Which Robo-Advisor Should You Use?

- Robo-advisors use algorithms that determine the type of asset allocation and portfolio appropriate for your age, risk tolerance and time horizon.
- Robo-advisors are a great option for beginner investors because of low fees, low minimum balance and ease of use.

Thought you needed a large sum of money or deep understanding of investing before making your first investment? Think again! Robo-advisors have democratized wealth management by increasing access to investing and simplifying a trade (no pun intended, haha) once reserved for the financially savvy only.
Robo-advisors have revolutionized the wealth management industry by leveraging technology to turn the way investment advice is delivered. The rapid adoption of robo-advisors is due to its ease of use and accessibility. But before we dive deeper, do you know what a robo-advisor is?
What is a Robo-advisor?
The term robo-advisor comes from two parts. “Robo” refers to the automated process of investing without the influence of humans. Rather than using people, these platforms use mathematical algorithms to support investment decisions. “Advisor” refers to the wealth management services which are automated on these platforms.
Therefore, a robo-advisor is an online platform that strives to invest a client’s assets by automating client advisory. A key element of a robo-advisor is that it provides necessary information in a manner that does not require a deep understanding of investing.

How Do Robo-Advisors Work?
Robo-advisors depend of predetermined investment strategies and portfolio based on Modern Portfolio Theory and the Efficient Market Hypothesis. Users can access these strategies through an app, thus avoiding any human interaction.
Once you sign up on an app, you will be asked to take a short survey aimed at gauging your investment-related needs. The app then puts the answers in an algorithms that determines the type of asset allocation and portfolio appropriate for your age, risk tolerance and time horizon.
The app connects to a bank account from which an amount you choose will be withdrawn. On many of the apps, you can specify goals such as saving or investing for college, a down payment on a house, retirement, or a rainy day.
Once you are signed up and make your first contribution, you will not have to worry about making complicated investment decisions. You can then make regular contributions and watch the effects of compound interest. Easy right?
Given that traditional wealth management requires a large sum of money to begin investing, robo-advisors are a great option for beginner investors because of low fees, low minimum balance and ease of use.
Things to Keep in Mind
Hold up, before you can download an app, keep in mind that while robo-advisors offer investment management and are a great place to start, they are not financial planners.
Well, what is the difference, you might ask? Financial planning provides you with a human being that can guide you through the long road of financial success and where you want to be with your money. Robo-advisors provide a service – investment management – with options and solutions, but little context. So yes, start here, and once you get comfortable, speak with a human financial planner who can provide personalized attention. Got it now?
Cool, now without further ado, here list a brief overview of some of the best robo-advisors.
Betterment
For the beginner investor.
It doesn’t get much easier than Betterment, one of the biggest robo-advisors in the market. Betterment’s platform is very simple to use and is ideal for beginner investors and/or investors with not much money.
Customers of Betterment get access to its core products such as tax-loss harvesting, a portfolio management strategy that minimises taxes. Betterment is good for goal-based investing and offers a variety of account types like retirement, general investing and safety nets.
One of Betterment’s best features is access to human advisors who customers can message through the mobile messaging app. Premium customers can also enjoy services of Certified Financial Planners (CFP), a feature that the majority of robo-advisors do not offer.
Fee-wise, Betterment charges a flat management fee of 0.25% a year to all users. The fees you owe will be taken out of your account and if you have no account balance, nothing will be taken. The minimum amount needed to open an account is $0.

Wealthfront
For the investor who believes computer programs make better investors than humans.
Wealthfront is ideal for an average investor who is digitally savvy and does not need to meet or speak with an investment advisor.
Wealthfront’s key feature is its well-balanced and diversified portfolio such as automated portfolio rebalances, which happens at the end of everyday. Automated rebalances involves periodically buying and selling assets in a portfolio to maintain a desired level of asset allocation. At Wealthfront, the rebalancing is done through a computer software, eliminating the need to meet or talk to anyone.
Stock-level tax-loss harvesting is Wealthfront’s best offering and is an enhanced form of tax-loss harvesting that looks for movements in individual stocks to harvest more tax losses and lower your tax bill even more. This is available to customers with at least $100,000.
Wealthfront investment account types include retirement, investment for college, and general investing.
Similar to Betterment, Wealthfront also charges a flat management fee of 0.25% annually. You have the potential to have $5,000 managed for free, for every time you refer someone. Wealthfront’s minimum account requirement is just $500.
Ellevest
Marketed towards women, but really anyone can use.
Ellevest is a women owned platform that takes into account the fact that women have longer lifespans, different salary curves, and the gender pay gap, factors which results in missed financial opportunities.
Ellevest emphasizes goal-based investing and currently offers seven goal options including Retirement, Emergencies, Build Wealth, Kids, and Home Down Payment. You can add more than one goal and the portfolio changes if one of the initial goals changes.
One of Ellevest’s unique features is its Impact Portfolio. With this option, customers can invest up to half of their portfolio in companies that champion the advancement of women in the workplace and in society. These are companies that for example that have women in leadership positions, promote policies that advance women, meet high standards for sustainability and ethical practices and promote community development.
Ellevest does not require a minimum balance to sign up and charges an annual fee of 0.25%.

Acorns
Best for those who want to invest without thinking about it.
Acorns takes investment to the next level by automatically rounding up your transactions to the nearest dollar and investing the balance.
For example, if an Acorns user buys a latter for $3.25, the mobile app would round up to the nearest dollar ($4) and put the remaining 75 cents into an Acorns investment account, which is then put into professionally managed index funds. This amount might be little at a time, but it can really add up (think of how often you swipe your card).
Acorns allows you to link an unlimited number of credit and debit cards to your account. A user can also choose to manually invest – this option would require you to go through a list of your purchases and decide what you want to round up and invest.
The management fee for Acorns depends on which plan you choose. It costs $1 to $3 per month, but college students with a valid .edu email can use it free for up to four years from the time of opening an account.
SoFi Automated Investing
Best for beginning and younger investors, and current SoFi borrowers.
While SoFi is well known for its lending products like student loan refinancing and mortgages, SoFi Automated Investing offers a great way to achieve investment goals without paying management fees.
SoFi uses sophisticated investing strategies as well as personal judgement from its financial advisors to craft five different portfolio strategies meant to work with your financial background and risk tolerance. Additionally, automatic rebalancing and market projections set you up for long-term investing.
SoFi is best for current users of the company’s other services as investing with them is free for current borrowers and you will get quality service at no cost.
If you’re investing under $10,000, there is no fee. Once you go above $10,000, there’s a relatively low rate of 0.25%.
Personal Capital
Best for the sophisticated investor who wants all aspects of finances on one platform.
Personal Capital can serve as a one stop shop to manage nearly all aspects of your finances. It allows you to build a complete look at your financial life, tying together all your bank, investment, retirement, credit card, mortgage, and real estate assets. It then updates them, so you’re able to see your net worth and track it over time.
With Personal Capital, you can “link” one or more of your bank and investment accounts (for example, your checking account, IRA, and 401(k) accounts). Personal Capital will let you explore your entire investment portfolio visually, regardless of where you hold the assets. Other tools include a fee analyzer, cash flow report, budgeting section and net worth report.
Personal Capital is not a tool for those just beginning their personal finance education, but for those comfortable making big investment decisions on their own, it is a great resource for you to use as you plan your long term financial life.
Personal Capital’s financial dashboard is free. But, if you choose to engage Personal Capital to manage your investments, there is an advisory fee. Investors pay 0.89% a year on their $1 million of assets under management (AUM) with Personal Capital. Then it slides down.

Charles Schwab Intelligent Portfolios
Best for investors who want low-fees and customers who have a goal-based investment approach.
Like other robo-advisors, Schwab Intelligent Portfolios offers online financial services without the involvement of a traditional financial advisor.
One of the biggest selling points for Schwab Intelligent Portfolio is its customization. Investors answer several questions about their financial goals, timeline, and risk tolerance, and the robo advisor then creates a portfolio based on those responses. But users do not have to simply accept these choices. Instead, the investor can modify the portfolio by selecting three ETFs to remove and replace them with a different choice that Schwab also selects.
Schwab Intelligent Portfolio is best for investors who want low-fees, users who value diversified investment portfolios and customers who have a goal-based investment approach.
You will need at least $5,000 in your Schwab Intelligent Portfolios Account, but there is no management fee to begin investing. Depending on your portfolio makeup, the fee ranges from 0.03% to 0.65%.