Wealthfront and Betterment are a couple of the market's most well known robo-advisors. Both of these firms give investors the opportunity to build balanced and diverse portfolios without having to pay a lot of fees. They also both offer dividend reinvestment, tax loss harvesting, and user-friendly websites.
These two big robo-advisors may seem similar at first, but there are some slight differences between Wealthfront and Betterment. When investors take a closer look and compare these two services, they will find that each one has its own strengths and weaknesses.
Types of Accounts
Wealthfront investors can choose between many different types of accounts. Shorter term investors can open an individual or joint taxable account. Wealthfront also offers taxable accounts for trusts and corporations. People who are investing for their retirements can open a traditional or a Roth IRA account, and small businesses can start a SEP IRA account. 401(k) rollovers, IRA transfers, and 529 college savings plan accounts are some other options that Wealthfront provides for their customers.
Betterment offers less options than Wealthfront, but most investors will be able to choose an account that is right for them. This robo-advisor offers individual and joint taxable accounts, and these accounts are also available for revocable and irrevocable trusts. People who are saving up for retirement can choose a traditional IRA, Roth IRA, SEP IRA, or a 401(k) account. Betterment allows their customers to roll their existing 401(k) accounts over into their traditional IRA accounts.
Costs and Fees
Wealthfront and Betterment both charge management fees on top of the costs associated with their ETF investments. Wealthfront's fee is simple for investors to understand. It doesn't charge any fees on the first $10,000, but this robo-advisor takes a flat 0.25% of all assets that are above that amount.
Betterment recently changed their fees, and there are now three different rates depending on how much an investor has in their account. Lower balances fall under the regular rate, which is 0.25%. When the balance goes over $100,000, Betterment charges its 0.40% plus rate. In exchange for this higher fee, investors get to speak with a certified financial planner (CFP) once a year. Accounts that are over $250,000 are premium accounts that allow investors to make unlimited calls to CFPs. The fee for these accounts is 0.50%.
Wealthfront has lower overall costs for people who just want to sit back and let computer algorithms manage their money. Investors with lots of money who feel more comfortable working with real human beings may want to consider the value that they get from Betterment's higher fees.
Asset Allocation and Available ETFs
Betterment and Wealthfront both use well-designed asset allocation strategies. They invest money into exchange traded funds (ETFs), but there are a few differences in the types of ETFs that these robo-advisors prefer.
Betterment tends to place its customers money into value funds. These ETFs use P/E ratios and other measurements to find and invest in companies that the market undervalues. Wealthfront, on the other hand, tends to chase higher potential returns. It invests its customers' money in real estate investment trusts (REITs), commodities, and a high dividend yield ETF. Betterment doesn't invest in these types of assets, but they do invest in US government bonds. Wealthfront doesn't invest in US bonds because yields are currently too low for their standards.
Conservative investors who are seeking value will prefer Betterment. Risk takers who are seeking higher returns will be more satisfied with Wealthfront.
Wealthfront and Betterment both have excellent websites. They are both very user-friendly and easy to navigate. Investors can log in to these websites and change their asset allocation online with just the click of a few buttons.
It is hard to say which website comes out on top, but potential investors will find that Betterment will give them a slightly better online experience.
Tax Loss Harvesting Opportunities
Tax loss harvesting is selling poorly performing assets for losses and immediately replacing them with similar assets. The losses investors take on these sales are then used to offset long term capital gains. This doesn't completely eliminate an investor's tax bill, but it does increase returns by lowering tax liability over time.
Betterment and Wealthfront both offer tax loss harvesting to their customers, and no minimum balance is required for this benefit. Wealthfront, however, offers a special tax loss harvesting program for account holders with very high balances. Investors with taxable accounts that hold more than $500,000 can take advantage of the Wealthfront 500 feature, which purchases the stocks of all of the S&P 500 companies instead of an ETF. This allows Wealthfront to harvest tax losses more frequently by selling lagging individual stocks for losses. The company is currently developing a similar benefit for people who have invested at least $100,000 with Wealthfront.
Minimum Account Balances
Betterment does not have a minimum required balance. They don't even charge any maintenance fees on accounts that have a balance of $0.
Wealthfront does require a minimum deposit for people who want to open up a new account, but it is only $500. This is much better than the old $5,000 minimum, and there is also no maintenance fee for accounts with $0. Jump to top
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