Whether you’re overwhelmed at the prospect of investing or looking for something different to diversify your portfolio, working with a robo-advisor could be a beneficial option.
What Is a Robo-Advisor?
A robo-advisor is an automated online investing platform. Digital platforms like these offer financial planning services based on algorithms. The automated services, therefore, are often more affordable for the average consumer because they require less human interaction. Using a robo-advisor account allows the financial company to charge less and offer much lower investment minimums than a traditional financial advisor.
Robo-advisors offer many services, including investment management and retirement planning. You might also hear financial experts refer to robo-advisors as automated investment advisors or digital advice platforms.
If you’re considering a more passive form of investing, a robo-advisor might be the right vehicle.
Best Robo-Advisors of February 2021
As with any financial investment, you should take the time to find the best match for your financial and personal situation. When considering which robo-advisor to work with, here are a few things to consider:
- Accessibility for beginners
- Range of services
- Minimum balance requirements
- Overall financial performance
We’ve put together a chart highlighting the robo-advisors we feel are the best as of February 2021. Each selection considers the above criteria. Keep reading to learn more.
|Betterment||0.25% annual fee on invested balance, plus 0.03% to 0.05% fees for individual funds||-No minimum investment
-Additional fees for individual funds
|Wealthfront||Annual advisory fee of 0.25% on all assets under management, deducted monthly||-Helps lower tax obligations
-Fees per fund range from 0.06% to 0.13%
|SoFi||No management fees||-$1 minimum investment to get started
-Members can access financial planning tools
|Acorns||Monthly fees of $1, $3 or $5 depending on plan||-Round-up investment option to get started or one-time investment of $5
-Users can auto-invest from bank accounts
|Ally Invest||Low-priced securities are $4.95 base, plus 1 cent per share on entire order||-No account minimum
-Commission-free stocks and ETFs
|Personal Capital||Fees range from 0.49% to 0.89%||-Free financial planning tools
-$100,000 minimum investment
|Vanguard||0.15% advisory fee||-Numerous investment options
-$3,000 minimum deposit
|Blooom||$45 to $250 per year||-Free investment analysis available
-To make trades, customers need at least the Standard package
|WealthSimple||Fees range from 0.25% to 0.50%||-Minimum deposit starting at $0 for Basic plan
-Three plans available based on deposit amounts
Is a Robo Advisor Worth It?
Opting for a robo-advisor has both benefits and drawbacks. Deciding whether to work with a digital system depends a lot on your priorities and comfort level. Whether you’re making your decisions based on a robo-advisor’s returns or accessibility, here are a few pros and cons to consider:
- Convenience and accessibility
- Fees typically much lower than at traditional financial companies
- More power over your investment decisions
- Returns may be more stable since the algorithm automatically adjusts investments to meet your financial goals
- Limited investment options and less flexibility compared to traditional brokerage accounts
- Automatic investment options might lead to less scrutiny of accounts, causing you to miss needed adjustments
- Less hands-on attention than with a regular brokerage
Questions To Ask When Choosing a Robo-Advisor
Before settling on a robo-advisor, it’s a good idea to ask yourself the following questions:
1. How easy is the account setup?
All companies will require you to fill out an application and complete a quick survey about your financial goals. You might also be required to link multiple accounts and provide other personal information. Make sure to set time aside to ensure you can complete the setup process uninterrupted.
2. What are the fees and minimums?
The best robo-advisors for beginners offer low or no fees. If you’re a beginner, consider working with a company that has low deposit requirements. Robo-advisors that offer low initial investments provide a less risky way to tiptoe into the investment industry.
3. What do other clients say about the robo-advisor?
Don’t hesitate to read reviews of different robo-advisors to see how their customers feel. Do a little digging and read both positive and negative reviews to have a more rounded picture of what your experience might be with an individual company.
4. How did the robo-advisor perform over the last year?
Reviewing a robo-advisor’s performance over the last year gives you an idea of what your returns might look like. You not only want to see decent growth, but also growth that either closely parallels or outperforms the broader stock markets. While there’s no guarantee the robo-advisor will replicate that performance in the future, you’ll at least have a baseline.
Investing in stocks and bonds doesn’t have to be intimidating. Emerging technologies make it easier for all investors to participate in the stock market from the comfort of their own homes. Whether you’re working with a small budget or a large one, a robo-advisor could be a helpful tool to diversify your investments.
This article has been updated with additional reporting since its original publication.