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Betterment vs Vanguard: (Sort of) David vs Goliath

Sometimes the trickiest comparison to make is when you are looking at the differences between one of the all time classics and a relatively new innovation. That’s certainly the position that anyone considering Betterment vs Vanguard will find themselves in. Vanguard is one of the titans of the financial world, existing since 1975 and presently managing $7 trillion in assets – that’s indeed trillion with a T. Betterment has been at it since 2008, with a relatively modest $22 billion under management. Despite some differences, including their size, they actually have a bit more in common than you might expect. 

Betterment: Better for Your Investments?

Betterment is one of the most widely recognized robo-advisors. It works by letting the user determine the mixture of stocks and bonds they would like to be invested in, and then selects a portfolio based on their specific preferences. While there is the opportunity for some portfolio customization, its main appeal is that users can leave it unattended with minimal need for monitoring. 

While it is much newer than Vanguard, Betterment is most assuredly a safe place to invest your money. It takes precautions such as fencing off investor money, so that funds can be returned easily in case of a catastrophic event such as company bankruptcy. It is also insured by the Securities Investor Protection Corporation (SIPC), which covers up to $500,000 in investor assets. 

Management fees are fairly low, at 0.25% for its Betterment Digital user level and 0.4% for Betterment Premium (account minimum of $100,000). Additionally, several ‘smart’ features such as tax loss harvesting, automatic dividend reinvestment and automatic rebalancing truly take a lot of the work and administration out of investing. If this sounds like the kind of robo-advisor service that would help improve your investing, consider signing up for Betterment today.

Vanguard: The Test of Time

It’s hard to overlook track record and longevity when evaluating an investment product or service, and in this regard Vanguard is truly in a league of its own. Today it is among the largest providers of mutual funds and ETF’s in the country

Management fees start at 0.3% but reduce as the value of your assets under management with them goes up. Generally speaking, it is a platform geared more towards high net worth investors, although in theory anyone can use it.

Although Vanguard requires more active management of and decision-making about your investments, they do make human advisors available to you for consultation and advice. This is a feature that Betterment also offers, although depending on your level of service with them you may need to pay separately for access to an advisor.

M1 Finance vs Vanguard: Battle of Fee Structures

Unless you are an ultra-wealthy investor, there’s a good chance that the difference in fees between Betterment and Vanguard is more or less a wash. It’s important to crunch the exact numbers that correspond to your personal financial situation, but overall they will look pretty similar.

If fees are what really motivate you, comparing Vanguard to a platform called M1 Finance is likely worth your while. M1 Finance actually has no fees for portfolio management and trade commissions, a deal that may seem too good to be true! 

Of course, they make their money in other ways. They offer a credit product called M1 Borrow that charges 3.5% interest on loans of up to 35% of your portfolio value. They also have a checking service called M1 Spend, making them pretty much an all-in-one money management tool if you decide to go with them. 

And if you are truly serious about driving down the fees you pay, M1 Finance has a premium service option called M1 Plus that only costs $125 per year. It reduces your cost of borrowing from 3.5% to 2% and offers ATM fee reimbursements to make using their checking service more affordable.

Both M1 Finance and Vanguard offer the ability to customize your investment choices, although there are some key differences to note. While Vanguard is a mutual fund behemoth, M1 Finance does not currently allow the purchase of mutual funds through their platform. And while Vanguard requires the entire cost of purchasing a given asset, M1 Finance allows users to buy fractional shares, a feature that can be quite helpful to newer investors and those looking to aggressively diversify.

The Verdict: Betterment vs Vanguard

Both Betterment and Vanguard are solid options for investors, and which one you choose is largely a question of personal preference. Fees are similar for each, though if you are a high net worth investor Vanguard may speak to you a little more clearly. It would be helpful to take advantage of other readily available comparisons of the two services before making a final decision. Most investors will do well with Betterment and its well-established robo-advisor service with a track record of results comparable to or slightly better than a human advisor. Whichever you choose, you’ll be in good hands!

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