The Best Investing Robo-Advisors Of 2024

Robo-advisors are a relatively new invention in the world of investing. They are unique in the sense that they allow amateur investors to take advantage of advanced algorithms while investing.

However, many people do not fully understand what Robo-advisors are, how they work, and how to go about using them. Here, we will be addressing all those questions by taking a look at how you can select Robo-advisor.

What Does a Robo-Advisor do?

Robo-advisors use algorithms to manage your portfolio. Before 2008, computerized portfolio management was not available to the individual investor, as only professional firms could afford the technology capable of doing such a thing.

Betterment changed all that by launching the first Robo-advisor, which started taking money from investors in 2010, 2 years after starting.

A Robo-advisor will essentially ask you a few basic questions such as the level of risk that you are willing to accept and your investment goals (e.g. wealth-building or high returns). Then, it will craft a portfolio that is specifically suited to your needs.

Robo-advisors do not usually invest in specific assets. Instead, they use indexes and ETFs. This allows the users to achieve a broad level of diversification and ensures that the returns are a bit more consistent.

Robo-advisors are also able to do a lot of advanced things, such as manage your retirement account, harvest tax-losses, and automate your portfolio strategy.

Do remember that Robo-advisors are generally used for long-term investments. Since there is very little human insight involved, Robo-advisors tend to take the safer approach and invest in assets that show consistently positive returns over the years.

Types of Robo-Advisors

Due to their relatively new invention, Robo-advisors do not have specific types in which they can be grouped. In general, there are three ways for you to classify Robo-advisors:

• Passive Robo-advisors
• Hybrid Robo-advisors
• Active Robo-advisors

Let’s take a look at all three of them in a bit more detail:

• Passive Robo-Advisors

Passive Robo-advisors were the first ones to come into the market. Almost all your investments will be in an index or an ETF in a passive Robo-advisor.

Passive Robo-advisors let you do very little apart from allocating your portfolio according to how you want. Once you decide on all the details, the algorithms will do all the rest.

Passive advisors do let you take advantage of many of the advanced features of Robo-advisors, including the ability to harvest your tax losses. Simply put, tax-loss harvesting involves selling assets towards the end of the year that are at a loss, thus reducing your capital gains tax.

Once the tax date passes, similar assets are bought so that you can get back to the same risk level that you were at.

• Hybrid Robo-Advisors

Hybrid Robo-advisors essentially consist of Robo-advisors with the addition of a financial manager overseeing them.

Usually, your financial manager will be able to better assess your needs and guide the Robo-advisor on how to better achieve your long-term financial goals.

Hybrid Robo-advisors will either charge you a specific fee for access to the financial manager or offer a one-time consultation at the start where you will be able to discuss the scope of your investments and how it is best to accomplish your goals.

• Active Robo-Advisors

Active Robo-advisors try to beat the market rather than just emulate its returns. As such, there is a lot of risk involved when using such advisors.

In most cases, active Robo-advisors copy the strategy of human investors at the same fund. It is best to fully check out the person(s) that are going to be involved in active Robo-advisors, as it would be their performance that largely affects your portfolio.

How to Compare Robo-Advisors?

Robo-advisors are all fairly similar. This makes it very easy to compare them. The only problem is that Robo-advisors cannot be compared based on their returns. This is because the way you invest and the goals that you decide for your investments have a huge impact on the result.

Since the investments are mostly indexed and broadly diversified, your returns will not deviate massively from the markets. The only major thing that you can control to increase returns with your investments is to stay away from riskier markets during recessions and invest in them during economic booms.

Here are the things that Robo-advisors should be compared on:

• Fee schedule (it is important to watch out for additional costs).
• Minimum account balance limits.
• Any running promotions (it is possible to get huge benefits by availing a special offer when signing up.
• Support for specific investment plans (e.g. a 529 college savings account).
• Ease of opening accounts and moving funds.

Remember that the advantages of a promotion cannot be overestimated. Certain promotions can have huge benefits for you in the long run. The best ones usually involve you investing a specific amount of money when you sign up.

For example, a Robo-advisor may offer you access to a financial advisor for up to a year if you invest at least $10,000 or more.

However, remember to never place promotions above the features of the Robo-advisor itself. If you go for a sub-par Robo-advisor just because of a promotion, you will stand to suffer in the long run.

Who Are Robo-Advisors Best For?

Robo-advisors are not meant to be for those that want unusually high returns. If that is what you are looking for, you should either learn to trade yourself or find a fund manager that has managed to consistently beat the market in the past.

Just remember that the vast majority of such managers require a lot of upfront capital (often in hundreds of thousands of dollars if not more), and many do not even accept new investments. This is because the demand for such managers is extremely high, and they already manage a lot of capital.

Robo-advisors are best for those that are looking to grow their wealth over the long term. We have already mentioned that indexes do very well over time. So, why not invest in the index itself?

Robo-advisors also allow you to diversify very well. Instead of just investing in stocks, you can find an appropriate mix of stocks and fixed-income assets. This makes Robo-advisors ideal for those looking to save up for retirement (especially if it can manage your retirement account as well) or just looking to build wealth slowly but surely.

How Do I Choose a Robo-Advisor for My Needs?

Choosing between individual Robo-advisors is hard. This is because most of them are very similar to each other. Because they are automated, the fees are very little across the board. In fact, you will be able to find a lot of Robo-advisors that do not charge a commission at all.

The main thing that you need to consider is whether you need access to a financial advisor. If you do, then compare the fee that the advisors charge for using an advisor. You will probably not need constant access to one unless you have a lot of capital to manage. As such, setting up a one-time consultation at the beginning may be the best option for most people.

Of course, if you are someone who is just beginning to invest money, you may also need to keep the minimum investment limits in mind. It is also important to think long and hard about any major expenses that you may be incurring in the next few months.

Will those expenses cause you to withdraw large amounts of money that will push you below the minimum limit?

Do Robo-Advisors Beat the Market?

In most cases, Robo-advisors fail to beat the market. The goal of a Robo-advisor is to build a portfolio around indexed investments. These investments closely match the performance of the market and thus fail to beat it after fees.

Conversely, this also means that the performance of Robo-advisors will seldom be too far off the market average either.

On the other hand, managed funds usually perform a lot worse than Robo-advisors. In 2019, just 29% of active funds managed to beat the market average. Surprised? Don’t be! This was the ninth year in a row in which managed funds trailed the markets.

What makes managed funds an even worse option is the fact that while 29% of them managed to outperform the indexes in a year, most of them won’t be able to maintain that consistency. In the 10 years from 2009 to 2019, only 15% of total managed funds managed to beat the index. The number goes even higher to 92% at 15 years.

As such, while Robo-advisors will not beat the market, neither will your financial manager in all likelihood. Unless you have a high appetite for risk, indexed investments make the most sense.

Best Robo-Advisors For Beginners

As a beginner investor, you want a Robo-advisor that is not only simple to use but also helps you as much as it possibly can in setting up your portfolio. Here are our picks for new investors looking for a Robo-advisor:

Wealthfront

Wealthfront is generally considered to be one of the best and most complete Robo-advisors out there. Despite that, it is not a complicated advisor to use.

You can easily figure everything out within a few minutes, and the app itself guides you on how to best set up your account. Reasons to go for Wealthfront include:

• You get all the major features that make Robo-advisors viable e.g. tax-loss harvesting.
• You can set customized investment goals and it will show the trade-offs between those goals.
• Account minimum is fairly low at $500.
• Easy to move money in and out of the Robo-advisor.

Just remember that Wealthfront does not have online chat services, so getting help if you run into any issues may be troublesome.

Interactive Advisors

Interactive Advisors are known mainly for their strengths in the portfolio building department. On top of this, they are also huge advocates of investing in a socially responsible manner. With Interactive Advisors, you get:

• Limitless portfolios to choose from, many of which have baskets of stocks as opposed to ETFs or indexes.
• A huge selection of actively managed portfolios is also available.
• Lots of analytical tools to help you track your portfolios.

While some portfolios require a high amount of minimum investment, most start at only $100.

Best Robo-Advisor For Larger Portfolios

If you have a lot of capital to dispense, you will want to have a Robo-advisor that is specifically suited to it. Here are some of the best Robo-advisors for advanced investors with cash in their pockets:

Vanguard Digital Advisor

If you are someone with prior experience in investing, then you will almost certainly know who Vanguard is. Their digital advisor targets large-scale investors, and offers the following features:

• An extremely reasonable fee of 0.15%.
• A comprehensive toolset for retirement planning.
• Tools for effectively managing your debt.

The minimum amount that you will need to invest is $3000. While that is not a lot, this is more than most Robo-advisors, showing you the people that Vanguard wants to target with their services.

Ellevest

Although this is a platform that was designed for women, anyone can sign up with the service. The good thing about Ellevest is that it can create a comprehensive portfolio without much input from you. Here are some of its key features:

• A flat fee of $1/month.
• Lots of banking tools to facilitate your investment goals.
• Automated investing is based on a lot of metrics (e.g. your life expectancy).
• Ability to choose companies that match your outlook on life.

Despite being a relatively new and small-time Robo-advisor, Ellevest has features that are worth considering.

Best Robo-Advisor With the Lowest Fees

Now, we will be looking at Robo-advisors that charge you the least amount of money. You may be thinking that Robo-advisors with the lowest fees are usually catering to beginners, but they aren’t.

Those with large portfolios are the ones that pay the highest commission (in absolute terms). As such, they stand to gain as much as those low on cash.

SoFi Automated Investing

SoFi could very well be the only investment app you will ever need. This is due to its flexibility. Here is what you get:

• $0 commission on Robo-advisor portfolios.
• The ability to trade a wide variety of assets from a single application (including individual stocks).
• A handsome selection of portfolios to choose from.

You can also run both accounts at once. Invest some money in the Robo-advisor and use the rest on self-directed investments. This gives you great control over the way you invest and is well-suited for both beginners as well as advanced investors.

Betterment

Betterment is one of the most well-known Robo-advisors, and with good reason. Their main goal is to make investing as simple as it can possibly be. To that end, they offer the following:

• While the fee is 0.25%, you can get access to an advisor for up to a year if you invest enough money.
• Complete support for multiple retirement accounts and investment goals.
• Additional options for more traditional finance such as checking and saving accounts.

Betterment is quite similar to Wealthfront in terms of the tools that it offers you. This is a great option for people who have a lot of capital to invest and are looking to get the most out of their money.

What Does it Cost to Use a Robo-Advisor?

Robo-advisors charge very little fee. Some of them charge you no commission at all, relying instead on the same business model that is used by zero commission brokers.

However, Robo-advisors will charge you for any additional services that they offer. This may include access to a financial advisor, or extra tools that may help you make better investment decisions.

The good thing is that if you want, you can get access to a decent Robo-advisor while paying almost nothing. We have mentioned a few such Robo-advisors above, and there are many others like them.

Remember that since Robo-advisors will mainly invest in other funds, there will be additional costs to using them. This would be the management fee of the funds themselves, and their share of the profits in certain cases (ETFs may take a cut from the gains).

Pros and Cons of Investing with Robo-Advisors

Let’s take a look at some of the positives and the negatives of choosing Robo-advisors. Here, we will be comparing Robo-advisors to financial managers, index funds, and other similar investments.

Pros

• Robo-advisors require very little input from you once set up. They are programmed to automatically rebalance your portfolio. For example, if the value of the stocks in your portfolio increases relative to other investments, it will automatically sell some of the stocks and purchase the other investments.
• Robo-advisors will not deviate massively from the returns of the market. As such, you will know what to expect for the most part. However, your portfolio may do better with a Robo-advisor during a market crash. This is because you will be able to expose yourself to a variety of asset classes if you wish e.g. gold and corporate bonds.
• Tax-loss harvesting can help reduce your tax bill without having to do any extra effort. When the date of calculation is looming, the Robo-advisors will automatically sell those assets in the red to save some of the taxes that you have to pay on the investments that have gained value.

Cons

• Robo-advisors rarely beat the market. Once you factor in their fees (if any) and the fees of all the funds that they invest your cash in, it is likely that your returns will be slightly below the market average.
• While you will be able to control the types of assets that the Robo-advisor invests in, you will lack any additional control that you may need. If you are someone who likes the idea of researching their investments, then Robo-advisors will not be able to offer you that satisfaction.
• If you are already invested through a traditional broker, it will be much easier to buy an index fund than switch your capital over to a brand-new Robo-advisor.

Robo Advisors: The Factors You Should Consider

Now that you have seen some of the best Robo-advisors available, you may be wondering how to choose the one that you will be using between them.

It’s actually quite simple. Here is how you can go about the process:

1. Decide the category that you want to focus on. For example, are you a beginner investor with only a little bit of capital to invest, or someone with experience and a lot of money in your hands?
2. Then, narrow the Robo-advisors down based on the fee they charge. If you think a certain Robo-advisor charges too much, cross them off your list! Remember that this does not mean that you should go for the Robo-advisor with the lowest fees. Instead, you are just removing the ones that you think are charging too much.
3. Now, compare the remaining Robo-advisors based on their features, the plans offered, and anything else that is important to you.
4. Remember to review the customer support. The best way to do it is by reading the reviews of other users online rather than trusting a professional review, as it may be biased or even influenced.

What Is Micro Investing?

Micro investing is a very new concept in the investment world, and it has largely been popularized by investment apps over the last few years.

Micro investing allows you to invest in really small amounts. If it is not possible for you to purchase a complete share of a company, you can instead purchase a fraction of the share itself. As you invest more money, you can purchase more of the same share or purchase a fraction of a completely different share.

This is perfect for investors looking to purchase shares of companies that have high prices. For example, a share of Google is trading at over $1,900 at the time of writing. Tesla is at around $870, and Berkshire Hathaway is somewhere near the $350,000 mark.

It may be difficult for new investors to purchase these shares due to a lack of capital. Micro investing can solve this problem and help you gain exposure to a lot of assets otherwise not available.

Micro investing can also help you in other ways. For example, with no lower limit to how much you can invest, you can simply invest a fixed amount each month using dollar-cost averaging.

What is the Best Micro Investing Robo Advisor?

The best micro investing Robo-advisor is one that was one of the pioneers of the idea in the first place: Acorns. Acorns not only uses Robo-advisors to properly manage your cash and your investments, but it also has a nifty feature that can allow you to save a lot of money.

Basically, Acorns lets you invest your spare change. Whenever you make a purchase, you have the option to round it up to the nearest dollar and invest the rest through the app. Acorns claims that the average user invests $30 every month using this feature. This may not seem like much, but it’s an extra $360 a year on top of the money that you planned to invest.

Acorns is also not big on fees. You can choose a basic account ($1/month) or a personal account ($3/month), and the minimum amount that you can invest in one go is just $5. This makes Acorns your best option for micro investing.