If decision fatigue is keeping you from investing, maybe it’s time to let the robots take over.
Our investment experts say that automated investment software, also known as automated advisors, is a good tool for both beginners and advanced investors. And according to our recent poll, they have a clear favourite.
Automated advisors use information such as your age, when you want to retire, and your risk tolerance to make investment decisions on your behalf. Some even offer access to traditional IRAs, Roth IRAs, rollover IRAs, and SEP IRAs, which are tax-advantaged retirement accounts. The fees they charge are higher than what you would pay if you were investing on your own through a low-cost broker; but they will be lower than what you would pay for human guidance.
Currently, about 8% of US households use robo-advisors to invest, according to research by data and analytics firm Hearts & Wallets.
Here’s why you might want to consider a robotic advisor, what features and fees to look out for, and which service our experts chose as their favorite.
What are Robo-Advisors?
Roboadvisors are investment platforms that use software to determine your investment portfolio. The software asks you for personal investment information and then creates a portfolio based on your responses. Your investments are automated and executed by the robo-advisor software. They usually have relatively low fees, friendly interfaces, and require little work on your part. Automated advisors are generally safe, especially when you have a long-term investment horizon, and have gained popularity due to their convenience.
For most robotic advisors, you can override the initial decisions they make for you. For example, if your questionnaire showed that you are a more conservative investor, you can change your preferences to be more risky.
What to look for in a Robo-Advisor, according to the experts
Co-creator of rich & REGULAR, a husband and wife run online finance community
Julien Saunders and his wife Kiersten use Betterment, the first and now one of the largest robot advisors, because of its flexibility, specifically in their portfolio design. “What we appreciate most is the flexibility you can build on the platform,” says Saunders.
Betterment gives users the option to adopt shortlisted portfolios or modify them if they do not meet their investment requirements or preferences. Betterment also allows investors to create portfolios that help them invest in socially responsible companies, such as those that finance green projects or promote gender diversity. There are also options for investors to invest in low carbon companies.
“We are passionate about both creating wealth and helping create a better, fairer world for our son, so it helps to know that there are socially responsible investment options available that allow us to achieve both goals,” says Saunders.
2. A proven track record
Founder and host of Popcorn Finance, a personal finance podcast
When a friend or family member asks Chris Browning how to save for retirement, his usual recommendation is a robotic advisor, specifically Betterment.
“I lean towards Betterment because they were first on the robo-advisor scene in 2008, they have a proven track record and there is no minimum to open an account,” says Browning. Betterment also doesn’t charge additional fees for multiple accounts, and the fees are usually low.
“They charge a pretty reasonable management fee of 0.25%, which increases to around 0.35% when you add the fees charged by the funds you invest in. This is still much better than the fees paid in many 401(k) plans,” says Browning. .
3. An easy to use app
Connecticut-based money coach, CEO and founder of The Balanced Budget LLC
White chose Betterment as his favorite robot advisor because he finds the platform and app easy to use, easy to navigate, and easy to use. “To me, that makes investing and wealth building feel accessible and possible,” says White.
Betterment also gives users the ability to talk to a certified financial planner when using their premium account.
Since there are so many options for robo-advisors, here are a few more that are also favorites. As long as you manage your fees, there are plenty of automated advisors that can meet your needs. The trick is to start.
Financial Pop Star, Founder of Mrs Dow Jones & Finance Is Cool
When Haley Sacks isn’t creating viral Instagram videos, she’s looking at her finances. Her favorite robo-advisor is Wealthfront for its easy-to-use platform and financial planning tools that help users think about how they want to use that investment. “They just got it,” says Sacks. “My only complaint is that they don’t have humans connected to the product. I would love to have access to a financial planner!”
Compared to Betterment, Wealthfront has a broader collection of investments, including cryptocurrencies. Wealthfront also has low fees, offering Traditional IRAs, Roth IRAs, SEP IRAs, and Rollover IRAs. One drawback is that investment accounts require a minimum of $500 to start.
While most people know SoFi for its lending services, the company has recently turned to providing investment services, including a robo-advisor platform. There is no account minimum to sign up and there are no management fees for automated investment accounts. You can choose between a retirement account or a taxable account, and keep an eye out for promotions.
Ally was one of the first online-only banks and recently started offering investment services. You will need at least $100 to start investing with the robo-advisor. Like other Ally offerings, you can take advantage of 24/7 customer support, even on your investments. While her profile is shaped by her risk tolerance and goals, Ally says a team of human specialists are behind her diversified portfolios.
How much do Robo-Advisors cost?
Costs vary by robo-advisor, and some have minimum account requirements to get started. For example, Wealthfront requires $500 as a minimum investment, but Betterment, SoFi, and Ally Invest have no minimum investment.
The fees you pay matter, too. Most robotic advisors charge a percentage of your total investments as a management fee, typically around 0.25%. If you have $10,000, that charge is about $25. If you have $100,000 invested, that’s $250. Over time, due to compound interest, even small differences in rates can add up to large amounts.