Betterment vs Wealthfront: A Honest Comparison of Two Robo-Advisors

Robo-investing is a relatively new concept that has gained a lot of popularity in the past decade. Robo-advisors are managing billions of dollars. How do you chose the best Robo-Advisor? In this Betterment vs Wealthfront review, we will look at the two robo-advisors and conclude with the one you should use.

The robo advisor industry has more than $200 billion in assets under management (AUM) and continues to grow. Two of the biggest robo advisor companies in the industry are Betterment and Wealthfront.

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, bonds and bitcoin. 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:

  • Acorns
  • Stash
  • Public
  • Schwab Intelligent Portfolios
  • Personal Capital
  • Vanguard Personal Advisor Services

There are also peer-to-peer lending company that offer automated products such as Lending Club and Prosper.

What is Betterment Robo Advisors?

Betterment was started in 2008 by Eli Broverman and Jon Stein in New York City. Today, the company has raised millions of dollars from investors like Citi Ventures, Francisco Partners, and Kinnevik. 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 Robo Advisors?

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. There is no Betterment minimum deposit amount required. With Wealthfront however, the company requires a minimum deposit of $500.

Therefore, on the minimum deposit, Betterment wins.

Betterment vs Wealthfront 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 asset allocation favors 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 asset allocation is mainly on the following assets: US stocks, foreign stocks, emerging market stocks, dividend stocks, real estate, and treasury inflation protected securities.

The two companies offer tax loss harvesting, which is a form of differing the taxes to a later date. In addition, Betterment supports fractional share investing while Wealthfront does not.

Wealthfront vs Betterment returns: Betterment has an average annual investment return of just under 8.8%. Wealthfront is at 7.62% on its taxable portfolios, and 8.52% on its tax-advantaged portfolios.

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.

Final Thoughts on Wealthfront vs. Betterment

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.

More Information

Crispus is a finance professional with more than a decade experience in the industry. Over the years, Crispus has written in-depth articles on leading platforms like CCN, Marketwatch, and Seeking Alpha. He also runs a Forex education and managed account company called WestEndFx.