Betterment vs Vanguard: Review 2018

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If you are considering a robo-advisor, Betterment is about as good as it gets. But Betterment features Vanguard funds in client portfolios, so why not bypass Betterment and go straight to Vanguard?

After all, Vanguard has one of the best exchange-traded funds available to fee-savvy investors, the Vanguard Total Index (VTI) fund. Why not simply park your investment portfolio money in it and move on? Or choose the robo-advisor service offered by Vanguard: Vanguard Personal Advisor Services?

As it turns out, Betterment has much to offer, especially to the hands-off investor who is not keen to take on the responsibilities of regularly rebalancing a portfolio, harvesting tax losses to optimize for after-tax returns, and keeping track of financial goals.

In the Betterment vs Vanguard robo advisor battle, the portfolio management service that is best for you boils down to how active you want to be, the service level you desire and how much money you have available to invest.

Vanguard vs Betterment


vanguard investments

Traditional financial advisors have a high hurdle to climb to convince you that they are a better choice than Vanguard when you look at the math. The Vanguard Total Index fund, which you can buy in a Vanguard brokerage account, tracks the general market, has low fees, and will most likely outperform the large majority of financial advisors over time.

The reason is most financial advisors don’t attempt to beat the market but instead look to mirror its returns, yet charge higher fees than those imposed on buyers of the Vanguard Total Index fund. Because of the higher fees, portfolios managed by traditional financial advisors are, virtually by design, likely to underperform the general market.

Betterment fees are substantially lower than those charged by traditional financial advisors, but still Betterment has its work cut out to convince you its low fee technology-powered portfolio management solution is a better bet than simply parking your money in the Vanguard Total Index fund and forgetting about it.

As it turns out, one feature at Betterment, its tax-loss harvesting service, is so effective in saving you money that it has the potential to cover the management fees charged. We will review the tax loss harvesting benefits shortly but first we compare how Betterment fees stack up against Vanguard fees.

Betterment Fees vs Vanguard Fees

Betterment has lower fees for online advice only while Vanguard has lower fees for a hybrid service that combines automated portfolio management with live advisors. Vanguard has the higher account minimum of $50,000 compared to $0 at Betterment. However, for access to human advice at Betterment, the minimum is $100,000 for Betterment Premium.

Investors should pay attention not only to portfolio management fees but also to the costs of investment expenses, such as expense ratios, which are charged at the fund level. Both Vanguard and Betterment keep expense ratios low, so they are virtually tied on that cost comparison. But when it comes to portfolio management fees, Vanguard has the edge.

For a fee of 0.30% on managed assets, Vanguard Personal Advisory Services will not only manage your portfolio automatically but will also make accessible a team of live advisors.

Betterment fees start at 0.25% for its purely technology-powered robo-advisor service, Betterment Digital. For an equivalent service level that allows clients connect with human financial experts, Betterment charges 0.40%. This higher tier of service is its top tier, called Betterment Premium and allows unlimited phone calls and emails to a team of CFP professionals.

Robo-Advisor $5,000 $10,000 $50,000 $100,000 Open Account
vanguard investmentsREVIEW

NA NA 0.30% 0.30%

0.25% 0.25% 0.25% 0.25%

Vanguard can charge lower fees than Betterment for service that includes access to human advice because it essentially gets to ‘double-dip’, meaning that it makes money not only from portfolio management fees, but also from expense ratios charged at the fund level – because it uses its own funds in portfolios. This is a luxury Betterment and other robo-advisors do not enjoy.

Account Minimum

Betterment vs Vanguard

For an apples-to-apples comparison of service levels, Vanguard has the lower account minimum, which is $50,000. Betterment Premium is only available to clients investing $100,000 or more.

However, if an automated investing solution is all you need, Betterment has no account minimum for its core service, Betterment Digital. No equivalent level of service that is purely automated with no human advice exists at Vanguard. So, if you cannot meet the $50,000 minimum at Vanguard, Betterment is the only option.

Robo-advisor $10,000 $50,000 $100,000 $1,000,000 Open an Account

$25 $125 $250 $2,500
vanguard investmentsMANAGEMENT FEES

NA $150 $300 $3,000

Compare Betterment Vs Vanguard: Fees & Account Minimum: Vanguard imposes a $50,000 minimum hurdle, so investors with less than $50,000 available can only select Betterment.

For investors who can invest $50,000 or more and want access to human advice, Vanguard charges lower fees (0.30%) and has a lower account minimum ($50,000).

If human advice is less important to you and an automated investment management solution suffices, Betterment charges lower fees (0.25%) and has the lower account minimum ($0).

Tax Loss Harvesting

Betterment vs Vanguard

Tax loss harvesting can be so effective that earnings from invested tax deductions have the potential to cover management fees. Both Vanguard and Betterment shine in providing tax-loss harvesting in taxable accounts, and allocating assets across taxable and retirement accounts to lower taxes.

Tax loss harvesting is such an effective strategy that it has the potential to more than cover the fees charged by robo advisors. At Betterment, each day your portfolio is analyzed to see if positions can be sold to capture a tax-deductible loss. If a fund is sold, another similar one is purchased to ensure you remain full invested so your cash is working for you.

This is so important that it is worth walking through a quick step-by-step analysis of how much you can save. Let’s assume a portfolio has $250,000 in it. After 3 years, some positions will have won and some will have lost, and we’ll assume that $25,000 worth of tax-deductible losses have been harvested, a reasonable estimate.

A $25,000 tax deduction might save you approximately $7,500 in income taxes. You can invest that $7,500 in the market. Over time, if your return averages to say 8% annually, you will earn $600 per year. So, after just 3 years of tax-loss harvesting, you could possibly enjoy average annual earnings of $600 going forward.

Now compare those average annual earnings with the fees charged by Betterment, and you will see how effective tax-loss harvesting is at saving you money. On a $250,000 portfolio size, annual fees of 0.25% amount to $625, which are ever so slightly higher than your projected average annual earnings ($600) from tax-loss harvesting.

As time goes by, more tax losses accumulate and the potential for earnings to eclipse fees is very possible, making the value Betterment provides even more compelling.


Tax-loss harvesting is only possible in taxable accounts. Because earnings grow tax-deferred in retirement accounts, there are no benefits to tax-loss harvesting in an IRA or 401(k). Betterment realizes that and goes a step beyond tax-loss harvesting in taxable accounts to create a tax-coordinated strategy that optimally allocates money across qualified and non-qualified accounts (which effectively means retirement and taxable accounts).

Vanguard Personal Advisory Services also strategically allocates assets across tax-advantaged and taxable accounts. However, tax-loss harvesting is conducted for each client individually, as opposed to daily automatically at Betterment.

Vanguard vs Betterment: Tax Loss Harvesting? Both Vanguard and Betterment offer tax-loss harvesting and both allocate assets across retirement and taxable accounts to lower taxes. Betterment has the edge over Vanguard because it automatically harvests tax losses daily as opposed to doing so on a client by client basis.

Human Financial Advisors

Vanguard vs Betterment

The Vanguard robo advisor service is a hybrid robo advisor that combines automated investment management with a team of live advisors. Clients who meet the $50,000 account minimum get access to the hybrid service for a management fee of 0.30%. For $500,000, clients are assigned to a dedicated financial advisor. At Betterment, the minimum is $100,000 and the fee is 0.40%.

Like rival Wealthfront, Betterment began as an online advisor using computer algorithms to manage client portfolios. But unlike its competitor, Betterment has added a human element to its product offering, recognizing that clients sometimes wish to speak directly to financial experts.

The top tier service, Betterment Premium, includes unlimited phone access to CFP professionals in addition to unlimited email access.

Vanguard makes a team of live advisors accessible to clients also. The difference is that the core offering at Vanguard includes access to live advisors while the core offering at Betterment is a purely digital solution. At both robo-advisors, the hurdle is high to get access to human advice: $50,000 at Vanguard and $100,000 at Betterment.

Vanguard Vs Betterment: Which is Better for Human Financial Advisors? It’s a tie between Vanguard and Betterment when it comes to human advice. Both provide access to a team of financial experts, though Vanguard has the edge in making human advice accessible for a slightly lower account minimum and charging a lower management fee of 0.30%, compared to 0.40% which Betterment charges for equivalent service.


vanguard investments

Retirement Planning & Financial Goals

Vanguard vs Betterment

Betterment provides clients with online tools to help them set financial goals, keep track of progress towards those goals, and make use of idle cash. Vanguard provides comprehensive financial planning services that includes analyzing all financial accounts, even third-party accounts, and relies more on human analysis.

Comprehensive financial planning is part and parcel of Vanguard’s service, which includes direct portfolio management of taxable and retirement accounts, as well as trusts. If you have a 401(k) or a 529 Plan, Vanguard’s advisors will factor those into your overall financial circumstances.

Financial goal setting and retirement planning are integral to the Betterment service. However, Betterment relies on tools more than humans to guide you down the right path. For example, RetireGuide is a tool that Betterment provides to let you see how you are progressing relative to your retirement goals.

Smart Deposit is another valuable feature that sweeps unused cash from a checking account into a Betterment investment account that is focused on a specific financial goal, such as buying a new home or planning a vacation.

Retirement Planning & Financial Goals: Should You Choose Vanguard Or Betterment? If you feel more comfortable with a human advisor providing retirement guidance, Vanguard is the better choice. But if you’re just as happy to rely on financial tools to guide your retirement planning, Betterment is a great choice.

Account Types

Betterment vs Vanguard

Vanguard and Betterment both support an extensive range of taxable and retirement account types, including Trusts, IRAs, rollover IRAs, SEP IRAs, and Roth IRAs.

Vanguard and Betterment offer a broad range of account types, including:

  • Individual and joint non-retirement
  • Traditional IRA
  • Roth IRA
  • Rollover IRA
  • Trusts

Both will advise upon, though will not manage, 401(k)s. And Vanguard will advise upon but will not manage 529 Plans, and will also advise upon third-party financial accounts.

Account Type betterment vanguard investments
Individual Non-retirement YES YES
Joint Non-retirement YES YES
Traditional IRA YES YES
Rollover IRA YES YES
Trusts YES YES
Custodial Accounts YES YES
529 Plans NO NO (but, will advise)
401(k) NO (but, will advise) NO (but, will advise)

Asset Classes

Betterment vs Vanguard

It’s not a fair fight when it comes to asset classes. Vanguard provides almost 200 funds of its own, 50 commission-free exchange-traded funds, and 2,600 no-transaction fee mutual funds.

A robo-advisor attempting to stand toe-to-toe with Vanguard on the range of asset classes provided to clients is a little bit like David taking on Goliath. Betterment does build portfolios from a selection of up to 12 asset classes, but Vanguard enjoys the slam dunk victory in this category because of the much broader selection of asset classes and funds available, including:

  • 10  Vanguard money market funds
  • 54 Vanguard bond funds
  • 23 Vanguard balanced funds
  • 105 Vanguard stock funds

Overall Winner

Betterment vs Vanguard

Investors with under $50,000 available should look to Betterment because Vanguard does not accept accounts under that level. Above that threshold, Vanguard charges lower management fees but daily tax-loss harvesting at Betterment has the potential to cover the cost of fees over time. Vanguard has a broader range of asset classes available to build diversified portfolios while Betterment has higher quality online tools to support financial goals setting and retirement planning. With that said, Vanguard relies on human advisors to offer comprehensive financial planning services, and will review third-party accounts to get a full financial picture.

Vanguard Wins Betterment Wins
Portfolio Management Fees: Vanguard has lower fees for its hybrid robo-advisor service that combines technology-powered portfolio management with a team of human advisors. The charge at Vanguard is 0.30% vs 0.40% for an equivalent service at Betterment called Betterment Premium. Portfolio Management Fees: Betterment has lower fees for clients who are content with a purely digital service that manages portfolios automatically. Betterment charges 0.25% for its core service, Betterment Digital. Vanguard has no equivalent service.
Human Advisors: Vanguard and Betterment are virtually tied on this feature. Vanguard has a slight edge in making a team of advisors accessible for a lower account minimum of $50,000.

However, to be assigned a dedicated financial advisor at Vanguard, clients must meet a much higher hurdle of $500,000.

Human Advisors: Betterment and Vanguard robo advisors make available human advice so they’re evenly matched. Betterment Premium has a $100,000 minimum plus unlimited phone and email support.
Asset Classes: Vanguard has almost 200 of its own funds, featuring:

  • 10 Vanguard money market funds
  • 54 Vanguard bond funds
  • 23 Vanguard balanced funds
  • 105 Vanguard stock funds

Plus brokerage clients enjoy access to over 50 commission-free ETFs and 2,600+ no-transaction fee mutual funds.

Tax Loss Harvesting: Daily tax loss harvesting is performed automatically at Betterment, giving it a slight edge in this category. At Vanguard, it is performed quarterly and on a client-by-client basis.
Betterment and Vanguard also offer tax-coordinated strategies that optimize asset allocation across taxable and tax-advantaged accounts.
Retirement Planning: Vanguard advisors offer comprehensive financial planning services: human advisors will examine not only accounts directly managed by Vanguard but also third-party financial accounts. Retirement Planning: RetireGuide by Betterment is a tool that links to outside financial accounts, analyzes your savings and tracks where you are compared to your financial goals to see if a shortfall exists and what amount needs to be invested to make up for it.
Expense Ratios: The range of expense ratio charges at Vanguard is from 0.05% to 0.19% Expense Ratios: Expense ratios range from 0.09% to 0.17% at Betterment.
Account Types: It’s a tie between both robo-advisors on account types supported, which include:

  • Individual and joint non-retirement
  • Traditional IRA
  • Roth IRA
  • Rollover IRA
  • Trusts
Account Types: Like Vanguard, Betterment offers a wide range of account types:

  • Individual and joint non-retirement
  • Traditional IRA
  • Roth IRA
  • Rollover IRA
  • Trusts
Fractional Shares: A very nice feature Betterment offers is fractional share ownership, which means that no cash is left idle, but instead portfolios are fully invested.

Which Robo-Advisor Is Best For You: Vanguard or Betterment?

Both Vanguard and Betterment rival each other with low expense ratios, a broad range of account types, tax-loss harvesting and retirement planning.

If you have a smaller nest-egg, Betterment Digital is the only choice available because Vanguard only provides a hybrid robo-advisor service with a high account minimum of $50,000. For higher net worth investors who have $500,000 or more available, Vanguard provides dedicated financial advisors.

To get access to human advice at Betterment, fees and minimums are higher. However, the tax-loss harvesting service Betterment performs daily has the potential to largely offset those fees over time.

Hands-off investors who don’t need the human element provided by Vanguard will find Betterment to be an excellent choice with numerous features to support retirement planning and financial goal setting.

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