Getting started on retirement saving can be daunting when there are so many confusing options.
There are thousands of stocks, not to mention other complex-sounding things to buy: bonds, mutual funds, exchange-traded funds, futures. And when you start reading about them, you’re liable to run into an impenetrable wall of investment jargon.
So do you go it alone, taking shots in the dark with your hard-earned money? Buy a few books on the subject and hope they’re intelligible? Or hand it over to a professional whose credentials you feel unqualified to judge?
Maybe there’s another alternative: a robo-adviser.
What is robo-advising?
If you’re looking for a middle ground that balances your time and cost, robo-advisers might be it. This area of investment has been growing fast over the past few years, with small startups and mega investment firms like Vanguard developing products.
Robo-advising is sometimes called automated investing services. You begin by answering a handful of questions about your investment goals and how much risk you’re willing to take. Based on those answers, a computer algorithm builds and maintains an investment portfolio, or basket of investments.
Most robo-advisers put your money into exchange-traded funds, also known as ETFs. These are simply diversified portfolios of stocks, bonds or a mix of both.
You can set up with a robo-adviser quickly (some say less than 10 minutes) and without a lot of money (often $500 or less).
Robo-advisers charge fees, but they can be much less than paying a human investment adviser to manage your money. It’s also less risky than just making wild guesses on your own, and less time-consuming than learning everything that you need to do investing “right.”
Depending on the robo-adviser, you may be able to automatically rebalance your portfolio to maintain the right mix of investments and risk, optimize for lower taxes, or focus your investments on certain kinds of companies, all without ever talking to a real person.
You may also get access to financial planning tools such as retirement calculators and budgeting software. Some robo-advisers offer higher tiers of service so you can talk to real-people experts when you need to. Some specialize in analyzing the existing investments in your 401(k), while others help people who are starting to invest from scratch.
Here are some of the most popular robo-advisers, along with the fees they charge, what you need to get started and what they’re known for.
1. Wealthfront: Minimize taxes
Wealthfront charges a 0.25% annual advisory fee, and the exchange-traded funds it puts your money into charge fees ranging from 0.07% to 0.16%. There are no commission, withdrawal, transfer or other fees. You need at least $500 to start, which would work out to an advisory fee of about 10 cents per month.
Wealthfront offers “tax-loss harvesting,” which attempts to keep your tax bill lower by selling off losing investments and replacing them with new ones.
2. Wealthsimple: Socially-responsible investment
Wealthsimple charges a 0.5% annual advisory fee (which can drop to 0.4% if you are investing over $100,000), and doesn’t spell out the exact fees of the exchange-traded funds it uses, although it says “between 0.05% and 0.25% represent the normal range.”
It does not charge fees for withdrawals, transfers or maintaining an account with a zero balance. Zero, in fact, is all you need to open an account.
One of Wealthsimple’s selling points is “socially-responsible investing” — meaning investing in companies that contribute to clean energy, explicitly value women in leadership, fund local initiatives or focus on other social issues. It also offers what it calls “Halal investing” for building a smart portfolio for those who want their investments to comply with Islamic law.
3. Betterment: Goal-based investment
Betterment’s basic plan has an annual advisory fee of 0.25%. (It also has a premium plan with a fee of 0.4%, which offers access to professional advice but requires a $100,000 balance.) It says the ETFs it uses average fees of 0.11%.
It charges no other fees, and there is no minimum balance for an account.
Betterment helps plan savings and investment for specific goals such as building a safety net, a child’s education, a retirement nest egg or major purchases like a home or wedding. Like Wealthfront, it offers tax loss harvesting strategies.
4. Ellevest: Investing for women
Ellevest‘s basic plan has an annual fee of 0.25% (and a premium plan with a fee of 0.5% that requires a $50,000 balance).
The funds it uses carry fees ranging from 0.06% to 0.2%. There is no minimum balance for the basic plan.
Ellevest, as you might guess from the name, emphasizes investing for women and was built around research on women investors. Their robot tries to account for the gender pay gap and the likelihood of women living longer than men in designing portfolios, although men can and do use it too.
5. Acorns: Beginning investing
Acorns charges a flat fee of $1-$3 per month depending on the features you want. (College students can get the $1 tier for free.) The higher tiers include IRA recommendations, setting up recurring retirement contributions, help with rolling over an IRA or 401(k) and even a checking account with no minimum balance, ATM fees or overdraft fees.
There is no minimum investment.
Acorns is meant for those who want to get started, even though they may not have a lot to invest at first. Its phone app is designed to round up the money you spend on everyday purchases (by linking to a credit card or checking account) to the nearest dollar, then take that change and automatically invest it in ETFs.
Acorns has “Found Money” partnerships with over 200 brands that work like cash back on a credit card — except it’s more money earmarked for investment. There’s a delay of 60-120 days in receiving the money, but that can help offset the monthly fee.
6. WiseBanyan: Free advice
WiseBanyan markets itself as “the world’s first free financial advisor,” and indeed it charges no annual advisory fee. It offers add-on services common with other robo-advisers, such as tax-loss harvesting, for flat monthly fees.
The funds it uses have average fees of 0.12%. The minimum investment is $1.
It’s hard to beat free, and WiseBanyan is banking on you sticking around long enough to buy add-on services and advice. If you’re not sure where to start and are cautious about over-committing to a robo-adviser, this could be a place to start.
7. Blooom: 401(k) optimization
Blooom — don’t miss the extra O — is a robo-adviser for 401(k)s. It offers a free analysis of your existing 401(k) 403b, 401a, 457 or TSP account that will identify existing fees and what funds you’re invested in, and then recommend a stock-to-bond mix. Its paid service costs $120 per year and can be paid quarterly; it adds portfolio rebalancing, suspicious activity alerts for your account and access to expert advice on your investments and other financial topics.
Robo-advising can be a great place to start from scratch as an investor. One of the most important lessons in investing is that the best time to start is yesterday, so anything that keeps you from procrastinating is valuable. They’re also relatively cheap and offer useful tools and guidance.
But if you’re willing to do a little more work, either now or after trying a robo-adviser, you can save some money by cutting out the middle robo-man and investing in ETFs directly.
If you do a little digging, you’ll find most robo-advisers tell you exactly which ETFs they put your money into. For instance, here is a list of ETFs Ellevest uses. You’ll notice the name “Vanguard” pops up on there a lot — so you could go directly to Vanguard, open a brokerage account and invest in its ETFs.
For more on how ETFs work and how they compare with other investments, check out our story, “2-Minute Money Manager: Should I Invest With ETFs?” But here’s the short answer: Yes.
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