It can be helpful to provide a service that guides your portfolio decisions when investing. Betterment and Wealthfront are two popular investment advisory services – but which is better?
Here's what you need to know about Betterment and Wealthfront to start investing.
Betterment vs. Wealthfront: Premium Features
In terms of features, both Betterment and Wealthfront are impressive. But each service has some differences in what it offers.
Wealthfront is entirely digital, while Betterment offers fully digital and digital as well as human advisor investment options.
For digital investment services, Betterment and Wealthfront each charge an annual management fee of 0.25% of your investment amount. However, Betterment's premium digital investing premium service and unlimited phone access to its team of certified financial planners incur a 0.40% annual management fee. A minimum balance of $100,000 is required to sign up for this option.
The following are the salient features of both services.
WealthFront
Risk Parity: Wealthfront creates a hypothetical risk parity strategy for its clients in two steps. First, it curates a portfolio that balances the risk contribution of each asset class. Second, apply leverage to bring volatility to target levels.
Tax Loss Collection: Wealthfront's Tax Loss Collection method uses investments that suffer a loss of value by incurring a tax loss by selling those investments below their purchase price.
College Savings Accounts: Wealthfront offers 529 college savings accounts and plans to offer custodial/UGMA accounts in the future.
Socially Responsible Investing: Wealthfront offers a diversified, automated and fully managed portfolio designed to deliver risk-adjusted returns through socially responsible investing comparable to traditional portfolios.
Portfolio Credit: With Wealthfront, it takes less than a minute to request cash through the app and receive it within 1 business day. Interest rates remain low, ranging from 5.40% to 6.65%, thanks to a line of credit secured by your diversified portfolio. If you need the money, you can borrow up to 30% from your account.
Brokerage Accounts: Wealthfront offers interest-bearing brokerage accounts with checking account features such as debit cards, ATM access, and the ability to pay bills from the account. It offers instant deposits to your portfolio, is FDIC insured and has no fees.
Betterment
Socially Responsible Investing: Betterment helps you invest in companies committed to gender diversity and minority empowerment. Invest in ETFs that incorporate ESG elements, including ethical labor management, lower carbon emissions, and greater board diversity.
Savings for retirement: Betterment estimates the total amount you need to save for retirement. Users can connect external accounts, make any necessary adjustments, and determine which accounts they need to prioritize.
BlackRock Target Income: This is a pure bond strategy that helps investors avoid stock market volatility by using bond income rather than market returns.
People Advisor: Betterment's Advanced Investment Program provides you with in-depth advice from the company's team of CFP experts. Users receive unlimited emails and phone calls with CFP experts to discuss their deeper financial needs.
Cash Accounts: Betterment offers separate accounts for checking and savings accounts. Betterment checking accounts offer debit cards and rewards, while cash reserve accounts have variable interest rates.
Betterment vs. Wealthfront: How to Get Started
Both Wealthfront and Betterment offer diversified ETF portfolios across different asset classes. Getting started on both platforms is fairly easy, taking less than five minutes.
Wealthfront will ask you some questions about your risk tolerance and the duration of your investment plan. The service will show you the exact portfolio before you fund your account. Wealthfront also allows users to add or remove specific ETFs from their accounts. Additionally, investors can choose from different themes, such as socially responsible investing and technology.
Likewise, if investors don't want to invest their money in specific companies, they can create a restricted list to ensure those stocks don't end up in their portfolio.
Meanwhile, Betterment offers nine portfolios using modern portfolio theory. Your options include:
general investment
Goldman Sachs Smart Beta: This portfolio is designed to outperform financial markets.
Innovative Technology: This portfolio consists of technology companies with high growth potential but higher risk.
Betterment Core: This recommended portfolio contains low-cost and tax-efficient ETFs.
Socially Responsible Investment
Social Impact: This portfolio includes ETFs that support workplace and minority diversity.
Climate Impact: Here are ETFs focused on reducing carbon emissions and protecting the planet.
Broad impact: This balanced portfolio includes ETFs with high environmental, social and governance or ESG ratings.
All cash payments or all obligations
BlackRock ETFs: These ETFs form an all-bond portfolio focused on income generation.
Betterment Cash: This unique cash portfolio option has a variable interest rate of 2.00%.
Other investment opportunities
Flexible Portfolio: Users can weight this portfolio to their liking, although it is constructed from standard portfolio asset classes.
Getting started is easy – all you need to do is enter your email address and choose a password to create an account. After that, the website will ask for your legal name. You'll also need to enter your phone number, as Betterment uses it for two-factor authentication.
Betterment vs. Wealthfront: Tax Strategies
Betterment provides the following control strategies:
Charitable Donation Tool
Tax Impact Preview
Tax Consistent Portfolio
Harvest tax loss
Wealthfront now offers the following tax strategies:
Tax-Loss Harvesting is applied daily to all taxable accounts for free
Tax Loss Gains for TurboTax Customers
Harvest stock-level tax losses
Which is better: Wealthfront or Betterment?
Betterment is ideal for low balance users who want to invest for retirement, want to keep their hands free, or need automatic rebalancing. If you want targeted tools, Betterment is for you. Now, Wealthfront is more customizable for taxable accounts and helps college students manage their savings plans over the long term.
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