Companies crowding into the burgeoning social-investing space are beginning to differentiate themselves, thus defining their different roles. After reviewing many of the major companies that offer services that seem to fit in the space, the range continues to widen with each company claiming its niche. It promises to be a long battle — with many entrants.

The competition between these investing tools has yielded two primary focal points: providing education/advice and investing your money. Most companies struggle to provide a healthy balance of some of each. But in this relatively new arena, it remains to be seen which company the public will ultimately trust with its private investments, and whether there is enough room for all the companies involved.

Betterment, a personal investment account that does the work for you, is poised for growth on either side of the coin, with a great tool for beginners to understand the amount of risk they want to take as well as what this risk entails. In its current state, Betterment allows you to actually deposit and invest money, transferred seamlessly straight from your bank account, and expect predicted returns to be up to 95 percent accurate.

However while they have a well-designed site, a useful iPhone app and relatively low fees for their service, in its current form it will not teach you a whole lot about how to actually invest your money on your own and the types of stocks to pursue. That role is more aptly filled by companies that provide opportunities for more hands-on learning as you invest. This includes Covestor (trading stocks) and Currensee (trading forex), and even Roboinvest (trading anything through E*Trade), which lead the competition in the mirroring function invented and made popular (by them) only recently. Consumers can use the money in their brokerage account to match the actual real-money trades of professional investors. In this way you learn about an investing professional’s strategy through the investments he really makes by copying them with your own money.

Charts and traders

While Currensee and Covestor provide detailed charts, bios and approaches so you can adequately choose a leader to follow, Roboinvest simplifies the process, allowing you to follow top traders and copy (or not) their trades with a one-click copy feature. Roboinvest will not perform trades for you like the other two; rather it allows you to follow investors and copy their trades according to your discretion — a bit more advanced in some ways because you decide which trades to copy. Currensee and Covestor have complex algorithms to detect discrepancies like pip slippage and drift, while Roboinvest posts trades in under one second so you can mirror the trades instantly. Two different approaches to reach a similar endpoint.

On the other end of the spectrum is SigFig, a free, purely educational and read-only tool with no ties to your actual money. Plug in your brokerages, financial advisers or whatever it is you use to invest and SigFig will find hidden fees and other ways to save; for example, a different brokerage. It does not store your data and provides you with the safest unbiased advice on your investments.

Some of these companies seem to compete with one another directly, while others are trying their best to carve out a special place for themselves. Either way, the explosion of these and other companies almost too numerous to mention will decide the future of the entire industry.

(Disclosure: Several weeks after the publication of this article, the parent company of MyBankTracker took a minority stake in Roboinvest.)

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  • Johanna Scott

    Hi Zachery. Thanks for including Betterment in the story. I agree wholeheartedly that education and better execution are two important areas of growth for the financial industry. I’m surprised to learn however, that you think active trading is the best way for people to learn about investing.
    In most cases, individual investors are better off with a passive investment of a diversified portfolio of stocks and bonds rather than individual stock picking. The average investor is best served by adopting this simple strategy:
    1. Match investments with goals – in general the longer the time frame the more risk you can afford to take
    2. Select an asset allocation that matches this time frame and your risk tolerance.
    3. Diversify your investments across a wide range of companies and sectors.
    4. Rebalance regularly so your asset allocation doesn’t stray too far from its original setting, 5. Keep costs low – it makes a big difference in the long term.
    6. Tune out the useless “noise” or stock hype. Just let your investment do the work for you.
    Betterment automates this entire process. Then we add a secret ingredient: Behavioral guardrails that guide our users to better decisions. Study after study has shown that investors underperform the market when they do it on their own. Sure – you could spend all your spare time trying brushing up on the latest stocks and looking at graphs and statistics, but the reality is that most people don’t match the market when they invest on their own – plus most people already have full time jobs. If a product does it all for – and better than you can do it on your own, why waste your precious time?
    Investors don’t need to research the market or the hottest stock – they need to grow their wealth over the long term in a way that’s convenient and automated. That’s Betterment.