No doubt about it: Investing is one of the best ways to build wealth and secure your financial future. (Especially if that financial future includes retirement.)
But actually doing that investing can be time- and work-intensive. With literally thousands of individual stocks on the market to choose from — not to mention other assets like bonds, mutual funds or exchange-traded funds (ETFs) — how on earth are you supposed to decide what’s best to buy?
Enter robo-advisers: computerized algorithms that can allocate and manage your stock market assets for you.
You won’t have to painstakingly DIY your stock portfolio, and you’ll avoid paying beaucoup bucks to a financial planner or investment adviser. (Advisory and investment services can cost thousands!)
How Do Robo-Advisers Work, and Should You Use One?
Robo-investing is done by handing over your hard-earned cash to robo-advisers. Instead of investing in securities a la carte yourself, you pass the job to a portfolio management company. That company then allocates, and sometimes even tweaks and rebalances, your assets through an automated process.
Sound complicated? It’s not, we promise! Here’s how it works.
- You give the robo-adviser deets on your investment goals and risk tolerance — that is, how much of a gamble you’re willing to take in hopes of hefty returns.
- A computer algorithm, usually backed by professional human research, creates an investment portfolio based on your responses.
- Depending on the specific service, you may or may not have more control over the individual assets you invest in, perhaps by choosing a portfolio curated to support companies with progressive social policies, for example. But for the most part, you just sit back, relax and let the company take care of the headachy part of investing for you. No fuss, no muss and no hours spent in anxiety-inducing stock market research.
Robo-advising does come at some expense; these companies charge a fee for their services. But since your account is managed by — well, a robot — the fees are minimal when compared to hiring human help. (Robots are renowned for their tolerance of low wages.)
Along with saving you money by employing automata rather than people, most robo-advisers double down by investing your funds in asset classes that carry low expense ratios, such as index funds, mutual funds and ETFs.
This means the fees associated with the assets themselves are minimal. And unlike building a portfolio on your own using a brokerage account, like TD Ameritrade, you usually don’t have to pay extra for trades and commissions; it’s all built into the robo-adviser’s maintenance fee.
So what’s the catch? Well, when you hand over your assets for automated investing, you (obviously) lose some of the flexibility that comes with DIYing your portfolio. Of course, for those of us who feel like tearing our hair out at the very thought of stock market research, the lack of control isn’t so much a detriment. In fact, it’s kind of the point.
Here Are Some of the Best Robo-Advisers on the Market
If you decide to try robo-advising, you’ll quickly discover there are a plethora of options to choose from. How are you to decide which robo-adviser is right for you?
For most investors, the most important considerations are all about the money: You’ll probably want to find a company that offers low management fees and a small account minimum. (This is the minimum deposit you must put down, and maintain, in order to open and keep an account.)
Of course, depending on your personal goals and investing style, there are other factors that might play into your decision. Although its account minimum is a relatively hefty $5,000, for example, the Charles Schwab Intelligent Portfolios robo-adviser monitors your portfolio daily and rebalances it as necessary.
For Penny Hoarders like us, though, low minimum deposits and fee ratios are key. Here are some of the best free and low-cost robo-adviser services currently available.
Betterment
Offering a personalized investment portfolio tailored to your goals and risk tolerance, Betterment stands out from the crowd with its focus on saving you money at tax time.
What makes it special?
Along with regular robo-investing services, Betterment also offers a comprehensive budgeting and financial management tool, kind of like Mint or Personal Capital — you can sync all of your accounts and get an overview of your net worth in one convenient location.
- Basic service: Annual fee of 0.25% assets under management (AUM).
- Minimum account balance: $0
- Available upgrades: Premium service, which adds unlimited access to advice from certified financial planners (CFPs), is available for 0.4% per year once you’ve got $100,000 invested.
Wealthfront
Wealthfront combines robo-investing with an automated financial planning system that analyzes your linked accounts to help you make better spending decisions.
What makes it special?
Whether you’re getting ready for retirement or saving for a major purchase, like a home or a college education, Wealthfront’s custom financial plans can help you get a sense of exactly where you stand — and how far you need to travel to get where you’re going.
- Basic service: 0.25%
- Minimum account balance: $500
- Available upgrades: None, really. But that’s kind of one of the perks: Wealthfront’s fee of just 0.25% AUM hods no matter how large your account balance, which factors out to just 10 cents per month at the minimum balance of $500.
Wealthsimple
Advertising itself as “investing on autopilot,” Wealthsimple makes the investment process truly painless. You can set up automatic deposits to keep your nest egg fueled for growth, and the basic service includes amped-up features like dividend reinvesting and automatic rebalancing.
What makes it special?
Wealthsimple makes it easy to dip your toes into values-based investing — that is, building a portfolio that’s aligned with your personal values. Although you don’t have hands-on control of the specific ETFs your portfolio is made up of, you can choose from curated portfolio options that support sustainable social initiatives.
- Basic service: 0.5%
- Minimum account balance: $0
- Available upgrades: If your account is between $100,000 and $500,000, you’ll get all the basics plus VIP airline lounge access. And the real high rollers, with more than $500,000 invested, receive individualized portfolios and planning services.
Ellevest
Combine lower lifetime earnings with a woman’s longer-on-average lifespan, and it’s easy to see why “gender neutral” investing strategies might not be sufficient for women — to say nothing of the fact that 86% of investment advisors are male. That’s why Ellevest has made it their mission to level the playing field.
What makes it special?
Built by women Ellevest takes the realities of womanhood into account when building your portfolio. But of course, men are more than welcome to invest with the firm, too!
- Basic service: 0.25%
- Minimum account balance: $0
- Available upgrades: Premium service is available to users with an account balance of $50,000 or higher, and includes one-on-one access to CFPs and executive coaches for personalized guidance. This service costs 0.5% AUM. Ellevest also offers private wealth management services for an undisclosed price for “qualified clients” with more than $1 million invested.
SoFi
If you’re looking for a bona fide free robo-investing account, SoFi’s got you covered. And you can get started with as little as $20 per month or a one-time deposit of $100.
What makes it special?
SoFi’s robo-adviser is the only one on this list that’s legitimately free, but you do need to be a SoFi member to qualify. That’s not really a deal breaker, though, considering the company’s suite of helpful financial products, including low-cost, credit-building loans.
- Basic service: $0
- Minimum account balance: $100
- Available upgrades: While they’re not really “upgrades,” being a SoFi member comes with a host of perks, like access to exclusive in-person events and unlimited access to real, live financial planners.
Not for You? Alternatives to Robo-Advising
Although there’s a lot to like about robo-investing, trusting your future nest egg to an algorithm can give some folks the willies. If that’s you, there are other investment strategies to consider.
Building your own investment portfolio is always an option, especially given the information available on the internet nowadays. Brokerage firms like TD Ameritrade can get you access to the wide world of the stock market without charging insane fees, and they offer a host of free tools and helpful content to make the research process a little less maddening.
Although taking matters into your own hands does give you about as much flexibility as you could possibly want, and may be an even lower-cost option than robo-advising, it does come at a risk — even with that wealth of information.
“People think because they’ve Googled something,” they’re an expert, mused Malik S. Lee, certified financial planner and founder of Atlanta-based Felton & Peel Wealth Management. That kind of confidence can actually lead to bigger mistakes, he warned. “It can go terribly wrong.”
Which is why, at the end of the day, there’s still an argument for hiring human advisers. Along with saving you time, like a robo-adviser, a real live human can factor in stuff a computer might miss. And they can react on a dime to real-time changes.
Lee thinks there’s definitely a time and place for robo-advisers. In fact, for some of his clients, he directs them to those services himself. These intelligent algorithms take clients’ risk tolerance into consideration, and their investment management schemes often outperform investors going it alone.
That said, seeking the help of a professional financial adviser can set you up for success across the board, not just with your investment portfolio. While investing is a foundation for building a financial future, you also have to take into account other money matters — your health insurance, estate taxes, savings plans and more, Lee says.
“To put it all together, you still need a human for that.”
(Of course, he may be just a little bit biased.)
Jamie Cattanach’s work has been featured at Fodor’s, Yahoo, SELF, The Huffington Post, The Motley Fool, Roads & Kingdoms and other outlets. Learn more at www.jamiecattanach.com.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.