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Betterment vs. Robinhood: Which Is Best For You?

·8 min read
Human and robot touch fingers
Human and robot touch fingers

You would be hard pressed to find two more opposite trading platforms than Betterment and Robinhood. The former is a robo-advisor, about as hands-off as you can get while still making decisions about your money; the latter is a trading platform whose users can invest at the speed of Tinder. Here’s a description and comparison of their strengths, weaknesses and costs and which one might be best for you.

Betterment vs. Robinhood: Services & Features

Betterment and Robinhood offer two diametrically opposed versions of investing.

As a robo-advisor Betterment automatically invests your money according to a series of algorithms set by the brokerage. You input certain parameters, such as your risk tolerance, investment goals and income, and the company’s artificial intelligence selects one of six appropriate investment portfolios, compromised of mutual funds and exchange-traded funds (ETFs) that reflect your risk profile, timeline and goals.

Betterment’s portfolios include higher- and lower-risk portfolios, as well as ones built to meet a specific purpose. For example, one portfolio is built around socially responsible investing and another around tax planning.

While it’s for people who lean toward a set-it-and-forget-it approach to handling money, users who would like guidance can sign up for person-to-person advising. Betterment Premium users get this for free, while subscribers to the basic Betterment Digital service pay for financial advising on a per-session basis.

Robinhood, on the other hand, is a highly streamlined platform designed for new investors. The platform presents users with a clean trading interface, without the intimidating wall of information and options that can scare off novices. Unlike Betterment, Robinhood users trade specific assets, meaning they create their own portfolios. There is no financial automation or advising.

Through Robinhood you can trade stocks, ETFs, options and American Depositary Receipts (ADR). This leaves out several popular asset categories, most notably bonds, mutual funds, futures and currencies, although a newly introduced feature called Robinhood Crypto allows you to trade some cryptocurrencies. Robinhood also offers a limited menu of asset data: current price, five years of price history and basic trading data. Charts, when included, are basic line charts, not the candlestick charts preferred by more experienced investors. Finally, Robinhood supports basic trading instructions such as stop-loss and limit orders. It does not, however, support more sophisticated instructions.

Betterment vs. Robinhood: Fees

There are usually four types of fees to look out for when choosing a trading platform. You should look out for these when evaluating any investment or trading service:

  • Trading Fees – Any fixed charge attached to each trade that you make. This can come in the form of a flat fee or what’s known as the “spread.” This is when your broker charges you based on the difference, if any, between the buying and the selling price of an asset.

  • Trading Commissions – This is when a broker will charge you a percentage based on the volume or value of each trade.

  • Inactivity Fees – Any fees that the broker charges you for not trading, such as for keeping money in a brokerage account.

  • Non-Trading/Other Fees – Any form of fee for trading on this platform not covered above. For example, a brokerage might charge you for making deposits into your brokerage account, taking money out of it or signing up for additional services.

Given the different services offered by Betterment and Robinhood, the two firms’ price structures vary widely.

Users who sign up for Betterment’s basic package, known as Betterment Digital, pay an annual fee of 0.25% of all assets (this includes cash, investments and any other assets held by Betterment). For example, if you have $10,000 in your Betterment account you would pay $25 per year for the service. There is no minimum balance for Betterment Digital, and person-to-person financial advising costs approximately $300 per session.

Users of the higher tier package, Betterment Premium, pay an annual fee of 0.40% of all assets, including cash, investments and all other assets held by Betterment. There is a $100,000 minimum balance for Betterment Premium, which would come to a $400 per year fee. Betterment Premium users receive free person-to-person financial advising.

Robinhood, on the other hand, charges nothing for most of its services. There are no fees or commissions on each trade. Nor does Robinhood charge inactivity fees or other transaction fees for most common activities such as depositing or withdrawing money. The main fee that Robinhood charges is $5 per month to subscribe to Robinhood Gold, which allows margin trading starting at a 5% interest rate.

Betterment vs. Robinhood: Online & Mobile Experience

Couple using their online trading app
Couple using their online trading app

One of the most important differences between Robinhood and Betterment is customer service. Betterment offers solid, though limited, customer service options. You can reach them by email and by telephone during business hours four days a week. (For some reason telephone support is not available on Thursdays.) While these support options mostly mirror that of a traditional bank, they are certainly less extensive than those offered by many competing services such as Fidelity and Vanguard.

Outside of support, the Betterment experience reflects the automated nature of its product. Betterment’s layout is straightforward and well designed. Users can access their portfolio quickly, and Betterment lays out your limited options in clear terms. The user interface guides you to selections such as building a retirement account, setting specific investment goals and even moderating risk. While Betterment does not do a great job of making clear the actual mechanics of robo-advising, for many users this may be a feature rather than a bug. This allows you to invest without getting overwhelmed by the details of Betterment’s investment strategy.

No service is as simplified as Robinhood. The user experience of Robinhood is, above all else, streamlined. It reflects the firm’s clear intent to make investing feel like a familiar in-app experience, closer to Instagram than E*TRADE. Users can quickly find their investment portfolio information, and assets are arranged in lists that are easy to search and sort.

Robinhood categorizes assets according to tags, letting you quickly find other investments that are similar. The individual asset pages are similarly well laid out, with basic information presented alongside a clear interface for buying or selling each product. Robinhood only offers support via email. There is neither a telephone nor a chat option, meaning users cannot contact someone directly if they have a question.

Betterment vs. Robinhood: Who Should Use It?

Betterment and Robinhood are both designed for investors who want a simplified experience without getting too in the weeds about their finances. That’s where the similarities end. Betterment is a strong choice for investors who are very hands-off and goal oriented. You will not have the chance to manage your money actively or make trades with this product, so people who want to research, buy and sell stocks won’t find much to love here. It is also organized around fund-based trading, meaning that Betterment’s assets are designed for long-term traders.

If you are someone who wants to invest over a period of years, particularly if you have specific goals in mind, and if you don’t want to actively research and select individual investments, then Betterment may be right for you.

Robinhood’s feature-light design means that it will frustrate an experienced investor, even one who wants a simplified investment experience. This app offers very little information and trading data and relatively few types of securities for trading. Investors who know what they’re doing will quickly find this limiting. It is easy to use for basic trades and for tracking investments over time.

Inexperienced investors will have to go outside Robinhood to understand what they’re doing since Robinhood does not help them learn how to invest wisely or well. The platform’s gamified interface may channel users into high-volume, high-risk trading positions, such as options.

Active investors who want an easier experience would do well to seek out products such as Fidelity’s trading platform or E*TRADE.

The Bottom Line

A robo-advisor
A robo-advisor

Betterment and Robinhood are both designed for traders who want a more hands-off experience. Betterment is a robo-advisor with a strong reputation, and a good choice for investors who would rather set goals and let someone else – or something else – handle the financial portion. Robinhood is a somewhat gamified platform that is all about high user engagement and minimal friction in trading process. It offers too little information for experienced investors and may entail too much risk for novices.

Tips for Investing

  • Don’t just pick how you’ll invest. Start thinking about why. With SmartAsset’s matching tool you can find a financial advisor near you quickly to help you figure out the critical issues like long-term strategy and financial goals to make sure that you’re making the most of your investment tools, whatever they are. If you’re ready then get started now.

  • Before you start using either Betterment or Robinhood, use an investment calculator to “run the numbers” on your investment plan so you can have confidence that you’re on a sensible road to achieving your financial goals.

Photo credit: ©iStock.com/PhonlamaiPhoto, ©iStock.com/Tinpixels, ©iStock.com/PhonlamaiPhoto

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