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MarketRiders – Is it legit? Review 2021

If you’re looking to build a diversified portfolio yourself, but want low fees, and a bit of advice along the way, look no further than MarketRiders.

The do-it-yourself platform works with any brokerage account. MarketRiders works as a digital advisor – advising you on the best way to manage your portfolio.

If you decide you don’t want to manage your own portfolio, MarketRiders also offers a managed service. It’s a bit more expensive than other robo-advisors, but it offers a great service.

Below I review both MarketRiders options for you to see which one (if any) would work for you.

 

What is MarketRiders?

MarketRiders is a digital advisor. They don’t manage your portfolio, like traditional robo-advisors.

Instead, they customize a portfolio after assessing your goals and risk tolerance. They suggest a portfolio of ETFs based on how much you need to earn and in what amount of time.

You take the advice provided and create a portfolio at your chosen broker. You don’t create the account at MarketRiders – they just provide the digital advice; they don’t hold your funds.

You can manage up to 10 portfolios at a time with the DIY portfolio. MarketRiders also offers a managed service, where they manage your portfolio for you. With the managed account, MarketRiders (and its subsidiaries) manage your account and hold your funds. It’s less of a DIY platform and more of an automated system.

Investors may choose how they want to handle their investments. The DIY version is great for those looking to branch out on their own. MarketRiders offers a bit of ‘hand-holding’ while providing you with the freedom to manage your own investments. It’s like knowing someone has your back.

The managed version is more of a traditional robo-advisor. You answer the same questions, but with the managed version MarketRiders handles your portfolio for you, choosing the investments and reallocating your portfolio as needed.

DIY Investing
Account Minimum
$1,000
Management Fee
$14.95 per month or $149.95 a year
Portfolio
DIY or 20 ETFs selected according to your goals
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic Deposits
Smart Beta
SRI
401(k) Assistance
Human Advice
Supported Accounts
Individual, Joint,Traditional and Roth IRA, Rollover IRA, Trusts
Best for
DIYers, Investors who want to be in charge of their portfolios. Perfect for the advanced.
Summary
MarketRiders is an established and trusted company. It is great for DIY investing however if you are just starting out and prefer more of a hands-off approach you will probably better off with a different robo advisor.
DIY Investing
Account Minimum
$1,000
Management Fee
$14.95 per month or $149.95 a year
Portfolio
DIY or 20 ETFs selected according to your goals
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic Deposits
Smart Beta
SRI
401(k) Assistance
Human Advice
Supported Accounts
Individual, Joint,Traditional and Roth IRA, Rollover IRA, Trusts
Best for
DIYers, Investors who want to be in charge of their portfolios. Perfect for the advanced.
Summary
MarketRiders is an established and trusted company. It is great for DIY investing however if you are just starting out and prefer more of a hands-off approach you will probably better off with a different robo advisor.

How does it work?

Account opening

Setting up an account is simple at MarketRiders.

You answer a handful of questions regarding your risk tolerance and goals along with some personal information. MarketRiders suggests portfolios based on this information. You can adjust the investment recommendations based on your needs until you settle on a portfolio that works.

If you choose the managed version, the account setup works the same way. You answer the questions which determine your risk tolerance and goals, but then MarketRiders manages your portfolio for you.

Deposit and withdrawal

If you use the DIY portfolio, the deposit and withdrawal limits and procedures are up to your chosen platform.

MarketRiders (both DIY and managed) require a $2,500 minimum initial deposit or portfolio.

If you use SogoMarketRider’s automated portfolio system, you can withdraw as much as you need/want at any time. If the amount requested exceeds the amount of cash you have in your portfolio, Sogo will sell ETFs to satisfy the amount.

Interface

The MarketRiders and SogoMarketRider’s platforms are easy to use. They are user-friendly, and make it easy to determine where your money is and what you should do. They even offer calculators that help you determine how much you can withdraw from your account without disrupting your portfolio allocation.

Account options

You may open a taxable (individual or joint) or retirement account at MarketRiders and SogoMarketRiders. The retirement accounts include traditional and Roth IRAs as well as rollover IRAs.

What can you trade?

MarketRiders invest only in ETFs. They don’t recommend investments in mutual funds or individual stocks. If you aren’t into investing in ETFs, this isn’t the right platform for you as that’s the only asset they trade.

Costs

MarketRiders (the DIY platform) charges the following fees:

  • $14.95/month or $149.95 per year
  • ETF fund fees chosen by MarketRiders usually have average fees of 0.17%
  • There is usually a $10 trading commission every time you buy or sell an ETF

MarketRiders has a 30-day free trial if you want to try it out, but you still provide your funding information should you decide to keep the service.

SogoMarketRiders charges 0.75 percent of assets under management with a minimum management charge of $5 a month.

How does MarketRiders make money?

MarketRiders makes money by the fees they charge, whether you use the DIY platform or the managed portfolio. They make money monthly from both services.

Additional features

Cash accounts

Both the DIY platform and managed platform have cash accounts. You can keep a portion of your portfolio in cash if you feel better about having it for emergencies or you just prefer some liquidity. If you request a transfer from either account, MarketRiders first exhausts all cash in your account.

If your withdrawal request exceeds the cash amount, they will sell ETFs to obtain the remaining funds, which may result in more cash in your portfolio depending on how the numbers work out when they sell the ETFs.

Advisors

MarketRiders doesn’t have human advisors available. They do have online chat and email capabilities, but you won’t get financial advice. The only financial advice they offer is what you get in the platform, which is extremely helpful, but it’s not human advice if that’s what you’re looking for.

Education

MarketRiders has a great section on educational webinars.

Video

Pros and Cons

PROs
Versatil - Has options for both hands-on and hands-off investors
CONs
Relatively high fees - ($14.95) a month for the DIY option
Convenient - MarketRiders works hard to find the lowest cost investments to maximize your earnings
You have to manually buy/sell the assets MarketRiders suggests you trade
Adjustability - You can change the risk tolerance of your portfolio at any time
Many of the tools offered can be found for free at other brokerages
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PROs
Versatil - Has options for both hands-on and hands-off investors
Convenient - MarketRiders works hard to find the lowest cost investments to maximize your earnings
Adjustability - You can change the risk tolerance of your portfolio at any time
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CONs
Relatively high fees - ($14.95) a month for the DIY option
You have to manually buy/sell the assets MarketRiders suggests you trade
Many of the tools offered can be found for free at other brokerages
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FAQ

How does MarketRiders provide you with advice without human interaction?

MarketRiders has a robust algorithm they use to watch your portfolio. When your portfolio needs adjusting, they have one of two ways of helping you, depending on the type of account you have.

If you use the DIY platform, the system alerts you via text or email (depending on what you set up) when you should make changes. It offers the necessary details to help you reallocate your portfolio accordingly.

If you use the managed portfolio, SogoMarketRiders handles the reallocations for you. This means you don’t have to worry about the reallocations yourself, taking the pressure off you.

How does MarketRiders bill the annual management fee?

If you choose the SogoMarketRiders program, you’ll pay a management fee of 0.75 percent of assets under management. MarketRiders bills you monthly, based on your average daily balance.

Everything is included in this fee, though. You don’t have to worry about ‘other’ fees including commissions trade costs, and custody fees.

There is a minimum $5 charge per month. If you don’t have enough assets to cover a fee of $5, you’ll be charged $5 anyway.

How hard is it to set up an account with MarketRiders?

Both processes are simple when setting up an account with MarketRiders. Whether you open up a DIY account or managed account, the process takes approximately 15 minutes.

For both accounts, you need a portfolio of at least $2,500. If you already have portfolios at another broker, make sure it’s worth at least $2,500. If you’re choosing the managed account, you’ll need $2,500 to open an account.

MarketRiders asks simple questions and they walk you through the process carefully. If you have any questions throughout the setup process, you can chat with them online to get help right away.

Who holds your money when you use MarketRiders?

Who holds your money depends on which service you choose. If you use the DIY platform, the broker you have your portfolio with holds your funds – not MarketRiders. For example, if you have a Schwab account, they hold your funds and handle your deposits and withdrawals. MarketRiders only provides the advice to help you manage your account.

If you have a managed account, your funds are held by SogoTrade who is a member of FINRA and has SIPC insurance. SogoMarketRiders and SogoTrade are companies that work together to help you meet your financial milestones.

How many portfolios can you manage with Market Riders?

This is an area MarketRiders really shines. You can manage up to 10 portfolios with one subscription. That means for $14.95 per month you can manage 10 different portfolios rather than paying for 10 portfolios.

Can you use MarketRiders to manage your employer-sponsored 401K?

It depends. In some cases, yes you can, but it’s tricky. Your employer must allow you to manage your own 401K in your own brokerage account for MarketRiders to be able to help. If this is the case, you can use MarketRiders because it will provide you with advice on which ETFs to buy, and then you can execute the trades.

Can you use mutual funds in your portfolio?

MarketRiders only uses ETFs. They can’t change your portfolio from mutual funds to ETFs nor do they recommend mutual funds. Their investment method focuses only on ETFs that work the best for your portfolio. All the advice they provide pertains to ETFs and includes rebalancing instructions to help get your portfolio back on track.

Alternatives

MarketRiders vs Betterment

logo of bettermentIf you’re looking for a robo-advisor to ‘do the work for you,’ Betterment is a better choice.

MarketRiders is for the ‘DIY’ investor although they do offer the managed version. Betterment’s fees are much lower (0.25% of assets under management).

Betterment uses the Modern Portfolio Theory like MarketRiders, and Betterment focuses on your goals and risk timeline. Like MarketRiders, Betterment rebalances your portfolio when it gets off course.

Betterment has a threshold of 5%. In other words, they rebalance your portfolio anytime it differs more than 5% from your current allocations. Betterment also rebalances your portfolio anytime you deposit or withdraw funds.

Current Promotions

MarketRiders has a 30-day free trial.

Worth It or a Scam?

MarketRiders is not a scam and is worth it for the DIY investor. If you want to manage your own portfolio but could use the advice of a professional, it’s the best of both worlds. At just $14.95 a month, it’s a great way to get the advice you need without paying the higher prices of human advisors.

While there are other fees involved, the majority of the costs fall under the monthly fee. MarketRiders is a great transition for the investor who wants to branch off on his/her own but who isn’t quite ready to do it all alone.

Summary

The platform is great for the DIYer who wants to be in charge of his/her investments. MarketRiders provides the advice, but it’s up to you to make the investments. It’s the best of both worlds, giving you the freedom you desire.

If you’re thinking about becoming a DIY investor, it’s time to check out MarketRiders. They are the best platform available that allows you to manage your accounts yourself while providing advice at the same time.

Robo Chooser

Use the following Quiz and find out which robo advisor is best for you.

 

If you have any questions, please comment below.

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TD Ameritrade | Essential vs Selective Portfolios | Review 2021

TD Ameritrade is one of the most well-known brokers available today and their offerings just keep getting better. Today they offer two programs – the Essentials Portfolios and Selective Portfolios platform.

Both platforms have the robust TD Ameritrade name, but the similarities end there.

  • The Essentials Portfolio is your traditional robo-advisor and is great for those looking for ‘the essentials’ or the basics of a robo-advisor without getting overwhelmed.
  • The Selective Portfolio is for investors looking for a more personalized approach. They offer human insight and a bit more personalized service with a wider selection of investments available.
Essential Portfolios
Selective Portfolios
Account Minimum
$5000 (or $500 when you set up recurring deposits)
$25,000.
Management Fee
0.30%
The management fee varies from 0.55% to 0.90% depending on the portfolio.
Portfolio
Morningstar-built, small portfolios of around 8 ETFs.
Custom
Rebalancing
Tax Loss Harvesting
Fractional Shares
Human Advice
Smart Beta
Automatic Deposits
401(k) Assistance
SRI
Best for
Investors who are looking for a low cost, goal-oriented robo advisor
Advanced investors who are looking for an actively managed portfolio with professional investment advice.
Supported Accounts
Individual and joint, Roth, traditional, SEP, SIMPLE & rollover IRAs. Trusts. Solo 401(k)s & Solo Roth 401(k)s. Corporate & business accounts. UGMA/UTMA.
 Individual and joint, Roth, traditional, SEP, SIMPLE & rollover IRAs. Trusts. Solo 401(k)s & Solo Roth 401(k)s. Corporate & business accounts. UGMA/UTMA.
Summary
Ameritrade offers a fair-priced robo advisor for beginner investors without trading fees.
This selective plan is geared towards the sophisticated investors, the portfolios have more variety and you can speak to financial professionals on the phone or even in person.
Essential Portfolios
Account Minimum
$5000 (or $500 when you set up recurring deposits)
Management Fee
0.30%
Portfolio
Morningstar-built, small portfolios of around 8 ETFs.
Rebalancing
Tax Loss Harvesting
Fractional Shares
Human Advice
Smart Beta
Automatic Deposits
401(k) Assistance
SRI
Best for
Investors who are looking for a low cost, goal-oriented robo advisor
Supported Accounts
Individual and joint, Roth, traditional, SEP, SIMPLE & rollover IRAs. Trusts. Solo 401(k)s & Solo Roth 401(k)s. Corporate & business accounts. UGMA/UTMA.
Summary
Ameritrade offers a fair-priced robo advisor for beginner investors without trading fees.
Selective Portfolios
Account Minimum
$25,000.
Management Fee
The management fee varies from 0.55% to 0.90% depending on the portfolio.
Portfolio
Custom
Rebalancing
Tax Loss Harvesting
Fractional Shares
Human Advice
Smart Beta
Automatic Deposits
401(k) Assistance
SRI
Best for
Advanced investors who are looking for an actively managed portfolio with professional investment advice.
Supported Accounts
 Individual and joint, Roth, traditional, SEP, SIMPLE & rollover IRAs. Trusts. Solo 401(k)s & Solo Roth 401(k)s. Corporate & business accounts. UGMA/UTMA.
Summary
This selective plan is geared towards the sophisticated investors, the portfolios have more variety and you can speak to financial professionals on the phone or even in person.

What is TD Ameritrade?

TD Ameritrade has been in business for the last 40 years, helping investors make the most of their portfolios. Today, TD Ameritrade has more than 11 million clients and $1 trillion in assets. They average 500,000 trades a day, which makes them quite the big dog in the investment business.

How does it work?

Account opening

Essentials Portfolio – Investors need a minimum of $500 to open a TD Ameritrade account if they opt for direct deposits of at least $500 a month, otherwise, the minimum is $5,000. Like most robo-advisors, you’ll encounter a questionnaire that asks about your risk tolerance and timeline to create your portfolio. The Essentials Portfolio has 5 portfolio options for you to choose from.

Selective Portfolio – Investors need at least $25,000 to open a TD Ameritrade Selective Portfolio. The onboarding process is a bit more complex, but you can do it online or call 1-866-551-6917.

Deposit and withdrawal

Like most brokerages, you link your ‘funding’ account to your TD Ameritrade brokerage account, whether Essentials or Selective. You may set up direct deposit or transfer and contribute regularly to your brokerage account (recommended if you want the lower initial deposit requirement) or make manual deposits.

Withdrawals work in the same manner. You can request withdrawal to your linked account. If you have the cash in your portfolio, TD Ameritrade transfers it quickly. If they must settle a portion of your portfolio to meet your request, it can take up to a week to receive funds.

Interface

The interface is user-friendly, giving investors 24/7 access to their accounts. You can log in to change your goals or timelines at any time. Being able to track your investments, see your progress, and ask questions is helpful for any investor whether they use the Essential or Selective portfolio.

Trading options

TD Ameritrade offers the largest selection of account options including:

  • Individual or joint taxable account
  • Traditional retirement account
  • Roth retirement account
  • SEP IRA
  • SIMPLE IRA
  • Rollover IRA
  • Trusts
  • Solo 401(K)
  • Roth Solo 401(K)
  • Business accounts

What can you trade?

Essentials – The Essentials platform focuses on ETFs. Each portfolio is Morningstar built and includes approximately 8 ETFs. TD offers 5 portfolios including a socially responsible portfolio.

Selective – TD offers a handful of portfolios based on your timeline and goals. For example, the Core Portfolio consists of mutual funds and/or ETFs covering a wide span of investments. The Supplemental Income Portfolio places more emphasis on fixed income securities and fewer equities.

Costs

The Essentials Portfolio costs 0.3% of assets under management.

The Selective Portfolio costs vary based on the amount invested and the portfolio chosen but usually average around 0.55% – 0.9%.

Additional features

Cash account

You may have a cash balance, but TD Ameritrade doesn’t offer any type of cash management services with either service.

Human advisors

Essential Portfolio – You have access to a team of advisors who can answer your questions and help you make investment decisions.

Selective Portfolio – You get more professional insights with the Selective Portfolio. It’s a mix of technology and human advisor, giving you the best of both worlds. You may work with a financial consultant or make your own decisions based on the advice provided by the platform.

Customer service

TD Ameritrade offers customer service via email and live chat Monday – Friday 7:30 AM – 7:00 PM ET. Selective Portfolio investors may have access to phone customer service as well.

Research

TD Ameritrade offers robust research options powered by Morningstar as well as other third-party providers.

Education

TD Ameritrade offers a wide range of educational opportunities including webcasts, market news, and full-blown curriculum opportunities.

Video

TD Ameritrade Pros and Cons

PROs
Essential Portfolios are built using Morningstar recommendations - Rather than using their own funds (they don’t have any). This gives you access to greater investment opportunities without feeling pressured to buy the robo-advisor’s own funds.
CONs
High account minimums – Both portfolios require a rather high minimum deposit of $5,000 and $25,000 respectively. The only exception is if you set up an automatic deposit of at least $500, you can open an Essentials Portfolio with just $500.
Relatively low management fee – The Essentials Portfolio management fee is lower than many other ‘big names’ like Fidelity or Merrill Edge. While it’s slightly higher than Betterment or Wealthfront, TD offers more benefits.
Small number of assets in each portfolio – Most robo-advisors fill portfolios with 10 or more assets, but TD keeps it to the basics with 8 or fewer assets in each portfolio. This makes diversifying a little harder.
The option for a socially responsible portfolio – Most robo-advisors don’t have a socially responsible portfolio option. TD offers the portfolio for every investment range whether conservative, moderate growth or aggressive.
Selective Portfolio is more complicated - Even though they walk you through each step, the Selective Portfolio is a bit more complex and may take some time to get used to.
Almost any account option is available – Most robo-advisors offer a taxable or IRA account and that’s it. TD offers the largest selection for anyone in just about any financial situation including the self-employed.
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Human insights with Selective Portfolios – If you have $25,000 to invest, you get the best of both worlds with the Selective Portfolio combining both human (professional) advice with an automated platform.
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Monitoring and rebalancing – Both portfolio options include automatic monitoring and rebalancing. You can watch your account but you don’t have to because you know TD has your back and will reallocate your portfolio as necessary.
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Free tax-loss harvesting – Both portfolios offer tax-loss harvesting. This means they’ll sell certain investments at a loss to offset a large capital gain. This lowers your tax liability while allowing you to enjoy the capital gains on your investments.
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PROs
Essential Portfolios are built using Morningstar recommendations - Rather than using their own funds (they don’t have any). This gives you access to greater investment opportunities without feeling pressured to buy the robo-advisor’s own funds.
Relatively low management fee – The Essentials Portfolio management fee is lower than many other ‘big names’ like Fidelity or Merrill Edge. While it’s slightly higher than Betterment or Wealthfront, TD offers more benefits.
The option for a socially responsible portfolio – Most robo-advisors don’t have a socially responsible portfolio option. TD offers the portfolio for every investment range whether conservative, moderate growth or aggressive.
Almost any account option is available – Most robo-advisors offer a taxable or IRA account and that’s it. TD offers the largest selection for anyone in just about any financial situation including the self-employed.
Human insights with Selective Portfolios – If you have $25,000 to invest, you get the best of both worlds with the Selective Portfolio combining both human (professional) advice with an automated platform.
Monitoring and rebalancing – Both portfolio options include automatic monitoring and rebalancing. You can watch your account but you don’t have to because you know TD has your back and will reallocate your portfolio as necessary.
Free tax-loss harvesting – Both portfolios offer tax-loss harvesting. This means they’ll sell certain investments at a loss to offset a large capital gain. This lowers your tax liability while allowing you to enjoy the capital gains on your investments.
CONs
High account minimums – Both portfolios require a rather high minimum deposit of $5,000 and $25,000 respectively. The only exception is if you set up an automatic deposit of at least $500, you can open an Essentials Portfolio with just $500.
Small number of assets in each portfolio – Most robo-advisors fill portfolios with 10 or more assets, but TD keeps it to the basics with 8 or fewer assets in each portfolio. This makes diversifying a little harder.
Selective Portfolio is more complicated - Even though they walk you through each step, the Selective Portfolio is a bit more complex and may take some time to get used to.
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FAQ

Is TD Ameritrade good for beginners?

Beginners should start with TD Ameritrade’s Essentials Portfolio. As the name suggests, they stick to the essentials. They don’t confuse you with a crazy number of investments or choices. With 5 portfolios to choose from and only 8 assets in each, it’s easy to get the hang of investing, while TD Ameritrade does the heavy lifting. Check out all the best robos for beginners in this post.

What are TD Ameritrade’s ETF expense ratios?

All ETFs have expense ratios. This money doesn’t go to TD Ameritrade, though. The 0.3% of assets under management or (0.5 – 0.99% for Selective) are the only fees TD Ameritrade collects. If you trade ETFs, expect to pay 0.06 – 0.07% for regular portfolios and 0.10 – 0.17% for socially responsible portfolios.

How often does TD Ameritrade rebalance accounts?

All TD Ameritrade accounts are rebalanced annually, but they also rebalance on an as-needed basis. If you make deposits or withdrawals, for example, they’ll need to rebalance. They also rebalance when the market takes a turn (for better or worse).

Is onboarding difficult?

TD Ameritrade makes onboarding easy for both Essential and Selective portfolios. After answering the questions, they recommend a portfolio. You are free to go through the various options, though, choosing the one you think is right for you. It’s usually best to stick with TD’s choice, though.

How much money can tax-loss harvesting save?

TD Ameritrade offers free tax-loss harvesting, which is a huge benefit. They say they can save investors up to $3,000 in tax liability by using this practice when you sell off an asset with high capital gains.

How many socially responsible portfolios does TD Ameritrade have?

TD Ameritrade has an impressive 5 portfolios to choose from if you are socially-minded. You can choose the portfolio that aligns with your beliefs so your investments and beliefs align.

How are Selective Portfolio investment fees calculated?

Unlike the Essentials Portfolio, the Selective Portfolio’s management fees depend on the amount invested and chosen portfolio. Investors know the fees before choosing an investment.

How does TD Ameritrade make money?

TD Ameritrade makes money on the fees they charge for each portfolio. They don’t charge commissions for the trades, and any fees you pay for ETF or mutual fund management goes to the fund manager, not TD Ameritrade.

Alternatives

TD Ameritrade vs Interactive Brokers

Interactive Brokers is good for active and passive investors looking for a larger investment selection. Investors may trade stocks, bonds, and ETFs like most robo-advisors.

You may also trade options, futures, forex, and metals, though. IB offers 4,300 no-load fee mutual funds, but their platform is a bit harder to navigate compared to TD Ameritrade. IB charges a flat fee, versus a percentage of assets under management.

TD Ameritrade vs Webull

Webull, like most robo-advisors offers commission-free trades. Webull targets technical investors though.

If you’re into technical research and want to know the ins and outs of each investment, Webull is your platform. Webull offers extensive research and educational opportunities and offers margin trading and after-hours trading.

TD Ameritrade vs Etoro

Etoro is for the advanced investor looking for different investment options, especially cryptocurrency. Etoro doesn’t have an account minimum and has zero commissions. Etoro is also for the social investor – one who likes to know what other investors are doing and will copy or mimic their investments. If cryptocurrencies were something you were interested in, Etoro is the right platform.

TD Ameritrade vs RobinHood

Robinhood was the first robo-advisor to offer commission-free trades, but many have quickly followed suit. Robinhood trades all assets including stocks, ETFs, options, and cryptocurrency.

It is a basic platform, which is great for beginners. Since you don’t need an account minimum, anyone can start investing, getting a feel for how it works even with a minimal deposit.

Current Promotions

Account minimum of only $500 when setting up recurring deposits (essential portfolios)

Worth It or a Scam?

TD Ameritrade is as legitimate as they come. It’s a household name and with its two robo-advisor offerings, there is something for everyone.

Whether you’re a beginner and want a simple portfolio with 8 or fewer assets that are easy to manage or an experienced investor looking for a more robust experience, possibly managing your investments on your own, there’s something for you.

Summary

If you’re looking for a reputable robo-advisor with simple options and yet robust educational and research opportunities, TD Ameritrade is a great option.

You’ll get the best of all worlds, low fees, exceptional investments, and the guidance you desire whether complete hand-holding or a bit of DIY with guidance.

Robo Chooser

Use the following Quiz and find out which robo advisor is best for you.

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M1 Finance Smart Transfers – How do they Work?

If you’re an M1 Plus Member, you get many great benefits that standard M1 investors don’t get and now this includes the exciting benefit of using M1’s latest feature – Smart Transfers.

* This article is about M1s Smart Transfers. If you’re new to investing and are here because you are thinking about signing up with M1 Finance, make sure to check out our in-depth review first.

Up until now, M1 relied on scheduled or manual transfers. For example, you could set up a transfer from checking to your Invest account weekly, bi-weekly, or monthly.

Many investors set up transfers to coincide with their pay dates. You could also manually transfer funds if you found yourself with extra funds or just wanted to invest a little more. This was always a ‘one-time’ deal, though and it took a lot of effort.

You had to manually make the transfer happen. Not that it was the end of the world, but with all the busyness going on today, many investors overlooked perfectly good money they could be investing or transferring to their M1 Spend Plus checking, earning 1% APY rather than sitting idle. Money sitting doing nothing is like throwing earnings out the window.

M1 Smart Transfers changes all of this and more. Now you don’t have to rely on remembering to transfer funds or waiting for the ‘scheduled transfers’ to occur.

Smart Transfers sets up rules that make it easy to automatically transfer your funds.

You don’t have to worry about forgetting, overlooking the opportunity, or not knowing how to handle the transfer.

Here’s how it works.

What are Smart Transfers?

Smart Transfers, otherwise known as cash sweeps, are rules you set up to sweep cash either into your investment account or back into your Spend account based on your rules.

The sweeps focus on ‘overbalances’ and refers to money in your investment account that’s sitting idle (dividend payments or sell payment proceeds) or money sitting in your checking account (Spend) that you don’t need there.

You set the rules and M1 does the rest, putting an end to idle money.

Set up the Rule

First, you set up the ‘rule.’ Choose an account, either your M1 Spend Plus account or Invest account to start. Now set a cash balance that you need in the account.

Example

Let’s look at the Spend account. Let’s say it’s your emergency fund and you need at least $1,000 in there at all times to bail you out of a sudden emergency. $1,000 is then your ‘trigger.’ You set the rule that any money above $1,000 is transferred to your Invest account.

Now anytime you are even $1 over $1,000 in your Spend account, the money immediately gets invested. You don’t have to do anything either.

There’s no more ‘I forgot’ or ‘I didn’t have time’ excuses. The transfer happens without you lifting a finger.

You can set up the rule the other way around too.

Using your Invest account, you can say, any excess money sitting in your Invest account that’s not invested, should transfer to your M1 Spend account to earn the 1% APY offered on this account.

The rule you set up is ongoing – not a one-time deal. If you have the $1,000 threshold in your Spend account, every time your account has more than $1,000, M1 will transfer the funds automatically. It’s a no-brainer.

Rules for the Invest Account

It’s important to clear a few things up about transfers from the Invest account to your Spend account.

First, M1 will only transfer cash. If you don’t have idle cash, no transfer will take place. In other words, M1 won’t sell securities to transfer cash over. The rule only applies to the uninvested money you may have sitting around, which commonly occurs from dividend payments if you don’t have them automatically reinvested or when you sell securities and don’t reinvest the cash.

How to Set up M1 Transfers

Setting up M1 transfers is incredibly easy.

Start by going to the transfers tab and click ‘Move Money.’ You’ll be presented with a list of options – choose ‘Smart Transfers.’ Now choose ‘Spend Overbalance’ or ‘Invest Cash Overbalance.’

You then choose the ‘trigger balance’ and the account to send it to. If you’re setting a rule for your Spend account, you’d enter $1,000 and Invest account. This sets up the rule to send Spend overbalances to your Invest account.

Click ‘Create Smart Transfer’ and you’re done. You don’t have to set the rule up again unless you want to change the parameters.

You can edit Smart Transfers at any time. Just click on the Smart Transfer you want to edit and click ‘edit.’ Make any changes on the screen that you want – just like you did when you set it up, and click ‘Update.’

Pausing Smart Transfers

You can pause Smart Transfers at any time. Go into the transfer you want to pause and toggle off the button for ‘Enable Smart Transfer.’ This pauses it indefinitely until you toggle it back on.

If you decide you don’t want the rule any longer, click on ‘edit’ like you would to change it, but rather than changing the information, click ‘delete.’

The Perks of M1 Plus

If you haven’t jumped at the chance to be an M1 Plus member yet, check out the amazing benefits in addition to Smart Transfers:

  • Afternoon trade window – Standard M1 customers may only trade during the morning trade window. M1 Plus members, however, may conduct afternoon trades, which occur at 3 PM ET.
  • Earn cash back – M1 Plus members receive 1% cashback on all debit card purchases. You’ll receive the cashback on the 10th of the month following the month you made the purchases.
  • Earn interest – M1 Plus members earn interest (1.0% APY) on the final day of each month on their balances in M1 Spend.
  • Lower loan interest rates – M1 Plus members receive a 1.5% lower rate from the standard M1 Borrow rate.

M1 Finance is a Great Option for Traders

Whether you’re a new or experienced investor, M1 Finance offers incredible benefits for traders. With commission-free trades and a hands-on approach, M1 is great for the trader learning the ropes to handle his/her investments without a robo-advisor.

Speaking of trading, check out our comparison of Robinhood and M1 Finance to find out which app we recommend for trading.

M1 offers pre-built portfolios making it easy to choose your investments or you can build your own portfolio, which they call pies. You decide how you want to invest and M1 does the rest. It’s a great tool for any investor who doesn’t rely on heavy research or tools but just wants the ability to invest with a hands-on approach.

Why you Should Use Smart Transfers

It may seem unnecessary to use Smart Transfers, especially if you already have automated transfers set up, but there are benefits.

You set up automated transfers based on your pay dates. But what if something changes? Maybe you get a bonus or receive a monetary gift or a large tax refund. Suddenly you have more cash in your Spend account. Chances are if you leave it there, you’ll spend it, right?

If you set up a rule to automatically transfer the funds beyond a specific dollar amount, though, the temptation to spend isn’t there anymore because M1 will invest the money as you set up in the rule.

Even if you would have transferred the funds eventually, every day costs you money. If you have the rule set up to transfer the money right away, you may invest a few days, weeks, or even months sooner because who knows when you would have gotten around to it.

The more time your money is in the market, the better your chances of greater returns. It may not sound like much, especially if it’s only a few days, but it all adds up – sometimes to thousands of dollars when you look at the big picture.

Smart Transfers, as the name suggests, are also smart. If your balance dips below your threshold, you don’t have to do anything. It won’t transfer funds until you reach and go beyond your threshold again.

Let’s say you had an emergency and you dipped into your Spend account. You now have $500 rather than $1,000. M1 won’t transfer any funds to your Invest account until you replenish the account back to $1,000 and then it will only invest the excess.

There’s More to Come

M1 Finance has also said ‘they aren’t done yet.’ Smart Transfers aren’t fully complete, which means there are more surprises coming your way.

Their hint was this – ‘imagine stringing together a chain of Smart Transfers.’ While we aren’t sure what they’re up to yet, it’s intriguing to know they still have more goodies up their sleeve to make investing with M1 even more enticing.

Conclusion

If you haven’t tried M1 Smart Transfers yet, now is the time! With its new release, more investors are bound to check out M1 and how it works. Smart Transfers is something most brokers don’t have, giving M1 the leg up on the competition.

If you’re tired of forgetting to make transfers or not knowing when it’s okay to transfer funds to your Invest account or the other way around, take advantage of technology and Smart Transfers.

Best for DIY
Account Minimum
$100
Management Fee
0.00%
Portfolio
The user can create portfolios which consist of low-cost ETFs or individual stocks
Account Types
Individual and joint taxable accounts; traditional, Roth and rollover IRAs, trusts and even business accounts.
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic Deposits
SRI
Human Advice
Best for
DIY Investors. If you are enthusiastic about getting your feet wet in the investing world, M1 Finance is the robo advisor of your choice
Summary
M1 Finance is the best choice for self-directed investors that want to pick from existing portfolios or customize their own.
Best for DIY
Account Minimum
$100
Management Fee
0.00%
Portfolio
The user can create portfolios which consist of low-cost ETFs or individual stocks
Account Types
Individual and joint taxable accounts; traditional, Roth and rollover IRAs, trusts and even business accounts.
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic Deposits
SRI
Human Advice
Best for
DIY Investors. If you are enthusiastic about getting your feet wet in the investing world, M1 Finance is the robo advisor of your choice
Summary
M1 Finance is the best choice for self-directed investors that want to pick from existing portfolios or customize their own.

 

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Betterment vs Ellevest – Which is Better?

Betterment vs Ellevest – it’s a common debate amongst investors.

In this article I’ll compare both, share the pros and cons, and who would be best suited for each.

About Betterment

logo of bettermentBetterment is the largest independent robo-advisor and is also one of the first to arrive in the market.

Betterment offers two services – Betterment Digital which has no minimum investment requirement and Betterment Premium, which has a higher minimum balance requirement of $100,000 and higher fees, but offers more, including access to a human advisor.

About Ellevest

Ellevest-best-for-womenEllevest is a robo-advisor geared toward women. It was founded by women, it’s run by women, and it focuses on women, but anyone can invest there, even men. They charge monthly fees rather than a percentage of assets under management and have three tiers to choose from.

Ellevest uses the goal-focused approach and they don’t require a minimum balance. Ellevest doesn’t offer access to a human advisor even in their highest tier program, but you can purchase human advisor services a la carte.

Best Service
logo of betterment
Great for Women
Ellevest-best-for-women
Account Minimum
The Digital Plan has no account minimum. The Premium Plan starts at $100,000.
The Digital Plan has no account minimum. The Premium Plan starts at $50,000.
Management Fee
0.25% for Digital and 0.40% for Premium
Digital: 0.25% Premium: 0.50%
Portfolio
ETFs from about 12 asset classes. The user can choose between a recommendation or decide the percentage of portfolio in each investment.
Depending on the portfolio you choose, the mix will include 20 to 27 ETFs. Just like with Betterment, customization is possible.
Account Types
Individual and joint taxable accounts; traditional, Roth and rollover and SEP IRAs, trusts and even business accounts.
Taxable brokerage accounts, Traditional, Roth, and SEP IRAs, 401(k)
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic Deposits
SRI
Human Advice
Best for
Investors who are looking for hands-off, "set it and forget it" type of robo advisor with low fees.
Investors who want a goal based investing platform with the option to contact certified financial advisors and career coaches.
Best Service
logo of betterment
Account Minimum
The Digital Plan has no account minimum. The Premium Plan starts at $100,000.
Management Fee
0.25% for Digital and 0.40% for Premium
Portfolio
ETFs from about 12 asset classes. The user can choose between a recommendation or decide the percentage of portfolio in each investment.
Account Types
Individual and joint taxable accounts; traditional, Roth and rollover and SEP IRAs, trusts and even business accounts.
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic Deposits
SRI
Human Advice
Best for
Investors who are looking for hands-off, "set it and forget it" type of robo advisor with low fees.
Great for Women
Ellevest-best-for-women
Account Minimum
The Digital Plan has no account minimum. The Premium Plan starts at $50,000.
Management Fee
Digital: 0.25% Premium: 0.50%
Portfolio
Depending on the portfolio you choose, the mix will include 20 to 27 ETFs. Just like with Betterment, customization is possible.
Account Types
Taxable brokerage accounts, Traditional, Roth, and SEP IRAs, 401(k)
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic Deposits
SRI
Human Advice
Best for
Investors who want a goal based investing platform with the option to contact certified financial advisors and career coaches.

What do they have in common?

  • Both have a program that doesn’t require a minimum balance.
  • You can open a taxable or retirement account at either robo-advisor (but no joint accounts at Ellevest)
  • Both platforms work on a goals-based investment philosophy
  • Both companies invest in ETFs
  • Betterment and Ellevest both automatically rebalance your portfolio
  • Both platforms have a viable mobile app
  • Both brokerages operate as a fiduciary

How are they different?

Betterment looks at your finances from a holistic point of view. They look at your entire financial profile and zero in on specific goals, such as buying a house or having a baby. Betterment offers personalized plans to help you achieve your goals, and they offer plenty of education along the way.

Ellevest focuses on women investors. It has a unique focus on women’s issues including the wage gap, longer life expectancies, and time off to raise children. Ellevest doesn’t offer joint accounts, so if you planned on opening an account with your spouse, you’d have to look elsewhere.

In-depth comparison – 10 distinctions

1. Goal Setting

Both Betterment and Ellevest focus heavily on goals.

Betterment makes it easy to set and meet goals. You can monitor each goal on its own, and can add new goals as often as you want. You can easily track your progress on their dashboard. They alert you right away if you are off-base and offers solutions (larger deposits) to rectify the issue. Betterment is great for young investors just starting out that may need those reminders to invest more money and more frequently. Betterment does take into account your other financial accounts to fully plan your goals.

Ellevest is also goal-focused, however, the number of goals you can set depend on your chosen plan. The basic plan at $1 a month allows one goal and its top plan allows up to six goals. You can set up goals for just about anything including saving for a house, retirement, or opening your own business. Ellevest focuses on gender-specific salary differences and life expectancies to manage your goals.

2. Retirement Planning

Betterment does a great job at retirement planning. They focus on aggressive investments during your younger years and more conservative portfolios as you age. If you link your external accounts, you’ll get a more holistic view of your retirement funds with Betterment versus Ellevest.

Ellevest focuses on long-term life expectancies and invests for retirement accordingly. If you sign up for Ellevest Plus, you’ll get advice on IRAs and 401Ks. Ellevest also offers a la carte services with retirement specialists and career specialists to further your retirement goals.

3. Account Types

Betterment and Ellevest offer the same account types you find at most robo-advisors. Like I said above, though, Ellevest doesn’t offer joint accounts. Betterment does offer a few more account options, though.

Both brokerages offer:

  • Individual taxable accounts
  • IRAs
  • Roth IRAs
  • SEP IRAs

In addition, Betterment offers support for inherited IRA accounts and trust accounts.

  • Inherited IRA accounts
  • Trust accounts

4. Features and Accessibility

Betterment and Ellevest both have basic accounts with no minimum balance requirement and premium accounts with higher balance requirements and more features.

Both firms offer access to human advisors, but at different costs and both offer portfolio reallocation. Betterment requires you to have $100,000 under management. You pay a higher fee, but have access to access to a team of financial advisors – you get unlimited access on this plan.

Betterment also offers many financial planning tools, all of which are free. Plenty of flexibility when creating portfolios and goals and a platform that sees you through any changes, decisions, or questions.

Ellevest’s features depend on the chosen subscription. If you pay for the higher tier for retirement planning, you get higher discounts on advice from a human advisor. The discounts range from 20 percent to 50 percent on the highest tier. Ellevest’s platform is focused on women, including their salary and investment needs.

5. Fees

Betterment uses the assets under management strategy, charging 0.25% of assets under management under $100,000 and 0.4% of assets under management over $100,000. If you have more than $2 million invested, they offer discounted rates.

Betterment Fees

Digital Plan
Premium Plan
Account Minimum
$0
$100,000
Annual Fee
0.25%
0.40%
Automated portfolio
Fractional shares investing
Rebalancing
Tax loss harvesting
Basic Support
Proactive account management
Advice on outside investments
Unlimited access to financial experts
Digital Plan
Account Minimum
$0
Annual Fee
0.25%
Automated portfolio
Fractional shares investing
Rebalancing
Tax loss harvesting
Basic Support
Proactive account management
Advice on outside investments
Unlimited access to financial experts
Premium Plan
Account Minimum
$100,000
Annual Fee
0.40%
Automated portfolio
Fractional shares investing
Rebalancing
Tax loss harvesting
Basic Support
Proactive account management
Advice on outside investments
Unlimited access to financial experts

Ellevest Fees

Ellevest uses a subscription-based model:

  • $1 a month for one non-retirement goal
  • $5 a month for a retirement goal
  • $9 a month for up to 6 goals including a retirement goal

6. Minimum Deposit

Neither Betterment or Ellevest require a minimum deposit unless you want to use Betterment Premium for access to financial advisors, then you need $100,000 invested.

7. Portfolios

Both Betterment and Ellevest use the Modern Portfolio Theory which focuses on:

  • Diversification
  • Buy and hold
  • Risk tolerance
  • Goal timelines
  • Aggressive vs conservative investing

Betterment has the following portfolios:

Ellevest has both diversified and socially responsible portfolios as well, but they emphasize their impact or socially responsible portfolios.

8. Tax Loss Harvesting

Betterment offers standard tax-loss harvesting, selling off losses to offset the capital gains, and lowering tax liabilities.

Ellevest doesn’t do tax-loss harvesting, but uses a tax minimization strategy that helps rebalance tax liabilities in a similar fashion to tax-loss harvesting.

9. Security

Both Betterment and Ellevest take security seriously using 256-bit SSL encryption. They both also carry SIPC insurance and two-factor authentication.

10. Customer Service

Betterment offers email and phone customer service 9 AM – 6 PM on weekdays. Ellevest offers email customer service but typically respond quickly during business hours.

Betterment Pros and Cons

PROs
Perfect for easy, hands-off investing – Once you have set your goals you can lean back and let Betterment do the rest.
CONs
Difficult to cancel the account – Betterment makes it paperwork heavy to leave them.
Rebalancing and Daily tax-loss harvesting – Minimize your tax liabilities with daily tax-loss harvesting, selling off your losses to offset your gains
Encourages you to invest your emergency fund – Most financial experts recommend keeping your emergency fund liquid, but Betterment recommends a specific portfolio that is on the aggressive side and could put your emergency fund at risk.
Offers a variety of tools – Betterment helps you plan your financial future by making smart financial decisions with your investments and regular accounts too.
-
No minimum deposit – You don’t need any money to open an account, but even better is the low $100,000 minimum for Betterment Premium which offers access to professional financial advisors.
-
Low management fees – Betterment charges just 0.25% for less than $100,000 and 0.40% for over $100,000
-
PROs
Perfect for easy, hands-off investing – Once you have set your goals you can lean back and let Betterment do the rest.
Rebalancing and Daily tax-loss harvesting – Minimize your tax liabilities with daily tax-loss harvesting, selling off your losses to offset your gains
Offers a variety of tools – Betterment helps you plan your financial future by making smart financial decisions with your investments and regular accounts too.
No minimum deposit – You don’t need any money to open an account, but even better is the low $100,000 minimum for Betterment Premium which offers access to professional financial advisors.
Low management fees – Betterment charges just 0.25% for less than $100,000 and 0.40% for over $100,000
CONs
Difficult to cancel the account – Betterment makes it paperwork heavy to leave them.
Encourages you to invest your emergency fund – Most financial experts recommend keeping your emergency fund liquid, but Betterment recommends a specific portfolio that is on the aggressive side and could put your emergency fund at risk.
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Ellevest Pros and Cons

PROs
A platform that focuses on women and their investment needs – In my search for robo-advisors that specifically target women, Ellevest came out on top. Founded by women, the program takes into consideration the income gap, longer lifespan, and savings issues women face today.
CONs
No joint accounts – If you want to open an investment account with your spouse or someone close to you, joint accounts aren’t an option at Ellevest. In this case Betterment may be the best alternative.
Low account minimum – Women don’t need any money to open an account. Of course, you need money to make money, but not having a minimum balance requirement makes it easy for any woman to start investing.
Not much say in your portfolio – If you want control over what your money gets invested in
Relatively low fees – The 0.25% - 0.5% account balance fees are minimal compared to many other robo-advisors. While there are other miscellaneous fees depending on what assets you trade, there are always fees to trade assets and Ellevest keeps them as low as possible.
No tax loss harvesting – If you’re a wealthy investor, the lack of tax loss harvesting can cost you a lot money in tax liabilities
Focuses on goals – Rather than just setting up an investment account and hoping for the best, Ellevest creates portfolios for each goal you have. For example, if you’re saving for a house and retirement, you’ll have two portfolios and can see where you stand with each goal at any time.
-
No IRA transfer frees – Transfer over your IRA to Ellevest for no charge. Your current IRA firm may charge a fee, though, so always check with them too.
-
Automatic rebalancing – Ellevest will automatically rebalance your portfolio only if it veers way off the chosen goal’s path. This usually happens if there are large dips in the market or your monthly contributions change significantly.
-
Ellevest is a fiduciary – This means that Ellevest must watch out for your best interests and not their own profits. Ellevest must be transparent in how they handle your money and communicate with you about any changes.
-
PROs
A platform that focuses on women and their investment needs – In my search for robo-advisors that specifically target women, Ellevest came out on top. Founded by women, the program takes into consideration the income gap, longer lifespan, and savings issues women face today.
Low account minimum – Women don’t need any money to open an account. Of course, you need money to make money, but not having a minimum balance requirement makes it easy for any woman to start investing.
Relatively low fees – The 0.25% - 0.5% account balance fees are minimal compared to many other robo-advisors. While there are other miscellaneous fees depending on what assets you trade, there are always fees to trade assets and Ellevest keeps them as low as possible.
Focuses on goals – Rather than just setting up an investment account and hoping for the best, Ellevest creates portfolios for each goal you have. For example, if you’re saving for a house and retirement, you’ll have two portfolios and can see where you stand with each goal at any time.
No IRA transfer frees – Transfer over your IRA to Ellevest for no charge. Your current IRA firm may charge a fee, though, so always check with them too.
Automatic rebalancing – Ellevest will automatically rebalance your portfolio only if it veers way off the chosen goal’s path. This usually happens if there are large dips in the market or your monthly contributions change significantly.
Ellevest is a fiduciary – This means that Ellevest must watch out for your best interests and not their own profits. Ellevest must be transparent in how they handle your money and communicate with you about any changes.
CONs
No joint accounts – If you want to open an investment account with your spouse or someone close to you, joint accounts aren’t an option at Ellevest. In this case Betterment may be the best alternative.
Not much say in your portfolio – If you want control over what your money gets invested in
No tax loss harvesting – If you’re a wealthy investor, the lack of tax loss harvesting can cost you a lot money in tax liabilities
-
-
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Which is best? My Pick

Betterment is better for goal planning and overall retirement savings. They offer a holistic view of all accounts, allow as many goals as you want, and have low fees. It’s easy for anyone to get started, even beginners.

Ellevest is mostly for women.

While anyone can invest there, the research, education, and all marketing is for women. The pricing is different and you have to pay extra for human advisor services. Ellevest uses a slightly more aggressive investment approach too, which isn’t great for beginners.

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Coronavirus and Robo-Advisors – How’d They Do?

Robo-advisors were put to the test these last six months. As the pandemic spread and hurt the economy, the stock market fell quickly and robo-advisors had to bear the heavy burden of re-allocating portfolios, not to mention trying to stay afloat.

In fact, robo-advisors saw more cash coming in and out than they’ve ever seen before.

They’ve also seen an incredible increase in new sign-ups. Since robo-advisors are fairly new since the last economic crisis of 2008, it’s interesting to see how they’ve performed.

3 Reasons why Robo-Advisors did so well

Experts don’t agree on the reasons, but some of the consensus includes:

1. Most Robo-Advisors use goal-based investing.

They take into consideration an investor’s risk tolerance, timeline, and intended financial goals. As an investor nears his goal, robo-advisors naturally choose conservative investments to reduce the risk of loss.

More conservative investments mean a lower risk of loss even during an economic downturn. While there’s a healthy mix of investors close to their goals and those not so close, robo-advisors found a way to ride the storm, helping investors through it.

2. Robo-Advisors offer allocation shifts

Many investors immediately pull out of the market when investments go south. It makes sense why they would do it, but it’s the worst thing they could do. Investors using a robo-advisor are less likely to do so because of the automated re-allocation.

If anything, robo-advisors reallocated to less risky investments for the time being, such as bond ETFs and then switched investors back to stock ETFs once the market rebounded. Investors staying in the market, but reallocating temporarily played a role in robo-advisors’ success.

3. Frequent Communication

If there’s one thing all investors needed during the pandemic it’s communication. That can be hard with a robo-advisor since most communication is digital, but many advisors offer alternatives including live chat, email, support, and even phone support.

What did Robo-Advisors Do?

Robo-advisors typically buy-and-hold. One of the main benefits of using one is the limited emotional investing you can do. When you do DIY investing, it’s human nature to pull out of the market when it takes a nosedive like it did in February/March of this year.

Robo-advisors don’t encourage that and actually make it hard to pull out for that very reason. Most robos use long-term passive investment strategies, which meant most portfolios were left alone, or if they were affected, have since bounced back.

Which Robo-Advisors did Good?

As you probably guessed, some robo-advisors did good while others had a rougher time through the pandemic, but most remained open.

TD Ameritrade’s Essential Portfolios, for example, was able to get most of the market’s upswing rather than downswing. They have a large focus on fixed-income securities which didn’t see the same downfall as equities, so that helped offset the risk.

Charles Schwab Intelligent Portfolios, on the other hand, had the opposite issue. They were on the market’s downside. This is because Schwab Intelligent Portfolios focus heavily on international emerging markets, which are much riskier than fixed-income assets.

Many robos focused heavily on tax-loss harvesting throughout this time, and Betterment advisors stated most phone calls and inquiries they received were about this issue. Investors wanted to know how to offset their tax liabilities during such a volatile time.

Does this mean rebalancing trades won’t happen?

They will, it may just take time. Most robo-advisors didn’t buy into the ‘sell now’ phenomenon and rather are waiting to see what happens.

During a downturn, most investors sell equities and buy fixed-income assets for the stability and lower risk of loss. The trading volume wasn’t nearly as high as one would think during the pandemic, though.

The most important thing robo-advisors did, whether human or computer, was to avoid emotional investing. Even reallocating portfolios wasn’t necessary at this point, but it may become apparent down the road.

How Could Robo-Advisors do Better?

Robo-advisors did a great job getting through the worst of the pandemic, but moving forward, many firms may implement more support to help investors during times of crisis, such as the pandemic.

Offering more life-planning services may help investors feel better prepared and less likely to pull out of the equities market. Helping clients realize the importance of emergency funds and how to cut expenses is crucial. While it may seem simple to jump right into your portfolio and cash out your investments, it’s the worst decision long-term.

The right robo-advisor will help you see through the hard times. Even if you have to reallocate your portfolio, it’s better than selling your investments and realizing a serious loss, not to mention tax liabilities.

Set yourself up for the future by choosing the robo-advisor that aligns with your beliefs and who will help you through the pandemic should it or something similar occur again.

Robo Chooser

Use the following Quiz and find out which robo advisor is best for you.

 

If you have any questions, please comment below.

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Investing 101 – Asset classes

Before you invest, it’s important to understand your choices, how they work, and how to determine which asset classes are right for you.

Traditional beginning investors stick with stocks and bonds, but there are many other investments available today that if you’re willing to take the risk, are at your disposal.

What are the 3 Asset Classes?

The 3 traditional asset clases.

Traditional asset classes are the investments that first come to mind when you think about investing. But what are the 3 traditional asset classes? The answer is

  • Stocks
  • Bonds
  • Cash

When we say cash, we mean cash at home (under your mattress) and cash in a high-yield account, such as a money market or CD. Cash should earn at least a fixed interest rate while it sits uninvested.

When you own stocks, you have ownership in a company. You can buy common or preferred stock. Common stock gives you voting rights at shareholder meetings (if you choose to do so). Preferred stock doesn’t include voting rights, but you have a higher priority on payouts. Stock prices vary daily and sometimes several times a day. The idea is to ‘buy low and sell high,’ but of course, that doesn’t always happen.

If you invest in bonds, you invest in a company’s debt. You are the ‘bank’ or the person lending the money. The company pays you back interest at a fixed interest rate. Most bonds are with government entities or corporations and carry little risk, but there’s always a risk of default, especially if you invest in junk bonds.

What are the 4 Asset Classes?

We already discussed the 3 asset classes above, as they are the traditional assets. However, today, experts agree that there is a 4th asset class – real estate. This asset class also includes tangible assets – any physical assets you can touch and invest in fall into this 4th category. So we have:

  • Stocks
  • Bonds
  • Cash
  • Real estate

Investing in real estate is possible in a few ways:

  • Buy a property and hold it – Traditional real estate investing means you buy a property, fix it up, and rent it out. You use the rent to cover the mortgage (if applicable) and make a profit off the monthly cash flow.
  • Buy a fixer-upper – You can buy a property at below market value, pay to fix it up, and then sell it for a quick profit. Investors usually do this within 6 months or less.
  • Invest in real estate investment trusts – If you don’t want to physically own property, you can invest in REITs which provide funds to property managers and investors to invest in real estate. You earn a prorated amount of the earnings based on the type of investment (equity or debt).

What are the 7 Asset Classes?

If you want to take the asset classes even further, there are 7 total asset classes. In addition to stocks, bonds, cash (money market), and real estate, there are international emerging markets, commodities, and foreign currency. To sum it up we have:

  • Stocks
  • Bonds
  • Cash
  • Real estate
  • International markets
  • Commodities
  • Foreign Currencies

Riskiest Assets vs Safest Assets

If you invest, you take a risk, otherwise, it wouldn’t be investing – it would be saving. But within investments, there are safe and risky investments.

Safe Assets

If there’s such a thing as safe assets, cash, money market, and some bonds fall into this category. Bonds do carry some risk depending on if they’re government bonds or otherwise. There’s always a risk of default, but it’s not high. Other safe ‘investments’ include CDs and treasury bill investments.

Risky Assets

Risky assets are any asset that has a risk of a total loss, such as stocks, commodities, mutual funds, and index funds. Commodities, real estate, emerging markets, and foreign currency all have high risks too.

What to Invest in?

You have many options when you invest, so how do you know what to invest in? It comes down to your risk tolerance. Are you looking for growth or stability? Do you want an active role in investing or passive?

These are just a few questions to ask yourself as you choose your investments. Here is one key idea to consider.

Growth vs Value

Growth investors look for companies with strong earnings or better-than-average earnings. These companies are expected to keep delivering high earnings, but of course, there’s no guarantee.

Growth stocks include two types of companies:

  • Established companies – Companies with a history of high returns who are expected to continue with these earnings are good for growth investments
  • Emerging companies – Some companies come out of the starting gates rearing for success, with a high potential for earnings

Characteristics of Growth Funds

Growth funds have the following characteristics:

  • Higher initial prices – Investors put more into these investments, but expect much higher earnings as the company grows
  • Historical growth records – Growth companies have a history of high earnings levels even during economic downturns
  • High risk – Growth companies’ stock prices could fall at any point due to negative news or other unprecedented issues

Characteristics of Value Funds

Value funds are the opposite of growth funds. They don’t have the growth expectation, but rather remain stable.

  • Lower initial prices – Value funds have stable or lower prices than growth stocks because investors know that even if the company’s stock falls, it will bounce back
  • Lower prices than competitors – Value companies often have even lower stock prices than their competitors because of temporary issues that caused investors to pull out and react to negative issues going on with the company, but the prices usually bounce back
  • Lower risk – All stocks carry some risk, but value stocks are good for buy-and-hold investors because they usually hold their value or return to it

So which do you choose? Is growth or value better?

There’s no way to predict which is better 100%, as each investor has different needs/wants. Growth stocks typically do well when interest rates fall and earnings increase. But when the economy does poorly, growth companies are the first to suffer.

Value stocks are often more cyclical. They do well when the economy recovers because of their low prices, but take the longest to increase in value.

The right strategy for most investors is to diversify between the two.

Don’t put all your eggs in one basket – invest a little bit in each type instead.

4 Steps to Choose the Right Investments

So how do you set up the right portfolio? While there’s no tried-and-true or 100% foolproof way, the following steps may help minimize your risk.

1. Decide on asset class mix

Choose your asset class mix. We don’t recommend choosing only one. Again, diversify your investments. If you invest in stocks, put a portion of your assets in bonds too. You can even keep a small portion in cash or a money market. You’ll earn a little interest and have no risk of a loss.

If you choose higher-risk assets, such as commodities or real estate, really diversify. Figure out your risk tolerance and what you can stand to lose. Choose your asset class accordingly. If you choose commodities or real estate, balance out the risk with bonds or cash. You could even balance it out with stocks – as one asset class usually does well while the other struggles.

In other words, don’t put all your money into one investment class. It’s not worth the risk.

If you don’t offset your risk, you could lose it all and that’s not something anyone wants.

2. Decide on passive or active investing approach

Next, decide what type of role you want in your investments. Do you want a hands-on role? Do you want to choose your investments, manage the portfolio, and reallocate it as it shifts away from your goals?

Some investors prefer this type of investing. They like having control and knowing where their money is – they don’t like the unexpectedness of automated reallocation which many robo-advisors offer.

Typically, experienced investors take an active approach, and new investors or experienced investors that don’t want the stress take a more passive role.

Passive investors may invest in two ways:

  • Choose your investments and let the advisor do the rest. You don’t have to worry about reallocating your portfolio or even watching the market.
  • Let the advisor choose everything including your portfolio mix based on your answers regarding risk tolerance and your financial goals.

3. Know the different fees

Before you invest, determine the cost. All advisors charge fees, even if they have 0% management fee, you’ll pay a fee somewhere down the road.

Ask about management fees, commission fees, and any miscellaneous fees brokers may charge. Miscellaneous fees may include statement fees, transfer fees, withdrawal fees, and wire fees. Read all about hidden fees here.

Most advisors charge a management fee which is a percentage of your assets under management. For example, many robo-advisors charge 0.25% of assets under management. Some advisors charge this monthly, others charge it quarterly or annually.

4. Understand your Tax Liabilities

Some advisors help minimize your tax liabilities, which honestly, should be a goal when you’re investing. If you have too many capital gains, the taxes eat away at your profits. Advisors that offer tax-loss harvesting help offset your tax liabilities by selling certain investments at a loss. The loss offsets your capital gains which decreases your tax liability.

While it seems strange to want to sell an asset at a loss, the loss is often less than the tax liability, making it worth it.

Asset classes and Robo Advisors

Beginning investors often choose robo-advisors for their versatility and low costs. You get the advice of a professional advisor, but via a computer program. Some robo-advisors even offer human support, giving you the best of both worlds.

If you’re thinking of using a robo-advisor, it’s important to know what they invest in and how you choose your investments.

What do Robos Invest in?

Robo-advisors often invest in ETFs and index funds. These are hand-picked investments that mimic the S&P 500s returns. ETFs and index funds have fund managers and charge what they call expense ratios to cover the cost of managing them, but they offer a lower risk level because they are already diversified.

Some robo-advisors invest directly in stocks or bonds, and others invest in mutual funds. Watch out for mutual fund investments, though, as they often cost much more because of the management that’s involved since mutual funds are actively managed.

Conclusion

Do your research and soul searching before you invest. How much can you stand to lose and still sleep at night? How close are you to retirement?

If you have a low-risk tolerance, stick to bonds, cash, and possibly ETFs. If you have a growth mindset and don’t mind taking risks, stocks, mutual funds, commodities, and real estate investments are great options too.

Robo Chooser

Use the following Quiz and find out which robo advisor is best for you.

 

If you have any questions, please comment below.

Categories
Reviews

Folio Investing – Is it legit? Review 2021

Do you have an investment strategy or do you wish someone would tell you how and where to invest?

Folio Investing provides just what you need whether you know where you want to invest and in what allocations or you want someone to do it for you.

Check out my review to see if Folio Investing is worth it or not.

What is Folio Investing?

Folio Investing is a robo-advisor with a twist. You can choose the traditional premade folios, like most robo-advisors offer or you can create a custom folio.

You also have the option to choose a Ready-to-Go Folio and customize it. Folio emphasizes long-term investing with diversified assets in as many as 100 securities.

Self-directed Investors
Account Minimum
$0
Management Fee
$29 monthly for unlimited transactions
Portfolio
Customizable, up to 100 different securities. ETFs, mutual funds and stocks
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic deposits
Smart Beta
SRI
401(k) Assistance
Human Advice
Account Types
Individual, Joint, Custodial, Trust, Business, Roth, Traditional, Rollover, Simple and SEP-IRA
Best for
Self-directed investors who want a hands on approach and say in their investment.
Summary
Folio Investing allows you to customize your own folios. You do however also have the option to invest in a variety of pre-made folios. There is also an option to exclude certain securities to make your portfolio 100% socially responsible.
Self-directed Investors
Account Minimum
$0
Management Fee
$29 monthly for unlimited transactions
Portfolio
Customizable, up to 100 different securities. ETFs, mutual funds and stocks
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic deposits
Smart Beta
SRI
401(k) Assistance
Human Advice
Account Types
Individual, Joint, Custodial, Trust, Business, Roth, Traditional, Rollover, Simple and SEP-IRA
Best for
Self-directed investors who want a hands on approach and say in their investment.
Summary
Folio Investing allows you to customize your own folios. You do however also have the option to invest in a variety of pre-made folios. There is also an option to exclude certain securities to make your portfolio 100% socially responsible.

How does it work?

Account opening

Opening an account at Folio is simple. There is no minimum deposit requirement and each investor creates a ‘folio’ or portfolio. You provide your personal identifying information, link your bank account, and answer questions about your risk profile and goals. Folio then sets up ‘folios’ for you.

Folio’s ‘folios’ are baskets of securities or portfolios.

Each folio may contain from 1 to 100 securities and include fractional shares. You may have as many folios as you want/can afford. If you prefer Ready to Go Folios, you have more than 100 baskets to choose from. If you customize your folio, you also choose the weight of each asset – whether you equally weight all assets or customize each asset’s weight.

Deposit and withdrawal

Once you open an account, transferring money is simple. Open the Transfers page on your dashboard and select deposit. Follow the on-screen instructions, but you can deposit funds via electronic transfer, check, wire, direct deposit, or your bank’s Bill Pay service.

Withdrawals work the same way. Select Transfers from your dashboard and then withdrawals. You can withdraw funds via electronic transfer, check, or wire transfer. Only account owners with an account manager or owner titles may withdraw funds. Folio allows users with ‘Account Detail Viewer’ status to view your account, but they cannot make changes including withdrawals.

Interface

Folio’s platform helps you determine the type of investor you are and then gives you choices. Whether you create custom folios or use the Ready to Go Folios, they help you through the process. The interface is easy to use for any investor.

Its interface is a bit antiquated, so don’t expect anything out of the ordinary or very modern. It does its job and that’s it.

Accounts

Investors may open any type of investment account including individual and joint taxable accounts, custodial and trust accounts, retirement accounts including traditional and Roth IRAs, and Simple/SEP IRAs.

Costs

Folio Investing has a Basic and an Unlimited Plan:

Basic plan

$15 per quarter for each funded account that makes less than 3 trades per quarter.

The Basic Plan includes:

  • Unlimited taxable and retirement accounts
  • Unlimited folios, with each folio containing 1 to 100 assets
  • Access to the Ready to Go Portfolios
  • $4 for each window trade (per security)
  • No required account balance
  • $10 fee for market, stop, limit, or stop-limit orders

Unlimited plan

$29 a month or $290 per year.

The Unlimited Plan includes:

  • Unlimited taxable and retirement accounts
  • Unlimited folios, with each folio containing 1 to 100 assets
  • Access to Ready to Go Portfolios
  • Up to 2,000 trades with no commissions in two daily window trades
  • $0.50 for each additional security trade
  • No required account balance
  • $3 for market, stop, limit, or stop-limit orders

Folio also charges some ‘special fees’:

  • $100 full transfer out to another broker
  • $20 per check withdrawal
  • $12.50 per paper copy statement
  • $45 per broker-assisted trade (via telephone)
  • $25 per year IRA custodial fee
  • $15 per quarter for balances left over after account closed

Folio’s mutual funds are no-load mutual funds. But they may have fees that the mutual fund company deducts right from the fund assets.

Additional features

Cash account

Folio offers a Cash Sweep program which ‘sweeps’ your uninvested cash into an FDIC insured interest-bearing account. The interest rates aren’t anything to get excited about – they match the interest rate you’d receive in your local bank’s checking account, but it’s better than leaving the cash not earning any interest.

The Cash Sweep program has tiered interest rates, though. The more cash you ‘sweep’ the higher the interest rate. This shouldn’t be an incentive to have cash, but if it happens, you know it can early a little interest. The Cash Sweep program provides access to check-writing and automated cash transfers.

You also have the option to ‘invest’ in FDIC PLUS, Folio’s highest-tier cash program. You invest your cash and earn money-market like rates.

Human advisors

Folio does offer broker-assisted trades, but at $45 a trade, you’re better off learning how to manage the trades yourself.

Customer service

Folio offers customer service via phone, email, or online chat. Customer service reps are available weekdays 7 AM – 9 PM ET; weekends 8 AM – 4 PM ET.

Research

Folio uses QuoteMedia for its stock research. You can view quotes, charts, financial analyses, and historical data.

Window Trading

Folio offers window trading, which could be good or bad, depending on how the market goes. Window trading means they only trade at certain times of the day. Basic members have one window and unlimited members have two. This means when the trade executes, it may or may not trade at the price that triggered the sale.

Virtual trading account

You can open a free watch account to test the waters before you invest with Folio. You trade ‘fake money’ in real-time to see how you’d do. You can have up to 10 watch folios to try out your own portfolios or to mimic a professional investor’s portfolio without risking your money.

Folio Investing Pros and Cons

PROs
You can buy fractional shares - This decreases the amount of cash drag because you don’t have to buy a full share.
CONs
Even though it’s flat-rate pricing, it can get pretty expensive – ... and there are cheaper robo-advisors available.
Folio has more than 100 Ready to Go Folios ready for you to choose from – Including Target Date RTGs, Low Volatility RTGs, Bond RTGs, and Strategy RTGs among many others.
Window trading could delay a trade by several hours, which could ruin your trading strategy.
You can customize any RTG – ... or start your own folio from scratch.
You make most of the trading decisions yourself without the help of an advisor.
Tax optimization – Folio plays ‘tax football’ which is a strategy to determine which securities to sell to lower your tax liability.
-
Flat-free pricing - You don’t have to worry about excessive commissions on certain trades.
-
Folio offers automated portfolio rebalancing.
-
You get a free 60-day trial if you sign up for the unlimited plan.
-
PROs
You can buy fractional shares - This decreases the amount of cash drag because you don’t have to buy a full share.
Folio has more than 100 Ready to Go Folios ready for you to choose from – Including Target Date RTGs, Low Volatility RTGs, Bond RTGs, and Strategy RTGs among many others.
You can customize any RTG – ... or start your own folio from scratch.
Tax optimization – Folio plays ‘tax football’ which is a strategy to determine which securities to sell to lower your tax liability.
Flat-free pricing - You don’t have to worry about excessive commissions on certain trades.
Folio offers automated portfolio rebalancing.
You get a free 60-day trial if you sign up for the unlimited plan.
CONs
Even though it’s flat-rate pricing, it can get pretty expensive – ... and there are cheaper robo-advisors available.
Window trading could delay a trade by several hours, which could ruin your trading strategy.
You make most of the trading decisions yourself without the help of an advisor.
-
-
-
-

FAQ

Does Folio Investing trade bonds?

Yes and no. Folio trades bonds in fixed-income ETFs, but they don’t trade individual bonds. If you want conservative investments, you can choose one of the Ready to Go Folios made for conservative investing but that has a decent amount of diversification.

Do you have to sign up for the Cash Sweep option?

No, Folio Investing automatically enrolls every investor in the Cash Sweep program. They’ll hold your funds in their FDIC insured account or into a partner FDIC insured bank. The accounts have extended FDIC insurance, covering deposits in the millions. If you want a higher interest rate or better returns, consider the FDIC Plus Sweep program.

Is there a required minimum balance for Folio Investing?

No, investors with any amount of money may invest at Folio. You don’t need a minimum or maximum for trading either. You invest with the amount you have, and can even buy/trade fractional shares if you want.

How do you create your own folio?

If you don’t like any of the Ready to Go Folios or you want to try your hand at investing, click ‘Add New Folio’ on your account page and follow the on-screen instructions. You can construct your entire portfolio or take an RTG Folio and customize it to your liking.

What can you trade?

Investors can trade stocks, ETFs, and mutual funds. You can buy in fractional shares or whole shares and include as many as 100 investments in one folio. If you want to trade crypto you’re probably better off with a robo advisor like RobinHood.

Did Folio buy Motif?

Yes. As of May 20, 2020, Motif closed down and sold its accounts to Folio. All Motif investors automatically were enrolled in Folio’s unlimited investing plan.

What is a Ready-to-Go Folio?

A Ready-to-Go Folio is a pre-built portfolio. They are great for beginning investors or those that want a passive investment. With as many as 100 securities in one folio, it’s a great way to diversify without the work. You can even customize an RTG if you want to remove/replace a few securities.

How is Folio investing different from mutual funds?

Mutual funds are investments in a variety of companies managed by an account advisor. You don’t own the underlying securities, but a piece of the securities with mutual funds. With Folio, you own the securities themselves and can buy/sell them as needed. With mutual funds, you’re at the mercy of the investment manager’s decisions.

How does Folio Investing make money?

Folio Investing makes money in many ways, starting with their monthly or quarterly fees. They also charge commission fees and have margin accounts, which they earn interest on when investors borrow to trade.

Alternatives

Folio Investing vs M1 Finance

m1financeFolio Investing and M1 are very similar in the fact that they both allow custom investments and encourage independent choices versus automated robo-advisors that choose investments for you.

M1 has lower margin rates and doesn’t offer mutual funds, whereas Folio does offer mutual funds, but doesn’t encourage them. M1’s dashboard is a bit more intuitive and modern, whereas Folio’s is a bit ‘old school.’

Folio Investing vs RobinHood

Robinhood has been around for a while now. It was the pioneer of the free-commission trades. Granted, they aren’t the only one that offers free commissions, but they have a lot of trading options including stocks, options, ETFs, and cryptocurrency. Robinhood is completely hands-off.

Once you answer the platform’s questions, Robinhood chooses a portfolio for you, manages it, and reallocates it as needed. Robinhood is great for millennials or anyone who prefers to trade on their mobile phone.

Current Promotions

First 60 days off for unlimited plan.

Folio Investing – Worth It or a Scam?

Folio Investing focuses on diversification. If you have a hard time diversifying or don’t know where to invest, it’s a great option. According to Folio Investing, investors lose as much as 50 percent of their potential lifetime earnings by not diversifying, making Folio a great option for those who’d rather not lose such potential.

Summary

Folio Investing offers the best of both worlds. They’ll invest for you, allowing you to just sit back and passively earn. They offer customization of a Ready-to-Go portfolio, allowing you to get some hand-holding while customizing your portfolio or completely starting your portfolio from scratch.

It’s great for beginning and experienced investors and is a great way to minimize taxes and maximize your investments. The fees are a bit on the higher end, however the flat fee model also allows for more transparency.

If you are still undecided, use the following tool to find out which robo best fits your investing needs:

Robo Chooser

Use the following Quiz and find out which robo advisor is best for you.

If you have any questions, please comment below.

Categories
Learn

Robos with most Asset Under Management

According to this statistic the combined asset under management of robo advisors will hit the $1 billion dollar mark in early 2021.

By 2024 it is expected to reach $2.49 billion (!)

As you can see robo-advisors are quickly becoming more and more popular. But who are the big players in this industry? Who is managing the most amount of money?

Comparison Table (Updated 2021)

Please note that this info is gathered from different online sources and I can by no means guarantee its accuracy. This should purely serve for entertainment purposes.

Asset under management
Users
-
Vanguard Personal Advisors
$161 billion
?
Betterment
$40.7 billion
500,000
Schwab
$22 billion
360,000
Wealthfront
$21 billion
400,000
Personal Capital
$12.3 billion
22,000
Asset under management
Vanguard Personal Advisors
$161 billion
Betterment
$40.7 billion
Schwab
$22 billion
Wealthfront
$21 billion
Personal Capital
$12.3 billion
Users
Vanguard Personal Advisors
?
Betterment
500,000
Schwab
360,000
Wealthfront
400,000
Personal Capital
22,000
-
Vanguard Personal Advisors
Betterment
Schwab
Wealthfront
Personal Capital

Here’s something to consider: in the previous year there was an estimated 50% growth in the robo-advisor’s AUM number. Industry experts predict that this this number will continue to increase dramatically.

Now let’s take a look at the 5 biggest players in the robo-advisor space so you can decide if any of these could be a good fit for you.

1. Vanguard

Vanguard is the biggest name in investments as well as the new robo-advisor industry. There are two robo-advisor options that clients can choose from:

  • Vanguard Personal Advisor Services and
  • Vanguard Digital Advisor.

These are the two unique options that we will take a closer look at.

Vanguard Personal Advisor Services

This option combines the human touch with a real financial advisor offering guidance and computerized investment management.

It starts with a financial expert working with a client to create the best investment portfolio. They will also manage and rebalance it as necessary to meet the individual needs and financial situation of each client. It’s important to know that this option does require a minimum account balance of $50,000. This may be a high entry barrier for some, the amount is partly justified by the excellent human advise you get with this service.

Additionally, you will get charged a 0.30% AUM fee as well as other commissions and fees. This all depends on the specific investments that you choose. If your account has less than $500,000 invested, you will have a team of advisors to work with. If you have more than that, you get your own dedicated financial planner that works closely with you.

Retirement Investors
Account Minimum
$50,000
Management Fee
0.30% (charged quarterly)
Portfolio
Vanguard chooses funds from the over 100 Vanguard mutual funds and ETFs according to your investment goals.
Account Types
Individual, Joint, Roth, traditional, SEP, Simple and rollover IRAs. Trusts.
Rebalancing
Tax Loss Harvesting
Fractional Shares
Smart Beta
Automatic Deposits
SRI
401(k) Assistance
Human Advice
Best for
Vanguard is perfect for retirement investors who are in need of human assistance.
Summary
Vanguard offers personalized portfolios that are built with the assistance of a human financial planner. Accounts over $500,000 get a dedicated advisor
Retirement Investors
Account Minimum
$50,000
Management Fee
0.30% (charged quarterly)
Portfolio
Vanguard chooses funds from the over 100 Vanguard mutual funds and ETFs according to your investment goals.
Account Types
Individual, Joint, Roth, traditional, SEP, Simple and rollover IRAs. Trusts.
Rebalancing
Tax Loss Harvesting
Fractional Shares
Smart Beta
Automatic Deposits
SRI
401(k) Assistance
Human Advice
Best for
Vanguard is perfect for retirement investors who are in need of human assistance.
Summary
Vanguard offers personalized portfolios that are built with the assistance of a human financial planner. Accounts over $500,000 get a dedicated advisor

Vanguard Digital Advisor

This options is your standard robo-advisor that offers the same rebalancing and other benefits as other platforms. Here’s what makes this option different from the others:

  • Use of Vanguard’s low-fee exchange traded funds (ETFs)
  • Low investment management fee of 0.15%
  • Access to Vanguard, an already established and reputable investment brand.
  • Other new features coming soon such as debt management assistance and emergency fund.

2. Betterment

logo of bettermentWhile Betterment offers a variety of similar benefits as other robo-advisors, what makes it really stand out is innovative approach to customer service.

First of all, you can text any questions that you have to a real human advisor whenever you need to. It’s innovative approach has led this platform to become one of the leaders in robo-investing. Not only does it offer easy access to human financial planners, you also have socially responsible investment options.

What’s better than all of that? Betterment doesn’t settle and is constantly working to improve. They consistently release new and innovative financial products. Their priority is offering better service to their clients. Some of their products include:

  • Low-cost financial planning packages, a la carte
  • High yield savings account
  • Goldman Sachs Smart Beta portfolio

Another great reason why Betterment is a good option is because there’s no account minimum if you use the digital plan. Here is a look at their charges:

  • Charge 0.25% AUM on accounts that are valued up to $2 million. (Digital Plan)
  • Charges fall to 0.15% AUM on accounts valued over this amount. (Digital Plan)
  • Premium plan does require over $100,000 minimum investment
  • Charge 0.40% AUM on accounts under $2 million. (Premium Plan)
  • Charges fall to 0.30% on accounts valued over $2 million. (Premium Plan)

When you sign up for their premium plan, you also gain access to certified financial planners.

Best service
logo of betterment
Account Minimum
$0 for Betterment Digital and $100,000 for Betterment Premium
Management fee
0.25% for Digital and 0.40% for Premium
Portfolio
ETFs from about 12 asset classes. The user can choose between a recommendation or decide the percentage of portfolio in each investment.
Rebalancing
Tax Loss Harvesting
Frational Shares
Human Advice
Smart Beta
401(k) Assistance
SRI
Automatic Deposits
Supported Accounts
Individual and joint accounts. Roth, traditional, SEP and rollover IRAs. Trusts. 401(k) plans. (Betterment for Business) Non-profit.
Best for
Investors who are looking for hands-off, "set it and forget it" type of robo advisor with low fees.
Summary
Betterment uses a goal-based investment approach. The portfolio consists mainly of low fee ETFs. The service is great, it is easy to use and very beginner friendly. It is also the largest independent robo-advisor. The premium allows for in-depth investment advice and unlimited access to certified financial planners. The only downside is that fees increase once you hit $100,000.
Best service
logo of betterment
Account Minimum
$0 for Betterment Digital and $100,000 for Betterment Premium
Management fee
0.25% for Digital and 0.40% for Premium
Portfolio
ETFs from about 12 asset classes. The user can choose between a recommendation or decide the percentage of portfolio in each investment.
Rebalancing
Tax Loss Harvesting
Frational Shares
Human Advice
Smart Beta
401(k) Assistance
SRI
Automatic Deposits
Supported Accounts
Individual and joint accounts. Roth, traditional, SEP and rollover IRAs. Trusts. 401(k) plans. (Betterment for Business) Non-profit.
Best for
Investors who are looking for hands-off, "set it and forget it" type of robo advisor with low fees.
Summary
Betterment uses a goal-based investment approach. The portfolio consists mainly of low fee ETFs. The service is great, it is easy to use and very beginner friendly. It is also the largest independent robo-advisor. The premium allows for in-depth investment advice and unlimited access to certified financial planners. The only downside is that fees increase once you hit $100,000.

3. Schwab

Schwab is one of the biggest names in investment. Their robo advisor Schwab Intelligent Portfolios was among the top performers back in 2017. In 2019, this robo-advisor managed $40.7 billion in AUM.

One of the things that makes this platform stand out is there’s a portfolio option with no management fees. Their basic Schwab Intelligent Portfolios option has zero management fees, making it an ideal choice. However, you do need a minimum $5,000 balance if you want to open an account with this platform. As is standard with the big robo-advisors, you get rebalancing and tax harvesting features.

Now you may be wondering how this service makes money without these fees. Schwab gets management fees from their own ETFs as well as other 3rd party funds that they recommend to clients. You can find investment opportunities with IRAs, 401k retirement plans, taxable accounts, trusts, and 401k rollover.

In addition to these services, investors can get more personalized services through the premium platform. The Schwab Intelligent Portfolios Premium offers users a variety of services, such as:

  • Unlimited consultations with real human financial planners
  • Comprehensive financial plans
  • Interactive online planning tools.

To access extra services, you need to meet specific criteria like:

  • $30 per month subscription
  • One time $300 planning fee
  • $25,000 AUM

Additionally, you can visit any physical branch to ask any questions that you may have.

Great Usability
Account Minimum
$5000
Mangement Fee
0.00%
Portfolio
53 ETFs covering as many as 20 asset classes. A lot of customization possible.
Rebalancing
Tax Loss Harvesting
Automatic deposits
Fractional Shares
Smart Beta
SRI
401(k) Assistance
Human Advice
Account Types
Individual, Joint, Roth, traditional & rollover IRAs and Trusts.
Best for
Investors with a little bit more to spend who are just starting out and want to have access to a human financial planner.
Great Usability
Account Minimum
$5000
Mangement Fee
0.00%
Portfolio
53 ETFs covering as many as 20 asset classes. A lot of customization possible.
Rebalancing
Tax Loss Harvesting
Automatic deposits
Fractional Shares
Smart Beta
SRI
401(k) Assistance
Human Advice
Account Types
Individual, Joint, Roth, traditional & rollover IRAs and Trusts.
Best for
Investors with a little bit more to spend who are just starting out and want to have access to a human financial planner.

4. Wealthfront

wealthfront-best-for-low-feesOne of the reasons why Wealthfront is a great option to consider is because it is considered to be the low-cost leader in the industry.

When you trust them, you get a lot of benefits such as low fees and great research. You also get index matching that is based on your individual risk profile. At Wealthfront, you will find direct indexing and daily tax-harvesting as well as automatic rebalancing. As of 2021, the AUM of Wealthfront was $21 billion.

Now, what does this mean for you? The tools that Wealthfront offers can let you see exactly what you need to save and invest for your future. These tools can also show you how any potential life changes can affect your financial situation. We like how this platform offers you a comprehensive picture for financial planning and can help you answer any financial questions without the need of actually talking to a traditional financial planner.

If you have an account that has less than $5,000, you get this service for free. For accounts that are valued over $5,000, Wealthfront does charge a 0.25% AUM.

As is common with other similar robo-advisors, this platform invests its client’s funds in various exchange-traded funds. These funds track 11 of the major asset classes and you can get access to multiple types of accounts. If you have a larger account, you can also have the opportunity to invest in various individual stocks or access direct indexing.

In addition to these services, you can also get cash management solutions and lending options with this platform. One of the best things that we love is that Wealthfront has one of the most comprehensive financial tools available that you can get today.

Best for low fees
wealthfront-best-for-low-fees
Account Minimum
$500
Management fee
0.25%
Portfolio
ETFs from 11 different asset classes
Rebalancing
Tax Loss Harvesting
Frational Shares
Automatic deposits
Smart Beta
SRI
Human Advice
401(k) Assistance
Account Types
Individual, Joint, Roth, traditional, SEP & rollover IRAs. Trusts and 529.
Best for
Investors who are looking for a low-cost, hands-off investing approach. The service is completely software-based so if you are looking for a dedicated human advisor it would be better to look elsewhere.
Summary
Wealthfronts portfolio consists of ETFs with very low expense ratios. It stands out not only due to its low fees but also due to their "Path Algorithm". The Algorithm will help you keep track on your goals.
Best for low fees
wealthfront-best-for-low-fees
Account Minimum
$500
Management fee
0.25%
Portfolio
ETFs from 11 different asset classes
Rebalancing
Tax Loss Harvesting
Frational Shares
Automatic deposits
Smart Beta
SRI
Human Advice
401(k) Assistance
Account Types
Individual, Joint, Roth, traditional, SEP & rollover IRAs. Trusts and 529.
Best for
Investors who are looking for a low-cost, hands-off investing approach. The service is completely software-based so if you are looking for a dedicated human advisor it would be better to look elsewhere.
Summary
Wealthfronts portfolio consists of ETFs with very low expense ratios. It stands out not only due to its low fees but also due to their "Path Algorithm". The Algorithm will help you keep track on your goals.

5. Personal Capital

Another option that we like is Personal Capital. This platform has about $12.3 billion AUM as of 2021. What makes this platform great is that it is an automated investment manager that has a free option for users. Personal Capital’s free money management software gives its users a total view of your financial picture in a single, convenient location.

When looking at your dashboard, you can view all your income, debt, investments, and bills in one place. Those are only a few things that you can see all in one place. You can link your bank accounts to the website, giving a more accurate picture of your financial situation. The site will take this information and offer valuable financial advice.

With the free retirement planner, you can test out a variety of scenarios that help you see if your assets and income can hold up to those situations.

As if this wasn’t enough for you, you can get basic services completely free. You could also pay extra for the Personal Capital Advisors, a highly comprehensive automated investment advisory service staffed with dedicated financial planners. There are some stipulations to this paid service. You do need to have at least $100,000 in your account.

The approach used by Personal Capital is quite unique. It uses sector-based asset allocation as well as access to individual stocks. This platform also offers the usual tax-harvesting and rebalancing. If you have managed accounts, you also have a certified financial planner working with you.

However, PC also has a stellar robo-advisor that has been performing well. For wealthier investors, you can access a high-yield cash account and various other services. The dashboard and basic features are free, but you will have to pay .89% in fees for accounts up to $1 million. Should your portfolio grow beyond this, these fees will decline.

High-net-worth
Account Minimum
The account minimum is $100,000. This will give you access to the free management tools.
Management Fee
The management fee for accounts between $1,000,0000-$3,000,000 is 0.89%. Once the account reaches $10,000,000 the fee will drop to 0.49%.
Portfolio
Customized for each client
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic deposits
Smart Beta
SRI
401(k) Assistance
Human Advice
Account Types
Individual, Joint, Roth, traditional, SEP & rollover IRAs and Trusts.
Best for
Investors with a high net worth that are looking for tax optimization and a hands-off investing approach with access to human financial planners.
Summary
Personal Capital has great financial management tools and is definitely the robo advisor of choice when it comes to high profile investing.
High-net-worth
Account Minimum
The account minimum is $100,000. This will give you access to the free management tools.
Management Fee
The management fee for accounts between $1,000,0000-$3,000,000 is 0.89%. Once the account reaches $10,000,000 the fee will drop to 0.49%.
Portfolio
Customized for each client
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic deposits
Smart Beta
SRI
401(k) Assistance
Human Advice
Account Types
Individual, Joint, Roth, traditional, SEP & rollover IRAs and Trusts.
Best for
Investors with a high net worth that are looking for tax optimization and a hands-off investing approach with access to human financial planners.
Summary
Personal Capital has great financial management tools and is definitely the robo advisor of choice when it comes to high profile investing.

FAQ

(Find the full Robo-FAQ here)

Which robo advisor has the most asset under management?

Vanguard. The investment giant manages a total of $161 billion (2021)

What Should I Look at When Considering Different Robo-Advisors?

Some of the most important things to consider when looking at robo-advisors include:

  • Investment strategies
  • Add-on services that you may be interested in, like tax-loss harvesting.
  • What types of investments are available
  • Services
  • Fees
  • Whether or not you get access to human financial advisors.
  • Minimum initial investments required

Everyone has their own individual needs. This means that one platform may work for someone else, but not you. You need to carefully consider what your needs are and do your research based on that.

Who Actually Benefits from a Robo-Advisor?

There are plenty of people who would benefit from using a robo-advisor over a traditional one. You may benefit from a robo-advisor if:

  • You are a new investor who doesn’t have the time or interest to manage their finances, but understands the importance of building their future wealth.
  • You are a DIY investor, but still want a financial planner to help manage your investments.
  • You are just looking to pay a lower fee while still getting financial advice from an expert.
  • You are a sophisticated investor that wants to pay lower fees and gain access to a financial planner.

As you can see, there are a lot of different types of investors that benefit from a robo-advisor.

What’s the Difference between a Robo-Advisor and a Traditional Financial Advisor?

Aside from the obvious difference, a robo-advisor and traditional advisor has their own approach to investments. A robo-advisor will have several pre-determined options for investments. By answering certain questions that are related to age and risk-tolerance, your personal investment portfolio gets decided by the advisor. These platforms usually invests in low-fee and pre-selected ETFs or mutual funds, from a limited number of options. The fees are much lower, but you also don’t get extras like tax planning or estate planning.

The traditional approach uses a human financial advisor rather than an algorithm. You get access to more investment options, but you also have a higher fee structure in most cases. But, you get the benefit of talking to a financial advisor when you have questions. They can also offer other services such as guidance on estate, tax, money, and insurance planning that you can’t get with a robo-advisor.

What Does “Rebalancing” Mean?

When you first create your portfolio, you answer questions that will determine your risk profile. The investments get allocated into different asset groups based on your risk profile, which is referred to as asset allocation. As the values of these investments change, a rebalancing occurs to go back to the original asset allocation. This is rebalancing.

What Does “Tax Loss Harvesting” Mean?

This is a strategy that is used to sell securities that have dropped its price since you purchased them. The tax loss will offset the sale of the security that as increased in price to reduce taxes.

Conclusion

Does the AUM really matter when picking your robo advisor?

This list contains the 5 top robo-advisors based on the metric of AUM, but that’s not the only factor that you need to consider when choosing. You have to take a close look at any option that you are considering.

Every platform has their own pros and cons that you should be aware of before you invest your money with them.

There are things that are unique to the brand, but some of the features that are similar in each include:

  • Relatively lower required initial investments
  • Account rebalancing
  • Account management requires lower fees
  • Various investment options depending on investor’s risk levels

What this means is that you need to consider what each robo-advisor offers and whether or not they meet your particular needs.

Robo Chooser

Use the following Quiz and find out which robo advisor is best for you.

 

If you have any questions, please comment below.

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Rolling Over a 401K or IRA – What you Must Do

Retirement plan rollovers happen all the time. Whether you change jobs and need to rollover a 401K or you want to roll over an IRA to another broker, investors do this multiple times in their lives. 

It’s not as hard as it sounds, but make sure you know what you’re doing or you could put yourself in an unfriendly tax situation. Are you ready to learn what you need to do?

Check out the tips below. 

Reasons to Rollover your IRA or 401K

The #1 reason people rollover retirement funds is changing jobs.

When you have an employer-sponsored 401K, but you leave that employer, you should take the 401K with you. On the rare occasion, you may leave it, but that’s not always feasible or financially responsible. 

When you leave an employer, the best-case scenario is rolling the 401K over into your new employer’s 401K. If your new employer doesn’t have one or you’re not eligible right away, roll it over into an IRA. 

Just avoid cashing it out. If you do, and you’re younger than 59 ½, you’ll pay fees, penalties, and taxes on the money. 

Key Factors to Consider

Before you rollover, your retirement accounts, get familiar with these regulations.

Choose a Direct or Indirect Rollover

I suggest that you look for direct rollovers whenever possible.

In a direct rollover, the original plan trustee transfers your retirement plan funds directly into the new plan. The money never touches your hands.

In an indirect rollover, the trustee issues the money to you and you roll it into the new retirement plan. You’ll pay a 10% penalty fee on IRAs and a 20% penalty fee on 401Ks for the indirect rollover.

Potential Fees

Besides the 401K or IRA fees mentioned above, there are a few other fees you may pay if you aren’t careful.

If you receive retirement funds, you have 60 days to reinvest them in another tax-advantaged account. If you don’t, the IRS considers it a cash withdrawal and you’ll pay taxes on the funds, as they increase your income.

Besides the taxes, the IRS charges a 10% early withdrawal fee, aka additional tax. There aren’t any exceptions. 

What are your Rollover Options?

If you’re leaving your job or want to change your IRA, you must consider what to do with your retirement account. There are a few options to consider:

Rollover a 401K to an IRA

You’ll have the most freedom if you rollover to an IRA and it has many benefits:

  • IRAs have more investment options versus 401Ks, which only allow investments in the choices the sponsor includes
  • You control the IRA, which means you can buy/sell assets as often as you want
  • You choose the plan trustee and change him/her as often as you wish
  • You can choose investments that keep your fees low
  • You may be able to withdraw funds easier

Rollover a 401K to Another 401K

If you’re immediately eligible for a 401K at your new employer, you may make a direct rollover into the new 401K. Make sure you know the investment options, fees, and rules of the new 401K before making this move.

IRA to 401K Rollover

If you started an IRA account before you had a 401K account, you can roll the funds over into your 401K.

First, your new employer must allow it. Check with HR and/or the plan trustee to find out the rules. You may only roll over the tax-deductible funds from the IRA plan. The process can get complicated; make sure you work closely with the plan trustee so you know the requirements and fees involved.

IRA to IRA

This is the easiest transfer. There are few restrictions since you’re in charge of the funds and where you invest them. Make sure you know the investments and fees before jumping ship to make sure it’s the right choice.

The IRS Rule for IRAs

One rule applies to all IRA rollovers. If you move funds from one IRA to another tax free, you can’t roll over more funds from the same IRA or rollover those same funds for 12 months. 

The Right Way to do a Retirement Account Rollover

Before you rollover any funds, whether a 401K to an IRA, 401K to a 401K, or IRA to IRA, you’ll use the same steps:

1. Find your new account.

If you’re setting up a new IRA, choose it and get it set up first. If you’re rolling over into a new 401K, get everything situated with your new employer ensuring the account is ready to receive funds before you do anything else. If you take the money out first, you may face unnecessary tax consequences.

2. Find out what your plan administrator needs.

Remember, you aren’t rolling the funds over; your plan administrator does it. Give him/her plenty of notice of the rollover. Make sure you use the term ‘direct’ rollover so they don’t distribute the funds to you and trigger a tax consequence.

Make sure the trustee writes the check to the new plan directly and not you. A check made out to you triggers taxes and the 10% early withdrawal penalty, plus any withdrawal fees the plan charges for personal withdrawals. 

3. Fund your new account.

If the plan administrator gives you the funds, make sure you get them in your new account within 60 days. Waiting even until 61 days, triggers those pesky taxes and 10% penalty, which eats away at your retirement funds.

4. Report the switch on your taxes.

Your old plan administrator will issue you tax Form 1099-R. This just signifies the rollover. If you did it within the IRS regulations, you shouldn’t owe any taxes. You’re just informing the IRS of the switch. If you held onto the funds or had them directed to you, rather than directly to the new retirement account, though, you’ll have a tax liability that you must report and pay. 

Want to Check up on your 401K?

Are you worried that your 401K may not be up to par? Blooom, a robo-advisor specializes in 401Ks. Unlike most 401Ks that only operate in IRAs and taxable accounts, Blooom focuses on 401Ks.

Blooom will look over your 401K plan and make recommendations, just like other robo-advisors do for your IRA and taxable accounts. Bloom may suggest changing investments to avoid fees and/or enhance the account’s performance. 

Blooom also helps you decide when rollovers make sense and if so, what type of account you should consider, whether your company’s new 401K or a new IRA. 

What’s the Best Option?

Each investor has his/her own preferences, but I highly suggest not leaving your 401K with your old employer.

Not only will you lose touch with it (out of sight, out of mind), but you can’t make further contributions. So you sit at the mercy of the old 401K plan’s investments, but can’t increase your account. It just makes for more confusion, especially if you start another retirement account with your new employer or open an IRA.

Choosing between your new company’s 401K or your own IRA is the real decision.

If you know your new company’s 401K has viable investment options and low fees, go for it. This is especially important if your new employer matches your contributions. Don’t give up free money!

If your employer doesn’t match, or the fees and investment options don’t resonate with you – do your own thing. Open your own IRA where you are in full control of the investment choices, allocations, and frequent changes.

No matter what you choose, make sure you follow the IRS guidelines to avoid triggering a tax liability.

Check out the aforementioned Blooom, a robo-advisor which specializes in 401Ks.

If you have any questions, please don’t hesitate and comment below.

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Robo-Advisor vs Financial Advisor

There has been heated discussion on the question whether a robo-advisor is actually an advisor at all.

A robo advisor is an online platform that has several algorithms in place that make investment decisions.

However some robo advisors don’t actually offer any real financial advice at all.

What they do offer are portfolio recommendations. Once you are clear about your portfolio preferences, the robo advisor will then recommend opportunities to invest or save money.

Check out this article – What is a robo advisor – Frequently Asked Questions

Are you not sure if to chose a traditional human advisor or opt for the automated investing a robot can offer?

Great, then let’s take a closer look at the advantages and disadvantages robo advisors have over classical financial advisors.

Robo-Advisor vs Financial Advisor: What’s the difference?

Let’s define each before we go into detail:

Personal financial advisors help you manage the various aspects of your finance. You will hire an advisor to do anything from investing to estate planning and more.

Typically, an advisor is someone who you will meet locally, at his or her office. However nowadays an online meeting instead of a meeting in person is getting more and more common as well.

A lot of companies actually offer virtual access to financial advisors for less than you’d pay a traditional in-person advisor. This is already where a comparison to a lot of robo advisors can be drawn:

Why you may wonder? Because the majority of the biggest robo platforms also offer human support.

Two examples are Betterment and Personal Capital as they both pair their customers with a dedicated financial advisor. Conferences are held via skype, zoom or phone, and the services include investment management.

Robo-advisors are services which use algorithms to build and manage investment portfolios. Therefore, very little human interaction is required.

Upon signing up, you answer a variety of questions so the program can determine what kind of investments you are interested in and then you just let the algorithm do its work.

The biggest advantage here is that they’re a low-cost option, this makes a lot of sense especially when all you want is investment management instead of a complicated financial planning.

Costs & Fees

As a general rule of thumb, one can say that the more human touch required, the higher the cost for financial advice.

The fees for robo advice usually range from 0.25% to 0.50% of the amount managed per year. However there are also platforms like M1 Finance for example, which will take on clients at a 0.00% fee.

Related: Learn about the best free robo-advisors

Now let’s look at personal financial advisors:

They also charge a percentage of your assets — the average is between 1% to 1.25% per year. It is fair to mention, however, that this range can be higher for small accounts and lower for big accounts.

Account Minimum

There are financial advisors who charge an hourly fee or a flat-rate and require lower or no minimums to begin.

Speaking of traditional financial advisors, fee structure and professional qualifications are probably the most important questions to consider before hiring a financial advisor.

But then there are also higher level advisers who will require new clients to have a balance of at least $200,000 in order for them to get financial attention.

Obviously no good advice will ever be completely for free and online financial planning services also structure their fees in different ways, but they are generally cheaper than a traditional financial planner.

Some online services charge a monthly or annual fee that increases with the amount and complexity of the financial advice you need. Others will just charge you a percentage of your account balance.

A great example is Betterment. They offer financial-planning and base the the fee on the amount of time that you require speaking to one of their staff.

Comparison table

The following comparison table shows the differences between robo-advisors, online planning services and traditional financial advisors:

Robo-Advisor
Financial Planner
Avg Fees
0.00% - 0.50%
1.00% - 1.50%
The good
Great way to get started in the investing world. Investment guidance and portfolio management are provided at a minimum cost.
Great for high profile investors who need to make complicated financial decisions.
The bad
If your financial situation is very complex, it can be hard to find a holistic solution for all your needs.
Too costly for beginners. The possibility of human error is also something that should be taken into account.
Robo-Advisor
Avg Fees
0.00% - 0.50%
The good
Great way to get started in the investing world. Investment guidance and portfolio management are provided at a minimum cost.
The bad
If your financial situation is very complex, it can be hard to find a holistic solution for all your needs.
Financial Planner
Avg Fees
1.00% - 1.50%
The good
Great for high profile investors who need to make complicated financial decisions.
The bad
Too costly for beginners. The possibility of human error is also something that should be taken into account.

Advantages of Robo-advisors

A lot of people may not trust a robot to do their investments and think of it as too risky.

This is a common misconception.

The robo-advisor industry is actually built on passive investing: The biggest part of the robo portfolios are usually made up of ETFs and mutual funds. For example, the S&P 500 index of large companies or the Nasdaq 100, which typically contains technology stocks.

This is a pretty conservative approach, rather than beat the market, which is extremely hard to do, these portfolios intend to match whole market gains over time.

At this point it is also important to mention that you should be cautious about financial advisors who attempt to beat the market. A high-level financial advisor can of course beat the market but they can also do worse. In fact, the odds of your average financial advisor to beat the market in the long run are slim.

Advantages of personal  financial advisors

While robo-advisors can certainly be a good option, investors shouldn’t be completely opposed to hiring a financial advisor.

Now you may wonder, why even bother with a human financial advisor?

Where a human financial advisor really thrives is when we are talking about the overall assessment of your financial situation.

This could be anything from when to have baby, how to buy a new house or how to start your own business.

Robots are perfect when it comes to portfolio management, they can automatically buy and sell assets and rebalance your portfolio.

However they are not good at helping you getting the big picture.

For many, a traditional in-person advisor is outside of their budget. That is why an online planning service can manage your investments for less.

The funny part is, some traditional advisors are now actually using robo-advisors themselves. The B2B business for robo advisor is thriving.

Summary

The robo-advisor revolution has changed the landscape. There are more choices and, importantly, the cost for investment management has gone down significantly.

Here’s is a little summary of what to consider when choosing between a robo-advisor and a human financial advisor:

The choice depends entirely on what kind of help you need.

If you need someone that can help you with all things finance from planning to build a new home to quitting your job etc… then a human advisor is the way to go. Another reason to opt for a financial planner would be to if your investments are extremely diversified and impossible to manage under the umbrella of one online platform. Just know that you will have to pay a ton of money in fees.

A robo-advisor is better for a hands-off approach and the fees are a lot lower. It is not fair however, to speak of robo advisors in such general terms. There are different services for different needs. M1 Finance for example is a platform that encourages you to learn about the different options. It allows for a ton of customization and can not in the least be considered a “hands-off tool”.

When making your final decision, please also keep in mind, especially if you’re just starting out, that you can set up the service of a robo-advisor first and then hire an advisor later once you are truly in need of sophisticated financial planning.

Robo Chooser

Use the following Quiz and find out which robo advisor is best for you.

 

If you have any questions, please comment below.

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The 7 Main Differences Between Robo-Advisors

With a rising number of Robo-Advisors out there it is getting harder and harder to understand the differences between each service.

There are, however, 7 main differences that will allow you to distinguish between the features of each service.

Every investing situation is different, therefore it is paramount to learn about the some of the main deciding factors.

We have ranked the 7 differences by importance.

Now, without further ado, let’s dive right into it.

7 Differences between Robo-Advisors

Robo-advisors differ from brokerage to brokerage. Of course, each service will make you want to believe that their offering is the best.

Yet, each advisor can’t have the best performance, fees, service, algorithm and customer support. So instead of analyzing each service individually, we are going to look at more of a broad picture as far as the differences between each robo are concerned.

1. Passive VS Active

This is a key difference. Essentially passive means that the robo-advisor does all of the investing by itself. Active means that there is human intervention.

Let’s dive into the details:

What means passive?

Passive in this context means that the robot will invest on your behalf automatically. There is no human intervention.

Typically, the robot chooses low fee investment funds to match different investment indexes, examples are the S&P 500, bond indexes or international stock indexes.

Most of the time, this is considered a low risk approach. It is actually the more  popular approach among the different robo advisors. A little know fact is that most active fund managers actually fail to beat the indexes in the the long run.

What means active?

Some robo-advisors use active management, which means they use human financial planners in an attempt to beat index fund returns.

The involvement of a human advisor is an important consideration, because this directly impacts the way your money is managed.

The robo-advisors strategy will be adjusted whenever there is a change in the market or the economy as a whole.

Some examples of actively managed Robo Advisors

It is important to mention that you can’t really make out either of the approaches to be better than the other.

Every portfolio is different and the factors that eventually determine a good ROI are endless. Both active and passive robo-advisors usually diversify your portfolio to a point where the ups and downs of the financial markets are considered.

2. Investment Options 

The most typical investment of robo advisors is an ETF. (Exchange-Traded Fund)

That is usually the base of their portfolios however some offer additional investment options as well.

Although the majority of robo advisors concentrate on stock and bond funds, others include investments in

  • Real estate
  • Commodities
  • Alternative types of investments (for example crypto currencies)

The choice is increasing by the day, there is really something for any type of investor.

ETFs differ in the stocks and bonds that they invest in. For example, some robo-advisors offer a few diversified stock and bond investments. whereas others will allow you to invest in thousands of various funds.

Can you also invest in individual stocks?

A few robo-advisors will have that as an option. Personal Capital for example lets you invest in individual stocks. (using direct indexing) Wealthfront and Betterment also offer direct indexing which in many cases can actually be less costly and more flexible than investing in ETFs.

Religious-specific investment options

A rising number of advisors offer Halal investing. In this cases, Halal investing rules are considered by the algorithm. Wealthfront is a great example.

Socially responsible investing

If you want to make a difference with your, there are now more options than ever to do some good by investing responsibly. Among many others, Openinvest, Betterment or the previously mentioned Wealthsimple offers socially-conscious investing options.

3. Services

Another big difference in the various types of robo advisors is what kind of services they offer. Every investors goals are different so this may actually be the deciding factor when it comes to selecting the right robo according to your needs.

We are going to discuss 3 popular services:

1. Retirement planning

The majority of investors will look for retirement planning at least at some point in their career. Wealthfront, Betterment and Personal Capital offer such options. Find out which advisory we recommend for retirees here.

2. Rebalancing

This is a service that most Robo-advisors offer. The greatest benefit here, is that it allows a hands-off investing approach.

What exactly is rebalancing?

Rebalancing is a process that helps keep your portfolio diverse and compensates when the percentages of your investment aren’t lining up right. An experienced investor can do his by himself but especially beginners can use some help in this regard. The algorithm will take care of the process and you don’t even need to get involved.

3. Tax-loss harvesting

What exactly does tax-loss harvesting mean?

Tax-loss harvesting is the selling of securities at a loss to offset a capital gains tax liability. So if your investment has an unrealized loss, this loss is sold allowing a credit against any realized gains which occurred in your portfolio. The sold asset is then replaced with a similar asset to maintain the portfolio’s asset allocation.

Ultimately, this will lead to more money in your pocket!

Among the Robo-advisors that offer tax-loss harvesting are

4. Account Types

The most common are IRA accounts.

Some robo-advisors stick to only traditional or Roth IRAs, many others are beginning to add simple and SEP IRAs.

In other cases robo-advisors are available for UTMA accounts, trusts, and even business accounts, and 529 plans. (SigFig and Wealthfront come to mind)

401(k) plans for businesses is also becoming more and more popular. Right now, Betterment is probably a great choice however Blooom is the one service that specializes in 401(k)s.

5. Account size minimum

You don’t really need to have a lot of money to invest in a robo-advisor, there are certainly many robos out there that are within anyone’s reach, so let’s look at some examples:

If you just want to dip your toes into the robo advisor world, here are some recommendations:

  • Wealthfront: $500
  • Motif: $300
  • M1 Finance: $100
  • Betterment: no minimum investment!

There are however, also the big players, in general the higher minimums can be attributed to more personalised, human advice. The longevity and reputation of these companies also play a huge factor. Examples are:

  • Vanguard Personal Advisor Services: $50,000
  • FutureAdvisor: $10,000
  • TD Ameritrade Essential Portfolios: $5,000

6. Advice Options

When I say some robo advisors are completely algorithm managed that is true. However that does not mean that you won’t be able to contact a human within the company.

The ones who rely solely on the algorithms do offer financial advice as well. Prime examples here are M1 Finance and RobinHood. (Check out the comparison here)

All robo-advisors that we have reviewed offer the option to contact a human, after all you can’t expect a beginner to be familiar with all the ins and outs, especially when it comes to the interface and platform of the robo-advisor itself.

The one that stands out is Betterment.

Betterment has a system in place where you pay for the amount of human intervention that you requiere with your investment. An interesting feature is that you can actually text message the human advisor.

Ellevest and Wealthsimple charge 0.50% of your asset under management and have access to financial planners.

7. Fees

Now let’s get to the most interesting bit:

This one doesn’t require much guesswork.  There are extremely low-fee or even free robo-advisors available however keep in mind that even the more expensive robo-advisors have fees that are a lot lower than your average financial planner

Let’s take a look at the fees:

Table could not be displayed.

[New] Lending and cash management

Borrowing and cash management are new on the robo-advisor front.

Traditionally only banks offered this service but this is now a thing of the past.

A few examples:

  • Betterment EveryDay has a full cash management suite including debit card and high yield checking.
  • Wealthfront offers a credit for customers who don’t want to liquidate investments to pay for big expenses such as a wedding.
  • M1 Finance actually offers both lending and cash management. You can borrow a portion of your account value with a service called M1 Borrow. The M1 Spend program offers a high yield cash account among other cash management services.

What is the major difference in Robo-Advisors?

Of course it would not be smart to point to one of the factors above as the all-determining factor.

While some may be more expensive as far as the fees go,  others may have a better algorithm or offer better human advice.

Other factors that we have not yet discussed are reputation, trust and longevity.

Especially as far as longevity goes, robo-advisors are still a relatively new investment model and there is simply not enough data to really take that factor into consideration.

What I do know however, is that in general almost every robo-advisor is more affordable than your typical financial advisor.

Please take all the previously discussed factors into account before you make a decision. It may turn out to be one of the most important financial decision you will ever make.

Robo Chooser

Use the following Quiz and find out which robo advisor is best for you.

 

If you have any questions, please comment below.

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FAQ – All you need to know about Robo-Advisors

This is a relatively new industry, which is why we’ve included this robo-advisor FAQ.

The goal here is to help you better understand the industry and make an informed decision for your specific needs.

The following FAQ will help you understand these new services.

What is a Robo-Advisor?

A robo-advisor is a computerized financial advisor. Influenced by sophisticated computer algorithms it will create and manage an investment portfolio for you.

The key here is automation. After the user provides the robot with a series of answers about the desired investment goals and level of risk aversion, the robo advisor will then manage the clients portfolio on autopilot.

The strategy most robo advisors are based on, is modern portfolio management theory.

Sometimes, the service of a robo-advisor will also include access to human financial advisors.

What are the differences between the many robo-advisors?

We have dedicated an entire article to the differences between robo advisors, to give you an overview however the following list should suffice:

Here are some of the ways that robo-advisors differ:

  • Fees
  • Account minimum
  • Types of investments
  • Active / Passive – is there additional human advice?
  • Rebalancing or tax loss harvesting?
  • Other services such as lending
  • Support and Platform / UX

How much do Robo-Advisors cost?

The biggest cost that comes with the services of a robo advisor is the annual fee on the invested amount. Most common fees are any from 0.25% – 0.5%, however since there is so much competition some companies like M1 Finance actually offer their service at 0.00% to diversify.

Besides these fees, an investor will also be charged for the underlying investment products. In the case of Exchange Traded Funds (ETFs), these fees might be as low as 0.25% charged on the invested amount per year.

Mostly, these fees are much lower and easier to understand compared to the costs of traditional investment advisors. These costs combined can amount to 2.5% – 3.5% on the invested amount per year.

Who benefits from using a Robo-Advisor?

Like any new technology, in the beginning robo advisors were geared towards the early adopter, tech-savvy crowd.

All of a sudden it was possible to “play with the big boys” with low investments. The typical target audience where investors with little money and less complex financial situations. But as older generations started get to know the benefits of robo advisors, this soon changed.

Interestingly, nowadays even human financial planners use robo advisors to automatically rebalance their clients’ portfolios.With over 200 different services available, there is really a robo advisor for everyone. Among those who

  • are looking for low fees
  • lack the time or interest to actively manage their investments
  • are into DIY investing and want to get their feet wet

What’s the difference between a Robo- and a Human advisor?

…and which one is better?

This is probably the first thing that new users ask themselves. The answer is, it entirely depends on your situation.

Moreover, it is impossible to say which one is better. In some cases actually, a combination of the two can be your best bet.

In most cases, a robo-advisor platform invests in a limited number of low fee ETFs or mutual funds. A human advisor on the other hand can work with many other types of investments. Most robo-advisors also do not help with your insurance, taxes or estate planning.

The greatest benefit of a human financial advisor is that this person usually develops a relationship with their client and can be contacted at their convenience. Their fees however, are typically higher. As previously mentioned some robo-advisors like Schwab for example, also partner with human financial advisors.

Why invest with a robo-advisor?

The benefits of investing with a robo advisor are too many to name in a simple answer. Actually, we have dedicated a whole article to the different benefits of robo advisors.

However to keep things simple, the main benefits are the following:

  1. Lower fees than traditional human advisors
  2. Access to investment management anytime, anywhere
  3. Transparency over your finances
  4. Anyone can now invest in a way that used to be reserved for the wealthy

Why not invest with a robo-advisor?

If you feel that a human advisor is better at understanding the needs of your specific situation, a traditional advisor is the way to go.

Especially if your portfolio consist of many alternative investments like real estate or inheritance, a human advisor can be beneficial and help you out with a more holistic strategy.

Do robo-advisors offer human support?

When speaking about robo advisors, it can sometimes seem like there is no human involvement at all. This, however, could not be further from the truth.

Despite the main focus being on providing automated investment advice, a lot of robo-advisor offers human support as well. Usually the ways to get in touch with a human are by phone, email, chat and even SMS. What you will not find however, is support staff sitting around in branches or visiting you at home.

Certain robo-advisors offer hybrid models.

Communication is possible via online video chat with a real person. You can then ask all the questions you have, especially about aforementioned alternative investments which are assets that can not easily be included in your robo portfolio.

The hybrid models are more labour-intensive and therefore usually more expensive.

What happens if a robo-advisor goes bankrupt?

This is an important question.

It depends. Some robo advisors will just sell your assets and give you your money back at a lower performance. Most however work with custodians which means they merely act as the intermediary between you and a bank. You will then have the option of moving to a self-directed account with the custodian company.

Therefore, if your robo-advisor goes bankrupt, your money will be still be sitting safely in your bank account at the respective custodian.

The law states that the advisor is not allowed to access your money for any purpose other than investing it in your best interest.

But of course that sounds all fine and dandy, but regardless you should really look at the fine print and the TOS to get the best understanding of the bank (or custodian) that is responsible for your account.

Does my bank offer a Robo-Advisor?

Lately it seems like every day a new bank jumps on to the robo band wagon. More and more banks are beginning to understand the potential robo-advisors offer.

Keep in mind however, if your bank approaches you with an offer, that all that glitters is not gold. Banks have a lot of personnel that needs to get paid and the money has to come from someone. Requesting full transparency in this case is paramount.

What is Asset Allocation?

Asset allocation is strategy in which investment portfolios are divided between different assets. The categories are typically stocks, equities, bonds or cash. (Things like art, real estate or commodities are alternative asset categories)

Asset is allocated in different categories to minimize risks. So on one hand you would have stocks which usually come with a bigger risk (and higher potential returns) and on the other hand you have fixed assets such as bonds which have the opposite characteristics.

So if you are young and more aggressive in your investment strategy, you would typically opt for a higher percentage of stock assets, whereas and conservative investor would hold a portfolio with more fixed assets.

What is Rebalancing?

Rebalancing is the process of realigning your portfolio of assets. Basically, it means selling some winners and buying more of your losers.

This is usually done periodically. It keeps your investments in line with your risk profile and gives you a better chance at increasing your overall returns. Most robo advisors will do that automatically for you.

What is Tax Loss Harvesting?

Tax loss harvesting is the practice of selling a security that has experienced a loss since its purchase. By realizing a loss, you are able to offset taxes on both gains and income.

The sold security is then replaced. It is replaced by a similar security, that way you can maintain an optimal asset allocation. This usually happens 30 days after the sale.

Why 30 days you may wonder:

Waiting 30 days allows you to avoid the wash sale rule. The wash sale rule is a rule that forbids the immediate purchase of the same security.

What is an ETF (exchange-traded fund) or mutual fund?

This is what makes up the biggest part of your typical robo advisor’s portfolio. An ETF is a type of investment which groups together many individual stocks or bonds into one package or fund.

One great benefit of ETFs are that the risk is comparatively speaking very low. By combining the stocks and bonds of many different companies, the risk is diversified. The other great benefit is that ETFs generally mirror popular ‘indexes’ like the the  S&P 500 and charge very low management fees.

Are there any risks associated with investing in ETFs?

Yes, any investment will be associated with a certain amount of risk. ETFs however are considered to be a low-risk way to invest. Granted, this is not say that they lack any criticism at all:

In times of market stress, a so called “bid-offer spread” can occur. What happens is, the price of an ETF can be different to the sum of the prices of its securities. This occurs anytime the fund managers are not able to bundle or unbundle the ETFs as quickly as the market requires.

That is why it is incredibly important to choose a reputable ETF manager and this is where a robo-advisor can provide invaluable support.

Also keep in mind that there are thousands of different ETFs to invest in, not all of them will have the best returns. Especially for beginners it can be tricky to differentiate the good from the bad.

What is a robo-advisor fund’s management expense ratio?

A robo advisor typically invests a large amount of your asset into ETFs.

ETFs are usually not managed by the robo advisor, but by a different company.

So this company will charge you a small fee, usually around 0.05% – 0.1% for managing the fund.

What does SRI mean?

Socially responsible investing. Some services give you the option to invest in companies with good social reputation and value. This can be done by investing in individual stocks/companies or through a socially conscious mutual fund or exchange-traded fund (ETF).

If this interests you, you may check out one of the front runners in the space like Openinvest, Wealthfront or Allyinvest.

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Why a Robo-Advisor | The Pros and Cons

If you have made it here you are probably considering letting a robot help with your investments.

A robo advisor, however, is not for everyone.

Let’s look at the pros and cons of investing with a robo advisor to help you decide if this is really the right fit for you. 

Pros of Using a Robo-Advisor

1. Low Fees

Let’s get the most obvious one out of the way first.

Automation has allowed these companies to manage investments with a lot less personnel than before. Less personnel means less wages to pay and the ability to offer lower fees.

Prior to the introduction of robo-advisors, you were lucky to get financial advice for as low as 1% on your assets under management. In most cases you would actually pay more than that.

Most robos will manage your portfolio anywhere below 0.5%. Some of the services will go as far as to not charging an annual fee at all.

From a cost of zero for M1 Finance, RobinHood or Charles Schwab Corp.’s Intelligent Portfolios to 0.25% for low other low cost providers such as Betterment or Wealthfront, the fees for robos vary however they are usually well below the ones of a human financial planner.

A difference of say 0.5% in management fees may not seem like much but over the years this will accumulate. Just think about compound interest, only in the opposite direction.

The following example showcases this perfectly:


Portfolio Value From Investing $100,000 Over 20 Years

Let’s suppose an annual return of 4%.

A 0.25% fee will result in a portfolio value of $208,815

A 1% fee will result in a  portfolio value of $180,611

So after 20 years the difference between a low cost robo advisor (0.25%) and a low cost personal financial planner (1%) will have amounted to $28,204.

After 30 years, the difference will be $59,021.

After 40 years, the difference will be $109,834.


Yes thats right. If you are in your 30s or even 40s right now, by the time you die you will have spent over $100,000 on a financial advisor.

Now let’s do another fun comparison.

A lot of people have complained about the high cost that Betterment charges for their advice packages: $299 per hour for the highest tier of advice to be exact.

If you save $28,204 over the next 20 years by avoiding a personal financial planner, that would buy you 94.33 hours (which is nearly 4 days of uninterrupted advice) of advice from a Betterment CFP.

Maybe Betterments CFPs are not that costly after all.

2. No human error

Robo advisors use modern portfolio theory as the basis of their decision making. We could go into MPT in great detail however let´s just remember the essence for the sake of the length of this article:

MPT is all about diversifying your asset allocation. It’s about making sure that your investment are allocated in different markets.

Betterment and many of the robo-advisor’s algorithms rely on MPT.

It shouldn’t come as a surprise that robos invest with the intention to get the greatest return for the lowest risk.

Although most robos don’t intend to beat the market, which in all fairness some human financial advisors intend to do, studies have shown that less emotional approach will yield higher returns in the long run.

3. Human financial advisors use robots themselves

Yep. Traditional financial planners actually use robo advisor services for their clients. It is not uncommon to for them to white label the services of one of the big players and sell their services under their own name. (At a higher fee of course)

Don’t believe me?

Just do a quick Google Search of “B2B robo advisor” and you will notice that it is a thriving new trend in the service sector.

Of course the traditional financial advisors derive the same benefits from robo advisors than you. No manual rebalancing or tax loss harvesting, of course they will not pay the same fee that you pay either.

But before I throw traditional human advisors under the rug, let’s also keep in mind that the time they save may be spent on servicing their clients by helping them with tax, real estate, or business issues.

4. Ease of Access

The times when you needed a substantial amount of money to even be considered for financial advice are over.

Especially young investors or beginners in general now have the chance to see their money grow with the help of a robo advisor. The market is growing and the easy to use platforms that sometimes don’t even require a minimum account limit have conquered not only the experienced, but also the younger market segment.

Opening an account is pretty easy, and you don’t have to schedule an appointment to do so.

5. A lot of variety

In the early 2010s there were only a few robos to choose from. Nowadays there is literally a robo-advisor for ever type of client.

From M1 Finance, which allows more of a DIY investing approach to Betterment or Wealthfront which make investing incredibly easy, to a company like Motif which let you invest in theme-based ETFs.

Then there are the ones for a high profile investors. Companies like Rebalance IRA and Personal Capital have higher barriers of entry, but also more access to financial professionals who will guide you through the more difficult decisions.

If rebalancing and tax-loss harvesting is your primary reason to work with a robo, then there are several to choose from as well.

6. Low Minimum Balances

As mentioned earlier, now even investors with a small net worth get professional advisory management. While M1 Finance (one of our favorites) has a very low minimum account limit of $100, the number of robos which allow a minimum balance of as low as 1$ are also increasing by the day.

Folio Investing and Wise Banyan come to mind, and even some of the big players like Betterment have no required minimum balance either.

Then you have the ones like Vanguard with the higher-balance tiers but they also allow for more dedicated human advice.

7. It saves time

A pretty  good reason that is not mentioned very often is that it will save you a lot of time. Especially if you are busy with work, hobbies or just everyday things like kids. Or you may simply have no interest to create that ideal investment portfolio. Or, maybe you have a mix of investments, without any overarching investing plan.

So you can either schedule a meeting with your personal traditional advisor or you could simply change up your portfolio with a couple of clicks within an instant.

Cons of Using a Robo-Advisor

1. Customization

When it comes to customization a traditional human advisor will be able to offer you more options. The more complex your investments the more you will probably need some human advice as well.

Unfortunately, the robos aren’t 100% personalized even though a lot of companies make a pretty good attempt at it. Of course you can edit your goals within the robo advisors platform but when it comes to the intricacies a human will be able to give you expert advice.

There still remain a lot of the money-related issues which benefit from a chat with a human such as real estate, business planning, family and kids etc. The advisor’s office may have a diverse pool of other advisors to help with many aspects of life beyond just “money” concerns.

Also, if you’re in need of someone to explain how the investment markets works, a financial planner is usually the way to go.

Another downside are the actual investments. This really depends on the particular robo however if you want to buy individual stocks or sell call options, most won’t be able to perform that task.

That is only one of the many investment strategies that go beyond the capabilities of a robo. Very sophisticated, professional investors may be better off with a human planner that allows them manage wider range of assets.

2. Not all of them have very low fees

Let’s be clear the majority do have lower fees, just please don’t be fooled into thinking that this goes for all the services out there.

There are the ones who charge almost all the way up to 1%. Personal Capital for example, in some cases charges up to 0.89%.

Just keep in mind that in rare cases the fees can actually get close to the ones of a traditional financial advisor.

Then there are other advisors who will charge an hourly rate, or a fee for service. This is something not all robo advisors offer. This option gives you a chance to control costs when receiving personalized information.

The alternative here are web-based human advisors that are also cheaper than traditional advisors and can help you cut other fees and charges.

3. They are not really the only alternative to a traditional financial planner.

Even if you don’t have sufficient funds there are a couple of alternatives out there.

The XY Planning Network for example, is a fee-only financial planning hub of advisors. They charge monthly at an affordable price.

As previously mentioned, fee-for-service advisors are also a great alternative, especially for those who to trade very infrequently. Being the only alternative to a human advisor is more of a claim that many robo advisors companies make to improve their marketing.

4. No Face-to-Face Meetings

If you’re one to prefer a relationship with your financial advisor, then a robo-advisor is a deal breaker. Even though access to human advisors is possible, you will not have a dedicated advisor initially. If your investment passes a certain amount however then you will.

Meeting in person still won’t be in the cards for you this type of personal contact is still only part of the traditional financial advisory models.

Conclusion

Robo-advisors are here to stay. In fact, the robo-advisory wave is just getting started: There are more services to chose from and competition will only bring the already low fees even lower.

And even if you enjoy investing and are an expert on the subject, you might want to consider making the switch to one the robos.

Just don’t forget that there are not many options for investor flexibility, something that will hopefully change in the future.

As with any life choice, you should figure out what type of guidance you need and select a robo-or human advisor accordingly.

Robo Chooser

Use the following Quiz and find out which robo advisor is best for you.

 

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Robo-Advisors for Young Investors | My Top 3 Picks

Since the early 2010s Robo-advisors have been gaining more traction in the investing landscape.

Especially for young investors who may not have the means to pay for a personal human advisor, the new technology has opened up an opportunity for them to invest.

A lot of the bigger companies in the space like M1 Finance, Betterment or Wealthfront are fighting over the goodwill of the next generation.

This competitiveness has also resulted in extremely low fees and the chance for young investors to open an account well below the $1000 mark.

The Best Robo Advisors for Young Investors – My Top 3

Best
Best for DIY Investing
Best for Trading
SoFi Invest
M1 Finance
Robinhood
Management Fee
0.00%
0.00%
0.00%
Account Minimum
$1
$100
$0
Portfolio
10 different strategies with different risk levels. ETFs and stocks.
The user can create portfolios which consist of low-cost ETFs or use individual stocks
ETFs,‎ Stocks, Options and Crypto
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic Deposits
Socially Responsible Investing
Human Advice
Best for
Investors who are looking for an automatic investment service at a minimum of expenses and have access to human financial advisors whenever necessary.
DIY Investors. If you are enthusiastic about getting your feet wet in the investing world, M1 Finance is the robo advisor of your choice
Beginner investors who are interested in a free service that has the option to trade. One of the few robos that supports crypto currencies.
Summary
SoFi Automated Investing stands out as one of the few "free" robo advisors that come with the option to use a smart beta strategy. Choose between 10 investment portfolios which mainly consist of ETFs.
M1 Finance is the best choice for self-directed investors that want to pick from existing portfolios or customize their own.
RobinHood is a free mobile app that lets you invest in stocks, ETFs, options and cryptocurrencies. It is designed for young investors who are interested in trading.
Best
SoFi Invest
Management Fee
0.00%
Account Minimum
$1
Portfolio
10 different strategies with different risk levels. ETFs and stocks.
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic Deposits
Socially Responsible Investing
Human Advice
Best for
Investors who are looking for an automatic investment service at a minimum of expenses and have access to human financial advisors whenever necessary.
Summary
SoFi Automated Investing stands out as one of the few "free" robo advisors that come with the option to use a smart beta strategy. Choose between 10 investment portfolios which mainly consist of ETFs.
Best for DIY Investing
M1 Finance
Management Fee
0.00%
Account Minimum
$100
Portfolio
The user can create portfolios which consist of low-cost ETFs or use individual stocks
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic Deposits
Socially Responsible Investing
Human Advice
Best for
DIY Investors. If you are enthusiastic about getting your feet wet in the investing world, M1 Finance is the robo advisor of your choice
Summary
M1 Finance is the best choice for self-directed investors that want to pick from existing portfolios or customize their own.
Best for Trading
Robinhood
Management Fee
0.00%
Account Minimum
$0
Portfolio
ETFs,‎ Stocks, Options and Crypto
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic Deposits
Socially Responsible Investing
Human Advice
Best for
Beginner investors who are interested in a free service that has the option to trade. One of the few robos that supports crypto currencies.
Summary
RobinHood is a free mobile app that lets you invest in stocks, ETFs, options and cryptocurrencies. It is designed for young investors who are interested in trading.

What you need to know about Robo-Advisors 

This is how it works: After answering a couple of questions about your investment plans and level of risk aversion, you can have your goals and contributions set up within minutes.

Robo advisors are easy to use and most have a very intuitive interface that will help you get the hang of it a lot sooner than you may expect.

The next step is usually the process of transferring your money from another account into the robo advisor’s platform. You can then also set up an automatic weekly or monthly transaction to fund your account on the regular. The great benefit here is, that it makes for a very hands-off approach.

You can simply set it and forget it instead of having to deal with a personal human advisor.

Whether, ultimately a financial advisor or a robo advisor is better for you, one thing is absolutely certain: Robo-advisors have a lot of benefits, especially for young investors and beginners in general.

3 major benefits

There are more but let’s take a look at the 3 major advantages they have over traditional investment planning

1. You can start with literally nothing

Ok, maybe not nothing-nothing. However if you have a spare 10 bucks left over every month, that is actually already enough to get your feet wet in the investing world. (Check out Acorns for “spare change investing”)

You can literally invest whatever you have.

There are however, also robo advisors who require a minimum of  a couple of thousand dollars to start an account, but especially these accounts are not marketed towards young investors to begin with.

If you are interested in investing, just go to one of the low-cost advisors like RobinHood or M1 Finance, start an account and learn about the world of investing in an almost risk-free way.

2. Very low fees

One of the most, if not the most, compelling argument for using a robo-advisor are the extremely low fees. The annual fee is usually around 0.3% on your asset under management. Depending on which service you use, transaction and trade fees are also free of charge. Your typical human advisor will usually charge you over 1%.

At a first glance this may not look like much but, what a lot of beginners don’t realize is, that the difference is actually huge. Over the course of decades, the fees compound. (compare it to compound interest just in the opposite direction) If you have a great career, by the time of your retirement, these fees can easily have reached the $100.000 mark.

3. Tax-loss harvesting and Portfolio Rebalancing

This is where it gets interesting.

Most robo-advisors also offer services like tax-loss harvesting and automatic rebalancing of your portfolio. This is one of the most important arguments for robo advisors replacing human advisors in the near future.

Formerly, such services were only accessible for the clients of elite financial advisors. Establishing a portfolio, while an incredibly important decision, is not what takes up most of the time of a financial planner. It is the constant, regular rebalancing that takes so much time. Now that algorithms can do this for you, you can just lay back and watch the robo do its work instead of paying a human to do it for you.

Once upon a time in(the)vesting

I know that was a terrible attempt at a pun, but let’s take a quick look at the history of robo advisors and how investing used to be.

Until recently, before 2008 to be exact, you basically only had two options when it came to investing: Hire a financial advisor or DIY.

The latter can be overwhelming for a young investor, and even seasoned veterans make mistakes. The first option, on the other hand, can lead to fees most young investor might not be able to afford.

Betterment was launched in 2010 and soon industry giants like Vanguard, Ameritrade and Schwab followed. As of now, there are over 200 robo advisories available to chose from.

Taking human emotions out of the equation with a robo-advisor seem to be a good bet. But can a machine really invest better than a human at a lower cost?

One major concern

Can a robot fully replace a human? Can a young investor get a good return on their investment? Certainly, robo-advisors are not without their critics.

Robos are still untested

Robo-advisors are still new in comparison to traditional methods of investing. They have performed excellent so far, but there hasn’t been a major crisis since their rise.

Interestingly, the first robo-advisors were already in use in the early 2000s however it took a long time until the general public had access to robo advisors. (2008)

The current crisis will be a great test to see which of the advisors perform best. The fact of the matter is we actually have to wait and see how it goes. There is no way telling for sure we simply don’t know how they’ll perform now that things are starting to turn negative.

Can’t we just use both?

Nowadays, some young investors are actually participating in a bit of a hybrid between using a robo-advisor and hiring a financial advisor. The truth is, a lot of financial advisors are not against robo-advisors at all.

In fact, financial advisors often use robo advisors themselves.

Of course, any smart financial advisor would let a service like Betterment take care of rebalancing and the tax-loss harvesting. It also allows for more time spent on other aspects of financial planning of their clients.

FAQ

Which robo advisor is best for Young Investors?

Depends. If you are a self-directed investor who wants to have a say in your portfolio I would recommend M1 Finance. If you are looking for a “set it and forget it” type of solution there are several great options however I believe SoFi Invest may be your best bet.

What is important when it comes to choosing the right robo advisor you are young?

What you really need to know beforehand is what kind of investor you are. If you are looking for an automated solution that allows you to just leave your money in the account there are plenty of solutions.

However if you’re the type of investor who wants a say in their portfolio it gets a bit more complicated but there are also a couple of great solutions out there. Check out my top 3 picks to find out which suits you best.

What are the 2 major types of robo-advisors?

There are two major types and it is important to know the difference.

We distinguish between automated and non-automated robo advisors.

So essentially, the automated ones are the ones where you don’t really do much once your money is invested which makes them better for people who are not into knowing all the ins and outs of investing.

And then there are the non-automated ones which require a bit more time and dedication on your part. They do give you more control and a perfect way to get started in the investing world.

I believe the best automated advisor for young investors who don’t have huge amounts to invest is SoFi Invest, and the best non-automated advisor is M1 Finance.

Conclusion

Robo-advisors are very attractive for beginning investors, specifically younger investors who are just getting started. It’s easy to just check out different offerings.

At the same time, however we don´t want to undermine what a traditional advisor can bring to the table at all. Weigh the costs and benefits before making your choice.

One thing is certain, young investors have more options than ever. If you are a young investor you should probably do as much research as possible before choosing a robo-advisor.

The good thing is, a young investor can just make an account with one of the low-cost services like M1 to learn and find out how everything works. Once the income is high enough one can still rethink the idea of employing a personal human advisor.

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M1 Finance vs. Robinhood – Which is Better?

Which of these two top-rated free stock trading apps is better for you? 

If you’re wondering which one to choose, you’ve come to the right place.

I’m about to break down all the features offered by Robinhood and M1 Finance in this review so that you can decide which of these two free stock trading apps is best for you!

Account Minimum
$100
$0
Management Fee
0.00%
0.00%
Portfolio
ETFs (NYSE, NASDAQ and BATS), Stocks
ETFs (NYSE, NASDAQ),‎ Stocks, Options and Crypto
Account Types
Individual and joint taxable accounts; traditional, Roth and rollover and SEP IRAs, trusts and even business accounts.
Individual
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic Deposits
SRI
Human Advice
Best for
DIY Investors who are self-directed, yet looking to make long term investments. The approach is somewhere between active and passive.
Active investors who are interested in a free service that has the option to trade crypto currencies.
Account Minimum
$100
Management Fee
0.00%
Portfolio
ETFs (NYSE, NASDAQ and BATS), Stocks
Account Types
Individual and joint taxable accounts; traditional, Roth and rollover and SEP IRAs, trusts and even business accounts.
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic Deposits
SRI
Human Advice
Best for
DIY Investors who are self-directed, yet looking to make long term investments. The approach is somewhere between active and passive.
Account Minimum
$0
Management Fee
0.00%
Portfolio
ETFs (NYSE, NASDAQ),‎ Stocks, Options and Crypto
Account Types
Individual
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic Deposits
SRI
Human Advice
Best for
Active investors who are interested in a free service that has the option to trade crypto currencies.

In-depth Comparison

The world of trading stocks changed forever in 2013, with the launch of a new free trading app called Robinhood.

While they pioneered the industry of commission based trading, plenty of free investing apps followed suite, including M1 Finance.

Now you may be asking yourself, if all these apps are free, what is setting each of them apart and how do they make money?

Before we get into it, there is some important background info you need to know.

What is ‘Microinvesting’?

In a nutshell, micro investing is the act of investing small amounts of money –sometimes even just spare change– and slowly collecting returns.

Micro investing lowered the barrier of entry for traditional investing. Before these free stock trading apps existed:

  • Tons of money had to be spent on trading accounts and account managers
  • Most young people or people with less financial capital could not afford to get into investing

The purpose and goal of micro investing was to capture this young, mobile market and encourage them to start investing.

Micro-investing allows you to toss the price of your coffee cup into an investment account, all through your phone. In fact, it could even be as little as the spare change from your coffee. The apps do the investing for you, so you don’t need a lot of money or any prior knowledge on investing.

Robinhood and M1 Finance are vessels for microinvesting, and in my opinion, they’ve done a pretty good job at it.

Here’s the good news: if the market is performing well as a whole, your chances of making money on both apps are pretty good. The difference between the two occurs in the details. They have similar functions and purpose, but their features are quite different.

By the end of this article, you’ll find these questions answered:

  • How do both apps work?
  • What are their main selling points?
  • Who would benefit most from each of the apps?

Whether you’re just starting out in the microinvesting world or if you’re more experienced on the platforms, this review should help you decide which is right for you!

Robin Hood Pros and Cons

RH is the most well-known free investing app out there. It’s got over 10 million users (2021) and is designed to be the most beginner friendly.

With no commissions, free trade, and an easy to use interface, this app rose to popularity with millennials and first-time investors. However, while it’s perfect for people who are just starting out, most will grow out of the features that are offered.

But don’t discount it too early.

Robinhood is fully customizable, and investors can pick from tons of investment choices. Best of all, they make investing through their app on your phone easier than ordering a pizza!

PROs
Free, no commissions on trades, easy to understand user-interface
CONs
While the app is sleek and clean, the web platform is outdated and lacking
Simple and straightforward design makes finding companies and prices super easy
Slower customer support than M1 Finance
Ability to trade cryptocurrencies
If you’d like to perform any research or technical analysis, you’ll most likely have to use other platforms outside of Robinhood
Free stock when you send a referral link or sign up using someone else’s
They don’t offer retirement accounts
PROs
Free, no commissions on trades, easy to understand user-interface
Simple and straightforward design makes finding companies and prices super easy
Ability to trade cryptocurrencies
Free stock when you send a referral link or sign up using someone else’s
CONs
While the app is sleek and clean, the web platform is outdated and lacking
Slower customer support than M1 Finance
If you’d like to perform any research or technical analysis, you’ll most likely have to use other platforms outside of Robinhood
They don’t offer retirement accounts

Overall, it’s the perfect first stop to learn the basics of the stock market. They make investing very simple, east and straightforward, so if you don’t really know what you’re doing, Robinhood is a good place to start.

M1 Finance Pros and Cons

M1 Finance, the free, do-it-yourself robo-advisor gives you the flexibility and independence to choose from thousands of stocks and ETFs to invest. Think about it like this: every portfolio is a pie, and the pie is divided into slices, which are certain stocks or funds. You choose what percentages you want of what, and can customize it up to a maximum of 100 different slices.

It offers passive investors the option to invest in one of the dozens of expert-built portfolios which are fully automated, meaning you make the decision, and then they do the rest for you! Better yet, they even offer pre-designed portfolios, crafted for individual investment needs.

What does this mean for you?

Well, let’s say you’re passionate about the global warming issue. You can choose a portfolio pie that is designed to include only companies that have similar values. M1 Finance allows you to invest based on causes you care about, industries you’re particularly fond of, or even to match your more practical needs like retirement.

One downside is that it isn’t designed for active traders – M1 Finance is designed for long-term investing.

PROs
No account fees
CONs
No human (or digital) advisors
Option to borrow money against the value of your portfolio
Fairly new brokerage, accounts are protected up to $500,000 (SIPC)
Choose your own investments
You can only trade once or twice a day (M1 Plus members with a min. balance of $25,000 can trade during both windows while members with a balance of less than $25,000 can only trade once a day)
Option to invest in individual stocks & fractional shares
If you want to trade options you will need a different brokerage
Great, intuitive platform (lets you creat a very diversified portfolio)
-
Great for every experience level
-
Rebalancing is automated
-
The initial deposit of only $100 is a great incentive to just try it out and get your feet wet
-
PROs
No account fees
Option to borrow money against the value of your portfolio
Choose your own investments
Option to invest in individual stocks & fractional shares
Great, intuitive platform (lets you creat a very diversified portfolio)
Great for every experience level
Rebalancing is automated
The initial deposit of only $100 is a great incentive to just try it out and get your feet wet
CONs
No human (or digital) advisors
Fairly new brokerage, accounts are protected up to $500,000 (SIPC)
You can only trade once or twice a day (M1 Plus members with a min. balance of $25,000 can trade during both windows while members with a balance of less than $25,000 can only trade once a day)
If you want to trade options you will need a different brokerage
-
-
-
-

Active Trading with Robin Hood

Robinhood does not offer automated financial and trading advice.

But don’t let that put you off – they’re industry pioneers for a reason. These guys are innovative and always working on something new.

Their latest project is a DRIP, otherwise known as a Dividend Reinvestment Plan, which is exciting investors immensely.

I won’t get too much into DRIPs, but you can read more about them if you’re interested here.

To start, all you need to do is get the app or sign up for an account. To trade, enter a fund or company name, hit the “search” button and the stock’s price and current information on the company should populate. All you need to do is select “trade” and you can start buying or selling the stocks of your choice.

The Robinhood app carries many different trade types that M1 Finance does not:

  • Limit orders
  • Market orders
  • Stop-limit orders
  • Stop orders

These trade options benefit short-term investors like I used to be, which was why I initially enjoyed Robinhood. It taught me a lot about trading, doing stock research and the stock market. If you like managing your own money or having a front-row seat to the action, this app might be better suited for you.

Automated Investing with M1 Finance

M1 Finance offers an all-encompassing set of features that aims to make long-term investing easier. Here are some of their key features:

Investment pies and portfolios

M1 starts by asking you questions about your investment preferences, with the idea of putting together an investment pie chart based on the types of sectors you want to put your money into.

It’s an excellent feature for passive investors who want a pre-made portfolio, and you can even browse some pre-created pie charts to get an idea of what you want to invest in, if you don’t already have it figured out.

The app then generates a pie chart specifically for you to see, detailing your investments. Your pie automatically adjusts as the market fluctuates to fit the investment goals you initially outlined.

Invest in stocks and bonds

Unlike other brokerages or robo-investors, M1 Finance gives you a bit more control of the things you can invest in. You can do some search for stocks and bonds on their platform to add them to your portfolio.

Retirement account integration

M1 Finance allows you connect your portfolio to myriad of different account options such as brokerage accounts as well as IRAs, which are not offered by Robinhood. These retirement accounts allow you to get a tax write-off on some of the capital gains you gain from your M1 Finance investments.

Fractional shares

M1 Finance allows you to invest in part of a share of a stock – you don’t have to buy a whole share. This is a fantastic feature that expands the realm of investing opportunities by allowing you to invest in higher value stocks, even with relatively low capital.

M1 Borrow

This feature allows you to borrow money from your account any time, and pay it back with low interest. To do this, you need to have a minimum of $25,000 saved in a taxable brokerage account. If used wisely, it can be good alternative to using a credit card or taking out a high interest loan if you need fast cash.

M1 Spend

You get a checking account with debit card connected to your M1 finance account so you can easily access the money that you have made investing through them. It’s free for all members, or you can pay a yearly membership fee of $125 for M1 Plus, which will get you 1% cash back on your purchases.

Key Differentiators

Robinhood: Access to Cryptocurrencies

I’m sure you’ve heard about cryptocurrencies – if you’re reading this, you were around for the big Bitcoin craze of 2017, and the rise of ones like Ethereum and XRP. Cryptocurrencies have gained attention for all the potential that they can bring — enabling transactions to happen digitally, seamlessly, quickly, and securely.

However, many professionals advise newbie investors against buying cryptocurrencies, because as the relatively new concept is fleshed out and growing, there are more and more significant risks that are rising along with it.

M1 Finance: Automated Rebalancing

…What does that even mean?

One of M1 Finance’s best features is their automated rebalancing feature. Think about it like this: when you add money to your account, it spreads between all the different stocks and ETFs that you’ve selected for your portfolio. Allocations change over time, so you may see some of your stocks go up while others go down.

You’re probably asking yourself, so what?

I wondered the same thing. Well, when M1 Finance invests your money, they automatically buy whatever you’re low in. Inversely, when you take cash out, M1 Finance will automatically sell whatever you’re high in, until they meet the target weights you originally set.

The whole idea of this is that they buy low and sell high on your behalf. Most active investors don’t rebalance regularly as it takes a lot of work studying the market and making trades. That’s one big reason why M1 Finance is valuable for long-term investing.

Fees

Currently, Robinhood is supporting only taxable accounts – IRA accounts aren’t currently available on Robinhood. Robinhood also doesn’t support trusts or joint accounts, whereas M1 Finance does.

Fees aren’t really an issue here, since both Robinhood and M1 Finance are almost equal in the fees department. The whole point is that you can use both services on a basic level with nearly nothing!

They both don’t charge trading or commission fees, but M1 Finance has a minimum investment requirement of $100 to be able to open an account.

Robinhood has the edge for investors that are looking to start small, since the platform does not require any level on investment upon joining. You only need to put in enough money to buy the stock or other investment that you are interested in, and it’s go time!

Investment Options

You can trade on the following for free on Robinhood:

  • Stocks
  • ETFs
  • Options
  • Selected cryptocurrencies

While in my opinion, Robinhood was a great option to first get me into trading, I found that as I did it more and more, I was lacking a lot of research tools that other brokers have. This lack of information can have material impact when you start to invest more money. That being said, this problem can be easily solved by just doing your research elsewhere.

Robinhood can also reinvest your dividends directly back into the stock instead of putting the cash back into your general cash account.

With the M1 basic plan, you get the following features

  • Trade ETFs and stocks during the daily trading window (opens at 10am EST)
  • Access to over 6,000 ETFs and stocks or over 100 expert portfolios
  • Schedule monthly, weekly and daily trades
  • Auto portfolio rebalancing
  • Individual, joint, trust or IRA account creation

Best of all, you can loan up to 35% of your investment portfolio balance, but keep in mind that you need to pay monthly interest any of it which is outstanding.

Premium Services

“Robinhood Gold” is Robinhood’s paid subscription service that will give you access to several different features, including:

  • Access to margin (the ability to buy more stock than you would normally, by borrowing money from a broker to purchase stock)
  • Larger instant bank deposits
  • Level II Market Data from NASDAQ
  • Professional research reports from Morningstar

The Gold membership is free for the first 30 days, then the cost is $5/month. You can sign up any time through your account settings.

“M1 Plus” fee is $50 for your first year, then $125 for every subsequent year. You gain several perks, like:

  • Lower costs on borrowing
  • A second trading window which opens at 3pm EST
  • 1% cash back on debit card purchases
  • 25% discount on M1 Borrow cash loans
  • 5% APY interest on deposits made to M1 Spend checking account
  • Four ATM withdrawal charges waved monthly
  • In case your account has a value over $10,000, you can take loan up to 35% of your account value, and return it whenever you want (however, you are paying interest now)

In my opinion, both are good for different kinds of people. However, as someone who wouldn’t use 90% of the premium features offered by M1 Finance, I wouldn’t be able to justify the annual fee. This, however, is subjective.

Keep in mind, the borrowing process is quick and there is no mandatory credit check.

If you plan on refinancing debt on your high interest credit card, the low interest rate can be ideal, but tread softly: this can be a slippery slope. That’s where they get you.

FAQ

Can I day trade with Robinhood or M1 Finance?

You can trade throughout the day with Robinhood, but not M1 Finance, however, there are still some limitations. For Robinhood accounts that are valued at less than $25,000, you cannot do more than 3 trades a day throughout the 5-day trading period. Accounts valued at over $25,000 can day trade with no restrictions.

Which one should I go with if I’m very environmentally-conscious?

Both tools offer sustainable investment choices, though M1 Finance makes it a breeze to pick these choices by dedicating a complete pre-built portfolio to provide socially conscious investing.

Are these trading platforms safe?

Both offer two-factor authentication. Your account is protected by many high-level algorithms that are sophisticatedly encrypted. Your money is insured by SIPC against loss of money and securities from a broker’s failure, meaning if either of the apps were to default on paying you. It doesn’t provide protection against declines in your investments.

Robinhood or M1 Finance: The Verdict

In my opinion, both are great options if you’re just getting into micro investing. They’re both reasonably established and have great features depending on your financial bandwidth and goals.

In short, Robinhood is a good pick for a complete beginner. They offer basic research tools, and allow you to trade various assets types, including option contracts and cryptocurrencies, which are not offered by M1 Finance. Unfortunately, you will be paying taxes on all your capital gains, since you can’t open a retirement account with Robinhood. Therefore, it’s better suited for short-term investors who want to get in, and get out.

To summarize, choose Robinhood when:

  • You want real-time trades
  • You are an active investor who is looking to make short term gains
  • You plan on trading options or cryptocurrencies

Who should be investing in M1 Finance?

Long-term investors, particularly dividend investors. M1 Finance has a $100 account minimum and a $500 retirement account minimum, so they are more suited for people with a bit more money (compared to Robinhood’s $0 account minimum). M1 Finance is also the only of the two to offer retirement accounts.

To summarize, choose M1 Finance when:

  • You’re okay with a single daily trading window (if you’re not willing to upgrade to M1 Plus)
  • Won’t be trading options or cryptocurrencies
  • Plan on investing long-term
  • When you are an involved investor who wants to create his or her own portfolio

What does this mean for you?

If you’re not 100% dedicated, and you only want to choose one platform, let it be M1 Finance. It wins with regards to their robo-advisors, customized investment portfolios, automated rebalancing and lending. If you want to learn the basics on a very small scale, choose Robinhood.

If you want to share your experience with either of these apps please don’t hesitate and comment below!

Categories
Learn

Smart Beta ETFs – A Simple Guide

It sounds like a new term or some new-fangled approach, but smart beta investing has been around since the 1970s. We just didn’t hear about it much.

So what is the new hype in smart beta ETFs? Is it something you should know and/or jump on the bandwagon with or should you avoid it?

Are you ready to find out more? Check out the guide below. 

What is Beta?

Let’s start with the basics – what is beta?

Beta is the measurement of a stock’s volatility compared to an index, typically the S&P 500. The S&P 500 tracks the movements of the top 500 stocks in the United States. The beta measures how a stock compares to the index.

The S&P 500’s beta is 1.0, always. It’s the beta of a stock that you care about. This measures how the stock will perform compared to the index. A stock with a beta of 1.0 means it will move with the S&P 500.

That’s easy enough to follow, but what about a stock with a beta higher than 1.0?

Stocks with a beta higher than 1.0 indicate their volatility. They have greater movements in relation to the S&P 500. A beta of 1.5 means the stock is 50% more volatile than the S&P 500. If the S&P 500 moves 15%, the stock will move 22.5%.

This goes both ways, though. If the S&P falls, the stock will fall accordingly. 

How do you measure a stock’s beta?

The general rule of thumb is that the higher the beta, the more volatile (and possibly risky) the stock is.

If you want a ‘low risk’ investment, stick with investments with a smart beta as close to 1.0 as possible. But, if you’re in it to win it, you may want to take some chances and choose investments with higher betas for the chance of earning greater returns.

What is Smart Beta?

Smart beta takes traditional beta strategies to a new level. How so?

Smart beta tries to beat the benchmark index (such as the S&P 500) rather than match it.

This isn’t like actively managed funds where the advisor strategically chooses individual investments known to beat the index. Smart beta creates a diversified portfolio with higher returns and reduced risk by looking at specific factors or indicators (screens).

What’s the best thing about smart beta investing?

You’ll pay lower fees as you’re still investing in low-cost ETFs rather than actively managed individual funds.

Smart beta investments don’t rely on market exposure or capitalization. This may be one factor, but not the only factor. Smart beta considers multiple factors that may make the investment risky or help it provide healthy returns.

In smart beta investing, you choose your factors (screens) and choose the investments accordingly. Think of it as a combination of active and passive investing.

What is Alpha?

If we talk about beta, of course, we must talk about alpha too, right?

Beta focuses on an investment’s volatility. Alpha measures the portfolio’s returns and expected performance. What’s the difference? How does it compare to the beta or risk level?

Alpha is indicated by how the fund reacted compared to the S&P 500 (or another index). Funds that perform better than the index have a higher alpha and funds that perform worse than the index have a lower alpha. Funds that walk the same line as the index have a 0 alpha.

What are Smart Beta ETFs?

If you’re investing with a robo-advisor, chances are you’ll come across smart beta ETFs. These passive investments follow a rules-based system when choosing which stocks get included. The fund tracks an index, (like the S&P 500), but only includes those that meet the chosen metrics.

Smart beta ETFs don’t focus on a company’s size or market capitalization, but rather individual factors that affect its performance. The ETF then prioritizes the funds based on how they perform against the chosen metrics. The goal is to lower the risk and increase the returns using the beta method.

What Robo Advisors Use Smart Beta?

As smart beta increases in popularity, more robo-advisors will jump on board. For now, the following robo-advisors use this tactic:

logo of bettermentBetterment

Betterment instituted smart beta funds a few years ago, but they still align with their core principals including personalized planning, finding the balance between cost and value, optimizing tax liabilities, and diversifying.

wealthfront-best-for-low-feesWealthfront

Wealthfront offers smart beta investing for its largest investors with balances of $500K or higher. Wealthfront offers this service at no additional cost to its standard management fee.

sofi-automated-investingSofi Invest

SoFi offers the SoFi 50 ETF index fund that tracks the Solactive SoFi US 50 Growth Index. It uses three metrics to choose the funds including revenue growth, income growth, and future analysis. Read an in-depth review here.

Here is the complete list

FAQ

Is smart beta active or passive investing?

Smart beta is a combination of active and passive investing. It provides you with the best of both worlds, to maximize your earnings. It looks at alpha and uses it as one of the factors, but it focuses on a variety of other factors that choose funds that mimic and/or beat the market index.

Why is beta important?

Investors consider beta because it measures the risk an investment has regardless of diversification. It looks at an entire portfolio, not an individual stock. The entire portfolio (ETF), has a beta and that beta determines how the fund moves compared to the index.

What is the beta of the S&P 500?

The S&P 500 has a beta of 1.0. That doesn’t change. That’s your benchmark to compare the beta of other investments. The higher beta is, the more volatile the fund is compared to the S&P 500. This can signify the chance for great losses and great returns.

What is a good beta?

This is a personal decision. A beta that is higher than 1.0 indicates that a fund will move the indicated amount more than the index. For example, an index of 1.2 means it will move 20% more than the index moves.

A beta that is lower than 1.0 indicates that a fund will move less than the index. This indicates a more conservative fund, but also means lower returns.

Who should consider smart beta investing?

Smart beta helps investors diversify risk. You look for ETFs that outperform the market, rather than mimic it. Smart beta products may provide greater returns, but of course, all returns come with risk, so they also have a higher risk.

Bottom Line

Should you focus on smart beta strategies? It’s a personal decision, but one that may benefit your portfolio.

If you’re just starting, smart beta strategies shouldn’t be at the top of your list, but it should be something you work toward as you get your footing and understand your risk tolerance.

Robo Chooser

Use the following Quiz and find out which robo advisor is best for you.

Categories
Best

Best Free Robo-Advisors 2021

Ok, let’s get this out of the way first:

What exactly do you mean when you say free?

By free, what we are referring to here, are the robo advisors that don’t charge a management fee.

Of course now you may wonder what are the other potential costs and how are these free services able to make money?

The answer is that depending on which robo you use, there can be trading or withdrawal fees and there is also another fee called expense ratio, you can read about that here.

Typically however the above mentioned fees will not be too exorbitant, I am not saying that you should ignore them but the management fee is usually what makes up the biggest part.

Best Free Robo Advisors – My top 3 picks

The following are my top 3 picks. There are some alternatives further down the article, please do your due diligence before choosing.

Low Cost
Best for DIY Investing
High net worth
SoFi Invest
M1 Finance
Schwab Intelligent Portfolios
Management Fee
0.00%
0.00%
0.00%
Account Minimum
$1
$100
$5000
Portfolio
10 different strategies with different risk levels. ETFs and stocks.
The user can create portfolios which consist of low-cost ETFs or use individual stocks
53 ETFs covering as many as 20 asset classes. A lot of customization possible.
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic Deposits
SRI
Human Advice
Best for
Investors who are looking for an automatic investment service at a minimum of expenses and have access to human financial advisors whenever necessary.
DIY Investors. If you are enthusiastic about getting your feet wet in the investing world, M1 Finance is the robo advisor of your choice
Investors with a little bit more to spend who are just starting out and want to have access to a human financial planner.
Summary
SoFi Automated Investing stands out as one of the few "free" robo advisors that come with the option to use a smart beta strategy. Choose between 10 investment portfolios which mainly consist of ETFs.
M1 Finance is the best choice for self-directed investors that want to pick from existing portfolios or customize their own.
Schwab offers a great service at no management fee. You will also get a complete financial plan and access to intuitive planning tools.
Low Cost
SoFi Invest
Management Fee
0.00%
Account Minimum
$1
Portfolio
10 different strategies with different risk levels. ETFs and stocks.
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic Deposits
SRI
Human Advice
Best for
Investors who are looking for an automatic investment service at a minimum of expenses and have access to human financial advisors whenever necessary.
Summary
SoFi Automated Investing stands out as one of the few "free" robo advisors that come with the option to use a smart beta strategy. Choose between 10 investment portfolios which mainly consist of ETFs.
Best for DIY Investing
M1 Finance
Management Fee
0.00%
Account Minimum
$100
Portfolio
The user can create portfolios which consist of low-cost ETFs or use individual stocks
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic Deposits
SRI
Human Advice
Best for
DIY Investors. If you are enthusiastic about getting your feet wet in the investing world, M1 Finance is the robo advisor of your choice
Summary
M1 Finance is the best choice for self-directed investors that want to pick from existing portfolios or customize their own.
High net worth
Schwab Intelligent Portfolios
Management Fee
0.00%
Account Minimum
$5000
Portfolio
53 ETFs covering as many as 20 asset classes. A lot of customization possible.
Rebalancing
Tax Loss Harvesting
Fractional Shares
Automatic Deposits
SRI
Human Advice
Best for
Investors with a little bit more to spend who are just starting out and want to have access to a human financial planner.
Summary
Schwab offers a great service at no management fee. You will also get a complete financial plan and access to intuitive planning tools.

1. SoFi Invest

sofi-automated-investingI have selected SoFi Invest as my top low budget pick because it is hard to beat a service that comes without management fee, a minimum account balance of $1 and even a smart beta investing strategy.

You can choose between 10 different investment strategies. The portfolios are a mix of ETFs and stocks.

To top if off, you have free access to certified financial planners.

The only downside is the lack of tax loss harvesting.

PROs
No account minimum
CONs
No tax-loss harvesting
No management fee
Only available for those in the U.S.
No withdrawal or inactivity fees
Research tools leave a lot to be desired
Commission-free trading of U.S. stocks and ETFs
The investment options are limited
A large selection of low-cost investments
You can only open individual and jointly owned IRAs, Roth IRAs, and SEP IRAs (you may roll over a current 401K)
Automatic rebalancing makes it easy to set it and forget it
-
Free access to certified planners
-
Fractional shares and crypto
-
PROs
No account minimum
No management fee
No withdrawal or inactivity fees
Commission-free trading of U.S. stocks and ETFs
A large selection of low-cost investments
Automatic rebalancing makes it easy to set it and forget it
Free access to certified planners
Fractional shares and crypto
CONs
No tax-loss harvesting
Only available for those in the U.S.
Research tools leave a lot to be desired
The investment options are limited
You can only open individual and jointly owned IRAs, Roth IRAs, and SEP IRAs (you may roll over a current 401K)
-
-
-

2. M1 Finance

If you’re looking for a combination of robo-advisor with DIY investing, M1 Finance offers the best of both worlds.

M1 allows both self-directed and robo-investing. In other words, you can pick your investments, while allowing the M1 robo-advisor to manage it for you.

M1 requires $0 money to open an account and they have a $0 management fee. You can invest in individual stocks or ETFs, but if your account has no activity for 90 days, they charge a fee. You need plenty of financial know-how if you want to take over your investments, though. M1 doesn’t use financial advisors, so all decisions are between you and the M1 algorithm.

Investors that know what they’re doing and don’t need hand-holding when creating goals do well with M1. You can set up automatic deposits and you have access to a line of credit equal to 35% of your portfolio if you have at least $10,000 invested. M1 operates in ‘pies’ or circular charts with each piece representing a piece of the investment.

PROs
No account fees
CONs
No human (or digital) advisors
Option to borrow money against the value of your portfolio
Fairly new brokerage, accounts are protected up to $500,000 (SIPC)
Choose your own investments
You can only trade once or twice a day (M1 Plus members with a min. balance of $25,000 can trade during both windows while members with a balance of less than $25,000 can only trade once a day)
Option to invest in individual stocks & fractional shares
If you want to trade options you will need a different brokerage
Great, intuitive platform (lets you creat a very diversified portfolio)
-
Great for every experience level
-
Rebalancing is automated
-
The initial deposit of only $100 is a great incentive to just try it out and get your feet wet
-
PROs
No account fees
Option to borrow money against the value of your portfolio
Choose your own investments
Option to invest in individual stocks & fractional shares
Great, intuitive platform (lets you creat a very diversified portfolio)
Great for every experience level
Rebalancing is automated
The initial deposit of only $100 is a great incentive to just try it out and get your feet wet
CONs
No human (or digital) advisors
Fairly new brokerage, accounts are protected up to $500,000 (SIPC)
You can only trade once or twice a day (M1 Plus members with a min. balance of $25,000 can trade during both windows while members with a balance of less than $25,000 can only trade once a day)
If you want to trade options you will need a different brokerage
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3. Schwab Intelligent Portfolios

How does sophisticated investing without a management fee sound?

That’s what Charles Schwab Intelligent Portfolios offers. They have a large ETF selection and automatically rebalance your portfolio as needed. It’s a great way to have hands-off investing that helps you reach your goals without the stress involved with DIY investing.

You do need a minimum of $5,000 to open an account, and if you have as much as $25,000 invested, you have access to its premium account, which does cost $30 per month but provides unlimited access to its financial advisors. Schwab offers investments from 20 different asset classes and with 53 ETFs to choose from. You can open both non-retirement and retirement accounts including Roth and rollover IRAs.

The one downside is that you need $50,000 invested for Schwab to implement tax-loss harvesting strategies, but they offer access to a variety of cash management products with decent APYs.

Another bonus? Schwab offers 24/7 customer service – that’s not something you find with many robo-advisors.

PROs
Cash is king – Each investment account includes a deposit account at Schwab Bank where a portion of your money is kept liquid. The account is FDIC insured. 
CONs
You need at least $5,000 – Schwab Intelligent Portfolios has a lot of benefits, but you can’t enjoy them if you have less than $5,000 to invest.
No fees – It doesn’t get much better than ‘free’ when you’re investing. While you’ll pay ETF expense costs, that’s about the only fee you’ll pay.
You need $50,000 to get tax loss harvesting – A main benefit of robo-advisors is their tax-loss harvesting abilities. With Charles Schwab Intelligent Portfolios, you only get this service if you have at least $50,000 invested. 
Automatic rebalancing – You don’t have to watch your portfolio like a hawk. You don’t have to watch it at all if you don’t want to actually, since Schwab does the rebalancing automatically and as often as daily.
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Learn how to take your money in retirement – Any Schwab Intelligent Portfolio investor can use Schwab’s Intelligent Income feature to ‘play with the numbers’ to find the perfect paycheck amount that limits tax burdens and provides you with the longest lasting funds.
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More diversification – This isn’t your standard robo-advisor that only invests in ETFs. Depending on your risk tolerance, you may have REITs, precious metals, options, and mutual funds too. 
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Around-the-clock customer service – Most robo-advisors don’t offer human advisors at all, let alone 24/7 support.
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PROs
Cash is king – Each investment account includes a deposit account at Schwab Bank where a portion of your money is kept liquid. The account is FDIC insured. 
No fees – It doesn’t get much better than ‘free’ when you’re investing. While you’ll pay ETF expense costs, that’s about the only fee you’ll pay.
Automatic rebalancing – You don’t have to watch your portfolio like a hawk. You don’t have to watch it at all if you don’t want to actually, since Schwab does the rebalancing automatically and as often as daily.
Learn how to take your money in retirement – Any Schwab Intelligent Portfolio investor can use Schwab’s Intelligent Income feature to ‘play with the numbers’ to find the perfect paycheck amount that limits tax burdens and provides you with the longest lasting funds.
More diversification – This isn’t your standard robo-advisor that only invests in ETFs. Depending on your risk tolerance, you may have REITs, precious metals, options, and mutual funds too. 
Around-the-clock customer service – Most robo-advisors don’t offer human advisors at all, let alone 24/7 support.
CONs
You need at least $5,000 – Schwab Intelligent Portfolios has a lot of benefits, but you can’t enjoy them if you have less than $5,000 to invest.
You need $50,000 to get tax loss harvesting – A main benefit of robo-advisors is their tax-loss harvesting abilities. With Charles Schwab Intelligent Portfolios, you only get this service if you have at least $50,000 invested. 
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Alternatives

Some of the following alternatives do come with a management fee, but don’t let that scare you. They all come with a unique angle and one of them may just be the perfect match for you.

Personal Capital

If you want a free personal finance dashboard, look no further than Personal Capital.

You don’t have to sign up for their advisory services, but you can use their personal finance tools that include a spending tracker, asset allocation, and 401K checkup.

The personal finance dashboard gives you a bird’s-eye view of your finances overall. Learn your net worth, cash flow, spending patterns, and portfolio balances all in one place. It takes the confusion and stress out of figuring out where you stand.

When it comes to investing, you get access to a human advisor with Personal Capital, so it’s a bit of a hybrid robo-advisor. The downside is that you need $100,000 to take advantage of their investment services. Personal Capital charges 0.89% of your assets under management if you have less than $200,000 invested. If you have more than $200,000, not only do you get lower fees, but you also get two dedicated financial advisors on your account.

Personal Capital doesn’t charge any other account fees and everyone (even those with less than $200,000 invested) have access to a team of financial advisors. You may not talk to the same advisor each time, but they all operate with the same philosophies.

PROs
You get a full view of ALL of your finances from your checking account to your retirement accounts and everything in between. Everything is located in one dashboard.
CONs
You must adhere to Personal Capital’s asset allocation. It’s not customizable, which may not work for investors that like to tweak their portfolios.
Personal Capital offers a You Index which is a personalized look at your holdings except for your cash, money market funds, and bonds. It’s a good indicator of how your investments are performing over time.
Some people may think the wealth management fees are excessive.
You pay one fee only so it’s easy to determine your costs rather than paying individual commissions and hidden fees.
You need at least $100,000 to use the wealth management services.
Tax Loss Harvesting
Your personal advisor may not be the same person each time ... unless you have at least $200,000 invested
Get up-to-date spending suggestions or investment changes whenever you make changes to your Social Security income or spending, or other changes.
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Low ETF expense ratios
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Great for investors that want a hybrid between human advisors and automated robo-advisors
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PROs
You get a full view of ALL of your finances from your checking account to your retirement accounts and everything in between. Everything is located in one dashboard.
Personal Capital offers a You Index which is a personalized look at your holdings except for your cash, money market funds, and bonds. It’s a good indicator of how your investments are performing over time.
You pay one fee only so it’s easy to determine your costs rather than paying individual commissions and hidden fees.
Tax Loss Harvesting
Get up-to-date spending suggestions or investment changes whenever you make changes to your Social Security income or spending, or other changes.
Low ETF expense ratios
Great for investors that want a hybrid between human advisors and automated robo-advisors
CONs
You must adhere to Personal Capital’s asset allocation. It’s not customizable, which may not work for investors that like to tweak their portfolios.
Some people may think the wealth management fees are excessive.
You need at least $100,000 to use the wealth management services.
Your personal advisor may not be the same person each time ... unless you have at least $200,000 invested
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Robin Hood

When it comes to DIY investing this is the one true competitor that M1 Finance has. The platform is heavily geared towards mobile users and a younger customer base in general.

If you are into short term trading this could definitely be an interesting choice for you. Check out our in-depth comparison between M1 Finance and RobinHood to know all about the differences.

PROs
Free, no commissions on trades, easy to understand user-interface
CONs
While the app is sleek and clean, the web platform is outdated and lacking
Simple and straightforward design makes finding companies and prices super easy
Slower customer support than M1 Finance
Ability to trade cryptocurrencies
If you’d like to perform any research or technical analysis, you’ll most likely have to use other platforms outside of Robinhood
Free stock when you send a referral link or sign up using someone else’s
They don’t offer retirement accounts
PROs
Free, no commissions on trades, easy to understand user-interface
Simple and straightforward design makes finding companies and prices super easy
Ability to trade cryptocurrencies
Free stock when you send a referral link or sign up using someone else’s
CONs
While the app is sleek and clean, the web platform is outdated and lacking
Slower customer support than M1 Finance
If you’d like to perform any research or technical analysis, you’ll most likely have to use other platforms outside of Robinhood
They don’t offer retirement accounts

Wealthsimple

Are you a socially responsible investor? If so, you’ll love Wealthsimple and its various socially responsible portfolio options. You may also love the access to financial advisors; no matter how much you have invested – that’s hard to come by with robo-advisors.

WealthSimple’s management fee is a bit on the high side, though, so it makes up for everything that you get.

With its $0 minimum opening balance requirement, Wealthsimple is great for beginners just starting. Wealthsimple doesn’t charge any other account fees except for the management fee, so you don’t have to worry about hidden fees eating your profits. Wealthsimple offers between 6 – 10 asset classes, with a focus on social responsibility. You can open a taxable account, IRA, Roth IRA, and SEP account.

Wealthsimple offers re-balancing as needed and tax-harvesting strategies. They also have excellent customer service hours. Wealthsimple is great for those just starting out that don’t want the little amount of money they invest to get eaten up by fees. You can even buy fractional shares with Wealthsimple which makes it easy to invest in even the most expensive stocks, as you only have to buy the portion you can afford.

PROs