Best Robo-Advisors for Beginners for December 2023

Robo-advisors are a relatively new phenomenon. Until a few years ago, if you wanted to put your investment strategy on autopilot, you had to hire a financial adviser to invest on your behalf. And in most cases, you would pay an annual management fee equal to 1% or more of your assets in exchange for their services. In fact, most investors who automate still do it this way.

In this guide, we'll discuss some of the things to know before opening your first investment account with a robo-advisor. To start, here's our list of picks for the best robo-advisors for beginners to achieve their investment goals.

2 Featured Picks From Our Best Robo-Advisors for Beginners

There are a lot of options to compare. It can be overwhelming! If you're looking for a place to start, here are two robo-advisors our experts recommend for beginners and why they like them:

• SoFi Automated Investing: Fantastic robo-investing platform for keeping all your finances in one place
• M1 Finance: Standout mobile investing platform

Our 4 Best Robo-Advisors for Beginners for December 2023

How to pick the best robo-advisor for beginners

The bottom line is that while we feel our list above represents the best robo-advisors for beginners, the best choice for you depends on the features that matter to you the most.

What to consider when choosing a beginner-friendly robo-advisor

A lower fee is better than a higher one, all other things being equal. But that's not the only thing to consider. Here are some other features that the best robo-advisor for beginners will have.

Low deposit requirements

Some robo-advisors will let you get started with a dollar, while others have minimum initial investment requirements of $500 or more. If you're just starting out and don't have a ton of money to invest right away, this can be a major factor to consider.

Human advisor access

It's rare to find a robo-advisor that gives all clients access to human financial planners, especially without any additional charge, but this feature does exist. Even if you have to pay for their advice, it can be a valuable feature if your robo-advisor has a staff of Certified Financial Planner® professionals who can offer you guidance.

Educational resources

Investing is only one part of a solid financial plan. Good robo-advisors offer lots of resources to help you master the art of budgeting, save for college expenses, buy your first home, learn about the stock market, and much more to help you achieve all of your financial goals.

Easy-to-use platform

Most robo-advisors are relatively easy to navigate, just by the nature of their product. But it could be worth reading reviews of their apps or websites to see which are the most user-friendly.

Learn more: Best Robo-Advisors

Customer support

This is different from human advisor access. Not all robo-advisors offer the ability to simply pick up the phone and talk with a representative if you have a question about your account. When picking the right robo-advisor for you, consider what level of customer service you're most comfortable with. Many offer phone support, live chat, social media help, and help through email.

Integrates with other accounts

Robo-advisors offered by the best stock brokers can often be paired with a self-directed investment account if you want to choose some of your own investments. Those operated by banks can seamlessly integrate with checking and savings accounts. These can be major advantages, especially if you like to keep all of your finances in one place.

Automatic rebalancing

Most robo-advisors offer this. Automatic rebalancing essentially means that the robo-advisor will re-evaluate your portfolio every so often to make sure it is still aligned with your goals and risk tolerance. For example, if the stock market performs exceptionally well, a robo-advisor with automatic rebalancing might move some of your money out of stocks and into fixed-income funds to maintain your target asset allocation.

Tax-loss harvesting

This is more important for high-balance accounts, but robo-advisors that offer tax-loss harvesting will make strategic moves in client accounts that maintain the same investment goals while simultaneously maximizing the tax efficiency of the portfolio. It's a method that can help people pay less taxes.

What does a robo-advisor do?

A robo-advisor, which is also referred to as an automated investing platform, aims to do essentially the same thing as a traditional financial advisor, but without any direct human involvement.

These services create an appropriate investment portfolio based on factors such as your:

• Age
• Investment goals, such as retirement
• Risk tolerance

And they will automatically adjust your portfolio based on these over time. Because there isn't an advisor's salary to pay, robo-advisors charge a fraction of the management fee of traditional financial advisors.

By nature, most robo-advisors are appropriate for beginners. But there are a few things to look for that makes a robo-advisor a great fit for beginning investors.

Here are a few things you'll find with the best robo-investors for beginners:

• A low minimum investment requirement
• Educational tools
• Live human support if needed

How do the best robo-advisors for beginners work?

All robo advisors automate the construction of an investment portfolio. You'll open an account following the general procedure outlined in the previous section, and the robo-advisor will invest it in the stock market and fixed-income instruments allocating it in investment funds, usually in the form of ETFs. These are usually index funds, but not always. (An index fund is a passively managed mutual fund).

In exchange for their automated investing services, robo-advisors charge a management fee. We'll get into the fees in more depth a little later, but the key takeaway is this: Because robo-advisors automate most, if not all, investing tasks, the fees are significantly lower than human financial advisors typically charge.

What fees are charged by robo-investors?

Most robo-advisors charge a management fee in the 0.25% ballpark for their services, but fees can range from 0% to 0.40% for the top firms. Even on the higher end, this is significantly more cost effective than the 1% average management fee charged by financial planners for advice and investment guidance.

Just like with human financial advisors, robo-advisor management fees are generally based on a percentage of assets in your portfolio and are assessed annually.

For example, a 0.25% management fee means that for every $1,000 you have in your robo-advisor account, you'll pay $2.50 per year in management expenses.

It's also important to mention that the individual investment funds your robo-advisor uses typically have their own annual management fees (known as expense ratios). These are usually quite low, but they do add to the total cost of your investments. It's still usually much cheaper to use a robo-advisor -- just be aware that an advertised 0.25% management fee can be 0.30%-0.35% when including the expenses of the individual funds your money is invested in.

How to open a robo-advisor account

The exact process for opening a robo-advisor account varies from company to company. But the general process is the same:

• Fill out an account application: This includes information about the type of account you want to open (for example, individual, retirement, or joint), and identifying information about yourself.
• Answer some questions: This helps the robo-advisor determine how to best invest your money. Questions tend to be about your age, investment objectives (such as saving for college or retiring with $1 million), and how much risk you're comfortable with.
• Make a deposit: Or better yet, set up an automatic deposit. Generally speaking, the best way to make sure you meet savings goals of any kind is to automate the process as much as possible. The easiest way to do this with most robo-advisors is to link your bank account, but you may also be able to mail a check, wire money, or transfer assets from an existing investment account, such as a former employer's 401(k).

That's basically it. The robo-advisor will then use the money you contribute to construct an appropriate portfolio of investment funds for you.