In short, Vanguard makes great stuff. Betterment is solely focused on making stuff great for you.
Betterment’s mission is clear: to put you in better control of your money and your life through personal advice, cutting-edge technology, and a fully flexible approach—no minimums, no trading fees, and access to your money at all times.
What does that mean?
At Betterment, the first question we ask is, What do you want to achieve?
We think your investments should be based on your situation and what you want out of life. That’s why we recommend asset allocations based on your personal goals, and we don’t force you into a cookie-cutter product, like a Target Date Fund.
We think you deserve a user experience that is clean and doesn’t burden you with things you don’t need. It’s why we make the investing process so seamless: adjust your asset allocation with a simple slider between stocks and bonds and activate our sophisticated investment selection process.
What’s more, we think your investment returns need to be measured in how you reach your goals, in addition to the numeric return. That’s why we deliver quarterly statements that not only report your numeric returns, but also report on how you are tracking against the life goals that you set.
You value your time. So do we. We think you need not spend more than a few hours a year on your investments in order to reach your goals.
Vanguard Makes Great Stuff. Betterment Makes Stuff Great For You
We’re big fans of Vanguard here at Betterment. They make fantastic investment products. It’s why we use some of their funds in our portfolios.
However, as an advice provider, their advice offerings are a bit different. For instance, their managed account advice offering actually has higher minimums ($500K) and fees. They only approach our fee structure after your first $2M (20 bps vs. our 15 bps). In addition, their traditional financial advisor service model also differs from our technology-based service model, which speaks to their cost structure, but more importantly it demarcates how we think about the advice space – advice isn’t a nice to have, we think it’s a must-have for most investors.
If you don’t want that offering, you are left on your own to choose your funds or pick a mass-marketed product like a target date or lifestyle fund. We think that there is an opportunity in that space.
This isn’t an indictment of Vanguard at all. Quite to the contrary, it is a fantastic company with a noble mission. I spent nearly three years there and it was some of the most rewarding time in my career. I have many friends there across senior levels of the company (and I miss them all dearly). I’ve even had the luxury of lunching with Jack Bogle on a couple of occasions, as his former research assistant worked on my team.
On a historical basis, Betterment and Vanguard share more than they differ. Both are unique companies that are dedicated to democratizing and demystifying the way people invest. When Jack Bogle founded Vanguard in 1975, the whole financial world (including the SEC) thought the idea of an at-cost mutual fund company was nuts.
At Betterment we think everyone should have an efficient way to invest with access to customized investment advice. Additionally, that advice should be easy to understand and simple to manage. Naysayers have also called us nuts – but we know we’re in good company!
At Betterment, we admire Vanguard’s mission of transparency, fairness, and equality. We think we’re the next generation of that mission: a great product that’s built specifically to address your needs and unique situation.