Which app should you use to invest, Betterment or Acorns?

What are the pros and cons of each app, and which one makes the most sense for you? I’ve been using both of these apps for about 2 years now, so this article will expose a detailed and HONEST review.

Both of these apps make investing as easy as possible, and they’ll both help you invest your money safely whether you’re an experienced investor or you’re a total beginner. That being said, there are important differences for each app that I want to point out.

FUNDING OPTIONS

• The biggest difference by far is with funding options.
• Acorns offer roundups, which is a feature that lets you invest with your spare change by rounding up your debit card and even credit card purchases. If you have hard time-saving money, the Acorns roundup feature helps a lot. Just in the last X month, I’ve saved over X from roundups.
• Betterment doesn’t offer roundups. The only way to add money to your investments is by depositing money directly from your checking account. But if you’re pretty good about sticking to your monthly savings goals, you don’t really need roundups anyway.
• To be honest, you’re not going to get rich just from investing your spare change. That’s just ridiculous. So, while the roundups feature is what attracted me to Acorns in the first place, the fact that Betterment doesn’t offer it is not a dealbreaker for me.
• Both apps give you the option to make recurring deposits on your own schedule, whether it’s weekly, biweekly, monthly, on a chosen day of the month or day of the week. And Acorns even gives you the option of making daily recurring deposits.

INVESTMENT OPTIONS

• Now let’s compare the investment options at Betterment vs Acorns.
• Both of these roboadvisors invest your money in fractional shares of ETFs (exchange-traded funds) that give you diversified exposure to hundreds of different stocks and bonds. They both offer good investment portfolios that are designed to maximize your returns while minimizing your risk, so in that sense, they’re very similar.
• That being said, I do prefer Betterment’s approach to investing over Acorns. That’s because Betterment does what’s called goals-based investing, whereas Acorns has a more basic and traditional approach to investing.
• Goals-based investing is a relatively new approach to investing that emphasizes investing with the objective of achieving specific life goals. So rather than keeping all your money in one general investment portfolio, this approach separates your money into different buckets and has a different investment portfolio for each bucket.
• For example, this is my Betterment account – I have different life goals, and they each have a different timeline and target amount. I have a goal to have $5k to take my parents on vacation in 2 years. I also have a goal to have $100k of annual retirement income in 30 years. I also have a goal to build an emergency fund of $20k in 3 years. These are all numbers and timelines Betterment asks me about before they recommend how to invest my money. And for each goal, Betterment has a different investment portfolio for me. For my Take Parents on Vacation goal, Betterment has 32/68 split between stocks and bonds. But for my Retirement goal, Betterment invests my money in a 90/10 portfolio. The longer my time horizon, the more I should have in stocks. It’s ALL about your time horizon! How you should invest your money depends on how much money you need for your goal and when you need it, and Betterment really gets it.
• Now at Acorns, you only get 5 portfolio options, ranging from Conservative to Aggressive. They don’t ask you what you need the money for and when you need it by – all they care about is what risk tolerance level you’re comfortable with. But you know what? It doesn’t matter what your risk tolerance is!!! The real question is – are you going to have enough money to actually buy your dream house in 5 years, and are you actually going to be able to pay your child’s college tuition when they turn 18? So I think the Acorns one-size-fits-all approach to investing doesn’t really fit into how you actually live your life. The reality is that you have different financial goals with different timelines, and your money should be bucketed accordingly, not thrown into one investment portfolio with some vague unspecified timeline.
• So in summary, Betterment offers a goals-based approach to investing that I think makes a lot of sense, and Acorns offers a much more basic approach to investing that emphasizes your risk-tolerance level over your financial goals.
• I’m not knocking on Acorns at all. I LOVE Acorns and I have so much fun using it. But I think I’m starting to outgrow the app because I need a more advanced, customizable approach to investing. Acorns were designed to make investing as accessible as possible for the masses, so if you’re new to investing and you need some training wheels to get started, then you’ll absolutely appreciate how simple it is to use Acorns.

ACCOUNT TYPES

• Something else that Betterment offers that Acorns doesn’t have is a wider range of account types.
• For one, Betterment offers a savings account called the Smart Saver. I got really excited about the Smart Saver account because it pays a 2% yield with no minimum balance. This definitely beats what you get at any savings account at a bank. And because the interest comes from U.S. government bonds, you don’t get charged federal taxes on the 2%. Betterment also gives you the option to open Joint accounts, so if you have a significant other and you want to both be owners on the account, you won’t be able to do that at Acorns.
• I really like having all my investment accounts AND savings accounts all in one place. Not only can you add as many investing goals as you want to your Betterment account, but you can even link external accounts like your 401k so that you can see a nice holistic view of your finances.
• I also like that I can name each of my goals so I’m always reminded WHAT I am saving for. This not only keeps me motivated and on track, but I love it when things are organized and clearly labeled. It makes me happy when I know where everything is, what it’s for, and it’s no different when it comes to my money. Is that weird? I don’t care… I like being weird.

COST

• Ok now let’s talk about cost. Ever since fintech came on the scene it’s completely taken the wealth management industry by storm. Betterment and Acorns are both roboadvisors, which means that rather than having an actual human managing your money and making investment decisions, you have algorithms doing it for you.
• Robots and algorithms can crunch numbers faster and more accurately than any human ever could, AND they can do it at a fraction of the cost. So both Betterment and Acorns are gonna be way cheaper than hiring a real-life financial advisor.
• Betterment has NO minimum and charges an annual fee of 0.25%, so if you have $1k invested at Betterment, you’ll pay $2.50 annually.
• Acorns have NO minimum and charges a flat $1 fee per month, so if you have $1k invested at Acorns, you’ll pay $12 annually. That works out to 1.2% annually – almost 5x more than Betterment!
• So this is the downside to Acorns fee structure – if you don’t have a lot of money invested, then that flat $1 monthly fee works out to be a big percentage of your assets. Once you have $5k or more, that’s when a flat fee vs a percentage fee starts to be a better deal for you, because Acorns is still only going to charge you $1/month or $12 for the year, while Betterment would cost you slightly more at $12.50

SUMMARY

• So in summary,
• Funding: roundups, recurring deposits
• Investing: goals-based and geared towards the more sophisticated investor, simplified and geared towards the novice investor
• Account types: Smart Saver and joint accounts and multiple accounts all in one place
• Cost: flat fee vs percentage fee, where flat fee doesn’t make sense if you have less than $5k

If you need a lot of handholding, then go with Acorns. Even though the flat fee isn’t great, the app was DESIGNED specifically for novice investors, so the interface and the features are totally free of financial jargon and as dumbed down as possible.

If you need an app with robust features to help you with multiple financial goals and needs, then go with Betterment.

Think of Acorns as the training wheels. It’s good for getting started, but as your life gets more complex and you need a better way to organize your finances, you’ll probably outgrow Acorns and move your money to a place like Betterment.

At the end of the day, which app you choose isn’t going to make or break your financial future. Just go with your gut and give one of these apps a try. The sooner you start, the sooner you can start putting your money to work.