Investing has become much easier over the years thanks to the popularity of robo-advisors. Rather than working with a human financial advisor, a robo-investing uses algorithms to make a wealth management plan for each investor.
There are many advantages to using these services. Robo-advisors are typically less expensive than hiring a financial advisor. They allow you to start investing in the stock market even if you don’t have much money to start with.
So if you’re looking for an easy, inexpensive way to get started with investing, robo-advisors could be a great option for you. Let’s look at the top robo-advisors, and you can see which matches your investment strategy.
11 Best Robo-Advisors
Here is an overview of our top picks for the best robo-advisors, as well as a brief explanation about what we like about each one:
Personal Capital is a suitable option for more advanced investors due to its high minimum balance. But anyone can access the company’s financial planning tools for free, and investors gain access to a team of human financial advisors.
Personal Capital mostly recommends individual stocks to minimize expenses and taxes and also offers tax-loss harvesting.
Wealthfront is one of the best overall options for investors. The company will create a personalized portfolio based on your level of risk tolerance, and it offers 11 different asset classes.
Wealthfront offers a high-interest cash account that has many of the same features typically associated with high-yield savings accounts. They also offer tax-loss harvesting for all investment accounts, regardless of size.
Betterment is a robo-advisor that focuses on goal-based investing that is tailored to your personal milestones. Betterment offers investment advice based on your goals, age, and savings timeline.
Ally Invest is a practical option for new investors that want a low account minimum and no trading commissions. The company has a robust online platform and various research-based tools for you to use.
Vanguard is one of the largest investment management companies in the country. Its robo-advisor service isn’t completely automated, so you’ll still have access to Vanguard personal advisor services, but at a much lower cost.
M1, or M1 Finance, is a free investing tool that allows fractional share investing. There are no hidden fees, so you can invest your money commission-free. There is also an option to borrow against your portfolio in the future.
Ellevest is one of the best investment options for socially responsible investing. With this robo-advisor, you can invest in companies that align with your values while still paying low management fees.
Facet Wealth is designed for people who want some personalized involvement, but can’t afford to pay for a traditional financial advisor. They offer comprehensive financial planning with no upfront setup fees.
SoFi Automated Investing doesn’t charge a management fee, and there is a low minimum balance requirement to get started. They offer automatic rebalancing, access to certified financial planners, and robust customer service.
A Side-By-Side Comparison of the Best Robo-Advisors
Listed below is a side-by-side overview of what each robo-advisor has to offer.
|Ally Invest||0.0%||No promotions offered||$100|
|Personal Capital||0.49%-0.89%||No promotions offered||$100,000|
|Wealthfront||0.25%||$5,000 in assets managed for free||$500|
|Betterment||0.25%||A year of free management||$0|
|FutureAdvisor||0.50%||Three months of free management||$10,000|
|Vanguard||0.30%||No promotions offered||$50,000|
|Bloom||$10 per month||$10 off first year||$0|
|M1 Finance||0.0%||No promotions offered||$0|
|Ellevest||0.25%||Possible $750 cash bonus||$0|
|Facet Wealth||$480 per year or more||No promotions offered||$0|
|SoFi Automated Investing||0.0%||Free career counseling and loan discounts||$100|
|Wealthsimple||0.40%-0.50%||$10,000 in assets managed for free||$0|
How do robo-advisors work?
A robo-advisor is a specialized software that provides automated investment portfolios based on your goals and risk tolerance. Your risk tolerance is based on your answers to the questions provided.
Robo-advisors use algorithms to choose the right asset allocation of low-cost stocks, mutual funds, or exchange-traded funds (ETFs). Some services give you access to human advisors as well.
Robo-advisors are a viable option for anyone who wants to start investing but can’t afford a portfolio management firm. Or if you just want to take a hands-off approach to financial planning, robo-investing is a great choice for asset allocation. These services typically have low management fees and require low account minimum balances.
So if you don’t have tens of thousands of dollars at your disposal but still want to start building an investment portfolio, using a robo-advisor has a much lower barrier to entry. There are many online services available on the market, but the 12 listed above stand out from the pack.
What should you look for in a robo-advisor?
Now that you understand what robo-advisors are and have 12 strong recommendations, how do you know which one you should pick? Here are five things you should keep in mind when you’re considering different services.
- Management fees: Most robo-advisors will charge an annual fee. This is usually calculated at a percentage of your total assets. You should make sure you understand the management fee structure because this will cut into your earnings.
- Type of accounts offered: You should make sure you have a general understanding of the different accounts offered. For instance, retirement accounts like Roth IRAs and 401(k)s will have limits on how much you can contribute each year. Make sure you understand the difference between taxable accounts and tax-deferred or tax-free account offered and how they benefit your financial goals.
- Investments: It’s a good idea to familiarize yourself with the types of investments offered. For instance, many robo-advisors offer low-cost index funds, mutual funds, and ETFs. You should make sure that you like the accounts being offered and that they are fairly low cost.
- Rebalancing: Since your portfolio will fluctuate, over time, it’s easy for it to become out-of-sync with your overall investing goals. You should look for a company that offers automatic rebalancing.
- Access to financial advisors: And finally, one of the benefits of using a robo-advisor is that it’s a hands-off approach to investing. But some robo-advisors do offer access to a certified financial planner, and there are many benefits of this. Having a financial planner involved brings a human element to your portfolio and makes it more personalized.
If you’re looking for a low-cost, easy way to begin investing, then using a robo-advisor could be a great option for you. Just make sure you are clear on your goals. You need to understand the services being offered, and know how much you could end up paying in fees before you open an investment account.