There are so many investment platforms to choose from. For those who want a set-it-and-forget-it portfolio managed for you, Betterment may be the right choice. Other options are Vanguard, Schwab, Wealthfront, M1 Finance, and SOFI. Of all of these platforms, my favorite is Betterment. While it impossible to say which platform will give you the best returns in any given year, Betterment acts in your best interest and that makes them my top choice.
Let me explain by discussing what other providers have done seriously wrong.
Wealthfront and the Risk Parity Debacle
Wealthfront was trailing behind Betterment, Schwab, and Vanguard in assets under management. To make more money for their shareholders they needed to charge more. To do this, they developed their own financial product called a “risk parity” strategy. It was more expensive to run and introduced more risk to investors. If you had a large enough account, they sold other of your investments to move money into this new investment. This is regardless of capital gains or other tax implications. In other words, Wealthfront put their clients in funds that make them more money knowing it would hurt their clients.
SoFi and the Zero Fee ETF
SoFi was making arguments that a zero-fee ETF was possible and so they made two of them. Of course, the ETFs are new and have high bid ask spreads with unproven track records. In other words, the funds are the type that would never pass the screens for quality that Schwab and Betterment use. Most egregious, SoFi blatantly ignored the needs of it’s investors on the automatic platform. To get funds for its new ETFs, it sold other ETFs that investors had with embedded short and long term capital gains.
In other words to drop expenses by approximately 0.04% per year in an untested product, SoFi triggered huge tax bills for its clients. Seems more like they were trying to gather assets in their own funds rather than actually drop your expenses and help the investors.
Why Betterment is Better
Betterment is simply better because they don’t pull selfish moves. They are a fiduciary and they act like one. Period. While I don’t like that they charge so much for their savings product, and I don’t like that they can accidentally cause small wash sales, Betterment does it right and I trust that they will not wake up one day and try to screw me with the new Betterment ETF or risk parity fund.
In fact, over the last year, Betterment is always evaluating what ETFs are the best ones to hold in your portfolio. For example, Betterment now recommends iShares’ AGG for US bonds rather than Vanguard’s BND because of the better bid ask spread. However, they didn’t sell BND holdings but rather put new money into AGG. They only use BND in order to tax lost harvest or reduce taxes from selling some shares.
Yes, you can save 0.25% per year by running your own investments. I do that for my general investing account. However, I have had a great experience using the automated savings feature for my Roth IRA with Betterment. I trust that Betterment avoids conflicts of interests and is aligned with my goals.
Betterment also has an amazing retirement planner. I recommend signing up for Betterment if only to access this feature.
Other Good Options
Schwab is also a good option for automated investing. They do require you to hold more cash in your account at a somewhat low interest rate, but that is how they offer the account for free beyond investing in some of their own funds. This is not a big deal today, but if interest rates rise, they could lag behind competitors like Betterment that charge a flat 0.25% fee on investments. Vanguard is also a good option, but with a 50K minimum I think you can do better elsewhere. Also, considering that iShares carries some of the best funds in certain categories, Betterment is better positioned to always pick the funds that are in my best interest.
Sign Up For Betterment Today
I recommend trying out Betterment, even if it is only with a new account. You can sign up with this link in order to give me several months of free management.
I recently wrote a blog post about the best 4 ways to invest $1000. You can read it here.