DollarGeek Presents:
Best Robo-Advisors of October 2020
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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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management fee for 1 year with qualifying deposit
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no promotions at this time
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5,000
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$750
max cash bonus with qualifying deposit
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on loans if your'e a member
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for up to 4 years while in college
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Best robo-advisors at a glance - October 2020
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.
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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.
