Many of you have heard of Acorns. In fact, I’ve done a full Acorns.com Review that walks you through all the benefits of Acorns. Betterment is a similar service that gives you a hands-off approach to investing. You can literally set it up once and check on it occasionally to see your account grow and grow. Which service is better though? In this match-up of Betterment vs Acorns, you’ll be able to see for yourself which is the better service to meet your individual needs.
These apps do have similar yet also very different core missions. In order to rate them fairly, I’m going to choose what I believe are the key things people look for when they choose a Robo Investing Service. I’m going to go over which type of investor each is driven towards, how their portfolios differ, how hands-off they really are, what types of goals can be reached with each, and how they differ in pricing. Wow! That’s a lot to tackle! Well, let’s get started.
Who Are These Services For?
Not everyone wants to spend every morning pouring over stock charts and worrying about earnings reports, portfolio diversification, and re-balancing accounts. After all, that’s a lot of work and there is already a slew of professionals that can do that for you right? Well, right! Unfortunately to pay professionals to manage an investment account can be quite costly.
For example, if you were to place your money in a mutual fund, you could expect to pay fund managers around 1.44% to manage your fund but that doesn’t include up to almost 4% in undisclosed sneaky costs such as those found by Forbes magazine.
So what do you do? There are a couple of options. You could simply open a trading account and do it yourself but that means you will have to manage the diversification, rebalancing, and all the other stuff I mentioned yourself. I actually teach you how to do this through other posts on this site. The other option though is to have a service like Betterment or Acorns take the reins for you.
So in short, these services are designed for the person that wants to invest their money but has professional quality management for much lower costs so they don’t have to manage it directly themselves!
Let’s Look at Their Portfolios
Acorns allows you to choose from the following 5 portfolios: Aggressive, Moderately Aggressive, Moderate, Moderately Conservative, and Conservative. Here is a screenshot of their allocation for “Moderately Aggressive.”
As you can see, they diversify among many categories and weigh those categories based on your risk tolerance. Your risk can be reset at any time so if you’re investing goals change, your portfolio will be adjusted accordingly. This is not an automatic feature though, you have to manually change your risk level each time you would like it adjusted.
Betterment on the other hand designs a portfolio specifically around your goals. You are first asked to define how much and how often you will fund your account. Then you are asked how much you want your account to be worth and by how many years. Based on your answers, Betterment recommends an allocation of stocks and bonds to determine if you are appropriately aggressive. This prevents you from saving to conservatively or too aggressively and ensures you will have the highest probability of reaching the goal you set.
EXAMPLE: I started a Betterment account for my children with the goal of saving $50 a month and have a goal of $25,000 in 20 years. This is only an average 8% gain per year which I think is reasonable. Currently, I have 96% of the account in stocks and 4% in bonds and as the years go by and my target date approaches, Betterment will re-balance to ensure the portfolio becomes more conservative to protect the account. Here is the current allocation:
I would say Betterment has the most flexibility with portfolios and is the most hands-off in this regard. I also like that I can set up recurring deposits to make sure I make the contributions that I plan to make without having to remember to do so. My account only takes out $25 per paycheck to ensure I always deposit $50 each month. If I choose to make other contributions, I can make One-Time Deposits any time or change my automatic deposit amount.
How to Make Investment Goals
What makes Acorns so easy to save is their signature “round-ups” way of saving. You can set up roundups so that every time you make a purchase with your credit or debit card, it rounds up the purchase price to the next dollar and sends that change to Acorns. This makes it easy to save because you are only saving a little at a time and it doesn’t seem like a lot is leaving your bank at once. For example, if you buy milk at the store for $3.19, your bill will go up to $4.00, and 81 cents will be sent to Acorns.
Acorns then allows you to see how your money will grow by using their “Potential” tab:
You can see above that If I save $5 per week and have “Round-Ups” on, under this portfolio I can expect to have about $115,000 by age 75. This chart can be played around with to see what it would take to reach whatever goal you have in mind such as adjusting the amount that is deposited and sliding the age setting at the bottom until you reach the goal you like.
Betterment takes a different approach by allowing you to compartmentalize your goals. It recognizes that you may have more than one goal at a time and allows you to set up multiple goals:
For now, I have General Investing set up since this is a general investing account for my children. If I wanted to add a retirement category, I could do so by selecting “Get Started”.
I can also set up “Smart Saver” which uses Betterment as a Savings Account. This section is for saving and not investing so there is no risk to your money and is smart for money that you want to keep on the side for short-term or reserve use.
Not shown is that below these goals, there are other goals to choose from such as “Safety Net” which is geared to building a reserve fund or rainy day fund, “Education” which is designed for parents saving for private school or college, and “Major Purchase” which can be useful for saving money for a kitchen remodel, car, house, or anything else you want to buy!
Betterment offers the most options regarding setting up goals which I think puts it miles ahead of Acorns in the category of Goal Setting.
Everyone’s Favorite Section – Pricing…
Everyone wants to enjoy the benefits of having their money managed professionally but let’s face it. If there is a way to pay less, there isn’t a single person that wouldn’t choose to get the most value for the lowest cost.
Acorns has the most straightforward pay structure:
You pay just $1 per month for their investing app, $2 to add retirement savings, and $3 to have investing, a retirement account, and a checking account. Pretty straightforward. Obviously, if you only have $200 in your account and you had it for 6 months, this would be about $6 (3% for this duration) which is a little high. If you have $2000 after 18 months, this would be $18 (0.9% for this duration) so obviously the higher your balance, the more value there is with Acorns.
Betterment is kind of the opposite. It starts you off cheaper but will cost you more as time goes on:
Betterment charges a fixed amount of only 0.25% of your account balance a year. As the balance grows, the cost will grow but it will always be only a quarter percent of your balance whereas like we mentioned before, mutual funds could cost you up to 2% in disclosed costs and that’s not including the hidden costs discussed at the top of this article.
Using the example above, if you saved $200 over 6 months, this would cost you less than 50 cents for the duration and if you saved $2000 over 18 months it would cost you about $7. For an account of $25,000 though, this would cost $62.50 a year while Acorns still costs $12 per year. However, if this were in a managed mutual fund, this would cost you $500 per year before hidden fees! Wow!
You will notice the Premium Service on the right. What this adds is access to a live professional who will give you investing advice and help you plan for life events with a live financial advisor. For the purpose of this article, we are focusing on the Digital Service only.
Investing doesn’t have to be a balancing act that you spend hours at the end of each week figuring it out. Using a Robo Service like Betterment or Acorns can manage your money for a fraction of the costs of other agencies.
For the ease of saving spare change from round-ups, Acorns wins. Their easy to save method is awesome for saving without feeling like you are saving.
For everything else though, I prefer Betterment. They have the most flexibility in goal setting, the most elaborate in portfolio design built with your exact plans, and they offer the most customization. Lastly, their portfolio adjusts risk for you to keep you on track with your goals. That counts for a lot in my book!
I hope you found this face-off of Betterment vs Acorns useful. If you did or if you have questions, please feel free to add them below. I’d love to hear from you. If you know someone that could benefit from this article, please share it with them to spread the word of what we’re doing here!
And as always, Let’s Start Investing!