Best Robo-Advisor Promotions, Offers of December 2023

All About Robo-Advisors For Automated Investing

A robo-advisor automatically selects a good investment portfolio to fit your finance needs and realistic wishes. It’s the middle option between doing it yourself and hiring a human financial advisor.

Once your funds are invested, the automated advisor makes changes to your investments when it sees fit and aligns your portfolio back to a target allocation for you. Many will purchase exchange-traded funds on your behalf.

All you have to do is tell your robo-advisor your financial goals and how much risk you’re willing to take. Then, sit back and let your money go to work with minimal thought and effort.

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Why Consider A Robo-Advisor?

Using a robo-advisor is not free, but it sure costs much less than hiring a human financial advisor. Robo-advisors will also perform difficult tasks like tax optimization and portfolio re-balancing automatically, which means higher net returns for you.

A robo-advisor is a good fit if you prefer to have very little involvement in your investments and like the idea of someone else doing all the leg work. It’s a great option if you don’t have quite enough assets to hire a human financial advisor and if you have a simple financial profile that doesn’t require the expertise of a human financial advisor.

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Factors To Consider

• Management fee. Paid annually, this fee is usually a percentage of your assets with your robo-advisor. If your annual return is 7% and your management fee is 0.25%, your gross return that year will be 6.75%. Most often, this fee is deducted from your account balance.
• Expense ratio. Like management fees, except they’re not paid to the robo-advisor. Rather, this amount goes towards the investments your robo-advisor utilizes, like mutual funds, index funds and exchange-traded funds (ETFs), to cover their costs.
• Account types. Generally speaking, investments fall under two categories:
  • Retirement accounts include IRAs and 401(k)s and have tax advantages for your contributions. However there are contribution limits and stiff distribution rules.
  • Nonretirement accounts AKA taxable accounts have no contribution limits or distribution rules.
• Investments. Most fall under two categories:
  • An index fund is a type of mutual fund with a portfolio built to match or track the parts of a market index, such as the S&P 500. These index mutual funds provide broad market exposure and low operating expenses.
  • An ETF, or exchange-traded fund, tracks an index, bonds, a commodity or a group of assets like an index fund. ETFs differ in that they trade like a common stock on a stock exchange, and will have price changes throughout the day as they are bought and sold. ETFs are attractive to investors because they have lower fees than mutual fund shares and higher daily liquidity.
• Tax-loss harvesting. This strategy sells investment assets at a loss in order to reduce your tax liability at the end of the year. It’s pretty complicated, but luckily some robo-advisors will do it for you!
• Rebalancing. Get your investment portfolio back in order periodically. Failing to do so means you’re taking on added risks as your portfolio becomes heavily weighted by one or several types of investments. Many robo-advisors check for opportunities to rebalance on a daily basis and adjust your portfolio when an allocation varies by a set amount.
• Access to human advisors. Level of access varies from personal advisors for each individual client, to a team of professionals readily available via email or online chat.
• Assets under management (AUM). The more AUM, the more stable the company is, and the more you can trust it.
• Socially responsible investing (SRI) AKA impact investing, or values-based investing, is a way for you to align your investment with your values. Companies that don’t promote social good are excluded from SRI funds and portfolios.

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Best Robo-Advisors: At-A-Glance