Betterment vs. Vanguard: Both are Great, but Which is Best for You?

Betterment and Vanguard have each positioned themselves as leaders in the passive investing movement.

Betterment is a robo-advisor that offers an automated service to build a customized investment portfolio, with the goal of giving you the best results while saving you both time and money.

Vanguard is the premier low-cost investment vehicle. Investing with Vanguard means following founder John C. Bogle's commitment to low-fee index funds to help you maintain long-term growth and keep more of your money instead of paying managers.

So which one is a better fit for your money?

I’ve used both of these companies for years now and can wholeheartedly recommend both. Although, I currently have more invested with Vanguard than Betterment.

I currently use Betterment’s SmartDeposit feature as sort of a “top end” to my emergency fund, and I currently use Vanguard for all of my personal and business retirement investing.

In terms of account types, right now at Vanguard, I have (in order of creation):

  1. Roth IRA (my oldest account with Vanguard),
  2. Traditional Rollover IRA (old 401K money from when I left the corporate world),
  3. Individual Solo 401K (started when I left to blog full-time),
  4. Individual Solo 401K (started for FinCon),
  5. SIMPLE IRA (started when I hired employees for FinCon)
  6. Donor-Advised Fund (started last year to gain more control over charitable gift timing)

All of my money in Vanguard (except the donor-advised money) is invested in one fund: VFORX. That’s a target-date fund with a .19 expense ratio, set for a 2040 retirement.

I used both of these services simultaneously, and you certainly can, too. But if you need to choose one or the other, here are the details of each so you can decide which is best for you.

Betterment

Betterment claims to offer investors better returns (to the tune of an additional 2.66% per year growth!). Their savvy use of technology promises to lower your taxes, lower your fees, diversify your portfolio more efficiently and enable better investor behavior.

Investments

Betterment offers a mix of globally diversified exchange-traded funds that you can choose based on your desired risk tolerance. Their portfolios promise lower costs, lower taxes, and optimal risk exposure across all markets. Betterment has designed three custom portfolios for you to select from:

  • Socially Responsible Investing: This portfolio is based on the Betterment Portfolio Strategy, which includes an increased allocation in companies that meet various social, environmental, and governance criteria.
  • Goldman Sachs Smart Beta: This is a diversified portfolio aimed to outperform the traditional market-cap strategy.
  • BlackRock Target Income: This portfolio is composed 100% of bonds that help the investor limit risk exposure. Bonds have various yields to help limit market volatility.

If you would prefer to build your own portfolio, you can select a Flexible Portfolio. If you have external investments or would like to select different asset classes from Betterment’s recommendations, the Flexible Portfolio will better suit your needs.

Check out our full Betterment Review.

Personal Finance Advice

Betterment helps you connect with financial experts to answer all of your money questions. You can seek professional advice around the clock and get information about topics including investing, college saving, retirement planning, tax advice, and more.

If you sign up for Betterment’s Premium plan, you have the option of contacting financial professionals directly. This plan will also match you with a Certified Financial Planner® if you need a more comprehensive financial plan. With your CFP®, you will be able to build a personalized relationship and receive regular investing advice.

Tax Loss Harvesting

Tax loss harvesting is the practice of a selling a stock or security that has experienced a loss. This can help the investor to offset the taxes they will owe on both regular income and investment gains. Once the security is sold, it will be replaced with a similar asset so the portfolio can maintain balance and give the investor the optimal return.

Additional Features

Betterment also has additional features to help educate you and take your finances one step further:

  • Resource center: If you are looking for additional information about your finances check out the resource center. It contains articles and ideas for helping you achieve a better financial well-being.
  • Research and Reports: This feature provides a deeper dive into Betterment’s investment methodologies, technical specifications, and more. The Research and Reports section offers data and analytics to illustrate their philosophies.
  • Tools and Calculators: Betterment provides a number of interactive tools and calculators that can help you to build your financial plan.

Fees and Minimum Investments

Betterment offers two fee structures for investors.

The basic Digital Plan has an annual fee of 0.25% of invested assets, and it has no minimum balance requirement.

The Premium Plan has an annual fee of 0.40% of invested assets, and it requires a $100,000 minimum investment. It also gives you a more in-depth look at your personalized financial plan and offers customized financial advice from a CFP.

Betterment Price: 0.25% Betterment is an online financial advisor that uses technology to efficiently manage your money and help increase returns. Betterment

Vanguard

Vanguard has made their name on lowering investment fees. According to their site, the average expense ratio for Vanguard mutual funds and ETFs is 82% less than the industry average–which means you keep more of what you earn.

Investments

Vanguard offers a wide variety of accounts and investment options. You can select from stocks, bonds, exchange-traded funds, mutual funds, or cash options. Vanguard also has developed their own investment vehicles including:

  • Vanguard Mutual Funds: Vanguard claims their mutual fund’s expense ratios are 82% less than the industry average. It also states that 91% of their mutual funds have performed better than similar mutual funds for the past 10 years.
  • Vanguard Exchange-Traded Funds: Vanguard claims this investment will give you the benefit of diversification with the professional management of the mutual fund. It will also provide the flexibility of an individual security.

Personal Financial Advice

You can partner with a financial professional using the Vanguard Personal Advisor Services®. Your financial advisor will get to know your financial goals and then develop a personalized financial plan for you.

Once you agree to the personalized financial plan, your financial advisor will put it into action. The will also be there to support you and answer any financial questions you may have.

Related: Vanguard Roth IRA Account Opening Process

Additional Features

Vanguard offers some additional educational tools to help you become a well-informed and knowledgeable investor. Some of these resources include:

  • Blog: This informational resource provides insight and opinions from Vanguard’s leaders. The blog also provides practical financial advice for all of your money questions.
  • Investment research and commentary: Vanguard offers in-depth expert analysis and economic research to help you feel secure and confident in all of your investment decisions.

Fees and Minimum Investments

There is a $20 annual account service fee applied to each of your brokerage and mutual-fund-only accounts. Most mutual funds have a minimum investment of $3,000, while the minimum investment for ETFs and stocks, bonds, and CDs is the price of a single share.

If you choose to go with the Vanguard Personal Advisor Services®, a 0.30% annual fee will be applied to your assets under management. There is a minimum investment requirement of $50,000 to work with a Vanguard Advisor.

Start with Betterment and Move to Vanguard When You Can DIY

Ultimately, I would recommend that investors start their journey with Betterment, as it is a good introductory platform for newbies. There are a couple of reasons for that:

  • They do a nice job of educating you on your risk tolerance and needs around asset allocation.
  • They have great tools and account types (IRAs, etc.).
  • They also are fantastic for automating your retirement investing, which is so important.

Betterment is a simply great place to start with your retirement investing (outside of your company 401K, etc.). From a cost standpoint, Betterment is also going to be much better than some of the traditional options for those just getting started.

For instance, people who would normally have gotten started with an insurance company or bank or full-service advisor right out of the gate would most likely be better off with a Betterment.

If Betterment had been around when I first opened my Roth IRA I would have seriously considered them over Vanguard.

Betterment Price: 0.25% Betterment is an online financial advisor that uses technology to efficiently manage your money and help increase returns. Betterment

Once you get going with your retirement investing and get comfortable doing it yourself (picking funds, rebalancing, setting up your own automation, etc.) then Vanguard (or any other direct fund company like Fidelity) is probably a better spot for you, simply for the cost.

For a retirement investor like me who simply wants to keep things simple in index funds and keep costs down to their bare minimum, it’s just impossible to beat Vanguard or any other fund company directly when it comes to fund expenses.

However, whether you choose Betterment or Vanguard, you can know that you'll be getting following some excellent passive investment strategies for low fees.

What has your experience been with Betterment and Vanguard?

Betterment vs. Vanguard: Both are Great, but Which is Best for You?

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