Robo-investing is one of the easiest ways to grow your wealth for long-term goals like buying a home or retirement. With an automated investment platform, you just have to provide some basic information about your goals and risk tolerance, and the investing algorithm will take care of the rest.
Two of the most popular robo-investing platforms on the market today are Betterment and Wealthfront. Both platforms offer very competitive pricing and similar assets, but there are some important differences between them. To help you decide whether Betterment or Wealthfront is best for you, we’ll compare these robo-advisors head to head.
About Betterment and Wealthfront
Betterment was founded in 2010 by Jon Stein, who remains the company’s CEO. After a decade of explosive growth, this platform boasts more than 400,000 users and $16 billion in assets under management.
Wealthfront was one of the first robo-investing platforms when it launched in 2008 by Andy Rachleff and Dan Carroll. The platform currently manages more than $20 billion in total assets, although it doesn’t publicly state how many registered users it has.
Betterment vs. Wealthfront: Account Types
The first place to compare Betterment and Wealthfront is in the types of accounts they offer. Although these platforms began as investment-only services, they have expanded into banking in efforts to attract more users.
Betterment offers a fully fee-free checking account that’s backed up with FDIC insurance up to $250,000 and comes with a mobile management app and debit card. You can also open a savings account with a 0.30% interest rate and up to $1 million in FDIC insurance. By comparison, Wealthfront doesn’t offer checking accounts and its savings accounts offers 0.35% annual interest.
For investing, however, Wealthfront offers a slightly wider range of account possibilities. Both platforms enable you to open a traditional investing account, a 401(k) account, or traditional or Roth IRAs. Wealthfront also supports 529 education savings accounts, which Betterment does not.
Betterment vs. Wealthfront: Investing Flexibility
Betterment and Wealthfront both invest your money in low-cost ETFs. However, the control you have over how your money is invested and what the assets you can invest in differ somewhat between the two robo-advisors.
With Betterment, your range of investments is somewhat limited. You can choose between large-cap, small-cap, and emerging market stocks and bonds only. Wealthfront offers all of those asset options as well as municipal bonds, natural resources, real estate, and treasury inflation-protected securities.
But, Betterment gives you more flexibility to tweak the balance of your asset classes. You’re not locked into a pre-defined asset mix, so you can decide if the recommended stock allocation is too risky or not aggressive enough for your investing style. With Wealthfront, you’re more or less stuck with the asset balance that the platform suggests based on your answers to questions about your goals and risk tolerance.
Betterment vs. Wealthfront: Investing Platform
The platforms for Betterment and Wealthfront are remarkably similar once your account is up and running. Either robo-advisor enables you to link your bank account and set up scheduled transfers. They also both take advantage of dividend reinvestment and tax-loss harvesting to maximize your returns over time.
The only notable difference here is that Betterment allows you to create individual goals within your account. Each goal gets its own portfolio with its own balance of stocks and bonds. So, you can have one portfolio to save for buying a home, one to save for retirement, and another for a vacation fund, and they can all be slightly different in terms of how aggressive your investments are. Wealthfront doesn’t support multiple portfolio balances within a single account, although there’s no limit to how many accounts you can create.
Betterment vs. Wealthfront: Pricing And Fees
Betterment and Wealthfront compete closely on price. Both services charge a 0.25% annual fee regardless of what type of investing account you open, and there are no costs for checking or savings accounts. Neither platform requires a minimum deposit to open an account, either.
That said, Wealthfront has a significant cost edge over the long term. The ETFs that Wealthfront invests your money in charge a maximum exchange fee of 0.16%, whereas the ETFs that Betterment uses charge up to 0.4%.
Which Service Is Better?
It’s hard to go wrong with either Betterment or Wealthfront. The two services are extremely closely matched and charge some of the lowest fees of any robo-advisors. That said, if you can live without the added flexibility that Betterment offers, we think Wealthfront is the better platform. You get access to more asset classes to diversify your portfolio, and the difference in exchange fees between Wealthfront and Betterment can add up to a significant amount of money when applied over the course of decades.
Betterment And Wealthfront Alternatives
Betterment and Wealthfront are two of the leading robo-investing services on the market, but you may be interested in looking at Acorns if you want to make investing even simpler. Acorns lets you choose from five simple, pre-made portfolios and doesn’t offer any customization. You can also link your debit card to Acorns to automatically round up your transactions and invest the spare change into your portfolio.
However, for most users, Betterment and Wealthfront are each better options than Acorns. It’s difficult to invest meaningful amounts of money with rollovers and the lack of investing flexibility can hurt you down the road.
Conclusion: Betterment vs. Wealthfront
Betterment and Wealthfront are very popular robo-advising services that can make long-term investing easy. Betterment offers checking accounts and more flexible investment options, while Wealthfront offers a wider range of assets and lower-cost ETFs. While we recommend Wealthfront as the better service overall, these two services compete closely and both can help you grow your wealth.