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There is a dusty, antiquated view that to invest in stocks, bonds, or other financial securities, an investor has to hire a broker and pay commissions for every trade they make.
In fact, the entire brokerage & investment industry has undergone a massive transformation in the past 20 years. This antiquated view is almost nothing like how investing works anymore. And this is an enormous gift to investors.
It has never been cheaper or easier to start investing. And it’s never been more affordable to outsource the entire investing process – including financial planning, goal setting, tax preparation, and retirement saving – to an expert who only makes more money when YOU make more money.
This is the linchpin of the asset-based management fee, the most important transformation in the industry this past decade. Asset-based fees are intuitively a better solution than paying commissions.
You get billed a flat percentage of how much money you have invested in the market. So, your investment manager can’t earn a higher fee unless your account value grows. Their incentives are aligned with yours, and that is what prudent financial management should be about.
Both Betterment and Acorns have a bare-bones fee structure that means zero commissions paid. Let’s look further into what sets each platform apart, and what type of investor they’re most suited to in our Betterment vs Acorns Review.
Acorns vs Betterment: Side-by-Side Comparison
|Account Types:||Individual and joint non-retirement accounts, Roth, Traditional, SEP, and Rollover IRAs. Trusts (estate planning)||Individual Taxable Account, Roth IRA, Traditional IRA, SEP IRA|
|Account Minimum(s):||No minimum for a base package; $100,000 for Betterment Premium||No account minimums, but at least $5 required to invest in a portfolio of ETFs.|
|Management Fees||0.25% for Betterment Digital. 0.40% for Betterment Premium||Lite ($1/month): Allows one taxable account. Personal ($3/month): Allows an IRA and a checking account in addition to a taxable account. Family ($5/month): Includes everything from above levels, also an Acorns Early account for children.|
|Account Fees:||No fees for transfers, deposits, withdrawals, or annual fee||No fees for deposits, withdrawals, or yearly fee. $50 fee if you want to transfer your ETFs to another institution (without cashing them out)|
|Automatic Re-balancing:||Yes - users can choose to opt into the program or not||Yes - free on all accounts. Can be done through the mobile app|
|Tax-Loss Harvesting||Multiple tools for gaining tax advantage, including daily tax-loss harvesting (for taxable accounts). Tax Impact Preview tool shows users impacts of portfolio changes.||Not Available|
|Customer Support||Phone support Monday-Friday 9 a.m.-6 p.m. (EST). Email support only on weekends.||Human support not available, email support within 24 hrs, automated chat support available on desktop.|
|Online Platform||Yes, but most functions can be performed on the app||Yes. Almost all functions are done through the app.|
|Human Advisers||Yes, for an extra fee.||Not available.|
Betterment is part of a relatively new convention in the investing world over the past decade called “Robo-Advisors”. As opposed to a standard mutual fund or an asset manager, where there are teams of people deciding what stocks to buy and sell (and why), robo-advisors make automated decisions. The “why” is pre-programmed.
It’s not all completely robotic, however – after all, who programs machines? Humans, right? So, there’s always a human decision element involved. But with robo-advisors, once the initial instructions are input into a software program, the software makes the future decisions.
So, what kind of initial instructions are input into a robo-advisor? It could be what percentages of stocks vs bonds to hold, whether to overweight or underweight higher-valued growth stocks, keep capital gains taxes minimized, or whether to only invest in socially conscious companies and industries.
There are as many different combinations of values, metrics, and classifiers as there are investors. The critical information on how a portfolio or an ETF (exchange-traded fund) is constructed will always be explained, so investors can know exactly what the operating guidelines are.
Advantages of Betterment
- Their tools are excellent for goal-setters with their eyes on long-term financial security, and for people who don’t want to spend a lot of time on their investing plan. The ideal customer is focused on budgeting, planning 10, 20, 30+ years into the future, and enjoys watching their accounts make incremental steps toward their goals
- Investment management fees – and ETF expense ratios – are below industry averages, providing you excellent overall value.
- The portfolio selection choices are varied, including socially conscious investing, smart beta, and target income portfolios.
- Good tax-saving strategies are available, such as advice on tax-loss harvesting (the process of managing capital gains, a tax, to keep them as small as possible).
- Human advisers can be hired for a flat fee to get one-time consultations and advice on key areas like retirement planning and tax preparation.
- Betterment offers customers the ability to buy fractional shares – so instead of having to save up, say, $1500 for a single share of Google parent company Alphabet (NASDAQ: GOOGL), an investor can piecemeal their way into owning the company with fractional shares of stock.
- You can hold retirement accounts at Betterment, including Traditional IRAsand Roth IRAs (Individual Retirement Accounts).
- Joint accounts are also allowed (but taxable accounts only).
- They handle rollovers into IRAs from 401ks and other IRAs; small features but ones that some other robo-advisers don’t handle well.
- Mobile app for consolidated budgeting and account viewing/maintenance.
Disadvantages to Betterment
- Betterment is not a standard brokerage firm. There is no option to buy individual stocks or trade your own account – you’ll have to open up an account at a separate broker if you want to get more hands-on with investment selection.
- There is no direct indexing option (where an investor can buy all the individual stocks in an ETF instead of the ETF itself). Direct indexing can provide more tax efficiency by allowing investors to capture capital gains and losses individually, at the single-stock level.
- Moving funds off the site – should someone decide to take their business elsewhere – can be a burden, according to some customers.
Who Should Use Betterment?
Betterment is best suited to investors who have some experience in financial markets but are looking to offload most of the day-to-day work.
The availability of extra service (with a human adviser) without having to pay for it every month is a nice perk for people who just want to talk to somebody once every year or so.
Learn More: Betterment Review
An exciting hybrid of savings, budget planning, investing, and banking, Acornsis focused on early-stage investors who are just starting on their journey.
The most novel implementation of transferring your savings to investments is the feature where you link up banking accounts, debit cards and credit cards (as many as you want!), and then have your regular purchases get rounded up to the nearest $1, with the spare change being funneled into an Acorns investing account.
An Acorns user can either set up all their linked cards to automatically round up all purchases, or they can set it to a manual choice. In the case of the latter, you will log on to the app, view your purchases, and select which ones you’d like to have rounded up.
Users can also make lump-sum contributions as they would with another broker, either via check, ACH, or wire transfer.
The Acorns investing account – the jar where all that digital spare change goes – is another implementation of the robo-adviser model, with automated portfolios that offer a mix of standard ETFs.
Want to Learn More? Checkout our Acorns Review
While there is no minimum balance needed to invest through Acorns, there are monthly fees for all levels of account holders (with exemptions made for qualifying college students). The fees are small, starting at just $1-5 per month, for three different tiers:
- Lite ($1/month): Allows one taxable account
- Personal ($3/month): Allows an individual retirement account (IRA) and a checking account in addition to a taxable account
- Family ($5/month): Includes everything from above levels, and also an Acorns Early account for children.
Advantages of Acorns
- Most people need help to save. Having small amounts of money set aside, without thinking about it, is key for a lot of folks. It may be the only way to get them started in the stock market, by removing typical sources of friction like, “I don’t have enough money to invest” or “How do I even start setting aside savings?”. From small acorns grow the mighty oak, is the core of the company’s value proposition to investors.
- There are ZERO account management fees for this robo-adviser (the ETFs that make up your portfolio do have individual expense ratios; however, in the range of 0.03% – 0.20% per year).
- Acorns offers cashback for some purchases at certain retailers. The list of approved retailers is constantly growing
- Offers both taxable accounts and retirement accounts, and a checking account.
- Good for setting up custodial accounts for children. (The most common of these are Uniform Transfers to Minors Act (UTMA) accounts and Uniform Gift to Minors Act (UGMA) accounts.)
- A great platform for setting up an Individual Retirement Account (IRA) if you don’t already have one. Most brokerages require a minimum deposit of $500-1000 to fund an IRA. With Acorns, you can do it with a collection of spare change!
Disadvantages of Acorns
- No self-directed trading, as with Betterment and other robo-advisers.
- Portfolio construction options are more limited than Betterment’s, with only 7 ETFs used in various proportions to make 5 portfolio choices (based on risk tolerance and time horizon of the investor).
- Monthly fees can add up for small accounts.
Who Should Use Acorns?
Ideal for college students, who can get up to 4 years of no investment fees with a verified .edu email address. All in all, it’s hard to find a better, more affordable tool to help brand-new investors get their feet wet. There are also useful educational resources available to further one’s self-education on investing, budgeting, and retirement planning.
Betterment vs Acorns: How Do They Invest My Money?
With regards to the way your long-term portfolio would look with Betterment and with Acorns, both look to position investors to take advantage of two cornerstones of investment management – Dollar Cost Averaging (DCA) and Modern Portfolio Theory (MPT).
Dollar-Cost Averaging is the simple practice of investing modest amounts over a long period of time, such as $100 month, $10 per week, etc. By using DCA, you stop worrying about whether the market is up or down in the short-term.
If say, the stock market is lower than the last time you put some money into it, your next buy of shares will get you more shares (as they will be cheaper). And if the market is higher, you’ll be buying fewer shares with the same dollar amount, ensuring that you’re never chasing the market when it’s running hot.
Multiple studies have concluded that dollar-cost averaging is the single best way to build a strong portfolio with the least amount of effort. All that’s required is the discipline to stick to the program!
And the short version of Modern Portfolio Theory is pretty intuitive; MPT basically says that being diversified across a wide range of asset classes (stocks, index funds, bonds, real estate, etc.) is more important than individual security selection (picking “the right” stocks, bonds, etc.).
over long periods of time. MPT is the backbone of modern investing theory, and its initial proponent, Harry Markowitz, earned a Nobel Prize for introducing it over 70 years ago.
Acorns vs Betterment: Which App is Better for Retirement Investing?
Both are solid choices for investors focused on long-term retirement planning and investments. Betterment has more investment choices available and can handle estate planning issues like setting up trust accounts.
Acorns is preferable for younger investors looking to just get started, and who want the extra help to set aside funds to invest.
Security and Protection: Are Investments Protected?
Yes. Invested funds at both Betterment and Acorns are protected by SIPC (Securities Investor Protection Corporation) insurance for up to $500,000, and up to $250,000 in cash investments.
Cash account balances at Betterment are FDIC insured up to $1 million.
Checking accounts at Acorn through Acorn Spend are FDIC insured for up to $250,000.
Betterment vs Acorns: Which One is Best?
Both platforms have attractive features – the answer depends on factors like how much time you want to spend, how difficult you find it to save on your own, and your overall investment risk tolerance. Fortunately, both brokers offer investors intuitive investing apps make it easier than ever to track your performance and change allocations on the fly.
If you are new to investing, then Acorns is for you. However, if you are a young adult and are serious about retirement planning, then Betterment is the perfect broker.