As Robo-advising has taken center stage over the decade since the financial crisis, many competing institutions have entered the scene. Two of these players are SoFi and Betterment. These both have robo-advisor features that strike a chord with investors both young and old.
Both offer their services at low cost relative to investing platforms of the past and both are seen as trendsetters in the ever-changing world of automated investing.
SoFi and Betterment ground their strategies in the belief that a diversified and well-coordinated combination of both stocks and bonds provides the greatest chance of success.
|Account Minimum||$0||Digital: $0, Premium: $100K|
|Management Fee||0%||Digital: 0.25%, Premium: 0.40%|
|Purchase Individual Shares||Yes||No|
|Best For||Mid- to Long-term Investors||Mid- to Long-term Investors|
SoFi began in 2011 as an easier path to a debt-free life. SoFi began with a focus of refinancing student loans but has very quickly become a leader in mortgages, personal loans, investing, and cash management. In the near decade since its launch, SoFi has amassed over 1 million members.
Robo-advising allows users to put their money on a fast track toward hitting their goals. Without the encumberment of the day to day, investors can put their money away on autopilot. This is true for both long- and short-term goals.
When investors handle their own decisions regarding where to invest, they are often distracted by the latest and greatest advancement or hot stock. When this happens, they are often driven off course. Investors need to recognize that the most consistent wins happen when consistency, not spontaneity, is king.
In essence, automated investing is the “lazy” but smart way to invest. The adage, work smarter, not harder, certainly has its place in robo-advising.
SoFi’s automated investing features come with no management fee and free financial advice. This is a huge perk compared to your parent’s investment advice that almost always came with a fee and a hidden agenda. SoFi is under the impression that financial education and access is a right, not a privilege.
So, what are my options with automated investing? The answer to this depends on your goals.
If you are young and wanting to get a head start on retirement, then you have the option of investing in a Roth IRA, Traditional IRA, or a self-employed Keogh plan. All of these are designed to benefit users the most over the long term.
Users are also able to rollover old 401Ks or previously created IRAs into the SoFi Invest platform as well.
The only information you will need to provide SoFi is your time horizon and how much risk you are willing to take on. SoFi will then make recommendations for the place that is most likely to reach those goals. It is then up to you to pull the trigger and set up the automatic investment.
Beginning in 2018, SoFi has waived its management fees for SoFi invest. This is still a pretty remarkable decision seeing as many robo-advisors like Betterment, charge 0.25% annually. Translation: SoFi does exactly what everyone else does (for the most part) but they do it for free.
Depending on the objective of your savings, your money will be directed to 1 of 11 different ETFs or a combination of the group. These are generally the same for most robo-advisors and use ETFs from fund companies such as Vanguard.
These portfolios generally follow a similar pattern of the below:
While SoFi does not charge any management fees, there are fees from the underlying portfolios. These are generally very small (well under 1%).
When it comes to the specific goals that users input into SoFi, the platform recommends a level of risk needed to accomplish the specific tasks. For instance, SoFi recommends the following portfolios for these goals:
Automatic rebalancing and perseverance are what keeps your goals on track. As some stocks outpace other assets, they will naturally form a larger portion of your portfolio than you had originally anticipated.
Whenever there is a 5% drift for any security SoFi will rebalance your portfolio. This is accomplished by purchasing or selling a particular asset. This will most likely trigger a taxable event, so keep that in mind.
However, in the long term, the benefit of rebalancing far outweighs the potentially minor tax consequences incurred by rebalancing.
Free financial planning comes standard to all SoFi members. Each advisor has their Series 65 designation (or similar) which means they are qualified to advise in the investment or sale of securities. What’s better is that these advisors don’t make their money off of commissions. This means they are only incentivized to do the best job for you.
Premium Financial Planning is also offered and provides comprehensive financial planning through a dedicated financial planner on an ongoing basis. The cost of this service is $39.99 per month
In addition, SoFi also offers a no-fee checking account with a roundup feature to help users invest by spending on their regular purchases.
Betterment is a financial institution that has made a name for itself in robo-advising. This platform allows everyday individuals to automate investing toward short- and long-term goals.
The Betterment platform allows users to invest in portfolios of passive index-tracking equity and fixed-income ETFs. Betterment gives users access to tax advantaged savings accounts such as traditional and Roth IRAs.
Like many institutions with robo-advisors, Betterment offers two different service levels: Digital and Premium. Rather than charging a fixed monthly cost, Betterment charges a percentage of assets under management ranging from 0.25% to 0.40% depending on the plan.
When compared with the typical 1% or more that a financial advisor charges, this tends to be a much more affordable option.
One of Betterment’s main pillars is the ability to provide help for those saving toward specific goals.
When users establish a Betterment account, they can specify what they are saving for. Perhaps a dream vacation, or your child’s education is what you have in mind. Whatever it is, Betterment has a plan.
Betterment utilizes ETFs which represent about 12 asset classes to match the levels of risk tolerance for your specific goals. These ETFs are based off of funds from well-known companies like Vanguard and BlackRock.
Betterment also allows for user flexibility with their ‘flexible portfolios’ which let users modify the amount that is allocated to particular ETFs. Users can also set up sub-accounts for each goal to easily keep tabs on their goals’ progress.
Just how each person is unique, each retirement plan can be so as well.
Users complete a brief questionnaire about their age, goals, income, and risk tolerance for Betterment to create a personalized plan for each investor. Betterment allows you to open up a brand new Traditional, Roth, or SEP IRA, or roll over an old 401k or an old IRA into a new one.
While it is free to create a retirement plan through Betterment, be aware that funds are charged a management fee as mentioned above.
With your retirement plan in hand, Betterment will allow you to set up automatic withdrawals based on how much you should expect to spend in retirement.
As with SoFi, your account allocations will rebalance automatically each time your portfolio strays from its original goal. This ensures that your financial hopes and dreams are always on track. When your allocations are rebalanced, the company will also purchase fractional shares so you rest assured that every dollar is invested.
Like SoFi, Betterment also offers a no-fee checking account and high yield savings account. These are both great options if you need more liquidity or are looking for a higher interest rate in your savings account. count, meaning there are no brick and mortar locations that you can access.
Both of these services are fairly comparable. They both offer short- and long-term savings accounts that are tied to asset classes which are handpicked by large investment firms. In addition, they provide great perks like no account minimum requirement and no-fee checking accounts.
Where this comparison differs is in the management fees charged by SoFi and Betterment. SoFi has foregone their management fee while Betterment has a minimum fee of 0.25% and can charge as much as 0.40%.
SoFi on the other hand charges a monthly fee for access to financial advisors. Depending on how much money you have invested this may be a higher fee than the Betterment platform.
Either way, you could get started with each platform for a relatively low fee and begin building your financial future today.