IskraIndex vs. Betterment & Wealthfront - A Comparison of Core Portfolio Quality

Betterment and Wealthfront are American companies, pioneers in the field of automated index investing based on portfolio optimization using index ETFs. Having started operations in 2008, they now serve over 1 million and 1.3 million clients respectively, with client assets under management of $65 billion and $90 billion. The cost of their index investing services is 0.25% for portfolios up to $1 million, with the companies specifically emphasizing that their low price is due to the client hiring a robo-advisor. But what does the client actually get for even these nominal fees?

Finding the section with historical results for the core portfolios of both companies is not easy: it's hidden in second-level menu systems (Betterment) or in the website footer (Wealthfront). Betterment provides a fairly detailed graph of its core portfolio's performance, updated weekly based on risk level. Wealthfront publishes a performance graph without scales (for returns or time), showing only the initial and final values, as well as some period-averaged results for different risk levels. We will attempt to apply scale grids to the performance graph of Wealthfront's medium-risk portfolio (5 out of 10) to estimate the maximum drawdown of both companies' portfolios and their growth compared to the balanced Deposit+ portfolio from IskraIndex.

However, before presenting the corresponding results, it is necessary to clarify the difference in the investment approaches of Betterment/Wealthfront and IskraIndex.

1. Operational Model

Betterment and Wealthfront are classic investment advisors with a brokerage license, and their automated index investing system operates not on the client's side, but on the company's side. This means the client essentially hands over their money to external services. IskraIndex is not an investment advisor: the company manages its own model portfolios, publishes their results, and offers access to them via a special subscription. Although IskraIndex portfolios are formed based on a mathematical algorithm, they are verified by the company's specialists. Working with IskraIndex implies that the client does not transfer their money to third parties or external services, but independently forms portfolios based on its model portfolios.

2. Asset Classes

Both Betterment and Wealthfront use US and global stock and bond markets but practically ignore segments such as real estate (with the exception of Wealthfront), commodities, and cryptocurrency. IskraIndex works with all available ETFs in each asset class. Considering the daily trading volume in each ETF used by IskraIndex, the potential capacity of the Deposit+ portfolios, from the standpoint of being able to fully rebalance within one day, could reach up to $300 million.

3. Rebalancing

Due to the massive volume of client assets, neither Betterment nor Wealthfront can perform frequent or large-scale portfolio rebalancing. They adhere to a single allocation within each risk level (Betterment has 11 levels, Wealthfront has 20), which only changes when their optimization methodology is updated (which happens very rarely). Rebalancing for Betterment and Wealthfront involves adjusting portfolios to target allocations when the weights of the included ETFs deviate, implementing tax-loss harvesting and switching to alternative ETFs, as well as reinvesting coupons, dividends, and bond redemptions.

IskraIndex has only 2 portfolios in its Deposit+ lineup (conservative and balanced) and recalculates their optimal structure every month. This rebalancing can affect up to 100% of a portfolio. Although this approach increases portfolio turnover, the key factor for the service's performance and quality is precisely maintaining its alignment with the current optimal structure.

4. Tax Effect

Both Betterment and Wealthfront emphasize that they pay special attention to tax optimization when constructing portfolios for their US clients. They employ two primary strategies: incorporating municipal bonds (the interest from which is tax-exempt for US taxpayers) and utilizing tax-loss harvesting to offset capital gains by selling depreciated assets while simultaneously purchasing similar ETFs.

In contrast, IskraIndex does not factor tax effects into its portfolio optimization and does not use municipal bonds, as it targets a broad global audience of investors who typically do not benefit from the tax advantages of this asset class. However, IskraIndex employs alternative techniques related to loss harvesting. First, during its regular monthly portfolio rebalancing to achieve a new optimal structure, loss-making ETFs may be sold, thereby reducing realized tax liability. Second, when its internal risk management system triggers a shift to a defensive allocation, IskraIndex either reduces the portfolio's overall taxable profit for the period or realizes a loss, which can subsequently be used to offset previously paid taxes.

For the comparative analysis, we selected the Betterment and Wealthfront portfolios designed for taxable accounts - precisely the accounts where these firms claim their tax-minimization techniques enhance returns.

Now, let's compare the quality of the services' portfolios over the 6-year and 4-month period ending November 28, 2025 (taxable accounts; returns before taxes and fees).

The Betterment portfolio grew by 53%, which was only marginally better than the combined benchmark of two global stock and bond ETFs in a 50/50 ratio (URTH/BNDW), which grew by 50%. At the same time, the maximum drawdown of the Betterment portfolio was 22.2%, which was worse than that of the 50/50 URTH/BNDW portfolio (18.4%). Thus, the quality of Betterment's portfolio is on par with a passive global portfolio of medium risk.

The situation for Wealthfront turned out somewhat better - the growth of its baseline medium-risk portfolio was approximately 73%*. However, this was achieved with a maximum drawdown of 29% in 2020 (for a medium-risk portfolio?) and 18% in 2022, suggesting a potentially much more aggressive composition of this portfolio, inconsistent with its stated "5 out of 10" risk level.

The balanced Deposit+ portfolio from IskraIndex grew by 130% over a comparable period, with a maximum drawdown of 13.9%. The subscription cost for this service is comparable to the fees charged by Betterment and Wealthfront for portfolios worth $400,000, and will be lower for larger portfolios.

Thus, IskraIndex offers portfolios that significantly outperform those of Betterment and Wealthfront in terms of average annual return and maximum drawdown size. Considering the low subscription cost for IskraIndex, and the investor is not required to transfer money to external advisors, brokers, or managers, that solution represents a new standard of quality in the investment market.

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* The estimate is approximate, as it was obtained based on graphical information.

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