If decision fatigue is keeping you from investing, maybe it’s time to let the robots take over.
Our investing experts say that automated investing softwares—also known as robo-advisors—are a good tool for beginners and advanced investors alike. And according to our recent survey, they’ve got a clear favorite.
Robo-advisors use information like your age, when you want to retire, and your risk tolerance to make investing decisions on your behalf. 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 what you’d pay if you invested on your own through a low-cost brokerage; but they’ll be lower than what you’d pay for human guidance.
Today, about 8% of U.S. households use robo-advisors to invest, according to research by the data and analytics firm Hearts & Wallets.
Here’s why you might want to consider a robo-advisor, what features and fees to watch out for, and which service our experts chose as their favorite.
What Are Robo-Advisors?
Robo-advisors are investing platforms that use software to determine your investment portfolio. The software asks you for personal investing information and then creates a portfolio based on your answers. Your investments are automated and run by the robo-advisor’s software. They usually have relatively low fees, friendly interfaces, and require little work on your part. Robo-advisors are typically safe, especially when you have a long-term investing horizon, and have grown in popularity due to their convenience.
For most robo-advisors, you can override the initial decisions they make for you. For instance, if your questionnaire showed that you’re a more conservative investor, you can change up your preferences to be riskier.
What to Look for In a Robo-Advisor, According to the Experts
Co-creator of rich & REGULAR, a husband and wife-run online finance community
Julien Saunders and his wife Kiersten both use Betterment—the first and now one of the largest robo-advisers—because of its flexibility, specifically in its portfolio design. “What we appreciate the most is the flexibility you can build on the platform,” Saunders says.
Betterment gives users the option to adopt pre-selected portfolios, or amend them if they don’t quite meet their investment requirements or preferences. Betterment also lets investors build portfolios that help them invest in socially responsible companies, like those that fund green projects or promote gender diversity. There’s also options for investors to invest in low carbon emission companies.
“We are just as passionate about wealth building as we are about helping to create a fair and better world for our son, so it’s helpful to know there are socially responsible investing options available that allow us to achieve both objectives,” says Saunders.
2. A Proven Track Record
Founder & Host of Popcorn Finance, a personal finance podcast
When a friend or family member asks Chris Browning how to save for retirement, his usual go-to recommendation is a robo-advisor, specifically Betterment.
“I lean towards Betterment because they were the first on the robo-advisor scene back in 2008, have a proven track record, and there’s no minimum to open an account,” says Browning. Betterment also doesn’t charge additional fees for multiple accounts, and the fees are typically low.
“They charge a pretty reasonable 0.25% management fee, which jumps to around 0.35% when you add in the fees charged by the funds you invest in. This is still much better than fees paid in many 401(k) plans,” says Browning.
3. A User-Friendly App
Connecticut-based money coach, CEO and founder of The Balanced Budget LLC
White chose Betterment as her favorite robo-advisor because she finds the platform and app user-friendly, easy to navigate, and simple to use. “To me, that makes investing and wealth-building feel accessible and possible,” says White.
Betterment also gives users the ability to speak with a certified financial planner when using its premium account.
Since there are loads of options for robo-advisors, here are a few more that are also favorites. As long as you’re managing your fees, there are many robo-advisors that can meet your needs. The trick is to just get started.
When Haley Sacks isn’t creating viral Instagram videos, she is looking at her finances. Her favorite robo-advisor is Wealthfront because of its easy-to-use platform and financial planning tools that help users think about how they want to use that investment. “They have just really got it down,” Sacks says. “My only gripe is that they have no humans attached to the product. Would love access to a financial planner!”
When compared to Betterment, Wealthfront has a wider collection of investments, including cryptocurrencies. Wealthfront also has low fees, offers traditional IRAs, Roth IRAs, SEP IRAs, and rollover IRAs. One downside is that investment accounts require $500 minimum to get started.
While most people know SoFi for its lending services, the company has recently gotten into providing investing services, including a robo-advisor platform. There’s no account minimum to sign up and there are no management fees for the automated investing accounts. You can choose from a retirement account or taxable account, and stay on the lookout for promotions.
Ally was one of the first online-only banks, and they’ve recently started offering investing services. You’ll need at least $100 to start investing with the robo-advisor. Like Ally’s other offers, you can take advantage of 24/7 customer service support, even on your investments. While your profile is set up based on your risk tolerance and goals, Ally says a team of human specialists are the ones behind its diversified portfolios.
How Much Do Robo-Advisors Cost?
Costs vary by robo-advisor, and some have account minimums required to get started. For instance, Wealthfront requires $500 as a minimum investment, but Betterment, SoFi, and Ally Invest don’t have minimum investments.
The fees you pay also matter. Most robo-advisors charge a percentage of your total investments as a management fee, usually around 0.25%. If you’ve got $10,000, that charge is around $25. If you have $100,000 invested, that’s $250. Over time, because of compound interest, even small differences in fees can add up to large amounts.