Thanks monarda for the awesome followup!
I'm a new investor (just graduated college, finished paying off debt, annnd I'm contributing enough to my 401k to get the match). After (painfully) reading through all of the negativity in this thread, I wanted to add my two cents. I have $8,000 in savings. That's it. No investments, no piles of gold in my basement that I can swim in. I figured I'd add my perspective since there didn't seem to be many people with very little money commenting.
When I can only put away a couple hundred dollars a month, saving up $1,000 and putting it all in an account (12.5%) is a pretty big hit. Not to mention the $3,000 or $10,000 minimums for other funds at Vanguard. Yes, I know that after that you can add in increments $100+. Betterment lets me put in as little as $100 a month to invest, without the large upfront deposit.
Betterment is not going to be an investment account for me. I'm planning on using this as a "hopefully higher than 1% APY savings account", in the long run. Which it better be @ 35/65 stocks/bonds, haha. There are no fees with Betterment and withdrawing (also free) only takes 4-5 business days.
One poster was complaining that their $2,800,000 would have outrageous fees with Betterment. It must be nice to have that much money, and I think it's important to recognize that not everyone has that luxury. I TOTALLY agree with them that, if I were in their situation, I would DEFINITELY put all (or most) of my money in Vanguard using a three fund portfolio, coffee house portfolio, whatever. It's a no brainer. (I'm ignoring Tax Loss Harvesting. I don't qualify and don't know what it is... and probably won't have to figure it out until after I max out my HSA, IRA, and 401k contributions.)
For me, starting out, Vanguard is pretty hard to navigate. I bit the bullet a few days ago and dropped $1,000 to open a Vanguard IRA. It might not sound like a lot to you older folks. For me, it's a lot to invest. (12.5% of my total savings) In order to invest in larger stocks/more popular stocks (VTSAX, VFIAX, VBTLX) I'd need $10k a piece... and that's before balancing. I'm sure there are others in my situation reading this, this was one of the top searches in Google for "Betterment vs Vanguard".
The only way Betterment makes sense, at least to me, is to use it as a type of savings account/emergency fund with returns that will hopefully keep up with inflation. Comparing Betterment to getting left in the dust like you would in many (all?) other savings/checking/money market accounts, makes it look a little more appealing... in the long run. There's a chance it will underperform in the short run (as you all know). As I've mentioned, I also believe that the liquidity is greater than it would be at Vanguard. I click a button and get however much money I designate within the next week. I don't have to worry about minimums.
I fully plan on having my IRAs (and maybe investment accounts, if I'm lucky) at Vanguard once I start getting settled in the "real world". I've looked at a TON of other funds with my friend's Scottrade account, and, well, I guess the Bogleheads have gotten to me. While I'm still building up emergency savings and rainy day funds, I think Betterment trumps Vanguard. I might be missing something, I'm new at this.
If anyone disagrees or has a comment, please let me know.
Since it seems like some people here might think this since I'm new, I'll clear it up: I am in no way affiliated with Betterment or Vanguard.