Investing platforms are all the rage these days. There are so many apps and services that claim to be the best for managing your portfolio. In this article, we’re looking at two of the more popular investing tools on the market – Betterment and Robinhood. These two apps actually provide very different services, and we’ll help you decide which investment platform is best for you.
Betterment and Robinhood – What’s the Difference?
To put it simply, the Betterment micro investing app is basically the opposite trading platform of the Robinhood app.
Betterment is a robo advisor. A robo advisor uses complex algorithms to automatically manage your investment portfolio based on your personal level of risk tolerance and your investment goals. These robo advisors are designed as a completely passive form of investing. You open your account, let Betterment know what you are looking for, and Betterment designs and maintains an investment portfolio for you. A robo advisor is very sophisticated nowadays, as you’ll see later on.
Robinhood is designed for the self-directed investor, but it offers a very simple platform that is also accessible to beginners. It is not automated, meaning that the user can choose which assets to build their portfolio with (stocks, an ETF, investment options, etc.) The simplicity comes from the investment platform itself, which is very easy to navigate and helps beginners understand the complex investment universe. This makes Robinhood suitable for beginner and advanced investors, although it might lack some complexity that is desired by an advanced investor.
Betterment
As mentioned above, Betterment is part of a popular category of investing called “robo advisors.” In fact, Betterment is one of the most popular robo advisors on the market.
Starting a Betterment brokerage account is simple. You open the account with as little as a $10 account balance, and Betterment will prompt you with a short survey. This survey lets this investment app know your risk tolerance and investing goals. From there, it creates your investment portfolio based on your requirements and lets its complex algorithm manage your portfolio.
Pros
Instantaneous Algorithm – Robo advisors don’t make their algorithms public, but it’s clear that Betterment has established a reliable reputation in this regard. Betterment portfolios are built and managed based on a user’s risk tolerance and investing goals, and it has the results to show it. Perhaps the main benefit of a robo advisor is that it is able to instantaneously respond to shifts in the stock market or shifts in your portfolio. Unlike self-directed investing, it doesn’t rely on human input to respond to shifts and is therefore less prone to human error. Betterment’s portfolios themselves are made from a diversified selection of ETFs.
Tax Savings – Betterment, like many robo advisers, has included in its algorithm automated strategies to save you money on taxes. Essentially, they automatically balance your portfolio to offset capital gains (when possible), which results in you paying less taxes on your portfolio. It’s a standard feature among robo advisers, but worth mentioning.
Socially Responsible Investing – Betterment offers socially responsible investment options that you can opt into if they align with your investment goals. These investment options are comprised of socially responsible ETFs.
Very Simple Pricing Structure – The vast majority of users sign up for Betterment’s basic plan, which has a very transparent pricing structure. Users pay an annual fee of 0.25% on all assets in their Betterment portfolio, which is a very competitive rate. If users have over $100,000 in their investment account, they can opt to join Betterment Premium, which comes with several extra features, including free person-to-person investing advice. Betterment Premium users pay a 0.4% annual fee on all assets.
Goal-based Interface – Betterment allows you to track your investing goals with ease. You can set specific investing goals from the outset and indicate how much you’d like to save before you reach each of your financial goals. Betterment tracks your progress toward each milestone and lays it out in an intuitive section of the app.
For example, you can see how much you’ve saved toward a down payment on a home. It’s a basic organizational tool that allows you to have everything displayed in one spot, and it gives you a real reminder of why you’re investing in the first place.
Cons
Not For the Self-directed Investor – Being a robo advisor, Betterment isn’t what you’re looking for if you want to take personal control of your portfolio. For this, you want a self-directed investing app, such as Robinhood.
Human Advice Costs More – Betterment does give you the option to receive financial advice from a professional, but you have to pay per session. Betterment Premium users get this feature for “free,” but they also pay higher annual fees (0.4% vs 0.25%). This being said, if you’re looking for personal financial advice, then a robo adviser might not be what you are looking for anyways, and you might be better off with a traditional financial advisor.
Robinhood
Robinhood is a streamlined investing platform geared toward beginners, but it’s also suitable for advanced investors. As opposed to Betterment, Robinhood does not automate your portfolio. The app is for anyone who wants to take, buy, and sell assets on their own.
Pros
Intuitive Platform – The main reason Robinhood is so popular is due to its accessibility. Many platforms offer what Robinhood offers, but Robinhood’s simplicity is why it appeals to so many. The trading platform is laid out in a clear, simple manner. It’s easy to monitor your portfolio and to browse, buy, or sell assets. Assets are laid out and organized into different categories. Each asset includes a short description, and you can click through to find similar assets.
Simple, Free (Almost) Pricing Structure – One of the main appeals of Robinhood’s platform is its cheap, simple pricing structure. Robinhood doesn’t charge anything for the vast majority of its platform. This includes zero commissions or fees on trades and no fees for depositing or withdrawing money. The main way Robinhood makes money is through the optional “Robinhood Gold” membership, which costs $5/month and comes with various benefits for subscribers.
Cons
No Phone Line – The only way to reach Robinhood is via email. This is pretty typical of major apps, but it might be especially relevant for an investment app. If you’re looking for a platform by which to receive real, human advice, Robinhood is not it. Perhaps you would prefer a traditional financial advisor.
Limited Assets – With Robinhood, you can trade stocks, ETFs, ADRs, options, and select cryptos. While this selection will be suitable to most beginner investors, it does leave out some notable asset types, including mutual funds, bonds, futures, and currencies. If you’re looking to diversify your portfolio into any of these options, whether you prefer a mutual fund or a bond, then Robinhood may not be for you.
Limited Research Tools – Robinhood puts a very clear emphasis on simplicity, although some users would say it’s to a fault. Compared with some other finance apps, you’ll notice that Robinhood’s research and analytical tools are somewhat basic. Asset data is presented in basic line chart form, and there is no option for the popular “candlestick” charts that advanced investors might prefer. This is by design, to keep the platform as simple as possible, but it may not be enough to satisfy advanced investors. That being said, advanced investors likely already have a platform they are happy with.
Betterment vs. Robinhood
As you can likely tell from our comparison, Betterment and Robinhood are geared toward two very different types of investors. As such, it’s not really about which app is better, but which app is better for you. Before you make this decision, you need to consider your own investment goals and the time and effort you want to put into managing your portfolio.
Betterment is the clear choice if you want to take a passive approach to investing. As a robo advisor, Betterment is a true “set it and forget it” option for your portfolio. You’ll put your faith in its complex algorithm to make changes and adjustments based on your investment goals and risk tolerance. Robo advisors have proven results and feature much lower rates than traditional financial advisors.
Robinhood is geared to those who want to manage their own portfolios. More specifically, it’s geared to making this process as simple as possible. Whether you’re a new investor, or you just prefer Robinhood’s streamlined platform, then this investment app is worth consideration. Its no-fee model will also appeal to investors of all types.
Conclusion
Thanks for reading our guide to two of the most popular investment apps on the market. As you can see, it’s all about matching your personal investment preferences to your platform of choice. Both Betterment and Robinhood are excellent platforms that have a lot to offer investors, but the question is if they have a lot to offer you.
