Betterment and Fidelity Go are two of the best robo-advisors, a popular way to create an investment plan and have your money invested according to your risk tolerance and when you need it.
Betterment is one of the top independent robo-advisors and was named Bankrate’s Best Robo-Advisor for 2023. Meanwhile, Fidelity Go is the robo-advisor service at highly regarded Fidelity Investments, and it also scored highly in Bankrate’s assessment of the sector.
But if they’re pitted against each other, which is better for you?
Improvement vs. Loyalty Go: How They Compare
Robo-advisors build portfolios of low-cost stock and bond funds based on your needs. Once you set up your portfolio, you can add money and then the robo-advisor buys the investments. It’s easy to set up a portfolio and then the robo-advisor does the rest. The best robo-advisors add plenty of features, like tax-loss harvesting and a cash management account.
The advantage of a robo-advisor is that you get a professionally managed investment portfolio at a low cost. And the best robo-advisors charge much less than a traditional human advisor.
Here’s how two of the top players – Betterment and Fidelity Go – compete against each other.
Portfolio management
Betterment and Fidelity Go offer solid portfolio management, but Betterment goes one step further.
Improvement starts by considering what financial goals you have, and then building your portfolio around those different goals. If you have a short-term goal (such as a down payment), you can set up suitable investments for that specific goal, rather than having investments that are better suited for long-term goals (such as retirement).
Betterment offers 13 asset classes, including stocks and bonds, and builds a portfolio based on when you need the money and your risk tolerance. While Betterment can take care of it all for you, it also gives you a number of choices, including socially responsible funds, a smart beta fund, a technology strategy, cryptocurrency portfolios, and all-cash and bond portfolios. And if you want to tinker some more, you can adjust the weightings of the funds in your portfolio.
The robo-advisor manages your portfolio daily and rebalances the funds if they deviate more than 3-5 percent from target allocations. If you choose Betterment’s premium service and can reach $100,000, you can speak with qualified advisors about your portfolio and plans.
Fidelity Go assesses your financial goal and risk tolerance, then presents you with one of seven portfolios, ranging from conservative (more bonds) to aggressive (more stocks). But you can’t specify multiple goals, as you can with some rivals. The investments include nine funds across four key areas: U.S. stocks, foreign stocks, bonds and cash. Your portfolio is built using Fidelity Flex funds, which don’t charge fees as part of the Go program.
If you’re just starting out and can’t add more than $25,000 to your account, you won’t have immediate access to a financial advisor at Fidelity. However, once you reach that threshold, you can meet any number of times for 30 minutes with advisors who can help you plan. However, if you have any general questions, you can contact Fidelity’s best customer service team.
Fidelity monitors your account daily and rebalances your portfolio as necessary.
Edge: Improvement, for the wide range of choices and multi-purpose portfolios
Management and fund costs
Robo-advisors typically charge two main fees: a management fee (which goes to the advisor) and ETF fees (which go to the fund company). At first it may seem like Betterment offers lower management fees, but add up the total costs and it’s a closer race than you might think.
First, the key numbers: Betterment charges 0.25 percent of assets annually for its core digital service, and $4 per month for accounts with less than $20,000 in assets (although you can avoid these fees if you set up a $250 recurring deposit. Fidelity Go charges no fees for the first $25,000 of assets and then 0.35 percent for assets above that level.
What does that mean in practical terms?
- A $10,000 balance at Betterment would cost $48 annually (or possibly $0), while at Fidelity Go it would cost $0.
- A $60,000 balance at Betterment would cost $150 annually, while at Fidelity Go it would cost $122.50. (The $35,000 above the $25,000 threshold times the 0.35 percent fee.)
Betterment’s premium plan costs 0.40 percent of assets annually ($40 for every $10,000 invested), but offers the option to meet with advisors with a certified financial planner.
Then you need to look at the costs of the investment funds. At Betterment, the average portfolio has funds that charge 0.07 percent annually, or $7 per year for every $10,000 invested. In the meantime, Fidelity uses its own resources and does not charge additional costs for this.
Add the nominal rate for management and fund fees together and they come to 0.32 percent for Enhancement and 0.35 percent for Fidelity. Of course, to get a true apples-to-apples comparison, you have to consider Fidelity’s $0 fee for the first $25,000 of assets.
Edge: Cost-wise, Fidelity is the better choice for smaller accounts, although larger accounts will find Betterment cheaper (and offering more premium features)
Tax strategy
When it comes to tax strategy, Betterment offers a more robust service that can help you save money, with two benefits.
First, the independent robo uses an automatic tax-loss harvesting program that sells losing investments to get a tax break. The app checks daily whether you can benefit from this, while also avoiding realizing short-term capital gains, which are usually taxed at higher rates. This automatic process is something that human advisors cannot easily do. Betterment estimates that this feature could increase your after-tax returns by 0.77 percent annually, a huge figure over time.
Second, Betterment also uses what it calls a tax-coordinated portfolio to minimize taxable gains. It tailors which investments go into which portfolios, so that heavily taxed investments can go into tax-advantaged accounts, like IRAs, for example. Improvement says this feature can increase your returns by 0.48 percent annually, or make you about 15 percent more money over 30 years.
Fidelity Go’s tax strategy, on the other hand, is fundamental. The robo-advisor offers tax-free municipal bond funds in place of regular bond funds in its clients’ taxable accounts. For this feature to be valuable, you obviously need a bond allocation, so if you have an aggressive portfolio – i.e. a high allocation to stocks and little or none to bonds – then it won’t do you much good.
Edge: Betterment, for its robust tax-loss strategy
Cash management account
It’s a strong competition between Betterment and Fidelity Go in the cash management space. Both offer robust, feature-rich accounts, although Betterment’s may be slightly better due to the interest offered on cash balances.
Betterment’s cash management account is actually two accounts: one for savings and one for expenses. The Cash Reserve high-yield savings account pays a competitive rate, and while that rate is variable, the robo-advisor often offers one of the higher rates available. Customers have no minimum account size and individual accounts are FDIC protected up to $2 million. If you like the account, you don’t even have to use Betterment’s investing services to access it.
Meanwhile, Betterment’s checking account charges no fees, including basic account and overdraft fees, and reimburses you for ATM and foreign fees. You also get a debit card with cash back rewards and FDIC coverage up to $250,000 for individual accounts.
Fidelity’s cash management account, which you must open separately from your Go account, is also a strong performer. With its customer-friendly reputation, Fidelity offers a free account and FDIC coverage of up to $1.25 million for individuals. Fidelity also offers all the modern standard features of a cash account – bill pay, a debit card, mobile payments, check writing – and you’ll get your ATM fees reimbursed for US transactions.
If there’s a downside, it’s that Fidelity’s interest rate on cash balances just isn’t that high, and not really close enough to Betterment’s to overlook the difference, at least at the time of writing.
Edge: Improvement, with its commitment to competitive interest rates
Features and tools
Betterment and Fidelity Go both come into their own here with quite a few tools that can help investors.
Improvement provides the following:
- A tax impact tool that shows how portfolio changes will affect your taxes.
- A charitable giving tool that allows you to donate securities through the app.
- A retirement planning tool that takes a detailed look at your finances and offers suggestions on how to optimize them.
- A goal planning tool that helps you optimize your various financial goals.
- Educational content about investing and personal finance.
Fidelity Go also offers quite a few useful tools:
- A goal tracker that shows your pace towards your goals.
- A debt payoff tool that keeps track of how much remaining debt you have.
- Access to Fidelity’s broad suite of educational content, planning guides, screeners and more – in short, access to all the investment tools Fidelity offers.
Both rivals offer plenty for investors looking to get the most out of their robo-advisor and expand their investing knowledge.
Edge: Even
In short
Betterment is a good choice for your next robo-advisor, even though it may cost more for first-time investors. The greater range of features, including tax-loss harvesting, makes it worth the extra premium over Fidelity Go, and that cost difference decreases as your wealth grows. That said, current Fidelity customers may find it too easy to open another Fidelity account and keep all their money with a customer-friendly company they already know and trust. Since both score highly in Bankrate’s annual ratings, it’s hard to go wrong with either robo-advisor.
