If you are starting out in investing or have limited time, a robo advisor can build out your portfolio and help you reach your financial goals. Weâve 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 doesnât offer tax-loss harvesting, it has a feature called âtax minimizationâ 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 automated investment services that offer personalized portfolio advice and management without human interaction. These online tools can help investors create a diversified investment portfolio, rebalance their portfolios according to their risk tolerance and goals, and monitor their investments, all at a low cost.
How do robo advisors work?
Robo advisors use algorithms to make investment decisions on your behalf. You fill out a questionnaire about your goals and risk tolerance, and the algorithm uses this information to create a portfolio of investments that fit your goals (e.g., retirement). You can also choose from pre-built portfolios based on your age or target retirement date.
Once you build your portfolio, it will automatically rebalance asset allocation as needed. Assets can include bonds, stocks, real estate, etc.
What can robo advisors for beginners help you with?
If you’re just getting started, here’s what robo advisors can help with:
Investment selection: Robo advisors use algorithms to analyze your investment goals, risk tolerance, and time horizon and then suggest a mix of stocks, bonds, and other assets that match those parameters.
Rebalancing your portfolio: The portfolio will have a set target allocation, and sometimes due to volatility it can swing away from the target. Robo advisors can handle this for you by automatically rebalancing your holdings based on their algorithm-generated recommendations. This means it will buy and sell assets as needed so that each holding represents the same percentage of your overall portfolio.
Low cost: Automated investment advisors have a low-cost structure, which means more money in your pocket.
Tax-loss harvesting: Tax-loss harvesting is an investment strategy that seeks to minimize your tax bill by selling losing investments and offsetting the loss against gains from winning investments during the same period.
Who are robo advisors for beginners best for?
Robo advisors can be a great option for multiple people:
Younger investors: Robo advisors are great for younger investors because it can help them take advantage of compound interest and grow their savings over time. Automated advisors can also make it easier for younger investors to invest in companies they wouldnât otherwise be able to access because theyâre too young or donât have enough capital yet.
People with no investing experience: Robo advisors can help inexperienced investors start saving money from day one by automatically investing their money into low-cost index funds based on their risk tolerance level and goals.
People who have time constraints: Robo advisors are great for busy people who don’t have time to research investments and manage their portfolios. You can set up automatic deposits, rebalancing, and other tasks with just a few clicks of your mouse or taps on your phone screen.
What are the benefits of robo advisors for beginners?
The benefits of robo advisors for beginners include:
Low fees: Robo advisors are usually cheaper than human advisors because of their automated nature. Automatic advisors charge between 0.25% and 1% of assets under management per year, whereas most human advisors usually charge between 1% and 2%.
Faster implementation times: Robo advisors can also get you started faster than human advisors since they don’t need to meet with you in person or over the phone to understand your situation. Some automated advisors can take as little as 15 minutes to set up an account. At the same time, traditional human advisors may require several meetings and weeks of paperwork before they can begin managing your investments.
Personalized advice: Robo advisors can give you personalized advice because they use an algorithm to determine your risk tolerance, time horizon, and goals. They then build a portfolio based on those factors.
Better diversification: Automated investment advisors can help you build a more diversified portfolio using low-cost exchange-traded funds (ETFs) rather than individual stocks or bonds. This provides you with more diversification.
Eliminate human emotion from the equation: Robo advisors eliminate human emotion from the equation when investing your money. While human emotions can sometimes be beneficial â such as when you buy stocks during a downturn or sell them before they go up again â they can also work against you when it comes time to sell because of fear or greed.
Robo advisors are user-friendly, so they’re a great option if you’re just starting investing or don’t have the time or interest in managing your investments.
How to choose the best robo advisors for beginners
You need to ask yourself some questions before choosing a robo advisor. Here are a few things to consider:
Know your goals: Robo advisors can help you save for retirement, pay for college or save for a rainy day â but only if you tell them what you’re trying to accomplish. Before signing up for any service, consider what’s most important to you and how much risk you’re willing to take on. You should also consider your time horizon and any other assets or accounts you already have invested elsewhere.
Check the ease of access: Automated advisors are often accessed through phone apps or websites, but some allow customers to directly contact their human advisors if necessary. It’s essential to know how much access you’ll have when choosing a robo advisor service, as this can affect how much control you have over your investments and what kind of information you receive from your financial advisor.
Understand the fees and minimums investments: Robo advisors often charge a flat fee per month or year, but some charge additional fees based on individual transactions or mutual fund purchases. Ensure you understand how much money will be taken from each investment.
