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It wasn't long ago that if you wanted to invest, you needed to choose your investments yourself or hire a financial professional to do it on your behalf. Now there's a third option: the robo-advisor. As with any investment method, there's quite a bit you should learn about robo-advisors before you start. In this guide, we'll highlight our picks for the best robo-advisors and take a deeper look at some of the most important things investors should know.
With no management fee or account minimum, anyone can get started with SoFi Automated Investing.
Read Full Review$0 per trade, expense ratio 0.03%-0.08%
$0
On Secure Website.
Betterment offers a lot of different services and account types, along with high-yield savings and checking accounts. And you don't need to have a ton of money to get started.
Read Full Review$0 per trade, management fee 0.25%
$0
On Secure Website.
Acorns takes a unique spin on the robo-advisor model by rounding up your purchases to invest that change into an automated investing strategy. Importantly, its costs are low, and it's a solid fit for people wanting to manage their investments and banking under one roof.
Read Full Review$1-$5 monthly
$0
On Acorns' Secure Website.
With competitive pricing, low minimums, and features such as automatic rebalancing, Ally Invest Managed Portfolios is a great choice for anyone without a lot of cash to spend.
Read Full Review$0 per trade, management fee 0.30%, expense ratio 0.05%-0.20%
$100
On Secure Website.
With a competitive management fee and no account minimum, this is a great broker for a variety of people. Their ability to factor in woman oriented financial issues is a unique plus!
Read Full Review0.25% management fee
$0
On Secure Website.
TD Ameritrade Essential Portfolios has a great portfolio selection and in-person help, but its high account minimum might be too steep for some investors.
Read Full Review$0 per trade, management fee 0.30%, expense ratio 0.06%-0.07%
$5,000
If you have a large account balance or are in a high tax bracket, Wealthfront could be great for you as tax-loss harvesting can result in significant savings.
Read Full Review$0 per trade, management fee 0.25%, expense ratio 0.06%-0.13%
$500
With great access to customer service, low-cost investments, and automatic rebalancing, E*TRADE Core Portfolios is a great option for anyone with at least $500 to start investing.
Read Full Review$0 per trade, management fee 0.30%, expense ratio 0.06%-0.12%
$500
With perks like automatic rebalancing and tax-loss harvesting, this robo-advisor could be a great choice if you're looking to invest at least $5,000.
Read Full Review$0 per trade, $0 mgmt fee, 0.03% to 0.60% expense ratio
$5,000
Fidelity Go provides a simple, easy-to-understand pricing structure with access to financial planning tools and educational resources.
Read Full ReviewFree to 0.35% per year
$10
With a low fee structure, this to-the-point platform is a great option for investors with at least $3,000 to start.
Targeted 0.20% all-in fee
$3,000
Throughout most of modern history, if you needed investment guidance, you had to hire a financial advisor. There are certainly benefits to having the advice of a seasoned professional, but there’s one big drawback -- an investment advisor can be expensive.
Thanks to technological advances, the concept of the robo-advisor has created another viable option. In a nutshell, a robo-advisor automates key components of investment planning. A robo-advisor can help you assess your risk tolerance, determine your investment time horizon and goals, and can allocate your portfolio to maximize return potential without taking too much risk.
Robo-advisors are offered by financial companies from Silicon Valley startups to the major online stock brokers. And while the general concept of a robo-advisor is the same (low-cost investment planning), there’s quite a bit of variety in costs and features.
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Robo-advisors are known for having lower fees than their human counterparts, but it’s still important to know how much robo-advisors cost. Unfortunately, there’s no single answer to this question. The costs vary, and cheaper isn’t always better.
There are two primary types of fee for most robo-advisors.
It’s important to consider the combination of these fee types, often collectively referred to as the "all-in" cost of a robo-advisor. All-in costs typically range from 0.03% to 0.50%, but even at the higher end, this compares favorably to hiring a human financial advisor. On average, financial advisors charge about 1% of invested assets, and that’s in addition to the fees charged by the funds they choose for your portfolio.
The fees discussed above may sound small, but don’t underestimate the difference they make over the long run. To illustrate this, let’s say that you have $5,000 to invest and that you plan to add another $5,000 every year for the next 30 years. We’ll say that your portfolio achieves annual returns of 8% on average. Here’s how you would fare based on different all-in management fees:
Value after: | 0.25% all-in fee | 0.50% all-in fee | 1.00% all-in fee |
---|---|---|---|
10 Years | $71,579 | $70,735 | $69,082 |
20 Years | $222,571 | $216,523 | $204,978 |
30 Years | $541,085 | $516,997 | $472,304 |
Here’s the point: On a shorter-term basis, the difference in results is quite small. However, over long periods of time, seemingly small differences in fees make a big difference. After 30 years, our hypothetical investor would have earned nearly $69,000 more by using a low-cost robo-advisor with a 0.25% all-in fee rather than a typical human financial planner with a 1% management fee.
There are some features that almost all robo-advisors offer, and others that aren’t quite as common. With that in mind, here’s a list of what you should pay attention to as you research robo-advisors to find the best fit for you:
Robo-advisors are generally far cheaper than their human counterparts, but they aren’t all equally cheap. There’s quite a bit of variation in management fees, as well as the fees charged by the underlying investment funds.
A quick look at our best robo-advisor picks shows management fees ranging from nothing at all to 0.35%. And some have multiple tiers, such as a no-frills version and a premium product that costs more. Expenses of the underlying investment funds can vary dramatically as well.
With that in mind, it’s smart to look at fees as just one piece of the puzzle. If a certain more expensive robo-advisor offers more of the features that matter most to you, it can still be a good value for you.
Obviously, this isn’t much of an issue if you have tens of thousands of dollars or more to invest, but it can be a major limiting factor for investors who are just starting.
Most of our favorite robo-advisors don’t have formal minimum initial deposits, and some will even let you get started for $1. On the other hand, there are some with minimum investments in the thousands, so keep this in mind as you conduct your search.
When you set up an investment portfolio through a robo-advisor, your initial investment allocations will be aligned with your risk tolerance and investment goals. For a simplified example, your robo-advisor might determine that your ideal allocation is 70% invested in stocks and 30% in bonds.
The problem is that over time, this won’t stay the same all by itself. If the stock market has a particularly strong year, for example, you could find that your portfolio is now 80% stocks. Automatic rebalancing solves this problem by periodically reviewing your portfolio and making adjustments to maintain your desired risk/reward profile.
This has become a pretty standard feature among robo-advisors, but it’s still worth mentioning. The frequency of rebalancing can vary between firms.
Some robo-advisors incorporate tax efficiency strategies into their portfolios, and the most important to know about is tax-loss harvesting.
Here’s the short version of how tax-loss harvesting works with a robo-advisor: Let’s say that your robo-advisor constructed your portfolio using five investment funds. We’ll also say that over the next few months, four of the funds perform very well, and one declines in value. In the course of rebalancing, your robo-advisor will likely sell some of the high-performing funds.
This can create a taxable capital gain. Some robo-advisors actively combat this by strategically selling investments that have declined in value to offset your taxable gains, and then re-investing that capital in a tax-efficient manner.
This is likely to be more important if you have a large investment account, or you’re otherwise in a high tax bracket. If taxes are a top concern, be sure to confirm whether your robo-advisor offers tax-loss harvesting.
By definition, the purpose of a robo-advisor is to take the human element mostly out of the equation. And most of what a human investment advisor can do (portfolio allocation, rebalancing, etc.) can be automated rather easily. Not to mention that finding a financial advisor can be a hassle.
However, there are some instances where it can be valuable to have access to a human financial advisor as well. For example, if you’re planning to buy a home in a few years or you want to start saving for your kids’ college, a financial advisor can point you in the right direction.
Some robo-advisors follow a sort of hybrid business model, with access to human financial advisors for customers. A few provide unlimited access for all clients, others provide some access, and others let you pay a bit more to access human advisors.
If you work during the day, a customer service line that’s only available during "banker’s hours" might not be a great fit for you. If you run into a technical problem -- say, you’re having difficulty making a deposit or navigating the advisor’s platform -- it’s nice to be able to pick up the phone and talk to someone who can help. Customer support hours (and quality) vary significantly in the robo-advisor business, so be sure to check this information for any prospective robo-advisor.
It’s not practical to list every possible feature a robo-advisor could offer, or that might matter to you in particular. But it’s worth noting that some of our favorite robo-advisors offer features that go beyond the standard list we’ve discussed. To name a few:
Robo-advisors are most appropriate for investors who fit into one or more of the following groups:
Broker/Advisor | Best For | Commissions | Next Steps | |
---|---|---|---|---|
![]() SoFi Automated Investing
Rating image, 4.5 out of 5 stars.
|
Rating image, 4.5 out of 5 stars.
|
Best For:
Financial advice |
Commission:
$0 per trade, expense ratio 0.03%-0.08% |
|
![]() Betterment
Rating image, 4.5 out of 5 stars.
|
Rating image, 4.5 out of 5 stars.
|
Best For:
Beginners |
Commission:
$0 per trade, management fee 0.25% |
|
![]() Acorns
Rating image, 4.5 out of 5 stars.
|
Rating image, 4.5 out of 5 stars.
|
Best For:
Rounding up your purchases to invest |
Commission:
$1-$5 monthly |
|
![]() Ally Invest Managed Portfolios
Rating image, 4.0 out of 5 stars.
|
Rating image, 4.0 out of 5 stars.
|
Best For:
Conservative investors |
Commission:
$0 per trade, management fee 0.30%, expense ratio 0.05%-0.20% |
|
![]() Ellevest
Rating image, 4.0 out of 5 stars.
|
Rating image, 4.0 out of 5 stars.
|
Best For:
Women |
Commission:
0.25% management fee |
|
![]() TD Ameritrade Essential Portfolios
Rating image, 4.5 out of 5 stars.
|
Rating image, 4.5 out of 5 stars.
|
Best For:
Lowering taxes |
Commission:
$0 per trade, management fee 0.30%, expense ratio 0.06%-0.07% |
|
![]() Wealthfront
Rating image, 4.5 out of 5 stars.
|
Rating image, 4.5 out of 5 stars.
|
Best For:
Lowering taxes |
Commission:
$0 per trade, management fee 0.25%, expense ratio 0.06%-0.13% |
|
![]() E*TRADE Core Portfolios
Rating image, 4.0 out of 5 stars.
|
Rating image, 4.0 out of 5 stars.
|
Best For:
Socially responsible investing |
Commission:
$0 per trade, management fee 0.30%, expense ratio 0.06%-0.12% |
|
![]() Schwab Intelligent Portfolios
Rating image, 4.5 out of 5 stars.
|
Rating image, 4.5 out of 5 stars.
|
Best For:
Larger accounts |
Commission:
$0 per trade, $0 mgmt fee, 0.03% to 0.60% expense ratio |
|
![]() Fidelity Go
Rating image, 4.5 out of 5 stars.
|
Rating image, 4.5 out of 5 stars.
|
Best For:
Minimum balance |
Commission:
Free to 0.35% per year |
|
![]() Vanguard Digital Advisor®
Rating image, 4.5 out of 5 stars.
|
Rating image, 4.5 out of 5 stars.
|
Best For:
Low fees and low account minimums |
Commission:
Targeted 0.20% all-in fee |
Robo-advisors automate certain components of the investment planning process. A robo-advisor can assess your risk tolerance, determine your investment time horizon and goals, and can allocate your investment portfolio in a way to maximize return potential without taking on too much risk.
Yes, most robo-advisors charge a small management fee, which is a percentage of client assets expressed on an annual basis. And all robo-advisors have fees that are charged by the underlying investment funds they use.
As with any investment product, investments offered through a robo-advisor can lose value. However, if you aren't an experienced investor, using a robo-advisor is likely a safer move than trying to choose a portfolio of stock and bond investments on your own.
An online brokerage is a broader term that refers to a financial firm that facilitates the purchase of investment vehicles like stocks, bonds, ETFs, and mutual funds. A robo-advisor is a specific type of brokerage account that chooses and maintains an investment portfolio automatically on behalf of clients.
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