With so many robo advisor platforms on the market today, finding the one that best suits your individual needs can be a challenge. That’s why we’ve created this comparison of two of the most popular services, Betterment and Vanguard Personal Advisor Services. Both products have each received excellent ratings from our reviewers. So which one is better? Let’s put them head-to-head and find out.
Before choosing the best robo advisor for your investment needs, let’s check out the advantages of both Betterment and Vanguard Personal Advisor. How do they compare?
Founded by John Stein and Eli Broverman back in 2008, Betterment was a pioneer in the robo-investing space.
When saving, we don’t care about investment theory; we care about the result. We are investing for a purpose, whether it’s retirement, college, a home down payment or a vacation to Hawaii.
Betterment’s robo advisor is all about the endgame, walking you backward through the steps required to meet your goal. From your initial deposit, monthly savings and time horizon, Betterment will tell you the chances of achieving your objective.
There’s no researching which investments you need to purchase or at what percentage for each. The service does this for you automatically. So Betterment makes investing easy for beginners.
The Vanguard Group is the granddaddy of low-cost index-based mutual fund investing. The company was started in 1975 by Jack Bogle, who understood that over 80% of actively managed funds did not beat the market’s indices. His mantra? You aren’t likely to beat the market, so you should become the market and focus on low-cost funds.
Vanguard has grown to become the world’s largest no-load mutual fund company. While the company is mostly known for its low-cost index funds, it also offers a variety of low-cost, actively managed mutual funds and exchange-traded funds (ETFs).
Vanguard provides brokerage services, variable and fixed annuities, educational account services, financial planning, asset management and trust services. Vanguard Personal Advisor Services is its entry into the robo advisor space.
Jump down to the respective section to get the information you need.
- Where Are They The Same?
- Where Are They Different?
- Minimum Deposit
- Annual Fees
- Tax-Efficient Investing
- Retirement Planning
- Which Is Better?
Where Are They The Same?
Both firms offer a lot of features. First, let’s discuss the similarities between both companies.
|Investment Account Types||Traditional IRA, Roth IRA, Rollover IRA, SEP IRA, taxable, joint and trust investment accounts.|
|Automatic Rebalancing||Rebalance your portfolio if out of alignment with the desired allocation.|
|Security||Both sites have two-factor authentication, which makes it harder for hackers to gain access to your account.|
|Fractional Shares||All money is invested and you will not have cash lying dormant in your portfolio.|
|Good Customer Service||Both companies offer responsive, helpful assistance.|
|SIPC Insured||SIPC protects against the loss of cash and securities — such as stocks and bonds — held by a customer at a financially troubled SIPC-member brokerage firm. The limit of SIPC protection is $500,000, which includes $250,000 for cash.|
Where Are They Different?
- No Minimum Deposit — You can open a Betterment account with no minimum deposit.
- Up to One Year Free — Get up to one year of free service when you deposit $10,000 or more.
- SmartDeposits — Automatically deposit from your bank if the balance goes over a specified amount. This feature is in response to microsavings services like Acorns.
- Annual Fee Cap — With balances in excess of $2 million, Betterment’s fees end. Your annual fee tops off at $5,000 per year.
- Tax-Loss Harvesting — Maximize tax efficiency through the tax-loss harvesting (TLH+) service.
- Tax-Coordinated Portfolio — Asset allocate your investments to maximize tax efficiency among your tax-deferred and taxable accounts held at Betterment.
- Talk to a Financial Expert via Betterment’s App (New) — Got a financial question? Just like texting your friend, you can send a message to a financial expert within the Betterment app. This feature is available to all Betterment customers.
- BlackRock Target Income Portfolio Strategy (New) — This portfolio is designed for those in retirement or investors wanting low risk. The portfolio is 100% composed of bonds to give investors income with low risk.
- RetireGuide — A personalized retirement planning tool that helps you hone in on how much you should be saving per year and when you can retire as well as customized information on what your income in retirement will be based on your savings and when and where exactly to invest your money.
- Goldman Sachs Smart Beta Portfolio (New) — Competing with Schwab, Betterment now also implements Smart Beta with this portfolio in the hopes of improving returns over using traditional indexing.
- Socially Responsible Investing Portfolio (New) — A new portfolio from Betterment allows investors to partake of a portfolio with an SRI slant.
- Financial Advice for External Accounts (New) — For an additional fee (Premium Plan – 0.40%/year) you can speak with a CFP financial advisor who can help manage your retirement plan or other external accounts.
- Charitable Giving (New) — Betterment allows investors to donate shares to the charities of their choice directly from their accounts. This can help you save on taxes, since you won’t have to pay capital gains taxes on donated shares.
- $50,000 Minimum Deposit — Vanguard requires a minimum deposit of $50,000 to open an account, which is quite steep for many new investors.
- Completely Customized Portfolio — The Vanguard team will create a 100% customized portfolio for you, rather than using a pre-made collection of funds.
- A “Tech-Assisted” Financial Services Firm — Whereas Betterment is first and foremost a robo advisor that now also offers some human assistance, Vanguard is more of a financial services firm with some tech-assisted functions. You’ll have a live human create your initial portfolio based on your financial situation, along with periodically reviewing and tweaking your portfolio and offering financial planning advice.
- Exclusively Vanguard Funds — Your portfolio will be made exclusively of Vanguard’s own funds.
- SIMPLE IRAs — Vanguard supports SIMPLE IRAs, which are accounts that allow employers to match funds in traditional IRAs set up for their employees. These types of accounts are popular with small employers that do not currently sponsor their own retirement plans.
- Not “True” Tax-Loss Harvesting — Although Vanguard advertises that it offers tax-loss harvesting, we beg to differ. Rather than automatically performing this service like other robo advisors, Vanguard considers tax-loss harvesting opportunities on a case-by-case basis.
Let’s get the easiest comparison feature out of the way first.
Betterment requires no minimum deposit, whereas Vanguard has a $50,000 minimum, which is likely off-putting for the first-time investor. However, if you have that amount to invest and are looking for more personalized services, Vanguard might fit the bill for you.
Still, we think the winner here is pretty obvious.
Betterment recently simplified its pricing to be 0.25% (25 basis points) annually for all customers. This effectively increased the cost of existing Betterment clients who invest $100,000 or more. The previous rate was 0.15% annually. But at the same time for individuals who have less than $10,000 to invest with Betterment, the pricing was lowered from 0.35% annually to the new 0.25% fee.
Once you reach $2 million in investments with Betterment, your fees are capped. So for any investment accounts over $2 million, you are effectively getting the Betterment service for free, since you’ll pay a maximum annual payout of $5,000 for the digital-only service.
Vanguard charges an annual fee of 0.30%, no matter how much you invest, which is just a bit higher. There’s no cap on fees. However, again, this platform offers more services, along with more human assistance, so some might find this higher price easily justified.
Betterment’s service offers tax-loss harvesting (TLH), which helps boost your after-tax returns by letting you capitalize on your investment losses.
This service doesn’t require any action on your part and is fully automated for Betterment customers. The extra growth within the investment portfolio has been studied and found to offer no additional risk or cost.
Previously, you needed more than $50,000 to gain access to tax-loss harvesting. However, all taxable accounts now have access to this feature. No minimum deposit is required. But in reality, only larger accounts really see the benefits of TLH.
Betterment also just announced Tax Loss Harvesting+ across multiple accounts for spouses. If used effectively, it can double the size of your tax-efficient space. Plus, it sets Betterment up to incentivize you to have all your accounts with the service.
Vanguard doesn’t provide automatic tax-loss harvesting on accounts. Instead, your advisor team will consider tax-loss harvesting opportunities on a case-by-case basis.
Betterment invests your money in a combination of 13 ETFs, including six stock funds and seven bond funds. Depending upon your ratio of stocks to bonds, taxable vs. tax-deferred, some of the ETFs listed below may not be in your portfolio.
|US||Vanguard US Total Stock Market||VTI|
|Large Cap||Vanguard US Large-Cap Value||VTV|
|Mid Cap||Vanguard US Mid-Cap Value||VOE|
|Small Cap||Vanguard US Small-Cap Value||VBR|
|Foreign||Vanguard FTSE Developed Market||VEA|
|Emerging Market||Vanguard FTSE Emerging Markets||VWO|
|Socially Responsible||iShares MSCI KLD 400 Social||DSI|
|Socially Responsible||iShares MSCI KLD 400 Social||KLD|
|US TIPS||Vanguard Shrt-Trm Inflation Protected||VTIP|
|Muni||iShares National AMT-Free Muni Bond||MUB|
|Corporate||iShares Corporate Bond||LQD|
|Emerging Market||Vanguard Emerging Markets Govt. Bond||VWOB|
|Foreign||Vanguard Total International Bond||BNDX|
|US Short-Term||iShares Short-Term Treasury Bond||SHV|
|US Total||Vanguard US Total Bond Market||BND|
As you can see, Betterment’s portfolio choices include a lot of Vanguard funds.
Recently, Betterment has added some portfolios with specific targets, including:
- BlackRock Target Income Portfolio Strategy — This portfolio is designed for those in retirement or investors wanting a low-risk portfolio. The portfolio is 100% bonds to generate income with low risk.
- Goldman Sachs Smart Beta Portfolio — Competing with Schwab, Betterment also looks to implement Smart Beta with the hopes to improve returns over using traditional indexing.
The percentages of the ETF allocation are no longer fixed, either. Depending upon your allocation of stocks to bonds, Betterment adjusts the allocation of each individual ETF to meet the efficient frontier. In other words, Betterment has optimized the portfolio to give you the best performance possible.
Typically, Vanguard portfolios are made from the roughly 100 Vanguard mutual funds and ETFs, based on each client’s individual needs. Typical investments could include the Vanguard Total Stock Market Index fund, the Total International Stock Index fund and the Total Bond Market Index fund.
Personal Advisor Services clients get access to Admiral class shares of all Vanguard mutual funds without the normal $10,000-per-fund minimum. Admiral funds tend to come with expense ratios that are about 0.10 percentage points lower than the comparable Investor class shares. This offsets part of the 0.30% account management fee for those clients not otherwise able to meet the $10,000-per-fund minimum for Admiral class shares.
Vanguard advisors can recommend any Vanguard fund, but they tend to recommend low-cost Vanguard index funds.
The top seven funds held in their clients’ portfolios are:
- Vanguard Total Stock Market Index Fund Admiral Shares
- Vanguard Total International Stock Index Fund Admiral Shares
- Vanguard Total Bond Market Index Fund Admiral Shares
- Vanguard Total International Bond Index Fund Admiral Shares
- Vanguard Intermediate-Term Investment-Grade Fund Admiral Shares
- Vanguard Short-Term Investment-Grade Fund Admiral Shares
- Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares
For clients transferring in non-Vanguard funds with significant capital gains, Vanguard’s advisors may keep those non-Vanguard funds in the portfolio to avoid taxation on the gains.
Vanguard has such a wide selection of funds and ETFs that you’re sure to find plenty of choices to reach your retirement goals. Selection and low cost are key benefits of Vanguard. You can quickly and easily build a diversified portfolio with just a few well-established, low-cost funds through this service. Other than that, Vanguard doesn’t have as much support for retirement planning as Betterment.
Betterment’s RetireGuide gives you personalized retirement planning advice on points like your income in retirement based on your savings, when and where you can retire, how much you should be saving per year, and where exactly to invest your money. Unlike other retirement tools, Betterment’s RetireGuide also estimates the amount of spending you’ll do once you reach retirement age.
The RetireGuide tool is a game-changer since it allows you to not only use Betterment’s service to save for the future, but also have a better understanding of what you’ll be spending during retirement, as well as other income factors.
RetireGuide syncs with more than 13,000 external accounts to:
- Provide daily, automatically refreshed advice based on synced account balances.
- Help you stay organized with a display of all of your retirement accounts in one place.
Betterment vs. Vanguard Summary
|Review||Betterment Review||Vanguard Personal Advisor Services Review|
Overall rating as by Investor Junkie.Rating
|Commissions & Fees|
|Ease of Use|
|Tools & Resources|
|Promotions||Up To 1 Year Free||None|
|Account Fees||Digital – 0.25%/year; Premium – 0.40%/year||0.30%/year|
|Accounts Available||Taxable, Joint, Roth IRA, Traditional IRA, Rollover IRA, SEP IRA, Trusts, Non-Profit||Taxable, Joint, Roth IRA, Traditional IRA, Rollover IRA, SEP IRA, SIMPLE IRA, Trusts|
|Advice||Human Assisted||Human Assisted|
Does the robo-advisor offer assistance with your employer sponsored retirement plan?401(k) Guidance
|Tax Loss Harvesting||— All Taxable Accounts|
|Retirement Planning Tools|
|Automatic Deposits||Weekly, Biweekly and Monthly||Weekly, Biweekly, Monthly and Bimonthly|
|Clearing Agency||Apex Clearing||N/A|
|Socially Responsible Investing|
|Invests in Commodities|
|Invests in Real Estate|
How can you access the sevice? Website only? Via smartphone app?Access
|Website, iOS App, Android App||Website, iOS App, Android App|
More security to prevent unauthorized access to your account.Two-Factor Authentication
|Customer Service||Phone: M-Th 9A-8P, F 9A-6P ET; Live Chat: M-Th 9A-8P, F 9A-6P, Sat-Sun 11A-6P ET; Email||Phone M-F 8A-8P ET; Email M-F|
|Assets Under Management||$12B||$101B|
|Number of Accounts||393K||N/A|
|Sign Up||Sign Up|
Which Is Better: Betterment or Vanguard?
Betterment is a great service for many reasons. All of the ETFs the service has selected are great picks. They all follow their respective indexes very closely and are very liquid (which lowers the bid/ask spread), tax efficient and low in annual fees.
The service combines low management fees with high-quality products. The service is perfect for young investors with a thorough educational component and automation to make investing extremely easy. And the RetireGuide Calculator is an easy-to-use retirement planner tool that is perfect for beginning investors.
For advanced investors or higher net worth individuals, Betterment might not be the perfect fit. If you can reach the minimum of $50,000, Vanguard might be a better fit for you.
Plus, Vanguard funds have historically outperformed over the long run. For the 10 years ended December 31, 94% of Vanguard funds (all share classes, including ETFs) surpassed the average returns of their respective peer groups.
And if you’d rather have some hand-holding, Vanguard’s live human assistance is certainly attractive. For less than what you would pay a personal advisor, you could have a team periodically reviewing and resetting your portfolio.
Which service is better? I think both services are good for different reasons. Which one is best for you really depends on your specific needs and your personal preferences.