Robot advisors are a popular investment tool, and it’s easy to understand why. They offer low-cost portfolio management that meets the needs of many investors, along with some additional features that can be difficult, if not impossible, for human advisors to match. In a short time, robot advisors have amassed hundreds of billions of dollars in assets under management, and industry experts expect their popularity to grow among consumers in the coming years.
What is a Robot Advisor?
The term robot advisor sounds really high-tech, but it’s actually much simpler than you might think. A robot advisor is a financial advisor that uses an algorithm to automatically select investments on your behalf.
Investment options depend on factors such as:
- How much risk you are willing to take
- What level of returns you desire
- When you need the money
Based on these and other factors, a robot advisor typically selects a portfolio of exchange-traded funds (ETFs) using sound investment theory. For instance, the robot advisor creates a diversified portfolio of ETFs instead of investing all your money in a single fund. Extensive research has shown that diversification reduces risk and can increase your returns.
It’s easy to start investing with a robot advisor, and you can set up an account online quickly. Since it is online and automated, robot advisors are much cheaper than traditional personal financial advice. Additionally, you often receive some other great benefits as well. Features like portfolio rebalancing and tax-loss harvesting are typically offered, both of which should enhance your returns over time.
Best Robot Advisors in January 2024:
Here are the best robot advisors for managing your money and what they cost.
Betterment
Betterment sets a high standard for service. It offers automatic rebalancing, tax-loss harvesting, a personalized retirement plan, and a variety of portfolio options (such as socially responsible investing) and fractional shares in funds, so that all your money is invested instead of waiting to accumulate enough to buy a full share. You can also sync external accounts and receive advice on them, while customer support is available all week long. Betterment’s premium plan elevates the level with access to a human advisor.
Bankrate overall rating: 5 out of 5
Management fees: 0.25% – 0.4%, depending on the service level
Account minimum: $0
Schwab Intelligent Portfolios
With Intelligent Portfolios, Charles Schwab is aggressively targeting the robot advisor market. Known for its investor-friendly practices, Schwab brings this same spirit to its robot advisors, with features such as automatic rebalancing and tax-loss harvesting and 24/7 access to customer service in the U.S. Schwab charges no management fees, so it’s worth saving your money to meet the higher account minimum. If you want unlimited access to human advisors, you can get it by depositing $25,000 in the account and paying a monthly fee of $30 – a real deal for what you get.
Bankrate overall rating: 5 out of 5
Management fees: None
Account minimum: $5,000
Wealthfront
One of the largest robot advisors, Wealthfront offers investment based on goals that help you understand how your financial choices today impact your future. Wealthfront also provides tax-loss harvesting, and hundreds of ETFs you can add to your portfolio, allowing you to create a truly customized portfolio. Additionally, the company offers a competitive interest rate on its FDIC-insured cash management account and charges no fees for that. You can also borrow against your account value at particularly attractive interest rates.
Bankrate overall rating: 5 out of 5
Bankrate Overall: 5 out of 5
Management Fees: 0.25%
Minimum Account: $500
Fidelity Go
Long known for its brokerage services, Fidelity Investments offers a highly capable robo-advisor, with basic functions (portfolio management, rebalancing) at a price that helps beginners get started. There are no fees if your assets are below $25,000. Above that, you will pay an incredibly low single rate for all your assets of 0.35%. Fidelity Go is particularly suitable for existing customers, as they will be able to access all their accounts on one dashboard and open a cash management account if they need to. You will also receive helpful and friendly customer support from Fidelity.
Bankrate Overall Rating: 4.5 out of 5
Management Fees: $0 for accounts with less than $25,000; 0.35% above $25,000 in assets (including fund costs)
Minimum Account: $0, but you need $10 to start investing
Interactive Advisors
With Interactive Advisors, you can choose the portfolio you want, from fully automated portfolios to those created and managed by external investors. While fees can vary significantly, you have low-cost and reliable options. There are no management fees, but there is no tax loss harvesting unless you invest in tax-efficient asset allocation portfolios. You will also receive a weekly email for clients and have access to educational resources through Interactive Brokers. Customer support is available Monday to Friday during normal business hours.
Bankrate Overall Rating: 4.5 out of 5
Management Fees: None
Minimum Account: $100
M1 Finance
M1 Finance is part robo-advisor and part brokerage, giving you complete freedom to invest in what you want. You will be able to build a fully customized portfolio and then adjust it to automatic mode and let M1 do the rest. It also comes with a well-secured cash management account. You can start with just $100 for a taxable account, and M1 offers fractional shares, so the full amount will be invested. Unfortunately, M1 does not offer tax loss harvesting.
Bankrate Overall Rating: 4.5 out of 5
Management Fees: None
Minimum Account: $100 for taxable accounts / $500 for retirement accounts
SoFi Automated Investing
SoFi has expanded into the robo-advisor space with a service that greatly benefits investors. Unlike many of its robo-advisor competitors, SoFi does not charge management fees. With an average fund fee of less than 0.10% and a minimum account of $1, this robo-advisor is a no-brainer option for investors looking to reduce costs. The company provides automatic rebalancing and goal-based planning to help you achieve your life goals. Additionally, you’ll get professional services and access to financial advisors and discounts on other SoFi products at no extra cost.
Bankrate Overall Rating: 4.5 out of 5
Management Fees: None
Minimum Investment: $1
Considerations When Choosing a Robo-Advisor
Types of accounts and minimum accounts. You’ll want to ensure that any robo-advisor you’re considering has the type of account you want to open. Most robo-advisors offer individual accounts, but not all of them provide common retirement accounts like traditional and Roth IRAs. Minimum account limits can also vary among advisors, ranging from nothing to tens of thousands of dollars.
Costs are also important to consider. Make sure you understand the annual management fees you will pay, in addition to the fees associated with the exchange-traded funds that will make up your portfolio. Some of the exchange-traded funds presented may have higher fees, which could push your total fees to nearly 1 percent, equivalent to a traditional financial advisor.
Features
Additional features. Pay attention to the extra features that are offered after building your core portfolio. Some robo-advisors offer daily automatic rebalancing of your portfolio, which will ensure that your allocations remain within the recommended range. Tax loss harvesting is another option offered by some platforms to help you save taxes in an individual or joint taxable account.
Customer support. When something goes wrong, it’s nice to be able to find a solution quickly. Look at the hours when you’ll be able to reach someone to ask questions about your account. Some robo-advisors give you the option to speak with a human financial advisor for help with more complex questions.
When is a robo-advisor a good option?
A robo-advisor can be a good option for different types of investors, depending on their needs and willingness to manage their investment account.
A robo-advisor is a good option if you:
- want a professional to manage your money and develop a financial plan
- are looking to start investing and want to begin slowly and safely
- want an alternative to a human advisor at a lower cost
- prefer not to spend much time on investments
- do not understand the markets or want to learn
- want an account where you deposit money and everything is done on your behalf
- want a diversified portfolio that can help you with retirement
All these reasons revolve around the robo-advisor using its expertise to save you time, money, and hassle. Therefore, a robo-advisor can be suitable for new investors who want to learn how investing works or experienced investors who do not want to manage their portfolio anymore.
In fact, it’s easy to start investing with a robo-advisor, and often there’s no minimum amount required to do so.
What are the downsides of using a robo-advisor?
A robo-advisor is a good option for investing for different types of investors, but it may not be suitable for everyone.
Here are some downsides to using a robo-advisor:
- Lack of choice in investments: If you want to choose your investments, a robo-advisor is likely not a good option. Robo-advisors typically select investments and make decisions, allowing you very little say in what they invest in.
- No performance guarantee: Robo-advisors invest in stocks and bonds, and the prices of these assets can fluctuate greatly, especially in the short term. These are riskier investments than banking products, and robo-advisors do not guarantee performance.
- No human to help keep you on track: Many robo-advisors operate under a strict automated model and may charge additional fees to speak with a human financial advisor. Human advisors can be great at helping you stay focused and motivated to stick to your financial goals.
- Best for routine needs: Some robo-advisors are designed to help you achieve one or two goals, like retirement, or routine needs. Those with more complex situations may want to consider another solution, such as consulting with a human financial professional.
You’ll want to carefully assess your needs when considering whether a robo-advisor is the right choice for you. In many cases, they can be an excellent option, but in some situations, they may not be.
Conclusion
The biggest advantage of opening a robo-advisor account is that you can benefit from the expertise of an experienced company in managing your investments at reasonable fees. But once the account is opened, make sure to set up recurring transfers to grow your savings over time and take advantage of dollar-cost averaging.
With their hands-off approach to investing, robo-advisors have made it easy to open an account and start down the path to financial security.
Note:
Brian Becker from Bankrate also contributed to this story.
Editorial note: All investors are advised to conduct their independent research into investment strategies before making an investment decision. Additionally, investors are cautioned that past performance of investment products does not guarantee future price increases.
Source: https://www.aol.com/best-robo-advisors-november-2023-041355740.html
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