financial goals. Before you get started, weigh your options carefully.

The best thing to do is not rush into any quick decisions about your brokerage account. The right brokerage firm can significantly improve your investment experience, and a better experience can lead to a more productive investment account.

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.

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Sarah Sharkey |

Sarah Sharkey is a writer at MagnifyMoney. You can email Sarah here

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The Best Robo-Advisors of 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.

If you’re new to the world of investing in stocks and bonds, knowing where to begin can be an intimidating prospect. Robo-advisors could be the best choice to start your investing journey. They make putting money in the market simple and intuitive utilizing smartphone apps and sophisticated computer algorithms.

Robo-advisors invest your money in diversified portfolios of stocks and bonds that are customized to your needs. Since computers do the work, they are able to charge much lower fees than traditional wealth advisors.

They begin the process with a questionnaire to assess your financial goals and your risk tolerance. Based on your answers, robo-advisors purchase low-cost exchange-traded funds (ETFs) for you and adjust the portfolio — or rebalance, as they say on Wall Street — on a regular basis, with no further intervention required from you.

To match your risk tolerance, robo-advisors offer more aggressive portfolios containing a greater percentage of stock ETFs, or more conservative ones containing a greater percentage of bond ETFs. The robo-advisor will also consider your age in developing your portfolio.

How we chose the best robo-advisors

We regularly review the latest robo-advisor offerings — we’ve evaluated 19 different ones in this round — and have selected our top choices. All of the robo-advisors on this list may well be worth considering, with those at the top scoring the best in our methodology.

To determine our list of the best robo-advisors, we focused on management fees and account minimums, and also considered ease of use and customer support.

The top 7 robo-advisors of May 2019

Robo-advisorAnnual Management FeeAverage Expense Ratio (moderate risk portfolio)Account Minimum to Start
Wealthfront0.25%0.09%$500
Charles Schwab Intelligent Portfolios0.00%0.14%$5,000
Betterment0.25% (up to $100,000), 0.40% (over $100,000)0.11%$0
SoFi Automated Investing0.00%0.08%$1
SigFig0.00% (up to $10,000), 0.25% (over $10,000)0.15%$2,000
WiseBanyan0.00%0.12%$1
Acorns$12/yr0.03%-0.15%$5

Wealthfront — Low fees, high APR for cash account

Wealthfront
Wealthfront’s stand-out features are its low annual cost and free financial planning tools. The 0.25% management fee and 0.09% average ETF expense ratio adds up to one of the lowest annual costs on this list. In addition, Wealthfront includes a cash management account with an attractive 2.57% APY.

Wealthfront continues to steal share in wealth management as customers fed up with high fees leave traditional brokerages and wealth advisors. Human interaction is intentionally minimal at Wealthfront: This could be a benefit to those who want to be left alone, or a drawback for those who would prefer personal attention or who have complicated tax situations.

Wealthfront’s key attributes:

  • Fees: Management fee of 0.25%, plus 0.09% avg ETF expense ratio
  • Minimum starting deposit: $500
  • Investing strategy: Wealthfront invests your money in one of 20 different automated portfolios. Each portfolio is a different mix of 11 low-cost ETFs, which are rated with risk scores from 0.5 (least risk) to 10.0 (most risk).
  • Average annual return over the past five years: 5.40% per year, based on Wealthfront’s mid-level 5.0 risk score.
  • Other notable features: Tax-loss harvesting (see below for a full explanation of tax-loss harvesting) comes standard, also includes an FDIC-insured cash management account yielding 2.57% APY.

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Charles Schwab Intelligent Portfolios — Brand-name brokerage

Charles Schwab
Intelligent Portfolios can be a smart choice, but do not be misled by the 0% management fees — investing with this robo-advisor still comes at a cost. Intelligent Portfolios requires users to hold 6% to 30% of deposited funds in cash at a 0.70% APY, which will eat into overall returns in years where the market returns above 0.7%. This is on top of an average 0.14% expense ratio for a moderate portfolio. The $5,000 minimum deposit to open an account may also be too high a bar for investors just starting out.

That said, Intelligent Portfolios has an exceptionally detailed description of their ETF selection methodology, and a major brokerage like Schwab can be a good launchpad for folks who anticipate getting deeper into investing. Intelligent Portfolios users get access to Charles Schwab’s 300 U.S. branch locations where you can talk to advisors and handle administrative tasks in person.

Key attributes of Intelligent Portfolios:

  • Fees: Zero management fee, but customers must hold 6% to 30% of their portfolio in cash at 0.7% APR, plus 0.14% avg ETF expense ratio.
  • Minimum starting deposit: $5,000
  • Investing strategy: Schwab invests your money in a custom portfolio with two main components: ETFs representing up to 20 different asset classes, including stocks and bonds; and cash, in the form of a FDIC-insured cash sweep program earning 0.7% APY. Cash must be between 6% and 30% of the portfolio.
  • Average annual return from 3/31/2015 to 12/31/2018: 3.1% per year for medium-risk portfolio
  • Other notable features: Tax loss harvesting available for accounts over $50K, includes access to in-person assistance at over 300 U.S. branch locations.

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Betterment — Low fees for balances under $100K

Betterment
Betterment offers a full suite of robo-advisor features at low cost with no minimum deposit. The annual management fee for accounts under $100,000 is 0.25%, plus an average 0.11% expense ratio. Unfortunately, accounts over $100,000 will see the annual management fee jump to 0.40%. One advantage Betterment gives to accounts above the $100,000 threshold is that they can actively manage some assets. If active management is your goal, though, you can avoid Betterment’s 0.40% fee by opening a free brokerage account — so if you are managing more than $100,000, you may want to consider a different robo-advisor.

Betterment’s key attributes:

  • Fees: If total balance is less than $100,000, the annual management fee is 0.25% of assets; for balances over $100,000, management fee rises to 0.40% of assets. The average ETF expense ratio is 0.11% (for a 70% stock and 30% bond portfolio).
  • Minimum starting deposit: $0
  • Investing strategy: Betterment invests your money in an automated portfolio comprised of stock and bond ETFs in 12 different asset classes.
  • Average annual return over five years: 6.2% per year on a 50% equity portfolio (July 2013 to July 2018).
  • Other notable features: Tax-loss harvesting comes standard; active management features for clients with $100,000+ balance; several premium portfolios available.

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SoFi Automated Investing — Low costs, great perks

SoFi
SoFi Automated Investing’s 0.00% management fee and ultra-low 0.08% average expense ratio makes it one of the most competitively-priced robo-advisors in the market. Valuable perks come with opening a SoFi account, including free access to SoFi financial advisors, free career counseling and discounts on loans.

Automated Investing’s main downside is that their portfolios are less customizable than its peers’, with only five different risk levels to choose from, as opposed to at least 10 available from others. SoFi does not offer tax loss harvesting yet, though this may change in the near future.

SoFi Automated Investing’s key attributes:

  • Fees: Zero management fee, plus 0.08% avg expense ratio.
  • Minimum starting deposit: $1
  • Investing strategy: All SoFi Automated Investing portfolios are actively managed. This means that real humans at SoFi decide the makeup of the five model portfolios, which they believe will add value beyond what passive investing offers. SoFi invests your money in one of five portfolios of low-cost ETFs, covering 16 different asset classes. Each of the five portfolios has two versions: one is for taxable accounts and the other for tax-deferred or tax-free accounts, like IRAs and Roth IRAs. SoFi only rebalances portfolios monthly, versus some peers which check for this opportunity daily.
  • Average annual return over five years: 6.78% per year on the moderate risk portfolio (60% stocks / 40% bonds).
  • Other notable features: Commission-free stock trades in separate Active Investing accounts. SoFi’s combined checking/savings product, SoFi Money, offers 2.25% APY on deposits. Customers must open this account separately.

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SigFig — Free access to advisors

SigFig
Free access to financial advisors by phone and 0.00% management fees on the first $10,000 deposited are SigFig’s biggest strong points. On deposits over $10,000, management fees rise to 0.25%. Expense ratios are on the high side compared to the competition, at an average of 0.15%.

One of SigFig’s peculiarities is that they do not hold your assets. If you open a new account, SigFig will open an account at TD Ameritrade for you and then manage it. Current TD Ameritrade, Fidelity and Charles Schwab customers can also use SigFig’s robo-advisor services.

The $2,000 minimum deposit may put SigFig out of reach for some, but SigFig is worth a look for investors looking to keep robo-advisor costs low.

SigFig’s key attributes:

  • Fees: Zero annual management fee for the first $10,000; management fee rises to 0.25% of assets on balances over $10,000. Average ETF expense ratio of 0.15%, depending on allocation.
  • Minimum starting deposit: $2,000
  • Investing strategy: SigFig invests your money in an automated portfolio based on how you indicate you want to invest. Each portfolio is made of ETFs from Vanguard, iShares and Schwab, comprising stocks and bonds in nine different asset classes. The specific ETFs SigFig invests in will vary based on whether your account is held at TD Ameritrade, Fidelity, or Schwab.
  • Average annual return over five years: 5.45% per year for moderate portfolio (as of 4/24/2019)
    Other notable features: SigFig has a free portfolio tracker that allows investors to track their entire portfolio’s performance across multiple brokers.

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WiseBanyan — No-frills choice for beginners

WiseBanyan
A 0.00% management fee for core robo-advisor functionality makes WiseBanyan a good choice for beginning investors who can get by with a no-frills offering. Make sure to notice that they still charge a 0.12% average ETF expense ratio, so it is not completely free.

WiseBanyan charges premiums for features that come standard with other robo-advisors, including tax loss harvesting (0.24% of assets up to $20/month max), expanded investment options ($3/month) and auto-deposit ($2/month). If you care about these other features, do the math based on your own portfolio size to compare WiseBanyan to its peers.

WiseBanyan’s key attributes:

  • Fees: Zero management fee, plus average ETF expense ratio of 0.12%. Premium features carry additional fees and higher expense ratios.
  • Minimum starting deposit: $1
  • How WiseBanyan invests your money: For basic Core Portfolio users, portfolios comprise ETFs across nine asset classes, with an average expense ratio of 0.03% to 0.69%. If you upgrade to the Portfolio Plus Package, you gain access to 31 total asset classes with exposure to ETFs tracking oil and gas, precious metals and other industries, with an average expense ratio of 0.03% to 0.75%.
  • Average annual return over five years: Not provided
  • Other notable features: Premium offerings, including tax loss harvesting (0.24% /month up to $20/month max), Fast Money auto-deposit ($2/month) and Portfolio Plus ($3/month).

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Acorns — Unique savings functionality

Acorns
By rounding up the spare change from your transactions and placing it into an investment account, Acorns provides a clever way to get started with investing. The main drawback is that, until you have more than $4,800 deposited in an Acorns Core account, the $1/month fee will actually be proportionally higher than the 0.25% management fees that most competitors charge.

Acorns does not offer tax loss harvesting, joint accounts, or access to financial advisors currently. Still, if you’re looking for an easy way to start investing, give Acorns a shot.

Key attributes of Acorns:

  • Fees: $1/month for Acorns Core, plus ETF expense ratios ranging from 0.03% to 0.15%
  • Minimum starting deposit: $5
  • How Acorns invests your money: Acorns invests your money in one of five automated portfolios— notably, this is a more limited number of portfolios than some other competitors. Each portfolio comprises ETFs across seven asset classes.
  • Average annual return over past five years: Not provided
  • Other notable features: Offers two add-on accounts for expanded functionality with Acorns Later retirement product ($2/month) and Acorns Spend checking account ($3/month).

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What is a robo-advisor?

A robo-advisor is a service that uses computer algorithms to invest customers’ money in portfolios customized to their needs. Since robo-advisors create these portfolios using automated algorithms, they can charge a fraction of what human advisors do and still offer advanced benefits like auto-rebalancing and tax-loss harvesting to boost overall returns. Most robo-advisors start with a questionnaire to assess your financial goals, risk tolerance and assets. Based on the answers, the robo-advisor allocates your investments accordingly.

How do I choose the right robo-advisor?

When considering which robo-advisor to choose, you should focus on management fees, minimum balances, ease of use and customer support. The lower the fees, the more money stays in your account. The top robo-advisors typically charge a flat management fee of 0.00% to 0.50% of your deposited balance. In addition, you pay an expense ratio to cover the fees charged by the companies offering the ETFs that comprise your investment portfolio. Note that some robo-advisors claim to offer zero management fees, but still charge an expense ratio.

Make sure you are comfortable leaving your deposits with a robo-advisor for the medium to long term — think five to eight years. There are a number of robo-advisors with $0 account minimums and most are under $5,000 today.

How do I open a robo-advisor account?

Most robo-advisors can have you up and running with an account in a few minutes. Typically you create a username, fill out a questionnaire to assess your financial goals and risk tolerance and connect your profile to a bank account. There may be some additional steps required for verification depending on the robo-advisor.

What other features should I consider?

Robo-advisors offer a host of additional features, including tax loss harvesting, cash management options, checking accounts and rewards programs. Cash management can provide a meaningful compliment for users who keep some of their portfolio in cash. Some robo-advisors offer an APY of more than 2.00% on cash management accounts. Tax loss harvesting can make a difference for users looking to lower tax exposure.

What is tax loss harvesting?

Tax loss harvesting is a tax strategy that some robo-advisors offer to help clients reduce their tax bill. Generally, this involves selling an asset that has lost value for a loss, using that loss to offset capital gains taxes or income taxes, then purchasing a similar but not “substantially identical” asset to maintain exposure to the asset class. The details behind each robo-advisor’s strategy can get complicated and should be looked at in detail to make sure you understand what you are getting into.

Capital losses from tax loss harvesting can be used to offset capital gains and can potentially offset up to $3,000 (or $1,500 if married and filing separately) of ordinary income.

What if my robo-advisor goes out of business?

While not a pleasant thought, it is possible that a robo-advisor could go out of business. Most robo-advisors insure clients’ assets through the Securities Investor Protection Corporation (SIPC). This is different from the bank account coverage provided by the FDIC; generally, SIPC coverage includes up to $500,000 in protection per separate account type, with up to $250,000 of cash assets protected.

Keep in mind that the SIPC will take necessary steps to return securities and account holdings to impacted clients, but will not protect against any rise or fall in value of those holdings. This means that if you make a bad investment in a stock, the SIPC ensures you still own that bad stock, but do not replace losses from a poor investment. Some brokers also insure assets beyond the $500,000 in SIPC coverage through “excess of SIPC” insurance.

See the full list of SIPC members at their site, along with a detailed explanation of how SIPC coverage works.

The bottom line

Robo-advisors can be an excellent option for users who are starting their investing journeys, rolling over a 401(k) or who want to minimize the time needed to manage their investments. By creating a customized portfolio based on your financial goals and automatically rebalancing your account, a robo-advisor can help to maximize your return while taking on the right amount of risk.

Because robo-advisors run off of automated algorithms, you should be comfortable with little or no human touch for your investments. The upshot to low human interaction is that fees are generally much lower than with a registered investment advisor, which may be worth the tradeoff as part of an overall financial plan.

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.

Joshua Rowe-Heupler
Joshua Rowe-Heupler |

Joshua Rowe-Heupler is a writer at MagnifyMoney. You can email Joshua here

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Investing

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.

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Miranda Marquit
Miranda Marquit |

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