Betterment vs. Wealthfront: Which Is Better for You?
It can help to have a service that guides your portfolio choices when investing. Betterment and Wealthfront are two popular investing advisement services — but which is better?
Looking To Diversify in a Bear Market? Consider These 6 Alternative Investments
Here’s what you need to know about Betterment vs. Wealthfront to invest.
Betterment vs. Wealthfront: Advanced Features
Wealthfront is exclusively digital, while Betterment has both all-digital and digital plus human advisor investing options.
For digital investing services, Betterment and Wealthfront both charge a 0.25% annual management fee on the amount you invest. However, Betterment’s higher-tier Premium service with digital investing plus unlimited over-the-phone access with its team of certified financial planners incurs a management fee of 0.40% per year. A minimum account balance of $100,000 is required to enroll in this option.
Here are the notable features of both services.
- Risk Parity: Wealthfront builds a hypothetical risk parity strategy for its clients in two steps. First, it curates a portfolio balancing the constituent asset classes’ risk contributions. Second, it applies leverage to get volatility to a target level.
- Tax-Loss Harvesting: Wealthfront’s tax-loss harvesting methodology takes advantage of investments with a decline in value by selling these investments below their purchasing price to generate a tax loss.
- College Savings: Wealthfront offers a 529 college savings account, with plans to offer custodial/UGMA accounts in the future.
- Socially Responsible Investing: Wealthfront offers a diversified, automated and fully managed portfolio designed to provide risk-adjusted returns like that of classic portfolios through socially responsible investing.
- Portfolio Line of Credit: With Wealthfront, it takes under a minute to request cash through the app and get it in just one business day. Since your diversified investment portfolio secures the line of credit, the rates remain low, from 5.40% to 6.65%. It’s possible to borrow up to 30% from your account if you ever need the funds.
- Brokerage Account: Wealthfront offers an interest-bearing brokerage account with checking account features like a debit card, ATM access and the ability to pay bills from the account. It offers instant transfers to your investing portfolio, is FDIC-insured and has no fees.
- Socially Responsible Investing: Betterment helps you invest in companies working toward gender diversity and minority empowerment. Invest in ETFs that comprise ESG elements, including ethical labor management, lower carbon emissions and greater board diversity.
- Retirement Savings: Betterment estimates the total money you need to save for retirement. Users can connect external accounts, make required adjustments and determine which accounts they need to prioritize.
- BlackRock Target Income: It’s a bond-only strategy that helps investors avoid the stock market’s volatility by leveraging bond income instead of market returns.
- Human Advisor: Betterment’s Premium investing plan offers you in-depth advice from the company’s team of CFP professionals. Users get unlimited emails and calls with CFP professionals to discuss their more in-depth financial needs.
- Cash Accounts: Betterment offers separate accounts for checking and savings. The Betterment Checking account offers a debit card and rewards, while the Cash Reserve account has a variable interest rate.
Betterment vs. Wealthfront: How To Get Started
Both Wealthfront and Betterment offer a diversified ETFs portfolio with different asset classes. Getting started on both platforms is quite simple and takes under five minutes.
Wealthfront asks you a few questions about your risk tolerance and how long you want the investment plan to be. The service shows you the exact portfolio before funding your account. Wealthfront also lets users add or remove certain ETFs from their accounts. Moreover, investors can choose different themes, like socially responsible investing and technology.
Likewise, if investors don’t want to put their money in certain companies, they can create a restricted list to ensure those stocks don’t end up in their portfolio.
Meanwhile, Betterment uses the Modern Portfolio Theory to provide nine types of portfolios. Your options include:
- Goldman Sachs Smart Beta: The portfolio aims to outperform the financial market.
- Innovative Technology: This portfolio is comprised of tech companies with high growth potential — at a higher risk.
- Betterment Core: This recommended portfolio has low-cost and tax-efficient ETFs.
Socially Responsible Investing
- Social Impact: This portfolio comprises ETFs that support workplace diversity and minorities.
- Climate Impact: This has ETFs that are focused on lowering carbon emissions and caring for the planet.
- Broad Impact: This balance-focused portfolio comprises ETFs with a high environmental, social and governance, or ESG, rating.
All Cash or All Bond
- BlackRock ETFs: These ETFs make up an all-bond portfolio focused on income building.
- Betterment Cash: This cash-exclusive portfolio option comes with a variable interest rate of 2.00%.
Other Investing Options
Flexible Portfolio: Users can weigh this portfolio based on their preferences, although it’s constructed using the asset classes of a standard portfolio.
It’s easy to get started — you just need to create an account by entering your email and choosing a password. After that, the website asks you for your legal first and last name. You also have to enter your phone number since Betterment uses it for two-factor authentication.
Betterment vs. Wealthfront: Tax Strategy
Betterment offers the following tax strategies:
- Charitable giving tool
- Tax impact preview
- Tax-coordinated portfolio
- Tax-loss harvesting
Meanwhile, Wealthfront offers the following tax strategies:
- Tax-loss harvesting applied daily on all taxable accounts free of charge
- Tax-loss harvesting for TurboTax customers
- Stock level tax-loss harvesting
Which One Is Better: Wealthfront or Betterment?
Betterment is an ideal option for users with a low balance, who want to invest for retirement, who intend to remain hands-off or who need automatic rebalancing. If you want to use goal-oriented tools, Betterment works for you. Meanwhile, Wealthfront is more customizable, suitable for taxable accounts and helps college students manage their savings plans for the long run.
Information is accurate as of Sept. 23, 2022.