Technological advancements and artificial intelligence are making investing accessible to everyone, and today there are numerous free and low-cost online platforms to choose from.
Two of the most well-known options are Betterment and Personal Capital. Both incorporate robo-advising features into their services, but they have different target markets.
In this article, we’ll compare and contrast the platforms to help you determine which is better for your investing goals.
This article looks at Personal Capital’s wealth management service, which has a $100,000 account minimum. The company also offers a free suite of personal finance tools (including a budget tracker, a mutual fund fee analyzer, and a retirement calculator) that are available to all users. You can learn more about how those tools work in our Personal Capital review.
About the Companies
Founded in 2008, Betterment aims to make AI-driven robo-advisory services accessible to the ordinary investor. Additionally, it strives to help average investors achieve their goals through passive investing and diversification. It had around $22 billion in assets under management as of April 2020.
Personal Capital offers some similar robo-advisory features, but it primarily serves high-net-worth individuals who want full-service financial advising and wealth management. It’s more comparable to a traditional advisory firm, but with lower fees.
Personal Capital manages far fewer assets than Betterment, with around $12 billion under management as of December 2019 — perhaps owing to a smaller yet more affluent client base.
Betterment has two different offerings: Betterment Digital and Betterment Premium.
Betterment’s Digital is a low-fee robo-advisor, meaning it relies mostly on algorithms to manage your portfolio. Human advisors are available with Betterment Digital, but they’re not the core offering.
You can either purchase individual calls with human advisors (starting at $199) or upgrade to Betterment Premium when you reach $100,000 in assets for unlimited access to their team of in-house CFPs® (for a total annual fee of .40%).
Personal Capital, on the other hand, is an online wealth manager. It provides human financial advisors to manage your portfolio, with the assistance of some robo-advisor features.
PC has three account tiers, with the two highest tiers offering services for other areas of your finances, such as insurance, tax planning, estate planning and more.
However, you need $100,000 in investable assets to use Personal Capital’s wealth management services, and its fees — which start 0.89% for your first million dollars of assets — are higher than Betterment’s.
We think Betterment’s Digital plan is a better fit for newer investors, as well as those who don’t have a large portfolio.
Personal Capital and Betterment Premium are the more closely related services. Between the two, Betterment has a big edge when it comes to cost, charging just .40% of your total assets.
Making a choice between the two comes down to exactly what you’re looking for in your wealth management services.
Betterment aims more at helping you manage your portfolio needs, such as helping you set goals for retirement or creating a tax-smart withdrawal plan during retirement. On the other hand, Personal Capital offers a broader array of services for their higher fee, including personalized estate, tax and legacy planning.
Betterment does offer this level of financial advice. However, it’s only available with their third tier, called the Betterment Advisor Network. This service matches you with a CERTIFIED FINANCIAL PLANNER™ at a vetted partner advisor firm, with fees ranging from .80% to 1.50% per year.
So, for this level of advice, Personal Capital offers is the better deal in terms of cost.
Taxable (individual, joint), IRAs (traditional, Roth, SEP, inherited, rollover), and trusts.
Taxable (individual, joint), IRAs (traditional, Roth, SEP, rollover), trusts and 529 college savings accounts.
Exchange-traded funds (ETFs) consisting of 14 different asset classes across stocks and bonds.
ETFs for Investment Services-tier clients; customizable portfolios for Wealth Management-tier clients and above.
Between 0.15% and 0.40% per year, depending on your plan and account size.
Between 0.49% and 1.50% per year, depending on your plan and account size.
Similarities and Differences
Personal Capital and Betterment both use automation to manage your finances and provide you with a hands-off investing experience.
As online investment platforms, they share several core features.
- Account types: Both offer several types of IRAs and taxable investment accounts.
- Human advising: Both offer human advising, although Betterment users need to upgrade to Premium (which requires $100,000 in assets) to access this feature.
- Portfolio rebalancing: Betterment and Personal Capital both adjust your portfolio to maintain your target asset allocation.
- Socially responsible investing: Both provide socially responsible investment strategies.
- Tax-focused investing: Both services perform tax-loss harvesting to save you money when you incur capital losses. Additionally, both have options to invest in tax-efficient accounts such as a Roth IRA or SEP IRA.
Personal Capital’s Unique Features
PC’s offerings are geared towards investors with higher net worths who want a more personalized wealth management service.
- More investments: Personal Capital’s ETFs represent more asset classes than Betterment’s. If you have $200,000 invested with Personal Capital, you can customize your portfolio with individual stocks, and $1 million gains you access to bonds.
- Smart weighting: Personal Capital weights by size, style and sector to increase your portfolio’s diversification.
- Portfolio rebalancing with exception reports: Instead of automatically rebalancing, Personal Capital analyzes changes in your portfolio and considers tax implications to determine if rebalancing is a good move.
- Three tiers of wealth management: Personal Capital’s entry-level advisor tier is called “Investment Services.” At $200,000 in assets is the “Wealth Management” tier, and at $1 million is the “Private Client” tier — both of which offer additional investment choices and services.
Betterment’s Unique Features:
Betterment aims to manage your portfolio for you fully. All you’re responsible for is funding your account and setting your goals.
- Financial planning packages: You can pay a la carte for calls with human financial advisors to discuss your financial picture, as well as specific topics like college, marriage planning and retirement planning.
- Fractional shares: You can invest in fractional shares of ETFs even if you don’t have enough cash to buy a whole share.
- Goal-based investing: Betterment lets you set goals for general investing, retirement savings, retirement income, emergency funds and major purchases. It helps you set these goals and keeps you on track to achieving them.
- No minimum investment: You can open an account with $0, and start investing with $1. This makes it an excellent choice for beginner investors.
- Two-way sweep: Betterment analyzes your linked accounts and automatically transfers unused cash when its balance is above a certain threshold.
Investment Options and Methodologies
In broad terms, both platforms base their investment methodologies on Modern Portfolio Theory.
MPT assumes investors are risk-averse and attempts to maximize the amount of a portfolio’s return given a certain amount of risk by spreading the portfolio’s holdings across several asset classes.
Betterment’s portfolios consist of highly-liquid, index-tracking ETFs. By following this strategy, Betterment helps its investors maximize their returns at a lower cost while also minimizing taxes.
You can invest in six types of stock ETFs (four domestic and two foreign) and eight types of bond ETFs (six domestic and two foreign).
As someone who invests with Betterment, here’s the exact breakdown of my asset allocation under the 100% stock portfolio.
On Betterment, you can set various goals for which you’d like to invest. It will recommend a portfolio allocation based on the goal, as well as your risk tolerance and time horizon — but you can adjust your allocation based on your preferences.
Furthermore, Betterment offers three additional curated portfolio strategies.
- BlackRock Target Income: Low-risk, 100% bond ETF portfolio with varying bond yields to earn income and insulate against market volatility.
- Goldman Sachs Smart Beta: Attempts to earn higher returns while managing risk by picking stocks with strong financials relative to their price, low volatility, and upward momentum.
- Socially Responsible Investing: Increases weight towards companies that strive to have a positive social impact.
You can make these strategies either part or all of your portfolio.
Personal Capital also uses ETFs, but they’re spread among six asset classes to increase diversification.
- US stocks
- US bonds
- International stocks
- International bonds
- Alternative investments (REITs, precious metals, energy, etc.)
While I don’t invest with Personal Capital, the company does have a suite of free investment and financial planning tools that I find very useful. One feature is an investment checkup, which analyzes your portfolio using Modern Portfolio Theory. Here’s what their model portfolios recommended for me:
In terms of strategy, Personal Capital uses “Smart Weighting” — a method of portfolio allocation that picks assets based on size, sector and style — to minimize overexposure to assets with higher market capitalizations (the total value of all outstanding shares of an asset).
According to Personal Capital, a capitalization-weighted strategy brings two problems:
- Buying high and selling low: You will be paying more for overvalued stocks and less for undervalued stocks.
- Concentration risk: Market capitalization tends to overexpose your portfolio to certain assets or asset classes. As you’re buying based on size, your portfolio is composed of the largest and fastest-growing companies and asset classes. In other words, you’re buying assets simply because they’re already big, which can increase risk.
Personal Capital also uses dynamic asset allocation, meaning it adjusts the weights of your portfolio’s assets as your financial situation changes.
For example, as you approach retirement, Personal Capital might shift your portfolio towards more conservative investments.
Related Reading: How Long Will Your Money Last During Retirement?
Betterment performed backtesting — reconstructing theoretical past returns based on historical market data, which is also known as a Monte Carlo simulation — to estimate its historical returns.
Its annualized average historical returns based on backtesting range from 1.2% for the most conservative allocation (100% bond ETF portfolio) to 6% for the most aggressive (100% stock ETF portfolio).
Personal Capital calculated its historical returns with five “composite personal strategies” — blends of domestic and international equities, fixed-income investments, and alternative investments (such as real estate and commodities).
Currently, their average annualized historical returns range from 3.9% at the most conservative allocation to 7.8% at the most aggressive.
Betterment Digital (which is the plan available to all investors with no minimum account balance) charges 0.25% for assets up to $2 million, then 0.15% on assets exceeding $2 million. If you upgrade to Premium, those fees change to 0.40% and 0.30%, respectively.
Personal Capital charges more for its services at 0.89% of assets under management. Once you have $1 million in assets, you move up to its Private Client tier and pay lower management fees:
- Your first $3 million: 0.79%
- Assets from $3 million to $5 million: 0.69%
- Assets from $5 million to $10 million: 0.59%
- Assets over $10 million: 0.49%
See Also: Betterment vs. Vanguard.
Both platforms have their place in the digital investment advisor market, as they each serve a different clientele.
Betterment is an excellent platform if you’re new to investing. Its low fees, investment selection and automated features make it easy to jumpstart your investing without a large learning curve.
However, as your wealth grows and your finances become more complicated, you may decide to move to Personal Capital or Betterment Premium.
If most of the advice you’re looking for is investment related, such as setting and managing your retirement portfolio and other savings goals, Betterment Premium is a good option at a fee of only .40% of total assets.
For complex needs, Personal Capital offers more personalized service and more investment options. These come with higher fees.
Ultimately, when it comes down to the question of Personal Capital vs. Betterment, the right choice for you will depend on your individual financial goals and situation.