Robo-investing is a relatively new concept that has gained a lot of popularity in the past decade. Unless you live under a rock, you have certainly heard about robo-investing. Robo-Advisors are managing billions of dollars. How do you chose the best Robo-Advisor? In this article, we will look at Betterment vs Wealthfront and conclude with the one you should use.
Largest RoBo Advisor companies
What is a Robo Advisor?
A robo-advisor is a money management company that takes deposits from investors and allocates them in various asset classes. These asset classes range from stocks, ETFs, mutual funds, and bonds. The companies differ from the other types of investment companies in that they use technology to select assets. They also charge minimal fee to manage the money.
Over the years, several robo-advisors have been created. These include companies like:
- Schwab Intelligent Portfolios
- Personal Capital
- Vanguard Personal Advisor Services
What is Betterment?
Betterment was started in 2008 by Eli Broverman and Jon Stein in New York City. Today, the company has raised more than $275 million from investors like Citi Ventures, Francisco Partners, and Kinnevik. In its last funding round, the company was valued at more than $800 million. Over the years, it has also ventured into checking and savings accounts and retirement planning. The company has more than $16.4 billion in assets under management and more than 400k customers.
What is Wealthfront?
Wealthfront was founded in 2011 by Dan Carroll and Andy Rachleff in California. Over the years, the company has raised more than $204 million from the likes of Tiger Global Management, Spark Capital, and Index Ventures. Wealthfront has a valuation of more than $500 million and has more than $11.4 billion in assets under management. Other than investing services, the company offers other products like savings, planning – home ownership, retirement, and travel – and line of credit.
Betterment vs Wealthfront: Minimum Deposit
When investing, many people like to look at the minimum deposit, which helps them know whether they qualify. Unlike hedge funds that require millions of dollars from investors, robo advisors are relatively cheaper. They require less deposits. With Betterment, there is no minimum deposit amount you can use. With Wealthfront however, the company requires a minimum deposit of $500.
Therefore, on the minimum deposit, Betterment wins.
Betterment vs Wealthfront: Investment Fees
As an investor, you are required to pay fees to money managers. It is recommended that you use a money manager who charges less money in fees. Betterment annual fees range between 0.25% and 0.40%. The 0.25% fee is for all $10k in your account. Therefore, if you have a $20k account, you will pay 0.50% per year. The 0.40% annual fee if you have more money in your account. Wealthfront on the other hand has a 0.25% advisory fee. It has an expense ratio or fund fee of between 0.07% and 0.16%.
Again, with this, Betterment is much better because it charges lower fees.
Betterment vs Wealthfront: Asset Allocation
These companies have created various forms of asset allocation that is aimed at achieving maximum returns while protecting the funds. Betterment prefers value funds, which are made up of undervalued companies. The company’s assets are allocated in stocks and bonds. The stocks that it invests in are from the United States, UK, EU, and Japan. It also invests in government bonds from the US and other developed countries.
Wealthfront on the other hand invests in the following assets: US stocks, foreign stocks, emerging market stocks, dividend stocks, real estate, and treasury inflation protected securities.
The two companies also offer tax loss harvesting, which is a form of differing the taxes to a later date.
Betterment vs Wealthfront: Other Features
Other than robo-investing, Betterment and Wealthfront offer other services as well. Betterment offers checkings and savings account with an annual APY of up to 2.38%. The checking account reimburses your ATM fees worldwide. The account has no minimum balance. Wealthfront too has a savings account with an annual APY of 2.32%, with no fees, unlimited transfers, and FDIC insurance protection. It has a $1 minimum balance requirement. In addition, Wealthfront offers financial planning services that help you to prepare for retirement, education, and to meet future needs.
Betterment and Wealthfront are some of the best companies when it comes to robo investing. The companies are excellent if you want to diversify your investments or when you are not a good investor. Still, we recommend that you invest most of your money directly in index funds, which track the market. While these funds move up and down all the time, historical performance shows that they move up in the long term.