Automated wealth management is increasingly becoming more popular and robo advisors can help you with your financial goals without the cost of a human advisor. Weāve considered the best robo advisors based on commissions, account services, portfolio management, and overall quality.
Axos Managed Portfolios offers automated investment with a low fee and customizable portfolio. Investors can easily track their goals and adapt milestones at any time. Plus, Axos rebalances your portfolio to keep your asset allocation on track with your goals at no extra cost.
M1 Finance allows you to invest all your money in any portfolio, or customize it to suit your needs. It then manages your account by maintaining your allocations within the selected Pie through automatic rebalancing. Although it doesnāt offer tax-loss harvesting, it has a feature called ātax minimizationā that enables you to sell asset positions in a tax-favorable way.
What we like
Automated investing with a high level of customization
No trading or management fees or commissions
No initial minimum deposit
You can trade fractional shares
Socially responsible investing portfolio option
What we don't
No tax-loss harvesting
No access to mutual funds, futures, forex, or options investing
Robo advisors are online tools that offer automated and algorithm-driven financial advice. Investors use them to help manage their portfolios and plan for retirement.
Automated advisors are often attractive because they’re low-cost and easy to use and many offer rebalancing and tax-loss harvesting features.
How do robo advisors work?
Robo advisors ask you questions about your financial situation and goals:
How much money do you want to invest
How much risk you’re willing to take on
What kind of investments interest you
Based on your answers, the robo advisor will create an investment portfolio suited to your needs. You don’t have to worry about picking individual stocks or bonds or figuring out what’s best for your portfolio. The algorithm automatically does all this work for you.
What can robo advisors help you with?
Here’s what robo advisors can do:
Education for investors: Robo advisors present information in a way that makes it easy for investors to make decisions and understand the impact of their actions on their overall financial well-being. They can also help investors get started with investing by providing them with educational materials and tools that explain how to manage their finances.
Build effective investment strategies: Robo advisors are not just about providing financial advice but also about helping people build effective financial plans and strategies based on their unique needs and goals. Robo advisors can analyze data from various sources and present it in a manner that is easy for you to understand and digest quickly. It also offers suggestions on how to reach your goals faster by following certain steps or making specific adjustments to your investment portfolio.
Mitigate market risks with portfolio rebalancing: Regarding investing, robo advisors offer several benefits over traditional methods. Most notably, they allow investors to set up automatic rebalancing mechanisms that help mitigate market risks by automatically buying and selling various assets in the portfolio to keep the targeted portfolio allocation.
Help with tax-loss harvesting: Tax-loss harvesting is an investment strategy that helps individuals reduce the impact of taxes on their investment returns. A tax-loss harvesting algorithm analyzes your portfolio, looks for securities that have recently incurred losses, and then sells them to offset gains elsewhere in your portfolio.
Enable thoughtful withdrawals: The biggest challenge for retirees is figuring out how much money they need to withdraw from their nest egg each year to cover their expenses without running out of money prematurely. Today’s robo advisers make it easy to create a customized withdrawal plan that considers your current savings balance, expected inflation rate, projected future expenses, and rate of return on investments.
Who are robo advisors best for?
Robo advisors are suitable for any investor from beginners to veterans. If your also in one of these life stages, it can also be beneficial to you:
Younger investors: Robo advisors are an excellent option for young people just starting who don’t have much money but want to invest for retirement. Robo advisors can be beneficial if you’re just starting because they’ll help you set up an emergency fund and possibly even open a Roth IRA or traditional IRA account. You can also use the service to build your savings.
Retirees: Robo advisors can help retirees find safe investments that will help them meet their financial goals while avoiding riskier options that could be detrimental to their retirement savings.
People without investing experience: If you’ve never invested before, robo advice services may be an excellent way to get your feet wet. They’ll walk you through the process and help with every step, including selecting funds and setting up accounts, so there’s no need to worry about making mistakes along the way.
People with limited financial knowledge or time: A robo advisor might be perfect if you’re not interested in learning about financial markets or have time to keep up with economic news. These advisors will manage your money based on your goals and risk tolerance and provide regular updates about how your funds are doing, so you can easily track your investments from anywhere.
What are the benefits of using robo advisors?
The benefits of robo advisors include:
Low fees: Robo advisors charge much lower fees than traditional investment advisors. Depending on your chosen service, you may pay as little as 0.15% of assets under management (AUM) per year. Thatās a fraction of what you would pay an advisor who charges 1% or more.
Automated rebalancing: Robo advisors rebalance portfolios for you, so you donāt have to worry about it yourself. Rebalancing is managing your portfolio to ensure it stays aligned with your investment goals and risk tolerance level by selling and buying assets to meet your targeted allocation. Itās an intelligent way to manage risk while keeping your portfolio on track toward your goals.
Diversification: Robo advisors automatically diversify your investments across multiple asset classes, including stocks, bonds, and cash equivalents (like money market funds). This means they spread your money across different investments so that if one investment loses value, e.g., the stock market falls, another may gain value instead, e.g., bonds rise.
No emotional investment decisions: Robo advisors allow you to invest based on your goals and risk tolerance without being emotionally attached to the outcome of your investment decisions. This enables you to make better long-term decisions while reducing stress levels associated with making financial decisions that greatly impact your life.
How to choose the best robo advisors
Here are things you should consider when choosing a robo advisor:
Know your goals: Whether saving for retirement, paying off student loans, or funding an emergency fund, know what you want to achieve with your investments. Robo advisors offer different services depending on your needs, so ensure they can help you achieve your goals before signing up.
Facilitate goal planning: Once you know what you want to achieve with your investments, your advisor must help you get there by providing tools that will help facilitate goal planning along the way. It should offer guidance on setting up an appropriate asset allocation and provide updates on where you stand against those targets over time.
Understand the fees and minimums investments: The amount of these fees vary by the firm and can range from 0.25% to 1% per year of your assets under management. In addition to fees, there may be other charges for services not covered in your plan.
