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Indian woman using her investing software

The choice between Betterment and Vanguard has more to do with your investment strategy than features offered by each product. Betterment is a robo-advisor service so users invest in a series of funds automatically managed by the brokerage and cannot use this platform to invest in individual stocks, bonds, options or other securities. Vanguard is a trading platform so users can trade most mainstream securities. Here’s how these two compare and contrast.

Betterment vs. Vanguard: Fees

An online trading platform will generally charge four types of fees:

  • Trading Fees – Any fixed charge attached to each trade that you make. This is typically either a flat fee or it is based on the spread, when your broker charges you based on the difference between the buying price and the selling price of an asset.
  • Trading Commissions – This is when a broker will charge you for each trade you make based on a percentage of the volume or value of each trade.
  • Inactivity Fees – Any fees that the broker charges you for not trading, such as for keeping money in a brokerage account or holding assets.
  • Non-Trading/Other Fees – Any form of fee for using this platform not covered above. For example, a brokerage might charge you for making deposits into your account, taking money out of it or signing up for additional services.

If you invest through Betterment you will primarily pay via commission. Betterment offers two different plans based on volume of investment. Its basic plan, called Betterment Digital, charges an annual fee worth 0.25% of all assets with no minimum balance required. So, for example, if you put $10,000 in your Betterment account, you would pay $25 per year for the service.

Betterment’s higher-tier plan, called Betterment Premium, charges an annual fee worth 0.40% of all assets and requires a minimum balance of $100,000. So, for example, if you put in the minimum of $100,000, you would pay $400 per year for this service. The company also offers a no-fee checking and savings account option.

The pitch behind Betterment is that your account growth will significantly outpace any fees that the service charges. For example, say your account grows by 5% in a given year. You will lose 0.25% of this money but will still have an account that is worth 4.75% more than when you started.

On accounts worth more than $2 million these prices drop to 0.15% for Betterment Digital and 0.30% for Betterment Premium.

For investors who would like to manage their own assets, Vanguard offers a price structure based primarily on trading. The Vanguard platform charges $0 to trade stocks and exchange-traded funds (ETF), and $1.00 per contract to trade options contracts. Vanguard mutual funds, the core of this firm’s service, are free to all investors on the platform as are all mutual funds on the firm’s no-fee list. Any third-party mutual funds not on the no-fee list cost $20 to trade.

Vanguard also offers reduced price options for high-net-worth accounts starting at $1 million in assets.

Vanguard does not charge inactivity fees, nor does it charge users for most ordinary transactions such as depositing or withdrawing money.

Betterment vs. Vanguard: Services and Features

While Betterment and Vanguard offer fundamentally different services, the two products are closer in practice than they may appear. Specifically, both of these firms are organized around fund-based investing.

While Vanguard offers a full-service trading platform the firm’s core brand has always been its management of mutual funds, and Vanguard’s investment platform emphasizes that through design decisions such as the assets on offer, the data available to investors and even the design choices behind its interface. Vanguard offers one of the broadest range of mutual funds at the lowest prices of just about any investment platform on the market. Investors on its platform will easily find information and analysis to support fund-based investing, while the tools and data to support higher-risk assets such as equities or options are clearly under-developed.

Investors who want to pursue active portfolios or higher-risk assets generally will choose other investment platforms.

Betterment is a robo-advisor service so users cannot invest directly in any assets; for example, you cannot buy a stock through a Betterment portfolio. Instead, as an investor, you use your Betterment account to select a series of options that will direct your investment strategy. You can set the time frame around which you are investing or choose the level of risk you’re comfortable with in a given portfolio.

Based on these choices Betterment will invest your money across the asset classes in one of its several portfolios (between five and eight at time of writing). For example, investors looking for higher returns and comfortable with higher risks will see their portfolio distributed more heavily in equities. As with all fund-based investing, you don’t get to control which specific assets make up each portfolio. These are selected according to Betterment’s investment formula.

The upshot is that both Vanguard and Betterment will generally attract investors looking for fund-based investments. The difference is that through Vanguard’s trading platform, you will build your own portfolio. As an investor you will do the research to select which mutual funds you want to buy and will choose whether or not to supplement those funds with other assets. Through Betterment’s platform, the firm’s algorithms will do the investing. You will specify parameters, such as goals and risk tolerance, but the actual investing will be done by an AI.

Finally, Betterment Premium matches the personal financial advising that Vanguard offers through its retail and in-person advising services. Users who have purchased Betterment Premium can speak with financial planners to get advice on investments, long-term strategy or other relevant matters. Users of Betterment Digital can also set up advising sessions, typically for around $300 per session.

Vanguard offers financial management and investment services as one of its core services, and prices range widely based on the specific product you choose.

Betterment vs. Vanguard: Online & Mobile Experience

Man uses his Betterment product at home

If the idea of using a robo-advisor appeals to you, Betterment is one of the best products on the market for both effectiveness and overall design. Betterment’s interface is clean and easy to use. While it does not necessarily explain the concepts behind robo-advising all that well, this is a highly complicated subject and the designers could be forgiven for not distilling it down to a Power Point.

What Betterment does make easy is the process of using its system. When you sign up for an account, Betterment asks some basic questions, such as age and income, to help design a profile and recommend investments for you. The system helps you link your bank accounts to your Betterment account and displays your portfolio in easy-to-read graphs that break down how your money is invested. Primarily designed to use via app, Betterment makes it very easy to use the system even if you don’t necessarily understand what’s going on underneath the hood.

Vanguard, by contrast, does not offer a particularly well designed mobile app. This ultimately reflects the nature of Vanguard’s investing. It does not expect its users to manage their money on the go.

Vanguard’s platform is very well designed for its web interface. Options are laid out clearly, with tabs for additional information. It’s easy to look up the assets that you’re interested in and equally easy to trade those products. While the trading options for many products are limited compared to other platforms, for example, Vanguard does not support conditional trades or other complex orders. This reflects that platform’s identity as a venue primarily built for the slow world of mutual fund investing.

At time of writing Vanguard’s app had not received the same degree of attention. Options that are clear on the web interface are difficult to find on the app, and sometimes seem to be missing altogether. For example, while looking up a particular asset on Vanguard’s website it is easy to tab through and see the historic information and technical indicators for that asset. This same information is often difficult, if not impossible, to find in the app.

Betterment vs. Vanguard: Who Should Use It

Active investors should generally avoid both of these services.

If you are someone who wants to make regular trades, invest in complex or higher-risk assets or otherwise actively invest then neither Betterment nor Vanguard will be right for you. Betterment does not offer these options at all, while Vanguard’s trading platform will offer fewer services with a clunkier design than some competing firms.

However, the truth is that most retail investors should focus their money on funds. Long-term investing and well-managed funds are overwhelmingly the best strategy for growing your portfolio. Indeed, most active investors tend to underperform the market, a statistic as true for the professionals as the amateurs. And both Betterment and Vanguard are excellent choices for an investor who wants to focus on long-term, fund-based investing.

Beyond that the question boils down to how hands on you want to be.

If you would like to research and select your own investments, and particularly if you would like the flexibility to maintain a speculative portfolio of individual equities and other higher-risk assets, then Vanguard is the service for you. It’s fund-forward design supports individual trading and lets you build your own portfolio according to your own strategy.

However, many other investors prefer to be hands-off. If you’re someone who simply wants to set a series of goals and leave the actual investing in the hands of professionals, then Betterment is the right choice. Its interface is clean and easy, and its robo-advising model will let you establish your comfort zone and then just walk away without having to get into the weeds of telling a mutual fund from an ETF.

Bottom Line

investing app being used by someoneBetterment and Vanguard are two services designed for investors who want to focus on fund-based investing. If you want to take a hands-off approach, Betterment will get your money invested without you needing to learn the complex world of mutual funds and ETFs. If you’d like to control your money to a degree, Vanguard offers one of the best trading platforms on the market for investors focused on mutual funds.

Tips for Investing

  • Whoever builds your portfolio, the most important thing is to have a clear strategy for your money. With SmartAsset’s matching tool you can find a financial advisor near you to help build a long term plan that will cover not only how you’re investing… but why.
  • Whichever platform or approach you chose, be sure to run your numbers through a free investment calculator to find out how well your investment plan will help you reach your financial goals.

Photo credit: ©iStock.com/Drazen_, ©iStock.com/Eva-Katalin, ©iStock.com/scyther5

Eric Reed Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
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