Best Overall Robo-Advisors to Suit Any Lifestyle
Today’s investors have more options than ever when it comes to financial advice — advisors, brokers, blogs, and apps — just to mention but a few. And with technology streamlining and redefining the way we live, even the manner we invest our hard-earned money is seeing an upgrade. Robo-advisors are bringing in the never imagined idea of automation to our finances by helping us build and manage an investment portfolio with great ease.
Whether you want to start your investing journey and have no clue about where to begin, or need help rebalancing a broad portfolio, robo advisors may be the technology you’ve been missing all along. But what is a robo advisor, and is it the right choice for your financial situation?
Robo-advisors should offer ease-of-use and help with goal planning. We take a look at the most popular robo-advisors—comparing the features most important to meeting your financial goals.
What Is A Robo-Advisor?
Simply put, a robo-advisor is a digital platform that allows for money to be invested on auto-pilot. To get into the nitty gritties, a robo-advisor is a service that utilizes highly specialized software — and often some real people too — to decide the types of investments you should be making and then tinker into these investments as time goes by.
Even the oldest investment management firms use algorithms to help them advise clients and balance their portfolios — robo-advising makes that kind of automation available to the customer directly. Some robo-advisors don’t offer any human financial advisors entirely, though most do.
Robo-advisors often require you to answer a few questions to assess your appetite for risk, after which they recommend a specific portfolio to suit your preferences and goals. Using proprietary algorithms, your money is spread into appropriate investments, and later make tweaks as your ball game and the market change. Robo-advisors usually demystify the seemingly tedious investment management process by designing an investment portfolio that spreads out across the broader market. This provides diversification — a fancy way of saying all your investment eggs are not all in one basket.
Robo-advisors largely focus on passive investing, which aims at building wealth gradually over time. Robos mirror the market instead of actively trying to beat it. And although studies have indicated that passive investing has offered significantly better returns in the long run compared to actively managed portfolios, it’s important to remember that past performance doesn’t guarantee future results.
However, as their name tells you, robo-advisors are just that—advisors. They advise you based on the basic parameters you set for them:
- The level of returns you hope to attain.
- The amount of time you need for those returns to materialize.
- The risk involved in realizing your investment returns.
Depending on which robo-advisor you select to manage your investments, you will have these and other, more advanced, parameters to choose from. When you are done building up the framework for their advice, robo-advisors will comprise a portfolio of ETFs (exchange-traded funds).
Usually, such a portfolio will be based on the best trading practices by professional traders. This entails a diversified portfolio across many ETFs to minimize the risks. Due to stiff competition, you will find that most robo-advisors are easy to use and free to set up. However, some will excel in certain areas more than others. Here is a quick overview of robo-advisors that will not disappoint you.
Some robo-advisors even take investment management a notch higher to offer features like automatic rebalancing and tax optimization, as well as tax loss harvesting. Rebalancing helps in keeping your portfolio’s asset allocation in line with your investment goals. Tax loss harvesting is usually a way to minimize the amount of tax paid on capital gains in your portfolio.
Benefits of Using Robo-Advisors
There are numerous benefits of using a robo-advisor. The most obvious one is that robo advisors take the agony out of all the stress, research, vigilance, and emotions that come with picking stocks and maintaining an investment portfolio on your own. Below are other benefits you’ll enjoy when using this type of digital investing platform.
- Low fees. Most robo-advisors invest in a series of low-cost exchange-traded funds, which have a lower price tag compared to the actively managed funds that require some form of human interaction. On average, robo-advisors won’t charge you anything in excess of 1% of your total assets under management, which is twice as less than what you’d incur when using human financial planners. Another fee-saving aspect is that robo-advisors don’t charge a commission on trades. The only fee you need to account for is the expense ratio — a small fee for maintaining the ETFs in your portfolio.
- Assistance picking investment portfolios. If you’re a rookie investor, you might easily be overwhelmed by the sheer number of investment options at your disposal. Robo-advisors excel in providing award-winning investment models — just fill a short intake form and your robo advising service will handpick investment profiles based on your investing goals and risk tolerance. You don’t have to spend hours digging into investment opportunities to leverage.
- Low account minimums. Robo advising services require low account minimums, unlike actively managed portfolios that typically need a huge initial investment to get started. Some robo-advisors don’t even place any minimum account requirements on their clients.
- Automatic rebalancing. Portfolio rebalancing means moving your cash between investments so that you can maintain the right asset allocation. With time, you must tinker with how much money is where so that your investment remains on course. Most robo-advisors will rebalance your portfolio automatically while you nap.
How to Choose a Robo-Advisor
The best way to approach this question is by gauging your needs. For instance, if you want to invest in individual stocks instead of index ETFs, Personal Capital would serve you best. What is the default feature for Personal Capital would be a premium feature for other robo-advisors.
Likewise, assess if you want the option of a human financial advisor to get the best from both worlds. Then, SigFig would be a good choice. The same goes if your robo-advisor must have tax-loss harvesting, or an option to manage a trust account. Once you hone these factors down, the rest is up to comparing their fees.
Although the robo-advisors market features a handful of players, finding the right one for your needs shouldn’t be difficult. As long as you keep some attributes in mind and don’t lose sight of your financial goals, risk tolerance, and needs, you’ll surely find an advisor that fits your requirements. Here are some factors that will help you narrow down your options.
The Average Management Expense Ratio (MER) is a fee often ignored by those who enlist the services of robo-advisors — and it’s often not advertised. This fee is usually charged by the ETFs in which a robo-advisor invests as proceeds for the fund administrators and not the robo-advisor. Besides, the management expense ratio fee is deducted directly from the ETF, so you won’t see it deducted from the account you hold with a robo-advisor.
The management expense ratios of the major portfolios offered by top robo-advisors in the United States usually range from 0.2% to 0.35%, although more specialized ETFs may charge a higher MER. Since the management expense ratio varies among different portfolios, the easiest way to determine the total fees you’ll incur with a robo-advisor is to inquire from them which portfolio MER is allocated to you. And if you’re good with numbers, just write down your portfolio’s makeup, research the MERs of the individual ETFs, and calculate the weighted average of those fees.
For instance, if you choose to work with Wealthfront robo-advisors, your investment account will be charged an annual advisory fee of 0.25% on all assets under management. The other fee you’ll incur is the expense ratio tied to the mutual funds and ETFs you’ll own. Wealthfront charges an expense ratio of 0.25% for its Wealthfront Risk Parity Mutual Fund, which may make up about 20% of your investment portfolio.
On average you can expect to pay less than 1% of your assets under management in total fees, which is significantly less than the 1-2% charged by most investment advisors.
Robo-advisors mainly invest in low-cost ETFs or mutual funds, which are investment vehicles that let you buy a large basket of individual stocks or bonds in a single purchase.Some of the most popular ETF types are those that closely track popular stock indices such as the S&P 500 or the U.S. bond market.
Stocks are also another popular asset that robo-advisors invest in, and ETFs can bundle stocks from both established local and international markets, or emerging markets. Robo-advisors may also invest in bond ETFs, which bundle various government bonds as well as corporate bonds and municipal bonds.
Remember, robo-advisors don’t strictly limit themselves to stocks and bonds. They may also invest in mutual funds and ETFs that include foreign currencies and other more traditional assets like real estate and gold. And if you’re interested in a higher risk venture, you may dip your feet into mutual funds and ETF in newer fields like the marijuana industry and cryptocurrencies.
Another important aspect to consider when choosing a robo-advisor is the level of user friendliness. Simplicity is often a bi draw of most robo-advisors, all you must do to get started is answer a few questions about your income, financial goals, and risk tolerance, all of which can be done from the comfort of your home.
And thanks to the algorithms inherent in most robo-advisors’ mechanisms, you don’t have to pick out individual stocks yourself or learn how to build a diversified portfolio — everything is done for you. Besides, you don’t need to monitor the market and figure out where to put your money.
Accessibility is also crucial when working with a robo-advisor, so be sure to look for 24/7 accessibility. Some robo-advisors will also give the added benefit of accessing a financial advisor — someone who can help you set your investing goals and offer helpful advice about retirement or investing. Remember, robo-advisors may charge an extra fee for access to human advisors.
The Best Robo-Advisors
First Choice: Betterment
One of the best all-around robo-advisors on the market, Betterment offers a lot: retirement plan, automatic rebalancing, and tax-loss harvesting. On top of that, you can personalize your retirement plan and purchase so-called fractional shares in funds. This option allows you to avoid waiting for you to have enough funds to buy a full share.
Betterment lets rookie and seasoned investors manage their financial lives and tap into a diversified portfolio of stocks and bonds on-the-go, all thanks to a redesigned mobile app available on App Store and Google Play.
- $0 account minimum
- 0.25% management fee and $0 trade fee
This robo-advisor boasts two transparent pricing plans. You can choose the Betterment Digital plan that doesn’t carry any account minimum requirements but charges an annual fee of 0.25% of the assets under management. You can also enroll into the Betterment Premium plan that incorporates all the benefits of the Digital plan plus unlimited access to its certified financial planning professionals at a 0.40% annual fee. The Premium plan requires a $100,000 account minimum.
For each financial goal you set, Betterment conveniently proposes a personalized portfolio strategy made up of low-cost ETFs that will maximize your returns while mitigating risks. Betterment also offers another great perk — your 1-year management fee can be waived if you deposit at least $250,000 into any investment account.
Runner Up: Personal Capital
Personal Capital is a hybrid robo that combines robust technology, experienced fiduciary advisors, and a suite of financial tools to deliver truly personalized solutions. For a completely personalized approach, Personal Capital offers Personal Strategy® — diversified multi-asset class portfolio made up of individual stocks and ETFs. This personalized solution means that you’ll get a strategy that’s tied to your financial goals, not forgetting the enhanced diversification, which may result in better financial outcome.
To get started with Personal Capital, link your bank account to the platform’s dashboard and start enjoying a full range of capabilities like its retirement planner, cash flow analyzer, budgeting, and a personal advisor.
Personal Capital has a minimum deposit requirement of $100,000, which makes it a service for higher-value investors. You can expect to pay anywhere between 0.46% to 0.89% of your total asset balance, with investors with over $10 million in assets under management enjoying lower fees.
A huge draw of Personal Capital is its human financial planning services. No matter your account balance, you’ll get individual investing advice from a team of financial advisors, who may routinely help you with financial planning and 401(K) allocations for free.
Notable: Vanguard Digital Advisor®
Vanguard Digital Advisor® is an automated investing service tailored to your personal goals, and which makes it easy for you to stay on track to your retirement goal. With only $3,000 in your Vanguard Brokerage Account to enroll, you’ll have access to Vanguard’s proven investment methodology as well as a strong track record of high performing funds.
While you won’t incur any trading commissions or fees, you can expect to pay only 0.15% of your Digital Advisor balance annually, which is around $4.50 per year for a $3,000 portfolio. Digital Advisor can manage eligible 401(k) retirement accounts as well as the following types of retail Vanguard Brokerage Accounts:
- Traditional IRAs
- Roth IRAs
- Rollover IRAs
- Individual taxable accounts
Digital Advisor gives you access to high-quality investments made up of Vanguard ETFs plus robust, easy-to-use financial planning tools. It also connects to other non-Vanguard accounts to bring you a holistic picture of your financial life and more accurate projections.
Best for young beginners. SoFi stands for Social Finance. Founded in 2011 by Stanford Business School students, SoFi has already amassed over one million users. Mainly oriented toward younger people, the platform offers career counseling, loans, and bonuses for other SoFi services. Great for beginners who like a hands-off approach.
- $0 account minimum
- $0 management and trade fees
Notable: Fidelity Go
Easiest to use with a flexible pricing structure. By answering a simple questionnaire, Fidelity Go will create your profile to start investing immediately. Under a $10,000 balance, it is free-to-use. After Fidelity Go sets up your portfolio, you can tweak it further or run with it. When compared with others, it’s definitely the easiest to use—and it also boasts 24/7 customer support.
- $0 account minimum
- 0.35% management fee and $0 trade fee
A little more advanced. Thanks to its outstanding planning tool, which you can use outside the app (Path), you can use this Wealthfront to plan your future in great detail. Wealthfront is more advanced than usual robo-advisors, with its feature to get a credit against the value of your portfolio. However, it would have to have at least $25,000 worth of assets.
- $500 account minimum
- 0.25% management fee and 0% trade fee
Frequently Asked Questions
Which is the best robo-advisor in the US for beginners?
Beginners looking for a robo-advisor can tap into SoFi, which promises to offer automated hands-off investing with zero management fees. Even better, you can get started with as little as a $1 minimum investment. Investing through SoFi also gives you access to other member benefits as well as discounts on other SoFi products.
Are robo-advisors safe?
Robo-advisors are computer algorithms that generate financial advice for individuals. Their lower fees and lower minimum balance requirements make financial and retirement planning more affordable. Robo-advisors can also steer inexperienced investors from poor investment decisions with services like portfolio rebalancing, stock picking, and tax-loss harvesting.
Even so, the robo-advisory industry still remains relatively new compared to the traditional financial advice market, it’s yet to be seen whether it will benefit consumers more in the long run. For example, individuals with sophisticated investment needs may still find human financial advisors helpful. Ultimately, how safe a robo-advisor is will depend on your investment needs and overall financial goals.
How much money can you make with robo-advisors?
The same amount of money you would make with optimized and diversified ETF portfolios.
Do robo-advisors beat the market?
Generally speaking, no. This is owed to the fact that robo-advisors are aligned with index fund investing strategies. However, the same is true for most human financial advisors.
How do robo-advisors make money?
Through management fees that go higher. Under $10,000, the annual fee sits at around 0.25%. In addition to this, they generate money through trading fees, advisory services, non-investment services, and transaction services such as withdrawals or expedited deposits.