Betterment vs. Vanguard: what’s the difference?
There is a wealth of options available for people who want to start investing with large and small long-term and short-term goals in mind. While some of those firms are similar, others offer products and features that are better suited to individuals with a different approach to investing. Betterment vs. Vanguard is a good example of how varied investing options can be.
Betterment is an online financial advisory firm that specializes in robo-advisors and connects you virtually to human advisors. It lets you invest in a series of funds automatically managed by the service. However, you can’t use this platform to invest in individual stocks, options, bonds, and other securities.
Vanguard is a brokerage and investment management firm that offers an online and mobile trading platform. The platform allows you to research, build, and manage your portfolio and trade most mainstream securities.You can also connect with a financial advisor if you meet the necessary requirements.
What are Vanguard and Betterment's specific investment strategies?
Betterment and Vanguard have significantly different investment strategies.
Vanguard offers a wide array of investment options, including both active and passive strategies. You can actively trade securities basing your decisions on financial advice, research, and data, or you can let your money work for you by taking advantage of high interest rates.
Betterment provides automated portfolio management based on individual goals and risk tolerance.
What fees should I expect from Vanguard and Betterment?
To put both firms in perspective, let’s take a quick look at the four main types of fees that most brokerage and investment firms and online platforms charge their clients:
Trading commissions: These are charges attached to your trades based on a percentage of the values or volumes of those trades.
Trading fees: These are fixed charges attached to each of your trades, either flat fees or based on the difference between the buying and selling price of the asset.
Inactivity fees: These fees are charged if you hold assets instead of trading them or if you keep money in a brokerage account instead of using it for trading.
Other/non-trading fees: These are additional fees not included in those described above, such as fees for signing up, additional services, or depositing money into or withdrawing it from your brokerage account.
Betterment and Vanguard charge only some of the four types of fees. Understanding how both firms’ fees are structured is vital.
Betterment fees
At Betterment, most of the fees take the form of commission. You can choose between two different plans based on investment volume. The Betterment Digital basic plan charges an annual fee worth 0.15% of all assets (no minimum balance). For example, you will pay $25 per year if you have $10,000 in your Betterment account.
The Betterment Premium higher-tier plan charges an annual fee worth 0.30% of all assets ($100,000 minimum balance). For example, you will pay $400 per year if you have $100,000 in your Betterment account. Whether you choose the Digital or Premium plan, Betterment financial advisors will manage your investments. The firm also offers a no-fee checking and savings account.
Vanguard fees
At Vanguard, the fee structure is based mostly on trading. There’s no charge for trading stocks and exchange-traded funds (ETFs) and a fee of $1.00 per contract to trade options contracts.
Vanguard mutual funds, as well as those on the firm’s no-fee list, are free to all investors. There’s a $20 fee to trade third-party mutual funds that are not on the list. You can take advantage of reduced-price options if your account has at least $1 million in assets. The firm doesn’t charge inactivity or non-trading fees.
To connect with a financial advisor, you need to have a minimum of $50,000 in eligible Vanguard Brokerage Accounts.
Is Betterment or Vanguard better?
Vanguard's and Betterment's offerings are different even though both firms aim to achieve similar results, namely, growing their customers’ money through providing investment opportunities.
Both have pros and cons that you should be aware of before deciding which firm is best for you.
Vanguard:
| Pros | Cons |
|---|---|
| Low-cost fund leader | Site doesn’t offer much data and research |
| High interest rate for uninvested cash | Basic trading platform |
| Big mutual fund selection | |
| No-commission stock, options, and ETF trades | |
| Great quality of order execution |
Betterment:
| Pros | Cons |
|---|---|
| Invest all cash through fractional shares | No direct indexing |
| Multiple portfolio options, such as customization | Robo-advisors do not offer tailored guidance whenever you need it. |
| Low minimum balance and fees | |
| Powerful goal-based tools |
Vanguard or Betterment: which should I choose?
If you’re still wondering whether you should choose Vanguard or Betterment, it’s worth spending time thinking about a few different factors. Consider your circ*mstances, goals, and whether you would like to actively manage your portfolio.
You may find that a clear winner emerges from Betterment vs. Vanguard. It’s also helpful to speak to a financial advisor about your options.
Which platform is favored by investors seeking sustainable and socially responsible investing options?
Betterment offers SRI (Socially Responsible Investing) portfolios as an option, making it an attractive choice for investors interested in ESG (Environmental, Social, and Governance) investing.
How do Vanguard and Betterment stay competitive and adapt to changing market conditions?
Both companies continually introduce new features and investment options. They also meet investor needs by staying updated with regard to market trends.
Need more information?
In the matter of Vanguard vs. Betterment, it isn’t a case of comparing similar firms. Instead, what you find are firms that are suitable for two different types of investors. While Vanguard has active and passive options, the trading platform encourages a more hands-on approach. Betterment is all about offering its clients a hands-off approach as Betterment financial advisors will manage their portfolios.
Learn more about investment firms and their offerings. Let us match you with a regulated advisor whose expert financial advice can help you navigate your options.
