Written by Ryan Scribner on June 24, 2020
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Betterment vs Robinhood 2020: Which Is Better?

Competition is heating up between different investing apps on the market. People always on the hunt for the best and most reliable platform to invest their money. But with a number of platforms having similarities, it is quite challenging to decide where to invest.  

Most of us have smartphones, and it is a lot easier to invest your money now due to investing apps. These apps have made it easier than ever before to begin investing in the stock market and growing your money.

In this article, we will compare the similarities and differences between Betterment and Robinhood.

Betterment is a low fee robo-advisor that passively manages your money for you. You simply fill out a questionnaire and they build a custom portfolio for you.

Robinhood is a commission free stock trading app that is popular among millennials. You are in the drivers seat, meaning you pick and choose all of your investments.

FeatureBettermentRobinhood
Account Minimum$0$0
Trading Commissions$0$0
Management Fee0.25% Digital, 0.40% PremiumNone
Individual StocksNoYes
Investment PortfoliosYesNo
Portfolio GuidanceYesNone
Account TypesTaxable, Retirement, Trust, Joint, Business, Checking, SavingsTaxable, Margin, Checking, Savings
Fractional SharesYesYes
Automated RebalancingYesNo
Dividend ReinvestmentYesYes
Tax Loss HarvestingYesNo
Best ForPassive, Long Term InvestingBeginner Traders

Robinhood vs Betterment: Summary

Betterment and Robinhood are two very different types of investing platforms.

Betterment offers managed accounts with low fees. It provides prebuilt portfolios that are automatically rebalanced for an annual fee of 0.25% to 0.40%. Robinhood allows self-directed investors to buy and sell individual stocks and ETFs commission free as well as options and cryptocurrencies. 

  • Betterment is a robo-advisor that passively invests your money for you
  • You do not pick and choose stocks or ETFs with Betterment
  • With Robinhood, you pick and choose your own investments
  • Both Robinhood and Betterment have a $0 minimum
  • Robinhood does not charge any commissions on trades
  • Betterment collects an annual asset management fee of 0.25% to 0.40%
  • Both offer a cash management feature for uninvested cash
  • Both offer a checking account and debit card feature
  • Active, fee conscious investors will often lean towards Robinhood
  • Passive, hands off investors like the simple approach Betterment offers
  • If you use our link below, you get a free stock from Robinhood

What Is Betterment?

Betterment takes the best investing strategies and makes them even better with the proper guidance and smart tax technology. It is a great platform for new investors and beginners who don’t know how to manage their investments. Betterment’s passive investment strategy helps you to make the most of the financial markets without all the know how. 

You just have to deposit the money into your account and let the Betterment do the rest of the work. One huge benefit to working with Betterment over a traditional financial advisor is the low minimums. For most financial advisors, you need tens of thousands of dollars to work with them. Betterment has a $0 minimum to open an account. 

According to your investment goals, Betterment will build your portfolio. It will help you to decide how much to invest on the initial level and how much for the ongoing basis to reach your target goals. They will also provide you with tools that make the portfolio management process completely passive. 

All you do is set your goals, fund the account and that is it! You can continue contributing money on a weekly or monthly basis if you wish.

Betterment Features

Investment Management

Betterment takes the guesswork out of building a well diversified investment portfolio. Based on your age, goals and risk tolerance, they will create a portfolio for you. This consists of low fee index funds that passively invest in the bond and stock market. They use high quality funds from Vanguard and BlackRock.

They will rebalance your portfolio for you automatically as the markets change and as you get closer to your goals. If you invest with a brokerage like Robinhood, you will not have any rebalancing features to make use of. It will be up to you to build and design a portfolio while making adjustments to allocations over time.

Betterment takes into account your age, goals and risk tolerance. They use an algorithm to figure out what your ideal portfolio is. Once this is determined, you simply passively invest money into the portfolio. You can do this manually or on a weekly/monthly basis on a recurring schedule.

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Two Way Sweep

If you take advantage of the cash management features, Betterment offers a great feature called two-way sweep. Essentially, this links your checking account with your Betterment online savings account which has a higher APY. Betterment keeps track of your spending and sweeps your extra cash into your savings account, where you are earning higher interest.

If your checking account balance runs low, Betterment will do the reverse of this and sweep your money from savings back into your checking account. They will send you alerts before initiating a sweep, that way you can cancel it if you do not want to move the money. The advantage here is that the majority of your money will be in your savings account where you are earning higher interest. 

Retirement Planning

Betterment is a great platform for retirement investing with accounts like the Roth IRA.

They offer a variety of different retirement accounts as well as retirement planning tools. You can link your non-Betterment accounts to get a snapshot of your finances all in one place. Beyond that, Betterment collects this data and creates a model for what your retirement will look like. Based on historical returns of the stock and bond market, they create a projection of your retirement income.

These tools allow you to keep track of all of your financial accounts as well as determine whether or not you are on track to meet your retirement goals.

Tax Loss Harvesting

One huge advantage to investing with Betterment is the tax loss harvesting feature. Betterment will sell a security that has experienced a loss and purchase a similar asset to replace it. This allows you to recognize a capital loss. This loss can be used to offset capital gains from your investments.

All Betterment accounts are able to take advantage of this 100% automated feature. 

Betterment Everyday review

 

Betterment Service Tiers

One core difference between Betterment and Robinhood is that Betterment charges an annual asset management fee. This is a percentage of your total investment. Robinhood does not charge an asset management fee or trading commissions. On the other hand, they also do not offer any investment portfolios.

Betterment Digital ($0 To $99,999)

  • No minimum account balance
  • Portfolio built by algorithms
  • Automatic rebalancing of your portfolio and tax loss harvesting
  • Annual fee of 0.25%

Betterment Premium ($100,000+)

  • Betterment Premium service requires a minimum of $100,000 invested
  • Access to financial professionals for guidance on matters like a wedding or having a child
  • Offer advice on the outside investments like real estate, individual stock and 401(k)
  • Annual fee of 0.40%

Financial Planning & Advice Packages

Even if you do not have the Premium plan, you can get personalized financial advice. If you are planning to retire, buy a home, have a baby or other similar scenarios, Betterment sells advice packages for this.

These advice packages range from $199 to $299. 

Cash Reserve Savings & Checking Accounts

Beyond the investment service, Betterment offers an online savings and checking account. This is a great option if you are looking to make the most of your uninvested cash. Betterment aims to be a one stop shop for all things related to your finances. The investment, checking and savings accounts all integrate together.

You can choose to use them all, or you can use each one as a standalone product. 

Betterment Checking

  • No account or overdraft fees
  • No minimum balance limits
  • FDIC insurance up to $250,000 
  • Unlimited ATM fee reimbursements
  • No mobile check deposit

Cash Reserve

  • High-interest rate savings account
  • Provide access to cash in 1 or 2 business days
  • FDIC insurance up to $1M*
  • No withdrawal limits
  • No minimum balance or maintenance fee
RateAs Of
0.40%9/10/2020

Betterment Fees

Betterment charges an annual fee of 0.25% for the Digital plan. 

To get personal access to financial professionals, you need to have Betterment Premium. As mentioned before, this plan requires a minimum investment of $100,000. You have unlimited access to financial professionals and they will give you guidance on investments outside of Betterment. This plan has an annual fee of 0.40%.

Betterment Pros

  • Beginner friendly passive investing
  • Smart tax technology including tax loss harvesting
  • Low fee checking account available 
  • High yield savings account for emergency fund
  • Automatic rebalancing
  • Betterment uses high quality index funds from BlackRock and Vanguard
  • Takes the guesswork out of building and managing a portfolio

Betterment Cons

  • Limited investment options (just stock and bond ETFs)
  • No direct indexing
  • No individual stock investing

What Is Robinhood?

Robinhood has made it a goal to create the most beginner friendly investing app out there. We would say they have done a great job at this. For complete beginners, this is the easiest app to get started with. They have invested a lot of money in user experience, so this is a very sleek and easy to use app. 

Buying and selling stocks and other assets is simple. After creating an account, here are the steps:

  • Open the Robinhood app on your smartphone
  • Search for the stock, crypto, ETF
  • Click the trade button in the app
  • Click on buy and choose a market order for immediate execution
  • Confirm your order and swipe to submit it

It is that easy to buy and sell stocks, ETFs, cryptos and options with Robinhood! The best part is, it is 100% commission free. You don't pay any money to Robinhood in order to place trades. Robinhood does make money, just in ways outside of charging commissions to customers.

Robinhood Features

Investments

One of the key differences between Betterment and Robinhood is the investments. With Betterment, your money is automatically invested in a portfolio of ETFs. These funds hold stocks and bonds. You cannot pick and choose what you invest in.

With Robinhood, you are in the drivers seat. You can pick exactly what you want to invest in. One downside, however, is that Robinhood does not offer any prebuilt portfolios or portfolio guidance. You are on your own, for better or for worse.

With Robinhood, you can trade the following commission free:

  • U.S. exchange-listed Stocks and ETFs
  • Option contracts for the U.S. exchange-listed Stocks and ETFs
  • Cryptocurrencies (BTC, Ethereum)
  • ADRs for 250 companies 

Account Types

Cash Account ($0 Minimum)

This is the basic taxable brokerage account. They do not offer retirement accounts, custodial accounts or other types currently. 

Gold Account ($2,000 Minimum)

Robinhood Gold is the premium offering from Robinhood which costs $5 per month. If you use this service, you can get a margin account where you are investing with borrowed money. You will pay margin interest on the amount you borrow on top of the $5 fee to Robinhood for Gold. This also gives you access to a number of useful features, outlined below. 

Robinhood Cash Management

This brokerage also offers a cash management account. This is a high yield online savings account. They will also be rolling out a checking account down the road. Currently, there is a waitlist for this feature.

YieldAs Of
0.30% APY9/17/20

Fractional Shares

Just like other brokerages, Robinhood has jumped on the bandwagon of offering fractional shares. You can invest in shares of stocks and ETFs on the app in $1 increments instead of purchasing whole shares. This makes them competitive with other apps like M1 Finance.

Robinhood Gold

The basic Robinhood platform is 100% free with no commissions. If you are looking for a bit more, Robinhood Gold might be for you. At a cost of $5 per month, you get the following features:

  • Larger instant deposits of up to $50,000 (All users get up to $1,000 in instant deposits)
  • Access to Level II market data (more advanced, shows multiple bids and asks)
  • Professional Morningstar research reports on 1,700 different stocks
  • Access to margin trading (see above)

Robinhood commission free investing app in action

Robinhood Fees

There are no trading commissions whatsoever.

Robinhood charge a standard $75 outgoing account transfer fee, but other brokers may also charge this, so that’s not unusual. This is the fee when you transfer your investment to another account. There is no fee for transferring your money to the bank or selling your investments.

Robinhood charges 5$ per month for gold, but it’s optional. It provides you with deeper access to the analytics as well as margin.

Robinhood Pros

  • Free stock, ETF, options and crypto trading
  • New users get 1 free stock for signing up
  • Great app and website trading platforms
  • Fractional shares offered
  • Very beginner friendly

Robinhood Cons

  • No retirement accounts
  • No prebuilt portfolios

Betterment vs Robinhood: Summary

At the end of the day, these are two very different platforms. Robinhood is geared towards new investors who want to invest in individual stocks, ETFs options and cryptocurrencies. Betterment is meant for long term investors who want a well diversified portfolio without having to actively manage it.

If you want to trade individual stocks, Robinhood is your best bet. That is because Betterment does not support individual stocks.

If you want to passively invest for the long term, consider Betterment. They have a wide array of tools for long term, passive investing. Robinhood does not offer prebuilt portfolios, rebalancing, retirement accounts or anything like that.

You may decide to use both! Robinhood is great for individual stock purchasing and Betterment is great for long term/retirement investing.

*$1,000,000 in FDIC insurance is a goal and not a guarantee. Betterment uses 4 member banks to hold cash deposits. Each bank covers $250,000 in FDIC insurance, but it is not guaranteed your account will be spread across these 4 banks proportionately.

betterment vs robinhood
Article written by Ryan Scribner
Ryan Scribner is a personal finance YouTuber that is approaching 500,000 subscribers on his channel. He has created a thriving business around his passion, which is helping others navigate the complicated world of investing.

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