Before the widespread adoption of the internet, investors had very few choices when it came to brokerages. Because of the low supply, the fees and commissions were high, and smaller investors especially felt the consequences.
Things really began to change when Robinhood revolutionized the industry with commission-free trades in 2013. This was a big win for consumers when most investing platforms were still charging anywhere from $5 - $20 per trade.
Today, there is an abundance of firms that have followed in Robinhood's footsteps. Free trades have become the standard, and companies have had to find new ways to stand out. With so much variety available, it may be difficult for new investors to choose the right option.
As we've already mentioned, Robinhood was one of the first next-generation platforms. They're best known for beginner-friendly investing and being extremely easy to use.
Betterment offers more of a comprehensive financial planning service with a small annual fee.
Similarly, Wealthfront caters to those with financial planning needs but emphasizes automated investment management.
When deciding on which provider is best for you, it's important to consider your priorities when it comes to your finances. Are you just looking to make simple investments? Do you want trade recommendations? Do you want to invest with retirement accounts like a Roth IRA?
Brokerages specialize in certain areas in order to best meet the needs of their target customer. Robinhood, for example, pushes itself to be the most straightforward platform and easiest to learn. Their mobile app can be figured out in seconds and creating and funding your account doesn't take much longer.
Robinhood users tend to be more interested in actively managing their accounts themselves at no cost. While it lacks more advanced features, a free and simple interface is always intriguing. Another plus is their offerings of fractional share and cryptocurrency investing.
Our other two services, Wealthfront and Betterment, are really in a separate lane from Robinhood. While Robinhood is lightweight and as cheap as possible, these two strive to provide a more complete financial planning solution.
Both companies show detailed insights about how you can adjust your investments to meet your goals. They even help with more advanced strategies like tax-loss harvesting to reduce your tax bill.
These services are geared toward the investor that wants more of a robo-advisor experience complete with everything from goal tracking to retirement accounts. This is an alternative to a human financial advisor that would charge quite a bit more.
On the other hand, these services aren't free like Robinhood either. Both Betterment and Wealthfront charge an annual fee of 0.25% for their basic service.
Additionally, investors can only buy approved ETFs offered through model portfolios. They can't buy shares of individual companies like Apple or Tesla, for example.
While Betterment and Wealthfront are more similar than they are different, there are some key features that are in contrast.
For starters, getting started at Wealthfront will take a bit more of an initial investment. A beginning deposit of $500 is required compared to $0 at Betterment. If you have less than $500 to invest, that may make the decision for you.
Another advantage to Betterment is the ability to buy fractional shares. Instead of having small balances of cash sitting around, Betterment will help you buy partial shares of ETFs. You can purchase as little as 1/1,000,000th of share!
But, Wealthfront has its perks too. By having your paycheck deposited to your account, you can automatically invest a portion every payday. There's no need to remember to log in to transfer cash and enter the trades. Wealthfront simply takes the cash and buys the correct amount to properly balance your portfolio.
|Asset Types||Stocks, ETFs. Options, Crypto||Stocks, ETFs||Stocks, ETFs|
|Account Types||Brokerage Only||Brokerage & Retirement Account||Brokerage & Retirement Account|
|Best For:||Beginner Traders||Beginner Long Term Investors||Beginner Long Term Investors|
Robinhood is one of the original free investment platforms. It allows users to invest in stocks, ETFs, and mutual funds with no commissions and no recurring fees for its basic service. The mobile and desktop applications are intuitive, modern, and incredibly easy to use.
Robinhood has no account or transfer minimums making it an ideal service to small investors.
Outside of basic trading, Robinhood also has cryptocurrency, fractional shares, and options trading capabilities. While its simplicity can leave something left to be desired for experienced investors, it more than gets the job done for beginners.
Robinhood is one of the few brokerages out there to offer cryptocurrency trading on top of the traditional stock and ETF options. Investors may be interested in using this feature to dabble in the growing crypto market today with currencies like Bitcoin, Ethereum, and XRP.
As we all know, diversification is a pillar of sound investment strategy. Having the ability to put a percentage of your investments into the new asset class of cryptocurrency may be enticing for early adopters.
Furthermore, Robinhood also delivers options capabilities, adding to the array of security options available. Options contracts essentially allow you to wager on the price movement of a specific stock. While this is a more advanced tool, it's nice to have that resource.
While Robinhood's main functionalities are free, a premium version, called Robinhood Gold, is available. The service currently costs $5 per month after a 30-day free trial.
Benefits of Robinhood Gold include professional-grade market data, the ability to transfer larger amounts at a time, and the ability to use margin.
Instead of needing to buy entire shares of an investment which can be to $100 or more, Robinhood allows investors to buy fractions of shares in $1 increments. This makes it easy to invest in companies with high share prices and prevents cash from sitting on the sidelines.
This feature is especially attractive for small investors with less money to invest initially. The ability to invest in fractional shares opens up opportunities and makes diversification much more simple.
Instead of letting dividends received sit in cash, Robinhood offers the option to have dividends automatically reinvested. Every time you receive a dividend, the funds are used to buy additional shares of the distribution company or ETF.
You can elect to enroll in this program for free and there is no minimum dollar limit for reinvestment.
Besides using Robinhood for traditional investing, you can also use it as a savings account. Unutilized cash is swept to partner banks in order to provide FDIC insurance. This is happening behind the scenes and doesn't affect the availability of cash to you.
The interest received for cash in your Robinhood account is also on par with other high yield savings accounts and comes with debit card capabilities.
The Betterment platform is a goal-oriented service that aims to help users plan for financial goals like retirement. By using a comprehensive approach to finances, Betterment targets investors interested in a more premium service than most free brokerages today.
Betterment was launched in 2010 with a mission to simplify investing for the average person. Today they manage billions of dollars for hundreds of thousands of customers. The robo-advisor makes recommendations based on your goals and personal situation. It can help save money on taxes and properly balance your investment portfolio.
While it's not a free platform like other options such as Robinhood, Betterment has a wealth of features that may justify the cost for users.
As a robo-advisor, Betterment gives tailored advice based on your goals, risk tolerance, and preferences. This includes recommendations for how you should invest your money in order to meet your needs. Betterment will recommend good ETFs as well as how much to invest in each.
Beginner investors may find this especially useful as it gives them guidance on how to start. Users can feel confident that their portfolios are well diversified and are structured according to their goals.
Besides regular brokerage accounts like those offered at Robinhood. Betterment also provides users the ability to invest through tax-advantaged accounts including Roth and Traditional IRAs. This opens up more opportunities for investors and makes the service much more comprehensive.
Having access to retirement accounts at Betterment makes it possible to make the service a one-stop-shop where all investing can be done.
Several of Betterment's features can help lower your tax bill at the end of the year. One great example of this is how they coordinate a tax coordinated portfolio. This feature is used to look at what assets you hold in each account and then allocate them in the most tax-efficient way possible.
That could include holding highly appreciating assets in a Roth IRA or dividend stocks in a traditional IRA. Allocating investments in this way can save a significant amount in taxes over decades of savings.
Outside of the usual robo-advisor recommendations about investment choices, Betterment also has a range of advice packages. These packages include specific one-on-one advice from a real-life financial advisor. This is a unique feature that may be very valuable for some people.
To take advantage of advice packages, all you need to do is pick your package, schedule a call, and then talk with a Certified Financial Planner for 45-60 minutes. There are currently five different packages available ranging from $299 - $399. Topics include retirement, marriage, and college planning.
While Betterment's basic service costs 0.25% per year and is fairly comprehensive, there's also a truly premium service available for investors with more than $100,000. Betterment Premium includes unlimited calls with their financial professionals, advice on accounts held outside of Betterment, and increased cash management capabilities.
Compared to a typical 1% annual fee for a traditional Financial Advisor, Betterment Premium's fee of .4% is pretty attractive. It might be a good middle ground for those who want more than a robo-advisor but also aren't ready for a dedicated advisor yet.
Our third company is another front runner in the race for the best robo-advisor. Wealthfront puts automation at the forefront of its focus and tries to make managing your finances as simple as possible. Since its launch in 2008, Wealthfront has become a big player in the industry, managing over $20 billion in assets.
Like Betterment, Wealthfront goes above and beyond the services of your average online broker. With an extra emphasis on banking, Wealthfront can automate all parts of your financial life, from spending to investing. The platform also provides specific investment recommendations based on your situation.
Just like Betterment, the basic service costs 0.25% annually. On the plus side, Wealthfront's functionalities make a decent case for why that might be justified.
With Wealthfront, you get a personalized portfolio with a target weight given to each asset class. As the stock market moves, their system can automatically place trades to bring your portfolio back in line with those targets.
Importantly, Wealthfront does this in the most tax-efficient way possible to reduce the impact of capital gains taxation. This is done through strategies like tax-loss harvesting. Engaging in these methods can significantly decrease your tax liability at the end of the year.
The best part is that this is all happening without you having to lift a finger. It saves a lot of valuable time and effort that you can now spend somewhere else.
Besides the accounts you invest with at Wealthfront, you can also link your accounts held at other institutions. While you can't manage them from Wealthfront, you'll be able to see the total account values and keep an eye on them as time goes on.
The benefit here is that you have all of your assets in one place. You can quickly get an idea of exactly how your net worth is doing and make decisions about where to allocate investments. It's also a great way to monitor account activity across everything you own.
Another advantage Wealthfront has over traditional banks is their interest rate. Currently, Wealthfront is offering an APY of 0.35%. That's on top of the fact that there are no account fees or transfer fees.
The savings account still has the features of a regular account too with checks and debit card capabilities available. Plus, if you use direct deposit, Wealthfront could get you your paycheck as soon as two days early.
Again, automation is where Wealthfront really shines. It delivers the option of paying bills, contributing to your investment accounts, and building an emergency fund on autopilot. All you need to do is set your preferences and then the system works for you.
Even if you have a bit of extra cash laying around in your account, Wealthfront will pick it up and invest it for you without any work on your part. It turns making progress toward your goals into an incredibly easy task. You may even forget that you're doing it.
Each of these three services is a great option depending on your circumstances and preferences. They all are leading the way in financial technology and are some of the most popular services in use today. It really comes down to what is most valuable to you.
Robinhood is the clear winner if you're looking for a simple, free application to do your own trading in. There's no fluff with their platform and it's extremely intuitive to use. Beginners or people wanting to invest more actively may prefer this option for that reason. It is also one of few places that can trade crypto and options contracts.
For people wanting a bit more guidance, Betterment and Wealthfront would be more relevant. While they're not free, they are quite a bit less expensive than a human financial advisor would be and they offer several valuable services.
Personalized ETF portfolios are a great way to diversify and get a portfolio that is more likely to line up with your preferences. There's a bit less control over your investment choices this way, but for some, this is well worth the convenience.
While Betterment and Wealthfront have a lot of similarities, it seems that each has carved out their own niche in the market. Betterment builds its services around comprehensive advice and the ability to consult with human financial advisors.
On the other side, Wealthfront stresses the simplicity that automation offers and works to be the best in that field. Passive investors can especially appreciate this approach.
Ultimately, it is important that you choose whichever service you believe will provide the most value to you. The best course of action is to just get started with your investment journey. You can always change things up later and experiment with other services. The point being, you can't go wrong with any of these three.