Betterment vs. Vanguard [The Investment Platform Showdown]

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You may think that if you’re saving your extra money, you’re winning financially. Saving is certainly better than spending, of course, but what if you could take your free cash to the next level?

Investing, as most Americans would tell you, is the best way to turn your extra money into, well, more money.

Gallup reports that the majority of Americans are investors to some degree, which goes to show that it’s a smart practice to adopt, and if you aren’t investing now, it’s not too late.

Investing, Simplified: Is Vanguard or Betterment Right for You?

What is Betterment?

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Betterment earns its reputation as a “robo-advisor,” which means that there isn’t a banker sitting behind a desk managing your investments. Rather, an intricate system of algorithms automatically buys, sells and trades your investments for you.

If you’re the kind of person who wants to invest money and leave it be, you may be called a passive investor, which happens to be the majority of Betterment’s client base.

Passive investing has a number of benefits over active investing, including up to three times less expenses for the investor on average, but, as with everything, there can be downsides.

Betterment is Right for You if…

…you want to invest, but you don’t want to become a regular Edward Jones.

Betterment tends to try to keep its services affordable by setting a limit on the number of available funds you can use in your portfolio. That means that the system picks and chooses who and what you invest in, from government bonds to corporations like Apple.

If you’re very new to the investment world and don’t really know who you should be investing in or why this feature shouldn’t be too much of an inconvenience for you.

Again, if you want your investment experience to be brief and requiring minimal effort from you, Betterment’s interface may prove to be much more user-friendly than those of their competitors, including Vanguard.

It automates just about everything possible and has a super-savvy mobile app to boot.

Betterment isn’t Right for You if…

…you have a deep interest in investment and want to manage your own funds.

As previously said, Betterment is best for people who want their investments actively managed by someone else so that they can passively reap the reward. The convenience comes with a cost, too, so if you’re looking to invest with as little in extra fees as possible, then Betterment may not be for you.

In fact, while the cheapest route is always to manage your own portfolios yourself, most average investors think that the added cost of advice and security is worth it.

What is Vanguard?

Many people consider Vanguard to be the grandparent of investing companies.

It’s been around for over 40 years, and its founder, John Bogle, is widely given credit as the inventor of the index fund. Consequently, Vanguard is regarded by many as the reigning index fund company.

Vanguard is a simple and straightforward online investment platform. If you’re a strong believer in doing everything on your smartphone, you may run into problems using Vanguard; they’ve only got desktop versions, so don’t expect to have a brisk and interactive mobile app.

Vanguard is Right for You if…

…you’re looking to invest long-term.

For the investment newbies, index funds are a form of investing that are typically cheaper to purchase, easy to manage, and can be overseen passively. Index funds are generally considered low-risk investments, with broad market exposure and a typically low monetary turnover over short periods of time.

That means that you may not lose a whole lot of money quickly, but you’ll likely not see a whole lot of gains, either.

Index funds have plus sides, though. Many financial advisors recommend them to young, new investors who are looking to start a long and stable lifetime of investing, such as a supplement to or even a replacement for a traditional retirement account.

This is because, while you may not experience any extraordinary growth on your index funds over say, five years, they do tend to outperform actively managed accounts over time.

Also, when you ask a company (such as Vanguard) to create you an index fund, they invest your money across a wide assortment of accounts, such as utilities and corporations. So, if one account is down, it’s likely that at least one of the others are experiencing growth, creating a stable and low-risk investment portfolio.

Vanguard isn’t Right for You if…

…you want affordable advice while building your portfolio.

On the reverse of the downsides of Betterment, the lowest-cost option of Vanguard includes you being responsible for managing those funds. What that means is that you will: select investments, rebalance your accounts, and educate yourself on tax-loss harvesting if your funds are taxable.

Additionally, Betterment’s robotic, automated management of your money doesn’t quite translate to Vanguard.

You can up your membership to include a personal advisor, which costs 5% more than the algorithm services of Betterment, and your investment portfolio has to tip over $500,000 before Vanguard grants you a dedicated personal advisor.

If you value having a human advisor on hand, though, it may be worth it.

And the Winner Is…

…up to you.

A basic Vanguard account is an affordable option for investors comfortable with building their own portfolios. With an added cost, Vanguard Personal Advisor Services can be a human guide through your start to investing.

And finally, Betterment utilizes the latest and greatest technology to build and automate your portfolio for a small fee.

No one knows your personal finance goals better than you do. Take inventory of what you’re hoping to accomplish, how much you’re willing to spend in fees to invest, and how long you plan to be an investor (for a lifetime, for the next year, five years, etc.).

From there, you will be able to choose the company that can tailor the world of investing to your needs.

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