Where To Begin When Choosing A Robo-Advisor

by: Barbara Friedberg


Robo-advisors can simplify your investing. With rebalancing, fund selection and management, you can get a diversified portfolio managed for a low fee.

If you're a DIY investor, robo-advisors offer automation of routine tasks, while you choose the investments.

For newbies or experienced investors, find out how to pick the best robo-advisor for you. Try this digital approach for all or part of your money.

Are you committed to creating that diversified and well-balanced investment portfolio, in line with your risk comfort level?

Maybe you've got your eye on several individual stocks, ETFs or other assets that you want to own. You know enough to realize that it's important to check out the research tab on the Fidelity or Morningstar site. But, you also might be feeling some hesitation to put money into the richly valued bull market.

Too much on your plate? Maybe a robo is the solution for you.

What is a Robo-Advisor?

Here's the basic robo-advisor model.

Most robo-advisors administer a brief risk tolerance quiz and then, in accord with your responses, lay out a sensible asset mix of low fee ETF's. Some digital advisors offer "goals based" allocations. Yet, in most cases, you'll get a diversified portfolio of low fee ETFs in percentages that fit with your ability to handle portfolio volatility or risk. The allure is that the robos will rebalance automatically and some also perform tax-loss harvesting to shrink your IRS bill.

The Draw of Robo-Advisors

Robo-advisors can simplify your investing. With rebalancing, fund selection and management, you can get a diversified portfolio managed for a low fee. There are even specialized digital advisors such as the Grow Invest App that allow you to invest with your values.

In fact, even if you manage most of your money yourself, or like to speculate with momentum strategies or digging for value stocks, there may be a place for an automated portfolio manager for part of your investment portfolio.

Why You're Considering Investing in a Robo-Advisor

You might be considering a robo-advisor if you're overworked, loaded down with family, kids and commitments with no time to create that ideal investment portfolio. Or, maybe you have a hodge podge of investments, without any congruent plan.

Well, even if you like investing, have a certain level of knowledge in the area, you might want to consider turning all or a portion of your investments over to a robo-advisor. Although most robo-advisors charge a small management fee, it may be worth it to consider investing with a robo-advisor.

So, if you're considering letting a robot help with your investments, the question remains - how to choose the right robo-advisor for you?

7 Factors to Consider When Choosing a Robo-Advisor

If you're thinking about trying out one of the digital investment platforms, here are some guidelines. Before picking an automated investment manager, assess what you want from the robo.

1. Do you want a combination of DIY and guidance? Several companies have models that will take over some of the investment tasks and still let you have a hand in the process, like M1 Finance or Motif.

For example, Motif isn't a typical robo-advisor but a site where you can create your own mutual fund. For a low fee, Motif allows you to buy a basket of 30 stocks, of your own choosing or from a pre-decided package such as "dogs of the DOW", socially responsible investing, political themes, brands and more.

2. What types of investments do you want? Each of the robos have a different twist on their offerings. TradeKing Advisors (TKA) offers up to 20 ETFs and the portfolios are managed by well-known Ibbotson.

If you are seeking a portfolio with access to U.S. and global REITs, small cap value stocks, small cap international stocks, a commodity ETF, a global REIT and five distinct bond funds, you might gravitate towards the TKA robo-advisor.

3. If you're just starting out, you might prefer a no fee, no minimum robo-advisor. Wise Banyan's $1 entrance charge and free management for their basic service is a viable option. Plus, this robo-advisor also pays you a fee, if you refer friends.

There are other low minimum and low fee robos geared towards the beginning investor such as Wealthfront and Betterment.

4. If you don't want to transfer your investments to another site, FutureAdvisor and SigFig will manage them where they are. And both Personal Capital and FutureAdvisor provide access to cool financial management tools, for free.

5. If you're a sophisticated investor or seeking some human guidance, several robo-advisors can help.

It's becoming popular to offer a hybrid approach with access to one or more sessions with a CFP® along with the a computerized investment management algorithm. Personal Capital has a slate of financial advisors available for their managed portfolios. Also, Betterment just initiated two human financial advisor tiers to their basic service.

6. What if you're seeking a specific type of account, maybe a trust or SEP IRA? In that case, you might explore Betterment or TradeKing Advisors or some of the other firms that offer an array of investment accounts. In fact, Wealthfront recently set up access to a 529 College Savings account for their clients.

7. If you're new to the money and investment management area, maybe you'd be most comfortable investing with one of the financial apps. Although, most of the robo-advisors also provide robust apps along with their desktop dashboards.

Once you've organized what you're looking for in a robo-advisor, then you're ready to compare. There are many ways to do this. You could go to each robo-advisors' website and read through all of their features. Or, you might choose an online robo-advisor comparison chart.

The Final Words on How to Choose a Robo-Advisor

As more and more varieties of robo-advisors emerge, their utility also expands. Although housed under a single umbrella, robo-advisors differ. Their available funds, access to individual stocks, advisor availability, asset allocations, account types and add on services differentiate the firms.

Finally, if you decide to let a robo-advisor lighten your investment management load, check under the hood and find the one that's right for you.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have a small investment in WiseBanyan. I use the Personal Capital free dashboard. Information provided on Robo-AdvisorPros.com is for informational/entertainment purposes only. This information should not be construed as professional advice. Please seek a certified professional financial advisor if you need assistance. Per FTC guidelines, Robo-Advisor Pros may be compensated by third party companies that are mentioned either through advertising, reviews, affiliate programs or otherwise. All reviews and articles are our researched personal opinion and no compensation will sway our opinion.

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