DollarGeek Presents:
Best Robo-Advisors of January 2021
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A robo-advisor is an online, automated portfolio management service. These companies rely heavily on computer algorithms, which are a set of rules to choose appropriate investments based on your risk tolerance and time horizon. Many people choose to use robo advisors because they can offer these types of services for a fraction of the cost of a human financial advisor.
Robo Advisors lower-cost management fee, combined with important features like automatic portfolio rebalancing and tax-loss harvesting, can translate into higher net returns for investors. Learn more about the best robo-advisors and how these leading technology platforms can help you manage your money.
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Best robo-advisors at a glance - January 2021
For the hands-off investor, choosing a robo-advisor can be a wise decision. The best robo-advisor will give you a robust platform, low cost management fees, and a large selection of investment strategies to pick from.
Provider
Account Minimum
Management Fee
Favorite Perk
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Overview
SigFig is a robo-advisor that helps investors create diversified, tax-efficient investment portfolios. In the expanding automated investing industry, SigFig differentiates itself by offering free investment management for the first $10,000. Additionally, the robo-advisor provides unlimited access to a financial advisor.
Investors can start by providing details about their investment goals, age, risk-related information, and monthly contributions. SigFig creates a personalized investment portfolio using these details, comprising low-cost ETFs.
SigFig provides free management of up to $10,000, portfolio tracking and analysis, and access to financial advisors to all customers. If your portfolio crosses $10,000, you’ll pay 0.25% management charges on any amount exceeding $10,000.
In addition to automated investment management, SigFig offers portfolio rebalancing, dividend reinvestments, and tax-reduction strategies.
What We Like
- Free management of the first $10,000
- Portfolio rebalancing, dividend reinvesting, and tax-reduction advice
- Access to human advisors
Areas to Watch Out for
- Requires a minimum of $2,000 to open an account
- Lacks a cash management account
Overview
Wealthfront is one of the earlier entrants in the automated investing realm, which has given the robo advisor a head start in diversifying its offerings. At the moment, Wealthfront provides automated investing, an online checking account, and a line of credit facility as its primary products.
With our primary focus on Wealthfront’s automated investing, you can open an account with $500. Wealthfront offers personalized portfolios based on your investing goals and risk appetite. The robo advisor invests in low-cost ETFs, along with the add-on feature of rebalancing it for optimal results. Wealthfront provides tax-loss harvesting with every account. It has annual advisory fees of 0.25%.
For investors with higher balances ($100k+ and $500k+), Wealthfront introduces stock-level tax-loss harvesting, risk parity solutions, and Smart Beta for in-depth investing strategies (above $500k).
In addition to its automated investing arm, Wealthfront offers an online checking account with an APR of 0.35%. There are no account management charges, overdraft charges, or account minimums, along with a vast ATM network. Wealthfront also offers a line of credit against portfolios, with an APR of 2.40% to 3.65%.
Wealthfront provides smart money management tools, including goals creation, automatic transfers, bill payments, and similar personal finance tools.
What We Like
- Daily tax-loss harvesting
- Advanced solutions for higher account balances
- Full-fletched online checking account
- Personal finance tools
Areas to Watch Out for
- No discounts in management fees for large accounts
Overview
Betterment is one of the first robo advisors to come into the picture. The automated investment firm has over $22 billion in assets under management. Betterment has diversified its offerings, including an investment service, a checking account, and an online savings-type account.
Betterment uses Modern Portfolio Theory to create personalized portfolios for users based on their investment goals. Betterment allows investors to list multiple goals. The robo advisor provides tailored investment recommendations for these goals. It offers two investment management plans, Digital (0.25%) and Premium (0.40%).
Betterment claims that its investors earn 38% more than average investors over a period of 30 years. The robo advisor provides IRA and 401k retirement accounts. Investors can seek financial advice from a CFP® for a one-time fee.
Betterment investment solutions come with auto-investments, portfolio rebalancing, and advanced tax-saving strategies. Its Premium plan offers advice for investments held outside of Betterment.
Betterment offers a free online checking account, with a debit card, FDIC insurance, and ATM or foreign fees reimbursement. Its savings solution offers an APR of 0.40%, much higher than what most traditional banks offer.
What We Like
- Higher average returns as per Betterment’s analysis
- Access to online checking and savings account
Areas to Watch Out for
- Higher fees for the premium plan
Overview
M1Finance is a robo advisor that aims at offering consistent returns through automated investment strategies. Unlike what we witnessed in most cases, M1Finance offers a free investment platform with the option to open a checking account and even borrow against your portfolio.
Like most robo advisors and automated investing platforms, M1Finance uses Modern Portfolio Theory for portfolio allocations. Its portfolios comprise both stocks as well as low-cost ETFs. M1 Plus account (paid account) offers more flexibility in terms of trading windows for investors holding over $25,000.
M1Finance allows investors to borrow against their portfolio at an APR of 3.5% for the free account and 2% for the Plus account. Additionally, M1Finance users can open an online checking account with a debit card that works similar to any traditional checking account.
M1 Plus account offers some additional benefits over its free version, including 1% interest on checking account balance, along with 1% cashback on spends, lower APR on a line of credit, ATM fee reimbursement, and smart money management (transfers) services. Smart Transfers allow investors to move their funds in and out of their investment and checking account held with M1Finance based on rules set by the account holder.
What We Like
- A one of its kind free investment account
- Ability to borrow against investments
- Cashback on checking account spends
Areas to Watch Out for
- Not an ideal solution for active traders
Best for those who want to select specific services a la carte
on Ellevest's website
Overview
Ellevest is an automated advisor designed with women in mind. It uses investment algorithms that factor-in important life events, pay gaps, and longer life span for women. Although, Ellevest provides its investment services to all the customers as of now.
Ellevest has a membership-based model, including Essential ($1/mo), Plus ($5/mo), and Executive ($9/mo) membership. Irrespective of their membership levels, all Ellevest customers get access to personalized investment portfolios, banking services (Spend and Save accounts), learning material, and discounted one-to-one sessions with financial planners.
Ellevest Plus account offers retirement solutions, in addition to all Essential Plan features, comprising personalized savings recommendations and IRA transfer or rollover assistance. Ellevest Executive plan adds goal-based investing, along with all the features of Plus account. You can choose up to six different goals and start saving, investing in separate accounts.
Ellevest is the only automated advisor that considers pay gaps, breaks, and longer life spans for women in its portfolio recommendations.
There are no fund management charges for any membership levels with Ellevest, helping it stand out of the league.
What We Like
- No asset management charges (covered in membership fees)
- Only robo advisor designed with women in mind (factoring milestones, pay breaks in portfolio recommendations)
- Discounted access to financial advisors
Areas to Watch Out for
- Essential members cannot open an IRA
Overview
SoFi is one of the most popular names in the American fintech industry. It offers automated investing under SoFi Invest. Its investment solutions include automated investing, goal-based investment solutions, and retirement investing.
You can open an investment account with SoFi for as little as $1. SoFi takes a slightly different approach to automated investing by providing access to human financial advisors. SoFi provides a goal-based investing feature. Its platform users can pick a financial goal and receive investment recommendations accordingly.
SoFi creates portfolios using index funds and low-cost ETFs. SoFi offers automatic rebalancing for achieving desired investment returns for investors.
Apart from its investment services, SoFi users get access to specific member benefits, such as unlimited one-to-one financial counseling, career advice, and rate discounts on other SoFi products.
What We Like
- Access to SoFi member benefits (career advice, financial advice, rate discounts)
- Invests in low-cost ETFs only.
Areas to Watch Out for
- Lacks tax-loss harvesting
Overview
Acorns is widely known as a micro-savings app. The micro-savings app has transformed itself into a smart investment platform, online bank, and retirement solutions provider.
Acorns provides automated investing solutions using Modern Portfolio Theory. You can create an account within 5 minutes and start investing your spare change. Acorns requires its users to answer questions about their financial goals, risk profile, and creates a portfolio accordingly.
There are no minimum investment requirements with Acorns. You can start at $1 per month or $3 per month with no additional management charges. Acorns offers different membership plans, including Lite ($1/mo), Personal ($3/month), and family ($5/mo) plans.
Acorns also provides retirement investing solutions, including retirement accounts and investment advice. Its Early feature allows parents to open investment accounts for their children. Acorns also provides an online checking account with a debit card and no account management fees.
What We Like
- No account minimums
- Ability to invest spare change
- Educational material for platform users
Areas to Watch Out for
- No tax-loss harvesting
- No human advisors
Overview
Blooom is a robo advisor that targets employer-sponsored retirement plans. Unlike other robo advisors on our list, Blooom aims at managing your defined-contribution plans (401k, 401a, 403b, 457) better.
Blooom offers a free analysis of retirement plans to every platform user or potential customer. Blooom analysis takes into account the retirement goals of an individual and matches them against their current investments. The platform offers its recommendations accordingly.
In terms of signing up, it takes only a couple of minutes to sign-up with Blooom. Once your account is linked, Blooom provides personalized portfolios, places trades, provides withdrawal alerts, and gives access to financial advisors.
Blooom offers three different membership plans, including Essentials ($45), Standard ($120), and Unlimited ($250) plans. Blooom has a handful of personal finance tools available for its platform users.
What We Like
- Blooom targets defined-contribution plans, filling a much-needed gap.
- Plenty of personal finance tools
- Access to financial advisors
Areas to Watch Out for
- Expensive for beginner investors
- No option to change investments
Learn About Robo-Advisors
Gain some clarity with our geeky insight.
What is a robo advisor?
A robo-advisor is an online, automated portfolio management service. These companies rely heavily on computer algorithms, which are a set of rules to choose appropriate investments based on your risk tolerance and time horizon. Many people choose to use robo advisors because they can offer these types of services for a fraction of the cost of a human financial advisor.
Geek Insight: Let’s make it simple and talk casual – a robo advisor simply invests your money in the stock market and manages it for you. What differentiates a robo-advisor from a human financial advisor is that robo-advisors use algorithms and technology to automate investing. It is often less expensive than investing with a human advisor. Some robo-advisor companies will also provide investors with access to speak to a human advisor. Investors can now get started with some robo advisors offering no minimum balance to open an account.
How do I sign up with a robo advisor?
You can refinance both federal and private student loans. When you refinance your student loans you will refinance through a private lender, not The Department of Education. Refinancing your student loans can be a good idea if you have the following:
1. Find the best robo-advisor that fits your investing needs
The best Robo-advisors offer investors options. Make sure your robo-advisor has access to a variety of low cost funds and different investment strategies according to your risk tolerance.
2. Decide which type of account you'd like to open and figure out how much you'd like to start investing
Certain Robo-advisors only cater to specific accounts like IRAs or individual brokerage accounts. Be sure to have an idea which account you’ll need managed and also how much you plan to begin investing with. Most robo-advisors have minimums you must deposit in order to begin using their services.
3. Figure out what your risk tolerance is
You will then selected your investment goals based on your risk tolerance and target return. For example, if want to be on the conservative side you would have a higher allocation toward bonds. On the other hand if you wanted to take on more risk you might have a higher allocation in stocks.
4. The best robo-advisors will use low-cost exchange-traded funds (ETFs) or mutual funds for your investment
Robo-advisors place you in low cost index funds to get you invested. The index funds you’ll be investing in depends on your risk tolerance and which mix of asset classes match your investment objectives.
5. Find an investment allocation to match your goals
A computer algorithm selects the optimal asset allocation based on your personal preferences and investment goals.
6. Keeping your investments efficient
The robo-advisor will automatically rebalance your portfolio over time as it grows.
7. Management Fee
Robo-advisors typically charge a management fee which is expressed as a percentage of your total portfolio. Typically, this fee is a fraction of the cost of most financial advisors.
How much does it cost to use a robo-advisor?
When you choose to invest with a robo-advisor, there are two kinds of costs:
1. Management Fee
Robo-advisors will typically charge you a management fee. This is what you’ll pay annually to have an account at a robo-advisor. The fee is often assessed as a percentage of your assets with the advisor. It is typically deducted from your account balance.
2. Expense Ratio
An expense ratio is an annual fee that most mutual funds, index funds and exchange-traded funds charge to cover the costs of running the fund.
Geek Insight: Like we mentioned: All fees will eat into your investment return. But, it’s important to note that you can’t avoid expense ratios as a fund investor. Whether you invest through a robo-advisor or on your own — you’ll be paying an expense ratio. To keep costs at a minimum, you can try and make sure you’re paying the average expense ratio when choosing a fund. Knowing average mutual fund expense ratios can help you gauge whether you’re paying too much.
What type of accounts can I have with a robo-advisor?
You’ll typically have two options when it comes to picking an investment account:
1. Retirement Accounts
You can have retirement accounts such as IRAs and 401(k)s. These offer tax advantages for contributions and often have rules about how much you can contribute and when. It also has rules for when you can take distributions from the account.
2. Non Retirement Accounts
Non retirement accounts are also referred to as taxable accounts. There are no specific tax advantages for contributions to these, but they’re also not subject to contribution limits or distribution rules. Think of a non retirement account as an individual brokerage account (an investment account separate from your retirement where you can purchase stocks, bonds, etc).
What can I invest in with a robo-advisor?
Most Robo-advisors use low-cost ETFs or Mutual Funds when picking their investments.
1. ETF
Unlike a stock, an ETF holds many individual investments and tracks an index or benchmark (think of the S&P 500, NASDAQ, etc.). An ETF trades on an exchange, just like an individual stock. ETFs can typically be purchased for a lower investment than a typical mutual fund.
2. Mutual Fund
A mutual fund is an open-ended investment fund that gathers capital from a number of investors to create a pool of money that is then re-invested into stocks, bonds and other assets. Mutual funds are typically overseen by a portfolio manager. The portfolio manager will buy and sell the securities in the fund based on the funds investment goals.
Geek Insight: Make sure the robo-advisor you choose matches your investment objectives and stye of investing. Robo-advisors differ on which type of investments they utilize (some can invest in ETFs while others might only purchase individual stocks).
What are some of the perks associated with a robo-advisor?
A robo-advisor can help you invest more efficiently in the following ways:
1. Tax-Loss Harvesting
Tax-loss harvesting involves selling losing investments and using the loss to reduce or eliminate the taxes you’ll owe on capital gains.
Tax-loss harvesting can be harder with the fund portfolios that most robo-advisors use — because index funds and ETFs hold a number of different investments, you can’t dial down to specific losers as easily. An index might be up overall but still hold investments that are down. Some robo-advisors buy individual stocks to replicate an index, allowing them to sell specific losers. Wealthfront calls this service direct indexing.
Geek Insight: Tax-loss harvesting only applies to taxable accounts, not retirement accounts like your IRA, Roth IRA, etc. In retirement accounts, taxes are deferred and capital gains taxes don’t come into play, but in taxable accounts, tax-loss harvesting might save you a significant amount of money.
2. Rebalancing
Market fluctuations can cause the mix of investments you hold in your portfolio to get out of sync with your goals. Rebalancing brings your asset allocation back to its original mix. Many robo-advisors check for rebalancing opportunities daily and make changes as needed.
Geek Insight: When a particular asset class that you’re invested in is doing well — for example, let’s say you have exposure to international stocks, and the international market are roaring — you could end up with more of your money in that class than you intended, due to outsize growth. If your original allocation was 60% stocks and 40% bonds, a portfolio that has shifted toward 80% stocks is probably too risky. Automatic rebalancing can keep you on track.
