If decision fatigue keeps you from investing, maybe it’s time to let the robots take over.
Our investment experts say that automated investment software, also known as robo-advisor, is a good tool for both beginners and advanced investors. And according to our recent poll, they have a clear favorite.
Robo advisors use information such as your age, when you want to retire and your risk appetite to make investment decisions on your behalf. Some even offer access to traditional IRAs, Roth IRAs, rollover IRAs, and SEP IRAs, which are retirement accounts with tax benefits. The fees they charge are higher than what you would pay if you invest alone through a low-cost brokerage; but they will be less than what you would pay for human guidance.
Today, about 8% of US households use robo advisors to invest, according to research by data and analysis firm Hearts & Wallets.
That’s why you might want to consider a robo-advisor, what features and rates to pay attention to, and which service our experts have chosen as their favorite.
What are Robo-Advisors?
Robo advisors are investment platforms that use software to determine your investment portfolio. The software asks you for personal information about the investment and then creates a portfolio based on your responses. Your investments are automated and managed by the robo-advisor software. They usually have relatively low fees, friendly interfaces, and require little work on your part. Robo advisors are generally safe, especially when you have a long-term investment horizon, and have become popular due to their affordability.
For most robo advisors, you can ignore 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 experts
Co-creator of rich & REGULAR, an online financial community run by husband and wife
Julien Saunders and his wife Kiersten both use Betterment, the first and now one of the largest robo-advisors, for its flexibility, particularly in portfolio design. “What we like most is the flexibility you can build on the platform,” says Saunders.
The enhancement gives users the ability to adopt pre-selected portfolios or modify them if they do not fully meet 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 as passionate about creating wealth as we are about helping create a fair and better world for our child, so it’s good to know that there are socially responsible investment options available that allow us to achieve both,” 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 robo-advisor, specifically Betterment.
“I am in favor of Betterment because they pioneered the robo-advisor scene in 2008, 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 generally low.
“They charge a fairly reasonable management fee of 0.25%, which rises to around 0.35% when you add in 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 robo-advisor because he finds the platform and app easy to use, easy to navigate and simple to use. “For me, this makes investing and wealth creation accessible and possible,” says White.
Betterment also offers users the ability to speak to a certified financial planner when using their premium account.
Since there are a lot of robo-advisor options, here are a few more that are also a favorite. As long as you manage your commissions, there are plenty of robo advisors that can cater to your needs. The trick is to get started.
The 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 thanks to its easy-to-use platform and financial planning tools that help users think about how they want to use that investment. “They really get it,” Sacks says. “My only complaint is that they don’t have humans attached to the product. I would like to have access to a financial planner! ”
Compared to Betterment, Wealthfront has a larger collection of investments, including cryptocurrencies. Wealthfront also has low fees, offers traditional IRAs, Roth IRAs, SEP IRAs, and rollover IRAs. One downside is that investment accounts require a minimum of $ 500 to get started.
Although most people know SoFi for its lending services, the company has recently started providing investment services, including a robo-advisor platform. There is no minimum account to register and there are no management fees for automated investment accounts. You can choose between a retirement account or a taxable account and stay on the lookout for promotions.
Ally was one of the first online-only banks and has recently started offering investment services. You will need at least $ 100 to start investing with the robo-advisor. Like Ally’s other offerings, you can take advantage of 24/7 customer support, even on your investments. Although your profile is set up based on your risk tolerance and goals, Ally says that behind her diverse portfolios is a team of human specialists.
How much do Robo-Advisors cost?
Costs vary by robo-advisor and some have a minimum account required to get started. For example, Wealthfront requires $ 500 as a minimum investment, but Betterment, SoFi, and Ally Invest do not have minimum investments.
The taxes you pay also matter. Most robo advisors charge a percentage of your total investments as a management fee, usually around 0.25%. If you have $ 10,000, the charge is about $ 25. If you invested $ 100,000, that’s $ 250. Over time, due to compound interest, even small differences in fees can add up to large amounts.