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Investing

Wealthfront vs. Betterment: Which is the best robo-advisor?

Wealthfront and Betterment are front-runners in the world of robo-advisors, but which one is best?

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Elena Noviello | Moment | Getty Images

When it comes to automated investing, two platforms have stood out from traditional brokerages: Wealthfront and Betterment. They're known as robo-advisors because of their ability to offer new investors a hands-off approach to growing their money. They'll create a custom portfolio for you based on your risk tolerance, time horizon, financial goals and more, and automatically adjust your investments over time to ensure that you're on track to meet your objectives.

Below, CNBC Select walks you through a comparison of investment platforms, so you can choose the one that makes the most sense for you.

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Wealthfront vs. Betterment

Wealthfront

  • Minimum deposit and balance

    Minimum deposit and balance requirements may vary depending on the investment vehicle selected. $500 minimum deposit for investment accounts

  • Fees

    Fees may vary depending on the investment vehicle selected. Zero account, transfer, trading or commission fees (fund ratios may apply). Wealthfront annual management advisory fee is 0.25% of your account balance

  • Bonus

    Get $50 bonus when you fund your first taxable investment account

  • Investment vehicles

  • Investment options

    Stocks, bonds, ETFs and cash. Additional asset classes to your portfolio include real estate, natural resources and dividend stocks

  • Educational resources

    Offers free financial advice for college planning, retirement and homebuying

See our methodology, terms apply.

Pros

  • No trade or transfer fees
  • Good for automated investing
  • Picks investments based on user's risk tolerance and time until retirement
  • Offers a cash management checking account with a debit card
  • Tax-loss harvesting to reduce the taxes you pay: 
  • Fund your first taxable Investment Account and get a $50 bonus.

Cons

  • $500 minimum deposit
  • 0.25% management fee

Betterment

  • Minimum deposit and balance

    Minimum deposit and balance requirements may vary depending on the investment vehicle selected. For example, Betterment doesn't require clients to maintain a minimum investment account balance, but there is a ACH deposit minimum of $10. Premium Investing requires a $100,000 minimum balance.

  • Fees

    Fees may vary depending on the investment vehicle selected, account balances, etc. Click here for details.

  • Investment vehicles

  • Investment options

    Stocks, bonds, ETFs and cash

  • Educational resources

    Betterment offers retirement and other education materials

See our methodology, terms apply. Does not apply to crypto asset portfolios.

Pros

  • No trade or transfer fees
  • Good for automated investing
  • Customizes users' portfolios around their financial goals, timeline and risk tolerance
  • Users can assign specific investing goals (short- and long-term) to each portfolio and invest using different strategies (less and more risk)
  • Quick and easy to set up account
  • Able to sync external retirement accounts to your Betterment retirement goal so all your accounts are in one place. Premium plan users get unlimited access to a financial advisor (otherwise, one-time advisor consultations cost a fee ranging from $299 to $399)
  • Advanced features include automatic rebalancing, tax-saving strategies and socially responsible investing

Cons

  • Base price for investing accounts is $4/month - recurring monthly deposits totaling $250, or total Betterment account balances reaching $20,000, automatically switch you to an annual price of .25% of your investing account balances
  • Premium plan requires $100,000 minimum balance

Investment options

Wealthfront invests in low-cost, diversified index funds, more specifically ETFs. Its diversified portfolios include stocks, bonds, real estate and ESGs. There are three main "types" of portfolios you can invest in through Wealthfront and the allocations of each can be tailored to you: The "Classic" portfolio (which has a mix of diversified index funds), the "Socially Responsible" portfolio and the "Direct Indexing" portfolio.

The Socially Responsible portfolio is curated with sustainability, diversity and equity in mind. The Direct Indexing portfolio is meant for accounts with a balance of over $100,000.

You can't buy and sell individual stocks on Wealthfront — you can only invest in portfolios with assets curated by Wealthfront's professionals and investment algorithm. However, you do have the ability to customize your portfolio a bit and adjust the mix of assets — but Wealthfront will let you know if your choices are out of line with your risk tolerance. According to Wealthfront's website, the platform offers 239 different investments, 17 asset classes and two cryptocurrency trusts.

Betterment also gives users the ability to invest in ETFs, but more advanced investors, however, have the option to customize through Betterment's flexible portfolios. The flexible portfolios allow you to modify the individual asset class allocations in the Betterment portfolio strategy to best fit your preferences, though, you cannot pick which specific ETFs you want to invest in.

Users of both platforms can invest their money through a taxable brokerage account in addition to a traditional IRA, Roth IRA and SEP IRA. However, Wealthfront also offers a 529 college savings plan and Betterment offers a 401(k) option for employers.

Features

When you sign up for a Wealthfront account, you'll fill out a questionnaire to determine your comfort level with taking on risk. This is determined by using your age, your financial situation and your attitude toward risk. Wealthfront will then assign you a risk score that reflects your personal details and comfort level. This allows the platform to create a portfolio tailored to your needs.

Wealthfront's advanced features include tax-loss harvesting, the savings from which can help offset the advisory fee, a high-yield cash-management checking account with a debit card and a 529 college savings plan, which robo-advisors don't typically offer. Wealthfront claims that their customers get, on average, a 1.8% boost to their returns after tax-loss harvesting. You can also open up joint accounts and trust accounts.

Betterment offers a customized portfolio for you based on a set of similar questions, and has some advanced features that include automatic rebalancing, tax-saving strategies and socially responsible investing. Betterment also provides a "tax impact preview" tool that lets you see how much you might have to pay in taxes before withdrawing funds. This platform also has a premium investing feature that requires a $100,000 minimum balance.

Betterment and Wealthfront automatically reinvest your dividend earnings for you. Plus, you can also automate deposits into each platform.

Fees

The real advantage of a robo-advisor is the low advisory fees they charge in comparison to a traditional financial advisor. Over the long term the fees from a traditional advisor, which usually come in around 1% of your total portfolio, can really eat away at your investment gains.

There is a $500 minimum deposit for investment accounts at Wealthfront. The annual management advisory fee is a low 0.25% of your account balance. So, if you have $10,000 invested with Wealthfront, you'll pay just $25 a year.

Betterment's fee is the same at 0.25%, except there is no minimum deposit for investment accounts. However, as a welcome bonus, new account holders can get up to $5,000 managed for free for a year with a qualifying deposit made within 45 days of signup. 

And for Betterment's premium investing option, you get unlimited access to real-life financial advisors for an annual fee of 0.40% of your fund balance.

If you don't have enough cash invested to use the premium investing feature, you can instead opt to pay for one-time advisor consultations, which cost a fee ranging from $299 to $399.

Bottom line

Wealthfront and Betterment are both solid robo-advisor options. Ultimately, though, Betterment may be best for those who want to start investing but can't meet Wealthfront's $500 minimum deposit amount and who may want access to a financial advisor. Plus, new users can actually save money if they're able to capitalize on the welcome bonus of up to $5,000 managed for free for one year.

However, Wealthfront's tax-loss harvesting feature can save you lots of money come tax time, and potentially more than cover the cost of the advisory fees. Plus, the service is currently offering a $50 bonus when opening and funding your first taxable brokerage account.

Catch up on Select's in-depth coverage of personal financetech and toolswellness and more, and follow us on FacebookInstagram and Twitter to stay up to date.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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