Investing money with a robo-advisor is one of the easiest ways to grow your wealth in the stock market. Robo-advisors use software algorithms to manage your investment portfolio with minimal input needed from you, and charge ultra low fees. Betterment is one of the most well-known robo-advisors, while Vanguard is among the largest investment firms in the world.
Both Vanguard Personal Advisor Services and Betterment combine access to live investment advisors with automated portfolio management. Betterment is ideally suited for beginning investors with smaller portfolios. Vanguard can work well for a DIY investor who wants guidance from live investment advisors and access to a wider variety of investments, and can meet the high minimum balance required. Read on for a closer look at how Betterment and Vanguard compare.
In many ways, Betterment and Vanguard have similar offerings, but there is a big, unavoidable difference between the two: minimum balance requirements. Betterment has no minimum balance requirement, so you can start using their services even if you have very little money earmarked for investing. Vanguard Personal Advisor Services requires a minimum balance of $50,000, which makes their robo-advisor best for investors whoâ€™ve already built up a significant nest egg.
|Average ETF expense ratio||0.11%||0.11%|
|Human advisors||Human assisted for clients with at least $100,000 invested||Human assisted|
|Fractional shares||Yes||No, although you can get them through dividend reinvestment programs|
|Tax loss harvesting|
|College savings options||No||No|
|Investment account types||
|Savings account option||Smart Saver, 2.14% APY (not FDIC-insured)||No|
|Ease of use|
Betterment and Vanguard Personal Advisor Services have similar management fees, with several tiers based on the size of your investment account balance. Vanguard has three tiers:
Once you surpass the $25 million tier, Vanguard offers more personal options and better pricing.
Betterment has two tiers:
With Betterment, having a higher account balance comes with access to human-assisted management, as well as more customized portfolio options. However, itâ€™s a bit unusual to charge more when the portfolio balance is bigger. If you were to build up a $100,000 balance with Betterment, it might be worth moving to Vanguard Personal Advisor Services because youâ€™ll end up with a lower management fee.
Finally, separate from the management fee is the expense ratio youâ€™ll pay on the funds held in your account. The expense ratio is basically the fee you pay for owning the fund. It covers the cost of running the fund, including administration, legal, accounting and other services. Itâ€™s a percentage of the amount you have in the fund.
Both Vanguard and Betterment have an average fund expense ratio of 0.11%. So, if you have $10,000 in a fund, you can expect to pay about $11 a year on top of the management fees. Both management fees and expense ratios are taken out of your fund directly, so you wonâ€™t get a bill.
Realize, though, that expense ratios vary by fund, and that 0.11% is only an average of what you can expect on a medium-risk portfolio. Your actual expense ratios will be different, and your portfolioâ€™s average could be higher or lower.
Many of the special features offered by Betterment and Vanguard are similar. For example, both companies use a process of smart asset allocation to apportion investments where they are likely to do the most good. If you have a tax-advantaged individual retirement account (IRA) and a taxable investing account, both companies look for an allocation that places assets where they are likely to provide the most benefit, such as putting a municipal bond fund in your IRA.
Both Betterment and Vanguard offer human-assisted help with your portfolio. With Vanguard, you get access to human advisors as soon as you open an account â€” keep in mind, the minimum balance is $50,000. With Betterment, you only get access to a live human advisor once you have a balance of $100,000.
Another difference is that, even though Vanguard has a wider variety of funds available, it doesnâ€™t offer a specific socially responsible portfolio. So, if youâ€™re interested in a socially responsible portfolio, Betterment might be the better choice.
Both companies offer tax loss harvesting, which helps you minimize losses and maximize gains from tax situations that arise from buying and selling stocks. Betterment uses an algorithm to look for tax loss harvesting opportunities each day. Vanguard performs tax loss harvesting only when itâ€™s called for in your financial plan, or when you make a change to your portfolio.
Rebalancing is used to bring your portfolio back in line with your desired asset allocation. Again, Betterment is more active in its approach, using an algorithm daily to determine whether your asset allocation has strayed out of line, and automatically adjusting. Vanguard rebalances quarterly, or might rebalance less often, depending on what your individualized plan calls for.
Both Vanguard and Betterment are strong choices for investors looking for a low-cost robo-advisor with access to human professionals. However, which service you choose depends largely on where youâ€™re at right now, and what type of experience youâ€™re looking for.
Betterment is more automated than Vanguard, so if youâ€™re looking for a place to stick your money and not think about it, Betterment can be the right choice. However, if you want a more personal touch, Vanguard can be the better choice â€” especially if you can meet the steep $50,000 minimum.
Vanguard also offers more for the DIY investor, providing access to a wider variety of funds, and the ability to personalize a long-term plan, including designating when you want to rebalance. While there are more customization options with Betterment when your portfolio reaches $100,000, Betterment is really better for the hands-off investor.
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