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>Investing>Wealthfront vs Vanguard: Best Digital Robo Advisors?
Wealthfront vs Vanguard: Best Digital Robo Advisors?
by Benjamin Aronson
Updated May 29, 2024
If you’re looking for great investment advisory firms look no further. Wealthfront and Vanguard are top of the line offering the best Robo-Advisor options in 2021! While both investment management companies have strong upsides, they do differ from one another. Deciding the right online broker will come down to your future goals and investment planning.
In this article, we break down the key differences between Wealthfront and Vanguard. So don’t get frustrated, you’ll find out the essential information for making a decision between the two below.
Investors who want to see the big picture of their financial account
Anyone who wants the ability to access a line of credit from their broker
Best for investors with limited funds who want to invest
Vanguard
Account Minimum: $1,000 USD
Fees: 0.30% on assets (under the management of Vanguard, not including cash in account)
Vanguard is Great For:
Best for investors with more money available (high entry point)
Investors who are in the long game of investing
Those who want advisory input and good customer service
Now that we had a quick glance, let’s start out with the basics!
Process of Investing
Understanding how these brokers work will give you a better understanding of which one is right for you.
Were going to walk you through the process of investing with Wealthfront and Vanguard.
Wealthfront
As long as you are above 18 and a U.S citizen, you can open an account with Wealthfront quickly.
Once you log in with personal information, you will have a risk score assigned to you. You will also receive a custom portfolio that correlates with your risk tolerance and personal goals. These features help new investors find the right assets when building a portfolio.
Once your account is up and running, you can use their investing software to manage and improve your portfolio. With Wealthfrons monitoring software, you’ll know exactly what’s going on with your assets and how everything is performing.
Vanguard
Setting up an online account with Vanguard is a breeze! All you need is your bank information and personal details. This process shouldn’t take more than 10 minutes.
Once you have funds in your account, you can start investing. At this point you have a choice, you can pick investments yourself or you can use the automated software to do it for you.
If you’re just starting out, automated software is a great way to learn how they invest. If you want a more hands-on approach, simply pick the stocks, options or other securities that you want.
Account Overview
Wealthfront and Vanguard, in general, have similar Personal Advisor Services. Currently, Wealthfront and Vanguard do not offer custodial accounts.
SEP IRA accounts (for the self-employed and small businesses)
IRA transfers
401(k) rollovers
Wealthfront has the edge here providing 529 college saving plan and more options to choose from.
Features
Although in the same field, Wealthfront and Vanguard differ from one another in many ways.
Wealthfront scouts out the younger generation who have less cash on hand and are more technologically updated. Vanguard aims for more experienced clients with higher investing margins.
Both of them have great features that help investors raise the bar.
Let’s check them out!
Wealthfront
Wealthfront Cash Account: A high-interest cash account
2.07% APY (no fees)
Unlimited transfers (FDIC deposit insurance up to $1 million)
529 College Savings: An account specifically designed to save for college
There are great tax advantages that help you save
You can use it for tuition, room, board, etc
Portfolio Line of Credit: Once you have $25,000 in your individual, trust, or joint account you have access to credit
4.5%-6% interest
Can borrow up top 30% of your account
PassvePlus: Wealthfront’s investment strategy set
Established to maximize client investments using tax-loss harvesting
Beta Smart is a service that helps clients weigh stocks in portfolio more intelligently (for investors with $500,000 and up)
Vanguard
Access to Advisors: Certified financial planners assigned to each client
Offer Robo-advising as well as personal human guidance
Vanguard considers themselves a “hybrid” advisory service bringing the best of both worlds
Whole-Picture: Advisors look at the full picture when designing your portfolio and giving advice
Personal advisors look at other accounts (college savings, retirement, etc) and take everything into consideration to meet your financial goals
Dedicated Advisors for Large Accounts: Available one on one assistance for large accounts (usually $500,000 and up)
Cross-Company Application: $50,000 investment capital can be applied across all assets
Portfolios
Both Wealthfront and Vanguard have a similar approach when it comes to building your portfolio. They do differ in the amount of time it takes to get your portfolio started.
Let’s Check out Wealthfront first:
When setting up an account with Wealthfront the broker won’t show your portfolio asset allocation until you answer a few questions. They need the investor to answer questions such as risk tolerance and time horizon to determine your financial goals.
Clients with more than $100,000 in their accounts can choose a stock portfolioinstead of a portfolio made up of ETFs.
Wealthfront also offers a service called Wealthfront Asset. Clients can choose from numerous ETFs and mutual funds (State Street, Vanguard, Schwab, iShare or they can save cash).
At Vanguard the upfront paperwork is fairly similar. You will be asked about your risk tolerance and future goals to help generate a proper portfolio that suits you.
New clients must speak with a financial advisor to complete the customization plan. Due to the in-depth process, you could be waiting a few weeks for your final investing plan.
Vanguard also offers Vanguard Personal Advisor Services Assets. This is a methodology that follows the Modern Portfolio Theory (MPT) principles. The main idea is to focus on diversification to maximize expected returns.
Retirement Planning
Wealthfront and Vanguard offer a few retirement account options.
Traditional IRAs
Roth IRAs
SEP IRAs
401(k) rollovers
Wealthfront uses a Robo-Advisor to estimate your net worth at retirement. This is an impressive feature that tells you the amount of money you can spend per month to live comfortably during your golden years.
The Path planning tool helps you compare your current spending habits to your projected retirement income. You can alter information to see how they affect your bottom line.
Vanguard features a variety of impressive tools. They have a retirement income calculator that shows clients how much money needs to be saved aside to reach retirement goals.
Minimum Investment
The minimum investment is where Wealthfornt and Vanguard differ:
Wealthfornt- $500 USD
Vanguard- $1,000 USD
Before you lose it, it’s important to understand that Wealthfront and Vanguard are designed for different clients in mind. With that said, Wealthfront makes it much easier for new investors to start investing due to the low amount of capital needed.
Annual fees
Throughout a lifetime, hundreds of thousands of dollars can go to fees if you’re not paying attention. Luckily, Wealthfront and Vanguard are not too pricey and are both top-notch in their industry.
Wealthfront charges a 0.25% fee on investment accounts every month. Larger portfolios invested in Smart Beta programs could be invested in funds with slightly higher fees. There are no fees for opening an account, closing an account, account transfers or withdrawal. Wealthfront also offers cash saving account, also no fees
Vanguard charges an advisory fee of 0.30% every quarter. There are hidden costs that may add up since there are transaction fees. The average expense ratio of investments equals out to about 0.11%.
Tax Advantages
There are many ways to effectively invest money and avoid excessive taxes. Both Wealthfront and Vanguard take advantage of tax-loss harvesting.
What is Tax-Loss Harvesting?
That’s a great question, I’m glad you asked. Tax-loss harvesting is the practice of selling a security (a tradable financial asset) that experiences a loss, then buying a similar security in its place.
Why do that?
Another great question! You can use this loss to offset your taxable income. Investors are taxed by capital gains. The IRS realizes these losses, lowering your tax bill.
By tax-loss harvesting, you keep your market exposure constant, yet the IRS acknowledges a
loss giving you bigger tax savings when you cash in.
When an ETF loses value in a portfolio with Wealthfront, they sell that ETF, then replace it with another highly correlated ETF. Tax-loss harvesting is a part of PassivePlus, Wealthfront’s investment features. For more information on Wealthfront’s policy, check here.
Vanguard also takes advantage oftax-loss harvesting. They request clients to identify specific lots of shares to sell. You will need to use a specific identification cost basis method when you sell shares. For more information on Vanguards policy, check here.
Security
Wealthfront and Vanguard have high levels of security. Both firms take this issue very seriously to protect clients from hackers and external dangers.
Wealthfront is a member of the Securities Investor Protection Corporation (SIPC). That means that clients are protected up to $500,000. Wealthfront also has a 2-step authorization and security questions at login for added protection.
Vanguard has systems set up to stop external criminal activity. They say in the fine print, if assets are taken or transferred by an unauthorized online transaction, Vanguard will reimburse. Vanguard is also a SIPC member, protecting clients up to $500,000.
Customer service
Wealthfront has a large variety of services on their desktop panel. A few of the following are: “Getting Started,” “My Wealthfront” and “Learning Center.” These services are available in the online help center.
Wealthfront also has a ton of informational videos on investing. If something isn’t clear or you have a problem you can always contact the Wealthfront’s support team online. They are open Monday through Friday, 7 a.m-5 p.m Pacific time. There is no online or mobile chat at this moment.
The Vanguard help center is separated into account types giving the client the most accurate assistance. Vanguard also has a support team and you can call Monday through Friday, from 8 a.m-10 p.m Eastern time.
Clients can also speak with a financial advisor by scheduling an appointment. If you do not schedule an appointment prior to your call, be prepared to wait 9 minutes on average.
Our Verdict
Investments are a crucial part of anyone’s financial forthcoming and It can be challenging choosing between the two. Both Wealthfront and Vanguard are positively performing financial firms that investors can feel safe being a part of.
Wealthfront is a great way for novice investors to build their portfolio and prepare for the future. With their low minimum deposit and free activation, it’s hard to beat. Wealthfront has a great hands-off approach. From our analysis, we think that Wealthfront is ideal for investors who lack the time or simply don’t desire to manage their investments.
If you are a sophisticated investor and you’re looking to invest a high net worth, Vanguard is the place for you. Vanguard is a large well-known firm that has a wide array of investment options and support.
Benjamin is the Co-Founder and CEO of FinancePond. He worked at a private accounting firm before he created FinancePond. Benjamin is an entrepreneur at heart and firmly believes in strong personal finance and investing education. He has a passion for finance and his goal is to cut out the fluff and make personal finance simple for everyone.
by Benjamin Aronson
