Competition is heating up among the Robo-Advisors. We get a lot of emails asking which is better. So, we broke down each of the services to see who deserves your investment. This is the Betterment vs Wealthfront vs Acorns face-off.
The whole point of going with a Robo-Advisor is the ease of use. Based on the research, it’s highly unlikely you’ll outperform the market on your own. Better yet, if you tried to do it on your own, it would be much more expensive.
For someone just looking to invest with the right service, it’s getting harder and harder to tell where you should put your money.
Before we get started, I also wrote an incredibly in-depth Betterment Review, an equally detailed Wealthfront Review, an Acorns review, and interviewed the Acorns founders, so if you’re looking to go even deeper, check those out.
In this article, I’ll be focusing more on the nuances of each service as opposed to which types of investment accounts they offer (e.g., SEP IRAs), required minimum balances, or annual fees.
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On paper, they’re very similar, but as you know, the devil is in the details. To objectively compare Betterment vs Wealthfront vs Acorns, I’ve come up with three main rounds the services will battle in to win your investment.
Round 1: User Experience and Aesthetic Appeal
Acorns has a beautiful mobile app and a beautiful website. It’s one of the best-designed apps on my phone by a long shot. I’m, of course, not the only one to notice this – they’ve won some sort of design award nearly every year since they opened their doors.
This Round was just going to be called Ease of Use, but Acorns elevated it to Aesthetic Appeal. I’m willing to bet this is the most significant way they get people to try them out. Stunning screenshots.
A beautiful interface can also be a downside, though. We’re all about investing for the long-term here, so if you keep opening your app just to see the beauty, you’ll also see daily price fluctuations and go slowly insane. That said, we still love beautiful things.
These screenshots play into Acorns ease of use as their app screams hours of OCD design discussions. From adding your checking account (see: Round-Up account later in the article) to selecting your risk tolerance – they make it all very easy. It’s important to note that while I only put up screenshots of their app, their website is equally pleasant to view.
1 / 3
Acorns Mobile App
Betterment Mobile App
Wealthfront Mobile App
Betterment’s app isn’t nearly as stunning, though it has gone through a redesign. However, it primarily focuses on getting the job done. Get in, get out, get on with life. If you’re looking for where they flex their design chops, you’ll need to visit their website.
Now, don’t get me wrong, there is beauty in simplicity, and this area Betterment nails.
They’ve spent hours deciding what to remove from the app and how to tweak the wording to elicit “better behavior” from their customers.
For example, during a market downturn, people tend to act irrationally and sell (you’re supposed to sell high, not low). By conveying the tax implications when you attempt to withdraw, they’re able to keep more people doing the right thing. One point for transparency!
Wealthfront has come quite a long way since we first wrote this review back in 2014. They’ve been through at least two complete redesigns and have substantially closed the gap.
While their app looks amazing, all you need to do is compare and read the reviews of Wealthfront vs. Acorns and Wealthfront vs. Betterment, and you’ll see that there are still some issues requiring attention.
Acorns and Betterment have spent enormous time here and have figured out quite a bit when it comes to what works. Wealthfront needs to steal what’s exceptional from its competitors and add its personality to level the playing field.
Acorns and Betterment are easy to use in that it takes almost no effort to set them up and use them. Wealthfront is also pretty easy but requires a little more fumbling around. For a service that bills itself as an easy way to invest, they need to put more focus here.
ROUND WINNER: Acorns. Both Acorns and Betterment are easy to use, but Betterment’s app isn’t nearly as scintillating, and you have to visit their website to see pretty graphs.
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Round 2: Investing Methodology
Perhaps the biggest question I had when I first started was, why I should invest with either service? Before any of the Robo-Advisors existed, I just picked the best low-cost Vanguard funds I could find and parked my money there.
And while all three companies use funds from industry leaders including Vanguard, Charles Schwab, and Blackrock, it wasn’t until I learned how they invested that got me hooked.
While both Betterment and Wealthfront boast that they use Modern Portfolio Theory to determine investments, Acorns develops their portfolios with the Father of Modern Portfolio Theory himself, Nobel Laureate, Dr. Harry Markowitz.
Acorns has 7 ETF’s (exchange-traded funds) that they will invest you in, depending on the risk level you select:
- Large Company – VOO
- Small Company – VB
- Developed Market – VEA
- Emerging Market – VWO
- Real Estate – VNQ
- Corporate Bond – LQD
- Government Bond – SHY
Every portfolio gains you exposure to bonds, US stocks, and foreign stocks. That said, this is about as much as you’ll find from Acorns on how they do things. I get that most people don’t care to know the details, but what about the people who do?
Betterment not only tells you what’s going on, but they jump a few sharks in the process.
In addition to giving you an exhaustive 3,386-word white paper entitled “Our Investment Selection Methodology,” they provide you with interactive graphs and charts in every conceivable form of asset allocation.
It seems that not only do they want to share every nuance of their decisions, but they also spent a considerable amount of time, making it easy to digest and enjoyable to discover.
Betterment made a very conscious decision to treat me like an adult. It feels like there is nothing to hide; all their cards are on the table. With all the attention to detail around educating me, it makes me think about how much attention to detail is baked into their product.
Their investment portfolios maximize your return depending on risk tolerance and allocate your money across asset classes with fractional shares.
Betterment has 32 ETF’s across 14 asset classes that they invest you in, depending on the risk level you select. The reason this is so much higher than what Acorns invests in is due to Tax Loss Harvesting – a feature Betterment has, and Acorns doesn’t:
- US Total Stock Market – VTI, SCHB, and ITOT
- US Large-Cap Value Stocks – VTV, SCHV, and IVE
- US Mid-Cap Value Stocks – VOE, IJJ, and IWS
- US Small-Cap Value Stocks – VBR, IJS, and IWN
- International Developed Stocks – VEA, IEFA, and SCHF
- Emerging Market Stocks – VWO, SCHE, and IEMG
- Short-Term Treasuries – SHV
- Short-Term Investment-Grade Bonds – NEAR
- Inflation-Protected Bonds – VTIP
- US Municipal Bonds – MUB and TFI
- US High-Quality Bonds – AGG and BND
- US High-Yield Corporate Bonds – HYLB, JNK, and HYG
- International Developed Bonds – BNDX
- International Emerging Market Bonds – EMB, PCY, and VWOB
1 / 3
Wealthfront’s Chief Investment Officer has a reputation that precedes him. Burton Malkiel was a director at Vanguard for 28 years, served on the Council of Economic Advisers, was president of the American Finance Association, was dean of Yale School of Management, and wrote the acclaimed book A Random Walk Down Wall Street that’s sold over 1.5 million copies. If the guy never slept a night in his life, I wouldn’t be surprised.
Their Investment Methodology white paper is undoubtedly very nerdy and includes plenty of charts and graphs.
I found it impressive that they shared their expectations as compared to other industry standards as well as their expected standard deviation of those results. Sufficiently nerdy with enough references and citations to make your favorite librarian proud.
Wealthfront’s diversified portfolio spans across 18 ETF’s and nine asset classes. While still crushing Acorns, there is less asset class diversification compared to what’s inside a Betterment account.
- US Total Stock Market – VTI and SCHB
- International Developed Stocks – VEA and SCHF
- Emerging Market Stocks – VWO and IEMG
- Real Estate – VNQ and SCHH
- Natural Resources – XLE and VDE
- US Government Bonds – BND and BIV
- Inflation-Protected Bonds – SCHP and VTIP
- US Municipal Bonds – VTEB and TFI
- Dividend Stocks – VIG and SCHD
This is coming after my less than favorable impression of Wealthfront’s interface. It restored a lot of confidence but, when you compare it to Betterment’s work in this area, they are simply outdone.
I learn through interaction, and I was able to gather more from Betterment’s approach, just tooling around on their page for 5 minutes.
ROUND WINNER: Betterment. They made better choices, went the extra mile to educate their customers, and weren’t afraid to put it all out there.
Round 3: Advanced Features
Why invest in either Betterment, Wealthfront, or Acorns? Sure, laziness is a factor, but they already share everything they put my money into, what keeps me from investing myself and saving the fee?
The first advanced feature is automatic rebalancing, a solution also known as Drift.
Drift is what happens to your portfolio over time as some investments grow faster than others. Since the past is no indication of the future, it’s vital to rebalance your portfolio.
It also helps significantly reduce risk. If in year one you think you’re at a 50% risk level, it better stay on that path. Both services protect you from risk while remaining tax-efficient.
One problem with trying to mirror what Betterment, Wealthfront, or Acorns does on your own is that you’ll get charged a commission from your broker every time you buy or sell. None of these Robo-Advisors charge you transaction fees, so if you contribute to or withdraw from your account – it’s free. That savings alone pays for the use of the services.
Automatic Rebalancing and Zero Transaction Fees is where the feature similarity ends. Each service has one killer feature that distinguishes it from the pack.
1 / 5
Acorn’s core feature is Round-Ups. The idea is that you link your checking accounts and credit cards to Acorns, and they will round every transaction up to the nearest dollar and invest it. Spent $5.06 at Starbucks? You’ve just invested $0.94.
All these small Acorns start to add up, and before you know it, you’re saving and investing. This is perfect for the person who has trouble saving.
Wealthfront Stock-Level Tax-Loss Harvesting
Wealthfront and Betterment offer a core feature called Tax Loss Harvesting (Betterment calls it TLH+). TLH harvests the natural dips in the stock market as losses to weigh against your gains automatically. I explain TLH in-depth in our Betterment review as well as our Wealthfront review.
Wealthfront was first to market here, but the service is practically identical.
Without going too deep, and with brilliant behind the scenes work, both Betterment and Wealthfront work to reduce your “on paper” investment gains. Most people will pay a 15% tax on their gains in their taxable accounts.
With TLH, you can expect to increase your overall market gains by 0.99% or pay 14.01% in taxes. So, for every $1,000 you invest, you can gain up to $10 more in tax savings.
Acorns investment strategy doesn’t include Tax Loss Harvesting. If you expect to earn more now than in retirement, Tax Loss Harvesting can be very beneficial, bringing significant gains to your portfolio.
Wealthfront now offers an enhanced form of tax-loss harvesting for taxable account balances between $100K and $500K, Stock-Level Tax-Loss Harvesting, that looks for movements in individual stocks, harvesting more losses and further reducing your tax bill.
With features like Stock-Level Tax-Loss Harvesting, you stand to make a lot more through economies of scale than you would below that price threshold.
Betterment’s Retirement Planning Suite
Betterment went outside the box and created an entire suite. Most financial planning tools give a lot of lip service to retirement and how important it is, but few put their money (and talent) where their mouth is. Betterment set the bar very, very high.
They cover the basics like “how much do you make” and “when do you want to retire,” but every retirement calculator you’ve ever used does that. That’s the price of entry. What impressed me is how they account for things like existing assets, the cost of living, and how much income is needed during retirement.
For example, if I lived in Ames, Iowa (zip: 50010) like Thomas, Betterment’s calculator tells me that my cost of living will be 4% less expensive than the national average. However, I live in Hoboken, so it’s 116% more expensive than the national average.
Therefore I’ve got to save an epic amount more if I want to continue living here AND retire here. Having Betterment break things like this down for me is eye-opening. Perhaps, I need to retire next door to Thomas.
Good calculators give you the answer; great calculators make you think. This is a great calculator.
ROUND WINNER: Betterment narrowly wins here. While Wealthfront’s Direct Indexing is amazing, you need to have $100k with them to take advantage, which rules out almost everyone.
Note: Round-Up by Acorns is a novel idea and perfect for the non-savers, but it won’t exactly make me more money. I want my money to grow faster automatically, and TLH does that. Couple that with RetireGuide, and you have a platform I can get behind.
Betterment vs Wealthfront vs Acorns: Best Robo-Advisor?
FINAL WINNER: Betterment
Betterment is the best platform for the average investor. There’s no account minimum, no minimum deposit, and you can get up to one year managed free.
They’ve focused on providing a smarter, well-rounded platform. We receive frequent emails regarding retirement planning, so any financial advisor should make a priority to give good personalized financial advice. Betterment get this.
The Smart Deposit feature automatically invests any excess cash in your bank account to makes it easy to start building wealth automatically.
Acorns is a fresh addition to the Robo-Advisor space, but when it comes to my money, I want real advantages if I’m going to be paying for it.
Wealthfront is a sizable step up from Acorns in what it provides to its customers. However, their biggest advantage is Direct Indexing.
However, it caters to the high net worth investor.
Both Betterment and Wealthfront were founded in 2008, so they have a few years head start on Acorns, and it shows. Acorns was founded in 2012, not long before our chat with their CEOs. Four years is an eternity for start-ups.
Acorns is great for students and people who can only invest what’s found in their couch cushions. Investing the “spare change” of your monthly expenses is a good idea in theory but generally doesn’t amount to much.
The average American makes 59 transactions a month. If each one ended in $0.01, then the average American would invest $58.41 a month with Acorns. Not enough for most people to retire on.
If you invest more, the Acorns platform is reliable, but it won’t blow your mind. Of course, Betterment and Wealthfront’s TLH will add 1% to your gains. Is it worth saving 0.15% to lose 1%? I don’t think so.
Get a Deal on Your Robo-Advisor of Choice
We’ve spoken with the CEOs of all three companies. We even got schooled on Opportunity Cost with Dan Egan, the head of Behavioral Finance and Investments at Betterment.
As a result, we were able to capture some deals if you join one of these Robo-Advisors through us.