Two of the leading companies in the robo-advisor industry are Betterment and Wealthfront. Both offer an automated investment service with a low annual management fee starting from just 0.25%, but there are some critical differences between them. This article explores Wealthfront vs Betterment performance as well as highlighting the main points to know about each platform.
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To invest via Wealthfront, you’ll need to complete a short questionnaire based around your investment goals and attitude to risk. Wealthfront then recommends a portfolio of low-cost ETFs to suit your needs. Up to eleven asset classes are used for portfolio construction.
Wealthfront favors a passive approach to investing, so once your portfolio is set up, you can sit back and relax, while your money is invested on auto-pilot. You can adjust your portfolio if you wish, but Wealthfront’s software will automatically rebalance your portfolio when needed.
Tax-loss harvesting is available free of charge for all taxable accounts, regardless of how much you have invested. Stock-level tax-loss harvesting is available for those with over $100,000 in a taxable account.
The types of accounts you can open with Wealthfront include personal investment accounts, joint accounts, trust accounts, Traditional and Roth IRAs, SEP IRAs and 529 college savings plans. Additionally, Wealthfront supports IRA transfers and 401k rollovers.
With Wealthfront, you’ll pay an annual management fee of 0.25% of your total assets, plus a fund fee of between 0.07% and 0.16%. Investors can get started with a minimum deposit of $500.
Wealthfront is a purely digital service, which means you won’t get access to a financial advisor to discuss your portfolio. You can get technical support over the phone or by email, however. As well as offering automated investing, Wealthfront’s Path tool can help you plan for your life goals.
Betterment works much the same as Wealthfront, in that you’ll answer a few questions based on what you’re saving for and then Betterment will recommend a diversified portfolio for you, consisting of stock ETFs and bond ETFs.
Your portfolio will be personalized to accommodate your risk level and financial goal. You can adjust your investment mix if you want to and even incorporate socially responsible investments. Automated tax-loss harvesting and portfolio rebalancing is all part of the service.
Betterment offers personal investment accounts, Rollovers, trust accounts, Traditional, Roth and SEP IRAs and a Smart Saver account (a low-risk investing account with a 2.00% annual yield).
Unlike Wealthfront, Betterment has no account minimum, making it really easy for new investors to get started. There is an annual management fee of 0.25% for Digital accounts, which does include access to human advice.
Betterment also provides a Premium service for accounts that have more than $100,000 invested – the annual fee is 0.40% of the assets managed. The Premium plan offers all the benefits of the Digital plan, but with in-depth advice on investments outside of Betterment, plus unlimited access to a team of Certified Financial Planners.
Your portfolio’s performance will depend on several factors, not least your asset allocation, risk score and how much you’ll pay in taxes and expenses. However, to give you an idea of how Wealthfront portfolios typically perform, you can view their historical returns on their website here.
Using this tool, you can toggle between risk scores and see a comparison between taxable and tax-advanced portfolios across 1-year, 3-year and 5-year periods (and since inception).
Betterment claims that their approach to long-term investing can result in you earning 2.66% more per year than a typical investor. According to their website, Betterment would have outperformed the average investor, who has active portfolio management by an investment advisor, in 88% of all periods in the last decade.
Betterment has created an interactive tool which allows you to compare the returns from a Betterment portfolio to those earned by the average investor (with an investment advisor) over the last ten years. Check it out here.
There isn’t a straightforward answer to this question as both robo-advisors have plenty of merits. Betterment charges the same annual management fee as Wealthfront (at least for their Digital plan), which is 0.25% and Betterment has no account minimum, which is excellent news if you’re a beginner investor. Betterment also provides access to human advice.
If you’re a serious investor, the account minimum and lack of investment advice associated with Wealthfront probably won’t be an issue for you. Your selection criteria will have much to do with how the portfolios are put together and what funds you’ll be investing your money in.
There are other robo-advisors out there in case you want to research some alternatives. As a starting point, check out our article on WiseBanyan vs. Betterment.
*We hope you find this article useful when researching robo-advisors. Please note that it shouldn’t be construed as investment advice.