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Robo advisors are the latest trend in investing and financial planning. They offer automated tools to help investors make smarter decisions about their money, from risk management to portfolio diversification. But with so many on the market today, how do you choose the best one for your individual needs?
In this article, we’ll explore what criteria should be considered when selecting a robo advisor, list some of the top-rated ones available now, and discuss the pros and cons of using them versus other investment options – all while helping you choose the best robo advisor for your situation. So read on if you’re interested in taking control of your financial future!
If you’re just looking for the best robo advisor recommendations, here’s a quick list of our top 3:
A robo advisor is an automated online investment advisor that provides financial advice and investment portfolio management. They use algorithms to manage customer investments based on their financial goals and risk tolerance. Robo advisors are designed to make investing easier and more accessible for people who don’t have the time or expertise to manage their own portfolios.
Robo advisors use computer algorithms to create diversified portfolios of low-cost exchange-traded funds (ETFs) or index funds that match the investor’s goals, such as retirement savings, income, or wealth accumulation. The algorithm will then automatically rebalance the portfolio over time in order to maintain its desired asset allocation.
The advantages of using a robo advisor include lower fees than traditional financial advisors, low or no minimum balance requirements, automatic rebalancing of your portfolio, access to tax-loss harvesting strategies, and access to socially responsible investment options (SRI & ESG). Additionally, many robo advisors offer personalized services such as goal-setting tools and educational resources like webinars and articles about investing topics.
Robo advisors offer a convenient and cost-effective way to manage your investments, but it’s essential to do your research before selecting the best one for you. In the next section, we’ll discuss what factors to consider when choosing a robo advisor.
What to Consider Before Choosing a Robo Advisor
When selecting the best robo advisor for you, there are several key criteria to consider:
Fees are an essential factor in choosing the best robo advisor for your needs. Most robo-advisors offer low fees, making them attractive options for those with limited funds or who want to invest without spending too much money on management fees, which can eat into your long-term investment growth.
Most robo-advisors charge between 0.25% and 0.50% of assets under management annually, while some are cheaper (or even free), and others can charge up to 1.0%.
Not everybody has five digits burning a hole in their pockets to throw into a new investment, and this is where robo advisors shine. Account minimums vary significantly between different services, so check what they require before committing any funds. Some may require large deposits while others may allow a smaller account minimum; understanding this upfront will help ensure that you choose one that meets your budget requirements without sacrificing quality investments or customer service levels.
The account minimum is one of the primary criteria in our list of the best robo advisors for beginners, so be sure to check that out to ensure you’re looking into the right service for your budget.
Investment strategies should also be taken into consideration when selecting a robo advisor. Some offer passive investment strategies that track market indices, while others use more active approaches such as tactical asset allocation and automatic portfolio rebalancing. It is important to understand how each strategy works and whether it aligns with your goals before investing any money.
Traditional robo advisors such as Wealthfront, Betterment, and Vanguard take a hands-off approach, investing in low-cost index funds, allowing you to set it and forget it after you give them your risk tolerance. Others allow you to customize your portfolio yourself, while some offer alternative investment options such as cryptocurrency, real estate, and private options. Most robo advisors now offer impact investing options, allowing you to focus your money on socially responsible investment portfolios and causes through SRI & ESG portfolios.
Tax strategy is an important factor to consider when selecting a robo advisor. Many top robo advisors offer tax-loss harvesting, which can help investors save money on their taxes by strategically selling investments at a loss to offset capital gains.
Tax-loss harvesting works best with taxable investment accounts, as it allows them to reduce their overall tax burden and keep more of their profits.
Some robo advisors, such as Wealthfront and Empower (formerly Personal Capital), offer advanced features beyond tax loss harvesting, allowing accounts with higher balances to really optimize their tax strategy.
Reputation, History, & Trust
As much as we love FinTech startups, we’ve seen too many promising robo advisors come and go, leaving the investors (including ourselves) left in the dust. With any reputable robo advisor, you’ll be protected with SIPC or FDIC, but it’s still a pain to deal with, especially for a taxable investment account.
All of the robo advisors we recommend on this website are reputable, insured, and trusted.
Customer service is another important factor when choosing a robo-advisor since these services often provide automated advice but not personalized guidance from financial professionals like traditional advisors do. Make sure to research customer reviews and ask questions about their support services before signing up for an account to know what help is available.
Hybrid robo advisors offer the best of both worlds, combining the automated precision and technology of a robo advisor with the personalized factor of a human financial advisor.
Before choosing a robo advisor, it’s important to consider your individual financial goals and risk tolerance. With that in mind, let’s look at the best robo advisors on the market today.
Key Takeaway: When selecting a robo advisor, consider management fees, account minimums, investment & tax strategies, reputation, and customer service to ensure you choose the best option for your needs.
Wealthfront is another top-rated robo advisor that offers a comprehensive suite of financial planning and investment tools at an affordable price point. It's also one of the biggest robo advisors in the world, and has been around nearly as long as Betterment.
Wealthfront's annual advisory fee is only 0.25%, including all features, including tax loss harvesting, socially responsible investing options, a college savings plan, a free personal finance dashboard, financial planning tools, and more. It also has one of the best High-Yield Cash Accounts available. Another feature setting Wealthfront apart is its Portfolio Line of Credit product, allowing you to borrow up to 30% of your taxable account balance for a very low APR without affecting your Invest account.
Wealthfront offers additional features as your account grows. For example, once you hit $100,000 in managed funds, it activates Direct Indexing - an advanced form of tax loss harvesting.
As the cherry on top, if you sign up using our link, you get the first $5,000 invested managed for free, forever.
Betterment is the biggest and oldest robo advisor on the market today, and for good reason.
It offers a wide range of services, including standard automated portfolio management, tax loss harvesting, automatic rebalancing, and investment options for crypto and socially responsible portfolios, plus personal finance tools such as a finance dashboard, retirement planning, a checking account, and a high-yield cash account.
It has no account minimum, and its popular "Digital" account fees are $4 per month for accounts under $20,000, then only 0.25% annually once you reach that balance. Its Premium plan includes personalized human financial advisors (making them a hybrid robo advisor) are 0.40% and requires a minimum balance of $100,000.
M1 Finance is an innovative platform that combines investing, borrowing, spending, and saving into one account – so much so that its tagline is "The Finance Super App." This makes M1 Finance a good option for investors who want all their finances in one place, while giving them access to an easy-to-use automated robo advisor with options for customizing their portfolio with crypto, socially responsible investing, and several dozen other unique options.
M1 Finance's platform also offers a High-Yield Checking Account and a Margin Loan option giving borrowers access to 40% of their Invest account's balance. M1 also offers personal loans, a high-cashback credit card, and a High-Yield Savings Account (soon) for M1 Plus members.
M1 Plus is its optional subscription program that gives members additional benefits and better rates for $125 per year. You can read more about this in our comprehensive M1 Finance review.
Vanguard's hybrid robo advisor offering caters to investors looking for more hands-on guidance when managing their portfolios but don't necessarily need full-service financial advising services typically provided by a human advisor at larger firms like Morgan Stanley or UBS Financial Services Incorporated (FSI).
This hybrid solution gives clients unlimited access to experienced human financial advisors via phone or email, in addition to the automated robo advisor service. Vanguard is one of the biggest names in investing, so you can rest assured it's ticked the "Reputation" box a few times over.
The best part? Vanguard's management fee for Personal Advisor is only 0.30% - the lowest price we've seen for a hybrid robo advisor.
What's the catch? It doesn't offer any other automated financial planning tools like cash accounts or loans like some other top robo advisors. The focus is strictly on investing. But with the extra human advisor touch and separating your accounts, that's not such a bad thing.
Don't need the human touch? Read on.
Unlimited Access to Human Advisors
Low 0.30% Fee, Down to 0.05%
Vanguard is Highly-Trusted
Limited to Vanguard Funds
$50,000 Minimum Investment
No Other Financial Products or Tools
Paid non-client promotion. We may earn a small commission from sales generated from these links.
Vanguard Digital Advisor is basically Personal Advisor Services, but without access to the human Vanguard advisors. It has an incredibly low-cost structure relative to competitors at only 0.20%, a $3,000 account minimum, plus a user-friendly interface so easy that even novice investors can quickly get started building well-diversified portfolios tailored towards achieving long-term investment goals efficiently & effectively.
Being in the Vanguard family, Digital Advisor has the same high reputation as its other products, so you know they can be trusted with your investments. Like PAS above, Digital Advisor doesn't come with any fluff; it focuses solely on your investment portfolio.
However, one thing to keep in mind for both of these products is that since it's a Vanguard product, your portfolio will only consist of Vanguard funds. This could be good or bad, depending on your investment philosophy.
Fidelity Go takes a different approach than most other robo advisors. This robo advisor manages your first $25,000 for free, then charges only 0.35% annually, but includes human expertise from licensed financial planners from Fidelity Investments - allowing customers greater control over how much personal attention they receive when managing investments through this platform versus relying solely upon algorithms alone, which some investors may not feel comfortable doing.
This makes Fidelity Go our third hybrid robo advisor on this list, with low management fees and unlimited access to a human advisor.
Fidelity Investments is another one of the biggest names in financial planning, making this top robo advisor a trustworthy and reliable option if you're looking for simple automation of your investment portfolio.
Like Vanguard's robo advisors, Fidelity Go does not offer any cash or borrow accounts and only invests in Fidelity funds.
Empower (formerly Personal Capital) rounds out our list of the top 7 best robo advisors currently available. Empower focuses solely on providing personalized wealth management solutions for high-net-worth individuals or those looking for more sophisticated advice than traditional robo advisors.
It's a hybrid robo advisor by design, and its advanced features, dedicated financial advisor, and wealth planning warrant a significantly higher management fee of 0.89%, dropping in tiers down to 0.49% for very high account balances (in the millions.)
In addition to portfolio management services, Empower provides free budgeting tools and retirement calculators so users can make informed financial decisions without paying expensive advisory fees.
Its free personal finance dashboard is the best available. Even if you don't use their robo-advisor service, it's worth signing up for the dashboard and other financial tools, which are entirely free.
Unlimited Access to Human Financial Advisor
High-Yield Cash Account
Socially Responsible Investing
Excellent Tax Strategy
Comprehensive Financial Planning
Best Free Personal Finance Dashboard
Much Higher Management Fees than Other Robo Advisors
Complicated Signup Process
Overkill for Most Investors
Key Takeaway: Robo advisors are a great way to start investing with minimal investment and fees or to automate your investment portfolio. Any of the best robo advisors listed here will be great options, depending on your specific needs, and they all tick the boxes for our criteria for a top robo advisor. Many offer access to human financial advisors if you need personalized advice or aren’t comfortable handing over all of your investments to a computer algorithm.
Pros and Cons of Using a Robo Advisor
Low Fees: One of the biggest advantages of using a robo advisor is that they charge much lower fees than traditional financial advisors, and this means more money in your pocket and less going to fees.
Automation: With a robo advisor, you don’t have to worry about manually investing or rebalancing your portfolio. It will be done automatically based on your risk tolerance and goals.
Accessibility: Robo advisors are available online, making them accessible from anywhere with an internet connection, 24/7 – something not always possible with a traditional financial advisor who may require face-to-face meetings or phone calls during specific hours of operation.
Diversification: Most robo advisors offer diversified portfolios, which include stocks, bonds, and other asset classes such as low-cost ETFs. This helps spread out risk across different investments and can help maximize returns over time while minimizing losses due to market volatility or downturns in certain sectors or industries.
No Human Interaction: Since most interactions with robo advisors are automated rather than through conversations with actual people, some investors may find this impersonal compared to working directly with someone who understands their individual needs better. Hybrid robo advisors do give you access to human advisors, but most of them still don’t offer a dedicated financial planner (with the exception of Empower.)
Lack of Flexibility: Some investors may also find that the limited customization options offered by many robo advisors make it challenging to tailor their portfolios according to exact specifications. For example, if an investor wants exposure only in certain types of securities, such as small-cap stocks, this might not be possible, depending on the platform used.
Weighing the pros and cons of using a robo advisor is important in deciding if this automated investment tool is right for you. In the next section, we’ll explore how to get started with a robo advisor.
Key Takeaway: Robo advisors offer many advantages such as low fees, automation, accessibility, and diversification. However, they also come with drawbacks like limited human advice and a lack of fine-tuned customization options.
How to Get Started with a Robo Advisor
Getting started with a robo advisor is easier than you think, and all it takes is four steps to get your automated investment journey underway.
Step 1: Research and Compare Robo Advisors
Before investing, take the time to research different robo advisors and compare their features, fees, services, and other important factors. Make sure they meet your individual needs before committing any money.
Step 2: Create an Account
Once you’ve chosen a robo advisor, create an account by providing basic information such as name, address, email address, and phone number. You may also need to provide additional information, such as your Social Security Number or driver’s license, for identity verification. Some providers will require additional documents like bank statements or tax returns to open an account.
Step 3: Fund Your Account
After setting up your robo advisor account, fund it by transferring money from another financial institution or bank account into the new one with the robo advisor. The amount of money needed varies depending on each provider’s minimum deposit requirement, so make sure you read all terms carefully before transferring funds into your new investment accounts.
Step 4: Select Investments
Finally, they will ask you for some basic preferences, such as risk tolerance and investment values (if applicable). Some will need to schedule a call with Certified Financial Planners to ensure you’re set up completely. Here’s where the rubber meets the road, as your investments are distributed according to your needs, and you can watch your assets grow.
Starting with a robo advisor is easy and can be done in just a few steps. In the next section, we’ll answer some of the most common questions about robo advisors to help you make an informed decision.
Frequently Asked Questions
Are Robo Advisors Safe?
Yes, robo advisors are safe investments. All the major robo advisor platforms in the U.S., such as Betterment and Wealthfront, are regulated by the Securities Exchange Commission (SEC) or Financial Industry Regulatory Authority (FINRA). This means they must adhere to strict standards when it comes to protecting customer funds and data security. Additionally, all legit robo advisors offer FDIC-insured accounts, so your money is protected by up to $250,000 if something were to happen with the company itself.
Can I Use a Robo Advisor for Retirement Accounts?
Yes. The best robo advisors offer retirement planning services to help you save for retirement while meeting your long-term financial goals. For example, Betterment offers IRA accounts with tax optimization strategies built into them so you can maximize your savings over time while minimizing taxes owed at withdrawal time. Wealthfront also provides Roth IRAs and traditional IRAs, so you have more options for your retirement accounts with a robo advisor.
What Fees Do Robo Advisors Charge?
Most major robo advisors charge fees based on account size or assets managed rather than per trade, as some advisory or brokerage services do. These annual management fees usually range from 0.25% to 0.50%, depending on which provider you choose and how much money is in your account(s).
What is a good robo-advisor fee?
There is no “good” fee for a robo-advisor; it varies depending on the provider and the services offered. Generally, fees range from 0.25% to 0.50% of assets under management (AUM.) Some robo advisors offer lower minimums or even no management fees for investors with smaller portfolios, which is great for beginners looking to invest. Ultimately, it is important to compare different robo-advisors in order to find one that fits your individual needs and budget best.
How do you evaluate a robo-advisor?
When evaluating a robo-advisor, it is important to consider its fees, investment and tax strategies, customer service, and portfolio management capabilities and features. Additionally, look into the company’s track record and customer satisfaction ratings. It’s also wise to review any regulatory or compliance standards that may be in place for the firm. Finally, ensure you understand how the robo-advisor will use your data before signing up for an account. All these factors should be considered when deciding whether a robo-advisor is right for you. Rest assured that any robo advisor we recommend on this website will meet or exceed these requirements.
Is investing with a robo-advisor worth it?
Yes, investing with a robo-advisor can be worth it. The best robo advisors offer low fees and automated portfolio management, making them an attractive option for investors looking to save time and money. They provide access to diversified portfolios tailored to individual investment objectives, allowing users to stay on top of their investments without constantly monitoring the markets. Additionally, they often come with helpful features such as tax optimization and automatic rebalancing that can help maximize returns over time.
Alternatives to Robo Advisors
Robo advisors are a great way to get started with automated investing, but they’re not the only option. Other automated investment tools available may be better suited for certain investors.
Online Brokerage Accounts
Online brokers provide access to stocks, bonds, mutual funds, and ETFs (Exchange Traded Funds). They also offer trading platforms with various features, such as research tools and real-time quotes. Some online brokers even offer commission-free trades on select investments. This makes them an attractive choice for experienced investors who want more control over their portfolio than a robo advisor can provide.
Of course, you’ll have to rebalance your portfolio manually, and won’t have access to features like tax loss harvesting, dividend reinvesting, or other financial planning tools. We wouldn’t recommend this method to most investors, but it can be suitable for more active traders.
Directly Buying ETFs
Exchange-traded funds (ETFs) are baskets of securities that track different markets or sectors like technology or energy companies. Unlike mutual funds, which require you to purchase shares directly from the fund manager, ETFs trade on stock exchanges just like individual stocks do. This means you can buy and sell them throughout the day at whatever price is being offered in the market at any given time – something you can’t do with mutual funds since they only trade once daily after the market closes. Additionally, many ETFs have lower fees than traditional mutual funds, making them an attractive option for cost-conscious investors looking to diversify their portfolios without breaking the bank.
Many robo advisors invest only in ETFs anyway, so if you’re comfortable rebalancing your own portfolio and missing out on tax loss harvesting, this could be a good option for you.
Target Date Funds
Target date funds are professionally-managed portfolios designed to meet your retirement goals based on when you plan to retire – hence why they’re called “target date” funds. These types of investments typically contain a mix of stocks and bonds that become increasingly conservative as you approach your target retirement age, so that your money is protected from market volatility while still providing growth potential during earlier years in order to reach your financial goals by retirement age.
You could consider TDFs the original robo advisors!
Overall, there are plenty of alternatives out there if robo advisors don’t fit into your investment strategy or budget – it’s all about finding what works best for you.
Key Takeaway: Robo advisors are a great way to get started with automated investing, but there are other options available such as online brokers, ETFs, and target date funds, that may be better suited for certain investors.
Choosing the best robo advisor for your financial and investment situation can be daunting. It’s important to consider all criteria before making a decision, such as fees, account minimums, customer service options, and more. After weighing these factors against your own needs and goals, you should better understand which robo advisor is right for you. With so many excellent options on the market today, it’s easy to find one that meets your needs.
Are you looking for the best way to manage your finances? Are you tired of figuring out how to invest on your own and feeling overwhelmed by all the available options? Let us help!
Our website is designed specifically with you in mind, offering comprehensive information about robo advisors, FinTech tools, and automated investment solutions. Get started by exploring our resources – we guarantee it will be worth your time!