Betterment vs Vanguard. Which investment provider is best for you?

I’m all for making investing as simple as possible.

From the beginners perspective, investing seems complicated. This confusion leads often to inaction.

My typical advice for most is to open up an IRA with Vanguard and buy a Target Date Retirement Fund.

Research has shown this strategy will place you somewhere around the top 20% of investors. All in all, a very good outcome for the effort.

For those who want to get more advanced, there are ways to squeeze out slightly higher returns without increasing risk.

These opportunities go by the name of:

  1. Diversification
  2. Rebalancing
  3. Tax Loss Harvesting


Diversification is the concept of not having your eggs all in one basket. Instead, you want to spread your eggs around.

One of the biggest benefits of proper diversification is you minimize losses. Remember, whenever you lose 50% of an investment, you must then return 100% to get back to where you were.


Rebalancing is the process of realigning to your ideal asset allocation. Say your ideal asset allocation is 80% stocks and 20% bonds. However, after one year bonds went up and stocks went down. In this scenario, you’d sell some of your bonds to buy stocks. The advantage here is that you’re buying low and selling high.

Tax Loss Harvesting

When an investment of yours goes down in value, you can sell that investment and take a loss on your taxes. This can help offset some of the taxes from gains in your portfolio.

Does Betterment Make You A Better Investor?

If you wanted to you can read a few books on portfolio management to diversify, rebalance, and tax loss harvest your portfolio. Thus, choose a low-fee index fund provider like Vanguard.

Another option is to invest in a Target Date Retirement Fund (TDF), such as Vanguard’s. This is a logical and quality choice for those who are looking to invest an IRA. The Target Date Retirement Fund takes care of the diversification and rebalancing. Furthermore, tax-loss harvesting isn’t necessary as the fund is located inside an IRA.

Third, and certainly not the only option but still a very good one, you can invest with a Robo-Adviser like Bettterment. In return, you pay Betterment a small fee for outsourcing these tasks. Ideally that small fee should more than cover the advantages that they provide.

In a perfect world, choosing a Robo-Adviser is a win/win. Their advanced algorithms earn you higher returns and you happily pay Betterment their fee.

Is this style of investing right for you? Or, would you better off simply using Vanguard?

Let’s get into the details.

Betterment vs Vanguard Comparison

When comparing investment providers there are first some fundamental factors to consider.

These are:

  • Account minimums
  • Account types
  • Account fees

Then, there are more high level-factors such as:

  • Available Investments
  • Value-added services

Let’s dive in…

Betterment vs Vanguard: Account Minimums

The minimum to invest in a Vanguard individual, joint or IRA is:

  • $1,000 for Vanguard Target Retirement Funds and Vanguard STAR® Fund.
  • $3,000 for most other Vanguard funds.

For Betterment, there are no minimums. So, you could start investing with Betterment with $1.

Betterment vs Vanguard: Account Types

The accounts available at Betterment are suitable for most investors.

Vanguard has a few additional account types, which offer flexibility in the right situation.

A brokerage account at Vanguard allows you to invest in outside funds and individual stocks. To have access to tax-advantaged accounts such as SEP, Simple, i401(k)s, and 529 Savings Plans with Vanguard.

Here’s the breakdown:


  • Individual & Joint Accounts
  • Roth and Traditional IRAs
  • SEP, Simple, and i401(k)s
  • 529 Savings Plans
  • Brokerage


  • Individual & joint accounts
  • Traditional IRAs
  • Roth IRAs
  • Inherited IRAs
  • Trust account

Betterment vs Vanguard: Account Fees

There are many types of fees when it comes to investing. The good news is Vanguard and Betterment do have some of the lowest fees in the industry.

The fees range by account type and balance.

For example, say you’re looking to invest $5,500 into a Roth IRA. Your fund of choice is a Target Date Retirement Fund for the year 2050.

Here are the fees with Vanguard:

  • $0 account fee if you sign up for e-delivery service
  • .16% expense fee

Vanguard also offers Admiral Shares, which has a lower expense ratio for accounts with a higher balance.

For more information, see Vanguard Pricing.

If you were to invest $5,500 into a Roth IRA with Betterment into their 90% stocks and 10% bond portfolio, you’d pay:

  • .25% Annual Fee

For more information, see Betterment Pricing.

Betterment vs Vanguard: Portfolios

With Vanguard the options to invest are endless. You can choose between index funds, mutual funds, target retirement funds, and even individual stocks.

Betterment limits your options to their recommended portfolios. How it works is you take their questionnaire and they’ll fit you in a portfolio based on your answers. What they term “goal-based investing.”

This isn’t a bad thing. The simplicity can be very beneficial both in getting started and not over managing your portfolio.

Vanguard offers a simple solution as well in Target Retirement Funds. For those in retirement, Vanguard does offer Managed Payout Funds.

When I Prefer Vanguard

I have the majority of my investments with Vanguard.

My setup is very simple. There is a Roth IRA for my wife and one for myself. Each is invested in a Vanguard 2050 TDF.

The TDF provides automatic rebalancing and proper diversification. There’s no need to harvest taxes as I’m investing inside of an IRA.

For those looking for a simple option to invest an IRA, Vanguard’s TDFs are a wise, rational choice.

When I Like Betterment

Where Betterment starts to gain some slight advantages is for someone who is investing outside of an IRA.

Their advanced tax-loss harvesting service can add a small amount to your return overtime in a taxable account.

Furthermore, they have a Tax Coordinated Portfolio, which balances your overall asset allocation between your IRA and taxable account to minimize taxes.

I simply couldn’t do as good as job as Betterment when it comes to minimizing taxes between my IRA and taxable account. This to me is worth the slightly higher fee.

Another scenario where I could see recommending Betterment is someone who wants access to a team of advisers.

For a .40% annual fee, you get unlimited access to their team of CFPs®. The minimum account balance here is $100,000. For those who have a lot of questions or situation is a bit more complex, this advice is very affordable.

It’s worth noting that with Vanguard you do gain access to a CFP® when your account reaches $500,000.

Finally, if you’re looking to get started investing and have less than $1,000,  Betterment is a great choice as they have no minimums.

Betterment vs Vanguard: Final Thoughts

When comparing the two services it’s important to look at your individual situation.

In my own situation, I’m currently choosing between:

a) Sticking with Vanguard’s TDF funds with my IRA

b) Going with Betterment 90/10 asset allocation

In 30 years, which one will outperform the other? I don’t know. To me it’s a tossup. It’s also likely to be very close. So, best to focus on increasing my income and savings rate.

For others, they may be looking at different situations. Such as:

a) Waiting to save $1,000 to invest in Vanguard, or

b) Investing now with Betterment

While these are not the only two options, they are two good ones. So here I’d go with Betterment.

Another scenario for someone who has a decent sized portfolio:

a) Manage their own portfolio

b) Hire a financial adviser for a 1% fee

c) Use Betterment’s team of CFPs® at .4%

The choice here depends on a lot of factors. All three can make sense. Nonetheless, it’s important to know your choices and weigh your options.

Related Reading: Trust & Will – Affordable Online Estate Planning in 30 Minutes or Less (Full Review)

Get Free Portfolio Recommendations

Betterment Review

Like most Silicon Valley startups, Betterment has a slick user interface. One of the features they have on their website is a short risk assessment quiz.

The quiz takes only a few minutes to complete, but you’ll get the exact portfolio recommendations.

You can use this advice and do it yourself with Vanguard. Or, use it as an opportunity to learn a bit more about investment and Betterment.

It’s well worth a few minutes of your time.

Scroll down to the bottom of this page to take the quiz