If decision fatigue is stopping you from investing, maybe it’s time to let bots take over.
Our investment experts say that automated investment software – also known as robo-advisors – is a good tool for beginners and advanced investors alike. And according to our recent poll, they’ve got a clear favourite.
Robo advisors use information such as your age, when you want to retire, and your tolerance for risk to make investment decisions for you. Some even offer access to Traditional IRAs, Roth IRAs, Rollover IRAs, and SEP IRAs, which are tax-advantaged retirement accounts. The fees they charge are higher than you would pay if you invested on your own through a low cost brokerage; But it will be less than what you would pay for human guidance.
Today, about 8% of American households use automated investment advisors, according to research by data and analytics firm Hearts & Wallets.
Here’s why you might want to consider a robo-advisor, the features and fees to look out for, and the service our experts chose as their favourite.
What are Robo-Advisors?
Robo advisors invest in platforms that use software to determine your investment portfolio. The program asks you for personal investment information and then creates a portfolio based on your answers. Your investments are automated and run by automated advisor software. They usually have relatively low fees, friendly interfaces, and require very little work on your part. Robo advisors are usually safe, especially when you have a long-term investment horizon, and their popularity has increased due to their convenience.
For most bot consultants, you can bypass the initial decisions they make for you. For example, if your survey shows 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 the experts
Co-creator of rich & REGULAR, an online financial community run by a husband and wife
Julien Saunders and his wife use Kiersten Betterment – the first and currently one of the largest robotics consultants – due to its flexibility, specifically in the design of its portfolio. “What we value most is the flexibility you can build on the platform,” Saunders says.
The optimization gives users the option to adopt predefined portfolios, or modify them if they do not meet their investment requirements or preferences. Betterment also allows investors to create portfolios that help them invest in socially responsible companies, such as those that fund green projects or promote gender diversity. There are also options for investors to invest in low carbon companies.
“We are just as passionate about building wealth as helping create a fair and better world for our son, so it pays to know that there are socially responsible investment options that allow us to achieve both goals,” Saunders says.
2. 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 an automated advisor, specifically Betterment.
“I lean towards Betterment because they were the first to appear on the bot advisor scene in 2008, they have a proven track record, and there is no minimum to open an account,” Browning says. Optimization also does not charge additional fees for multiple accounts, and the fees are usually low.
“They charge a very reasonable 0.25% management fee, which jumps to about 0.35% when you add in the fees they charge for the money you invest in. This is still much better than the fees paid in many 401(k) plans,” Browning says. .
3. User-friendly application
Connecticut money coach, CEO and founder of The Balanced Budget LLC
White chose Betterment as her favorite bot advisor because she found the platform and app easy to use, easy to navigate, and easy to use. “For me, that makes investing and creating wealth so accessible and possible,” White says.
Betterment also gives users the ability to speak with an approved financial planner when using their Premium account.
Since there are a plethora of options for bot advisors, here are some of my other favorites as well. As long as you manage your fees, there are many bot consultants who can meet your needs. The trick is to just get started.
Financial Pop Star, founder of Ms. Dow Jones & Finance Ice Cool
When Haley Sacks isn’t creating viral videos on Instagram, she looks at her finances. Her favorite bot advisor is Wealthfront due to its easy-to-use platform and financial planning tools that help users think about how to use this investment. “They really worked out the problem,” says Sachs. “My only gripe is that they have no humans attached to the product. I love having access to a financial planner!”
When compared to Betterment, Wealthfront has a wide range of investments, including cryptocurrencies. Wealthfront also has low fees, offering traditional IRAs, Roth IRAs, SEP IRAs, and rollover IRAs. One downside is that investment accounts require a minimum of $500 to get started.
While most people know SoFi for its lending services, the company has recently entered into offering investment services, including its robo-advisor platform. There is no minimum account to sign up and no administration fees for automated investment accounts. You can choose between a retirement account or a taxable account, and stay informed about promotions.
Ally was one of the first online-only banks, and they recently started offering investment services. You will need at least $100 to start investing with an automated advisor. Like other Ally offerings, you can benefit from 24/7 customer service support, even on your investments. While your profile is prepared based on your tolerance for risk and your goals, Ally says a team of human specialists are behind its diverse portfolio.
How much do Robo-Advisors cost?
Costs vary for different robo-visor, and some have a minimum account required to get started. For example, Wealthfront requires a minimum investment of $500, but Betterment, SoFi, and Ally Invest do not have a minimum investment.
The fees you pay are also important. Most bot advisors charge a percentage of your total investment as a management fee, usually around 0.25%. If you have $10,000, that fee is about $25. If you have $100,000 invested, that means $250. Over time, and because of compound interest, even small differences in fees can run into large amounts.