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Betterment vs. Robinhood
Consider your investment management style when choosing between these trading platforms.
Both Betterment and Robinhood let you trade securities and are geared toward specific types of investors. Betterment is a robo-advisor that puts your portfolio in the hands of a computer algorithm, while Robinhood doesn’t have the commissions and fees.
Which one we like better?
- Choose Betterment if you want a portfolio curated by an expert.
- Choose Robinhood if you want to pick and choose individual securities.
Betterment and Robinhood get you access to the stock market, with no account minimums so you can start investing with as little as $1. The better platform depends on your investment management style.
Betterment matches you to a recommended portfolio. While it allows you to make changes, it doesn’t have the research tools to screen and analyze securities. Instead, it uses algorithms to manage and allocate your funds for a fee, making it better suited for a hands-off investor not looking to actively trade on the stock market.
If you’re looking to break into the stock market and buy securities yourself, Robinhood might be a better option. Its commission-free trades and basic research tools make it a good place for newbies and cryptocurrency traders. But you won’t find any tax-saving features or get any financial planning advice.
How do Betterment and Robinhood compare?
|Overview||Betterment is an online financial advisor that makes investing easy by creating a portfolio just for you, based on your preferences and financial goals. It’s a solid choice for those new to investing.||Robinhood is an online trading platform that offers self-directed brokerage services. Investors can trade commission-free stocks, ETFs and options with 24-hour access to 17 different cryptocurrencies. It’s well-suited to new investors looking to start buying and selling their own stocks.|
|Minimum deposit to open||$0||$0|
|Tools and research|
|Reputation and customer reviews|
|Apple App Store reviews|
|Google Play Store reviews|
Betterment vs. Robinhood on fees and transparency
When it comes to transparency around how they make money, Betterment has Robinhood beat for two reasons. First, it’s up front about how it makes money. Second, it doesn’t profit from payment for order flow, as Robinhood does.
Robinhood profits from payment for order flow
Robinhood markets itself as a commission-free trading platform, and it is. But it profits from a somewhat controversial practice called payment for order flow — something it largely fails to communicate to its traders.
Payment for order flow (PFOF) is a process where a broker like Robinhood routes its investors’ orders to middlemen called market makers. These market makers may fill the order at a slightly better price than the investor was willing to pay.
The difference between the price the trader was willing to accept and the actual price the trade is executed is called the spread — and this is what the market makers pocket. In return for investor orders, market makers pay brokerages a fee: payment for order flow.
Brokers and market makers don’t make much per order. Robinhood published an article on PFOF that said it earned an average of $0.0023 per equity share traded in the fourth quarter of 2020. Doesn’t seem like much, but it’s certainly enough to keep Robinhood afloat, and it’s not overly forthcoming about it: The information is available on Robinhood’s website, but you’ll have to hunt to find it.
Betterment profits from management fees
Betterment is more transparent in its profitability. It doesn’t benefit from payment for order flow, but that’s because it charges a management fee.
Betterment is up front about this fee too: You can find it clearly outlined right on its homepage. Betterment has also written to the Securities and Exchange Commission to call for clearer disclosures from brokerages on how they make money from investors.
It’s worth noting that while the letter advocates for public investors, it isn’t entirely selfless. Clearer disclosure requirements might help Betterment look more appealing than some of its competitors.
Betterment’s advisory fee is lower than its competitors, and the platform matches you with a recommended portfolio built for your financial goals and timeline. And if you want more personalized advice, you can buy a one-time call to speak with a financial advisor.
Robinhood is better suited for investors who want to trade on the stock market regularly. Its platform is free to use and stocks, ETFs and options trade for free. But what sets Robinhood apart from other brokers is the ability to trade cryptocurrency.
Experienced traders looking for in-depth research tools might want to consider other trading platforms.
Frequently asked questions
What investments does Betterment offer?
Betterment’s portfolios are made up of stocks and bonds.
Can I buy fractional shares on Robinhood?
Yes, you can buy fractional shares of stocks and ETFs with as little as $1.
What is Robinhood Gold?
Robinhood is a subscription-based account that lets you trade on margin, get access to additional research reports and make bigger instant deposits.
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