Betterment vs. Robinhood – Which Investment App Should You Use?

Betterment vs. Robinhood

When it comes to investing your money, you can either do it all yourself or put your money in someone else’s hands. For those who are comfortable researching stocks and funds and building a balanced portfolio, the DIY route can be significantly cheaper. For those who want to be able to save for the future without worrying about the details, an automated investment platform is a stress-free option.

Depending on which route you prefer, Robinhood and Betterment are two of the top services on the market. Robinhood is a commission-free broker that lets investors choose their own stocks, ETFs, and more. Betterment is a robo-advising platform that automatically creates a portfolio for you and manages it on your behalf. In this guide, we’ll take a closer look at how these platforms stack up to help you decide which is better for you.

About Betterment And Robinhood

Betterment was founded in 2010 by CEO Jon Stein. The robo-advising service has gained more than 400,000 users and now has an estimated $16 billion in assets under management.

Robinhood was launched in 2013 by Baiju Bhatt and Vladimir Tenev. The platform has grown to 13 million users and is now valued at more than $8 billion. The company manages an estimated $20 billion in user assets.

Betterment vs. Robinhood: Similarities

Betterment and Robinhood don’t share a lot in common. The main similarity between the two platforms is that they each allow you to invest in ETFs. Betterment solely invests in ETFs, though, and chooses from a very small variety of ETFs for building your portfolio. Robinhood gives you access to a whopping 500 ETFs, and it’s up to individual investors to research them and make their own investment decisions.

Betterment vs. Robinhood: Investing Style And Assets

Betterment is a robo-advisor service, meaning that it automatically invests your money on your behalf in a small selection of low-cost ETFs. When you set up a Betterment account, the platform will ask a number of questions to gauge your risk tolerance and investing goals. From there, the system will suggest a portfolio balance of large-cap, mid-cap, and emerging stocks and bonds.

You can tweak the balance of these assets within Betterment. But this will simply change how your money is divided among the handful of ETFs that the service offers. Betterment does not support investing in individual stocks or any financial instruments other than ETFs.

With Robinhood, you’re essentially on your own. The platform is a stock brokerage above all else, so the focus is on investing in individual stocks. You can also invest in any of 500 ETFs, but they are not curated to help you build a balanced portfolio that necessarily reflects your risk tolerance or investing goals. It’s up to you to figure out how to divide your portfolio into exposure to different asset classes. If you want exposure to assets other than stocks, you will need to use ETFs to accomplish that.

It’s worth noting that since you can invest in individual stocks, you have much more flexibility to build a stock-only portfolio with Robinhood. The platform offers trading for large-, mid-, small-, and micro-cap stocks as well as some emerging markets stocks. Robinhood also offers stock options and cryptocurrency investing.

Betterment vs. Robinhood: Investing Platforms And Management

Once you create an initial portfolio, the way it is managed in Betterment and Robinhood is very different.

Betterment will automatically rebalance your holdings over time to make sure your portfolio balance doesn’t drift too far from the target you originally settled on. In addition, the service’s algorithm takes advantage of tax-loss harvesting to save you money at the end of the year. The Betterment app (for web and mobile) lets you set up multiple portfolios within a single account for more flexibility. You can track your investment return over time and schedule automatic deposits for investment, but that’s about it.

With Robinhood, it’s up to you to keep track of your portfolio. The platform offers almost no portfolio analysis tools, so you may need to use a third-party software if your goal is to keep your holdings in balance over time. Robinhood also doesn’t put any handrails around short-term gains, so you are responsible for understanding the tax consequences of buying and selling assets.

Importantly, Robinhood doesn’t include many tools for analyzing your investments or tracking your portfolio over time. You can find news about individual companies, but there is little insight from professional analysts and no fundamental or technical data to help you make decisions. 

Betterment vs. Robinhood: Account Types

Betterment offers standard investing accounts as well as traditional, Roth, and SEP IRAs. In contrast, Robinhood only offers standard investing accounts with no long-term tax advantages.

If you need banking services with your investing account, Betterment has you covered. The platform offers free checking accounts with $250,000 in FDIC insurance. You can also sign up for a free savings account with $1 million in FDIC insurance and 0.30% interest.

Robinhood is in the process of rolling out its new Cash Management feature, but it’s not yet available to all users. This is effectively a money market account that promises 0.30% interest on all uninvested cash in your investing account.

Betterment vs. Robinhood: Pricing

Betterment charges an annual management fee of 0.25% based on the money you have in your investment accounts (but not in checking or savings accounts). There are no commissions for trades the platform makes on your behalf, but you are responsible for ETF exchange fees. These are generally low, with the most expensive ETFs charging around 0.40% per year.

Robinhood is completely free to use, and the platform doesn’t charge any commissions. If you purchase ETFs as opposed to individual stocks, you will be responsible for the exchange fees. Robinhood does offer a “Gold” service for $5 per month. This offers professional research reports for 1,700 stocks, Level II market data, and access to investing on margin.

Which Service Is Better?

Betterment and Robinhood are two very different services. Betterment is a robo-advising platform designed to take the work out of investing for big goals like buying a home or saving for retirement. Robinhood is a commission-free broker designed to let you invest in stocks and ETFs or trade stock options. 

With that in mind, Betterment is best for those who want to save for the long-term and keep a balanced portfolio. Returns will generally be modest, but the platform also keeps risk relatively low and doesn’t require much input from you to keep your investments humming. Robinhood, on the other hand, is suited for active traders who want to take on the work of researching stocks and managing their own portfolio. Since Robinhood doesn’t offer retirement accounts, it’s less than ideal for investing for retirement.

Betterment And Robinhood Alternatives

There are many alternatives to Betterment and Robinhood, although which are worth looking at depends on your investing goals.

If you are interested in a robo-advisor for long-term investing, consider Wealthfront or Acorns. Wealthfront uses the same pricing structure but offers exposure to a wider range of assets. Acorns has a flat subscription fee that can save you a significant amount of money over decades of investing.

If you are interested in a stock broker, consider Webull or TD Ameritrade. Both are commission-free brokers with a slightly more robust set of features compared to Robinhood. Webull offers more fundamental and technical stock data as well as basic technical charts. TD Ameritrade is a full-service brokerage that includes market news and analysis as well as access to highly advanced charting software.

Conclusion: Betterment vs. Robinhood

Betterment and Robinhood are both popular investing platforms that offer very different takes on how to put your money in the market. Betterment is a good choice for long-term investing that requires relatively little work on your part. Robinhood is more suited for active trading and requires a significant amount of research and account management. Carefully consider your investment goals and your ability to build a custom portfolio when deciding which platform is right for you.