July 6, 2018

Best Robo Advisor: Top Comparison List

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The best robo-advisor offers low management fees, low minimum investment requirements, and daily account monitoring. Read this list of top robo advisors before you invest.

Here are the best robo advisors for 2018:

The increase in popularity of robo-advisors has brought numerous players to the field. These automated advisories all offer automated management of your investment portfolio. The similarities end there, though. You'll find robo-advisors that only operate online and those that provide access to human advisors as well. Certain robo-advisors only handle one type of account while others offer taxable and retirement accounts.

If you prefer a hands-off approach to your investments, keep reading to find the top robo-advisors to consider.

What are Robo Advisors?

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Robo advisors provide digital automated investing services. They use an algorithm to select investments for you based on your age, financial goals, and risk tolerance. Your account is automatically monitored by software. Robo advisor can automate complicated tasks like rebalancing and tax strategizing.

Because robo advisors use automated management, they can provide the service at a very low cost (compared to human financial advisors).

Robo advisors are great for beginners who don't feel confident about making their own selections. Most robo-advisors have no minimum (or very low) starting requirements, so they're accessible anyone with internet access.

Robo Advisors vs Financial Advisors: Robo advisors only make decisions based on factors like your age, goals, and risk tolerance. This means their approach is more cookie-cutter. On the other hand, human financial advisors can tailor your investment plan to your specific needs and ever-changing financial situation. However, they are more costly than robo advisors.

How Do Robo Advisors Work

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First, you fill out a questionnaire with your age, income, goals, and risk tolerance. The rodo advisor will use that information to build you a portfolio that aligns with your goals. For example, if you're young, your portfolio may have a heavier stock allocation, as you can afford to take more risks.

Robo advisors mainly use ETFs (Exchanged Traded Funds) to build a diversified portfolio. An ETF is a collection of stocks and bonds, so it's less risky than single stocks. ETFs also cost less to trade, so that means the portfolio is cheaper to maintain.

Some robo advisors are completely automated. The decisions are all made by software. Some also have professional human oversight, where real financial advisors will periodically monitor your account and make changes.

Are Robo Advisors Worth It? Robo advisors great for young, inexperienced, or lower net worth investors. However, if you're a very confident investor, then you may be able to see better returns managing your own investments. Or if you have more complicated wealth management needs, a real human advisor may be able to serve you better.

What to Look for in a Robo-Advisor

  • Low management fees: Many robo-advisors charge annual fees. Some charge a monthly fee, while others charge nothing.

    You'll want to choose the robo-advisor with the lowest management fee while still providing the features you'll use.

  • Low minimum investment requirement: Each robo-advisor sets their own minimum investment requirements. Know how much you have to invest and choose your robo-advisor accordingly.

  • Automatic investment rebalancing: The key to robo-advisors is their ability to monitor your account daily, automatically rebalancing your account when it gets off track from your intended goals. Not all robo-advisors offer this service, but we feel it's the key to success with this service.

Watch out for hidden fees: Just because a robo-advisor has low management fees doesn't mean that's all you will pay.

Make sure you find out what type of investments they trade. Are they mostly commission-free ETFs? If so, you are in good shape. If they trade mutual funds or stocks, though, you'll pay front-end loads, transaction fees, and commissions. These could all take away from your profits.

Best Robo-Advisors

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With the above considerations in mind, here are our favorite robo-advisors.

Best Robo-Advisor for New Investors

    Betterment

    • Minimum Deposit: $0
    • Annual Fee: 0.25% for accounts under $100,000; 0.40% for accounts $100,000+
    Pros:
    • No minimum investment
    • Many customized portfolios
    • Automatically invest extra funds
    Cons:
    • Limited investment options
    • High fees for large investors

    Our Review: (4.1) Betterment is one of the most popular robo-advisors with low fees and no account minimum. But is it safe? Read this review to see if Betterment is worth it... Read full review

Our Pick: Betterment
Betterment does not have a minimum required investment. New investors can get started with Betterment with little money. They typically invest your money in ETFs from one of 12 asset classes, and they offer both taxable and retirement accounts.

Betterment's strategy is very goal-based. After answering their initial questions, Betterment puts together goals for you that cover money for emergencies, retirement, and general investing.

You don't have to accept the goals that Betterment sets for you, though, since you can also customize your own. Either way, Betterment creates a recommended asset allocation to help you achieve your goals.

As a bonus, Betterment offers daily tax loss harvesting, which helps to minimize your tax liability from capital gains, and they also automatically rebalance your account if it gets off course.

Betterment vs Wealthfront : Wealthfront and Betterment are the household names when it comes to robo-advisors. They both have similar features and fees. If you are looking for differences, though, Betterment purchases fractional shares whereas Wealthfront only purchases whole shares. This can cause some cash drag as you wait to have enough cash to purchase whole shares. Wealthfront, on the other hand, offers 529 college savings plans whereas Betterment does not.

Best Robo-Advisors for Small Investments

    SigFig

    • Minimum Deposit: $2,000
    • Annual Fee: Under $10,000 free, over $10,000 0.25%, but first $10,000 is still free

    Are you looking for a portfolio manager that is technologically advanced and has low fees? It might seem impossible, but SigFig offers all of this and more. So what's the catch?... Read full review

Our Pick: SigFig
It doesn't get much better than free. If you are going to invest less than $10,000, you can have it managed for you for no annual fee. This is a great way for new investors to use every penny available to them to increase their profits.

We also like SigFig because they give free access to a human advisor (15 minutes at a time) and they offer automatic rebalancing. If you decide to invest with SigFig, though, you should know that your funds are not invested directly with SigFig. Instead, they serve as the "middleman" for your accounts with TD Ameritrade, Fidelity, or Charles Schwab. If you don't have an existing account at any of these brokers, SigFig will open an account for you at TD Ameritrade.

Keep in mind: Even though they don't charge a fee for assets under $10,000, you do need $2,000 to get started with them.

Best Robo-Advisor for High Net Worth

    Vanguard Personal Advisor

    • Minimum Deposit: $50,000
    • Annual Fee: 0.3%
    Pros:
    • Professionally managed by human advisors
    • Low annual fee
    • Backed by prestigious brand
    Cons:
    • High minimum investment
    • Extra transaction fees
    • No continuous tax loss harvesting

    Our Review: (3.6) Typically, robo-advisors mean strictly online portfolio management with no human interaction. Vanguard Personal Advisor Services set out to be the face of change by combining the two services. Is it all it's cracked up to be?... Read full review

Our Pick: Vanguard Personal Advisor Services
We like Vanguard Personal Advisor Services for investors with a high net worth because they offer a combination of a robo-advisor and personal advisor all in one service. The fact that you can get personal advice on your portfolio for only 0.3% of your managed assets per year is what some investors would consider a steal. If you have a high net worth, this could be a valuable service for you.

Vanguard Personal Advisor Services offers all the same benefits of any other robo-advisor, including automatic rebalancing, 24/7 access to your portfolio online, and help with setting and achieving your financial goals.

Vanguard Personal Advisor Services does not offer daily tax loss harvesting. This can be costly when you are talking about large investments. They are conscious of your tax liabilities and help to allocate your assets appropriately between taxable and non-taxable accounts, but daily tax loss harvesting could be something sorely missed.

Best Robo-Advisor for IRAs

    Charles Schwab Intelligent Portfolio

    • Minimum Deposit: $5,000
    • Annual Fee: None
    Pros:
    • No account fees
    • More diversified asset allocation
    • Cannot adjust assigned portfolio
    Cons:
    • Higher minimum deposit
    • Large cash allocation
    • Tax loss harvesting only to high balance accounts

    Our Review: (4.3) Charles Schwab Intelligent Portfolios offers similar robo-advisor services to its competitors but without the annual fee. How is this possible? Read this review to see if it's too good to be true... Read full review

Our pick: Charles Schwab Intelligent Portfolios
It sounds too good to be true, but Charles Schwab's robo-advisor service is offered free of charge in exchange for a minimum investment of $5,000. This doesn't mean you won't pay any fees, though, as you'll still be responsible for the expense ratios on your investments, which can range from 0.06% to 0.20% of the assets.

Schwab Intelligent Portfolios offers traditional, Roth, and Rollover IRA accounts. They also offer SEP IRAs and SIMPLE IRAs for the self-employed.

A feature we like about Schwab's Intelligent Portfolios is their "Goal Tracker." This feature helps you see your progress toward your large, retirement goals. When you are just starting out with $5,000, your retirement goals can seem unachievable, but with the Goal Tracker, you can see your daily progress, and it tells you if you are on target, at risk, or off target. The tracker then gives you advice on how to correct the issues to get you back on target, if necessary.

Best Robo-Advisor for College Students

    Acorns

    • Minimum Deposit: $0 for basic Digital account; $50,000 for Premium account
    • Annual Fee: Free for college students for 4 years, $1/month for accounts under $5,000, and .25% per year over $5,000
    Pros:
    • No minimum investment
    • Invest with spare change
    • Free for college students
    Cons:
    • Fees are high for small balances
    • No tax benefits
    • Limited investment options

    Our Review: (3.7) Acorns automatically invests your spare change, so you can invest without thinking. It's great for novice investors, but there are downsides. Read on... Read full review

Our Pick: Acorns
College students who are conscientious about the need to start saving for retirement can benefit from the Acorns app. With just your spare change, you can start investing with as little as $5.

You link as many credit cards as you want to Acorns and they keep track of your purchases, rounding them up to the nearest dollar. Once your spare change hits $5, they withdraw the funds from your checking account and invest the "change" for you. You won't get rich quick, but it's a great way to get a head start on saving for retirement.

Best Robo-Advisor for Management of 401(k)s

    Blooom
    Read ReviewVisit Site

    Blooom

    • Minimum Deposit: $0
    • Annual Fee: Analysis are free, $10/month and then $7.50/month for each additional account

    There is no shortage of advice on how to build or improve your 401(k) portfolio. But even if you try to follow all the advice, how do you know how your 401(k) is doing?... Read full review

    Free 401k Check-up

Our Pick: Blooom
Most robo-advisors don't manage 401(k) accounts; instead, they focus on IRAs and taxable investment accounts. Blooom fills that void, though, as they only manage 401(k) accounts. If you are a new investor or an investor without time to manage your 401(k), Blooom offers a valuable service. They do charge $10 a month, though, which can be rather costly depending on how much you have invested.

Best Robo-Advisor for Retirees

    Personal Capital
    Read ReviewVisit Site

    Personal Capital

    • Minimum Deposit: $100,000
    • Annual Fee: 0.89% for first $1 million, 0.79% for first $3 million, next $2 million 0.69%, next $5 million, 0.59%, and 0.49% over $10 million

    Personal Capital offers free tools to track your finances. But is it safe? Read this review for the pros and cons before you sign up... Read full review

    Get Started with Personal Capital

Our Pick: Personal Capital
Personal Capital offers a hybrid of a robo-advisor with the benefit of human advisors for investors with at least $100,000 invested. Retirees often benefit from this service by speaking with their advisor or team of advisors to effectively manage their withdrawals while staying on track with their personal goals.

Personal Capital's services do come at a cost, though. They charge 0.89% of your assets under management per year, which is much steeper than your standard robo-advisor. If you are a retiree, though, you don't need the robo-advisors that focus on retirement goals. Instead, you need a consultant who will help you avoid taking out too much during retirement so you can stay on track.

Why Use a Robo-Advisor

The purpose of a robo-advisor is to help you automate your investments. You eliminate the stress of managing your asset allocation on a daily basis. It also helps eliminate the emotional aspect of investing. This can help you avoid making rash decisions that have poor financial consequences.

Perhaps one of the largest benefits of the robo-advisor, however, is the low fees. The average robo-advisor charges 0.25% of your assets under management per year. In exchange for the fee, you get automatic monitoring and often rebalancing of your account based on your desired goals. The software's algorithms determine the right asset allocation and help you keep your investments on track.

In other words, the hard work is done for you. Once you answer the questions provided by the robo-advisor regarding your net worth, age, and goals, their algorithm figures out the desired asset allocation to help you reach your goals.

Is a Robo-Advisor Right for You?

If thinking about investing scares you, but you can't afford the hefty fees of a personal financial advisor, a robo-advisor could provide the perfect compromise. It takes the stress of managing your investments off your hands and makes them automatic.

Whether a robo-advisor is right for you depends on many factors, including how much you have to invest, how much you are willing to pay, and if you are capable of handling your investments on your own.

Common Questions

  • What are expense ratios?
    In addition to the management fee the robo-advisor charges, you may pay fees for mutual funds, ETFs, and index funds. These costs eat right into your profits, but they are not paid to the robo-advisor. Instead, they are paid directly to the investments.

  • What is the difference between taxable and retirement accounts?
    When you save for retirement, you save your funds with tax advantages. Oftentimes you don't pay the taxes until you withdraw the funds. Taxable accounts, on the other hand, do not have tax benefits. You are not restricted to any contribution limits or distribution guidelines.

  • What are ETFs?
    Most robo-advisors invest in low-cost ETFs. These are investments that track specific indexes based on their industry. They work similar to mutual funds, but ETFs trade like stocks, though, enabling you to purchase as little or as many ETFs shares as you want.

  • What is tax loss harvesting?
    Some robo-advisors use tax loss harvesting techniques to help minimize your tax liability. In other words, they sell investments that have lost value. The loss helps to offset the capital gains you make on profitable investments. In the end, you have a lower tax liability and higher profits.

  • Why would robo-advisors offer human advice too?
    From the name, robo-advisor, you'd think the computer would do all of the work. Some robo-advisors, though, offer a hybrid service, which can mean interaction with a human advisor. Many brokerages reserve this service for high net worth investors, but not all do.

Bottom Line

The right robo-advisor for you depends on many factors, including how much you have to invest, how much you want to spend, and the type of account(s) you want to open.

Robo-advisors might not be the best option for the hands-on investor, but a hybrid investor that offers both automated and human advisor services could bring you the best of both worlds. Make sure you know everything a specific company offers and requires before making your decision.

Disclaimer: Opinions expressed here are those of the author's alone. Please support CreditDonkey on our mission to help you make savvy financial decisions. Our free online service is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content.

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June
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2018

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