Regardless of your level of experience with investing, finding the ideal robo-advisor for your personal finance needs might be difficult. There are many factors to assess and take into account between costs, features, and funds. The top robo-advisor services for various investor types who require effective financial planning tools are listed below to help with responsible investing.
Reviewed by
Stang Gappa
Reviewed by
Stang Gappa
Updated on June 6, 2024
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A Schwab robo-advisor portfolio doesn’t offer socially responsible asset allocation options. It also requires a higher account minimum of $50,000 for a tax-loss harvesting service.
Robo advisors offer investors the opportunity to access guided investing—which can be especially attractive to beginning investors—at low fees that aren’t usually available when working with human financial advisors. In the wide world of online investing, even a little bit of help can go a long way, especially when talking about something as important as your retirement accounts.
Even for investors who do feel like they know their way around the market a bit, automated investing can make portfolio diversification and achieving investment goals as simple as set it and forget it. That’s why it’s also sometimes known as passive investing.
When choosing between automated investing options, keep the following in mind:
Your experience with the robo-advisor should be straightforward. It should be simple to link your checking account, get personalized advice, and begin investing in brokerage accounts with your robo-advisor. The investing platform should be intuitive and user-friendly. (You can get some insight as to how a given provider is doing in this area before signing up by researching their online reviews.)
Almost all robo-advisors offer similar low-cost ETFs, leading to similar overall performance. Therefore, one of the main distinguishing factors becomes the cost, including annual advisory fees and ETF expense ratios. You should look for a robo-advisor that combines a high level of usability with reasonable fees.
It’s essential to consider how a robo-advisor constructs its portfolio options and does performance tracking. Typically, they offer diversified portfolios of low-cost ETFs (and sometimes mutual funds). Make sure their investment strategy aligns with your goals and risk tolerance, and that you know how the algorithm (and any human advisors behind it) react when goals or market conditions change. If tax efficiency is important to you, choose a provider that offers automatic tax-loss harvesting, for example; if you want the opportunity to run something by a live human, there are some providers that offer the option for personalized advice with a financial advisor.
Certain robo-advisors may offer access to crypto (cryptocurrency), but not all do. If this is something you’re interested in, be sure to do some digging before settling on a provider.
Be cautious of robo-advisors that claim to have zero management fees. Some may keep a large part of your balance uninvested in a cash account, which they lend out to earn interest. This can reduce your overall returns (and slow your road to financial independence) because a portion of your investment remains idle.
While robo-advisors operate mostly on automated portfolio management, reliable customer support is still vital for addressing any issues or queries. Many people value an interactive experience when it comes to their investments, even if the robo-advisory firm is doing the heavy lifting.
Lastly, look at the robo-advisor’s reputation, as well as the security measures they have in place to protect your investments and personal data.
In essence, the ideal robo-advisor should align with your financial goals, investment style, and risk tolerance, all while offering a simple user interface, reasonable fees, and robust customer support.
Some robo-advisors have adopted a wealth management approach, rather than pure investment management, since their offerings have grown in popularity and they’re attracting more affluent, savvy clients. In other words, you may find yourself able to one-stop shop many of your different financial planning needs, from your retirement savings to your day-to-day banking. Many robo-advisors offer a diverse menu of savings accounts and brokerage accounts, though credit cards are uncommon.
Robo-advisors are also sometimes known as automated IRAs or digitally managed IRAs. In other words, they’re the same thing.
Automated IRAs are a good fit for people who want to outsource their investing decisions or don’t feel qualified to make their own trades. By using technology to pick stock market investments (and not humans), these automated IRAs are available at low fees and can efficiently manage (collectively) billions of dollars in assets.
Robo-advisor services include automatic asset allocation, portfolio rebalancing and tax optimization. Many provide access to traditional financial advisors as well to help clients with investment and/or retirement planning, and most have a solid library of educational resources if you want to go at it alone.
They’re offered both by newer fintech companies and more established financial institutions. Some institutions even offer thematic asset allocation plans, like socially responsible investing options or diversified crypto plans.
Note that apart from FDIC-insured deposits, investments in an automated IRA are, like all stock market investments, at risk.
Most automated IRAs involve a similar process:
There are a variety of different types of retirement accounts that can be passively managed.
Traditional IRAs are the most common type available. They’re funded with pre-tax dollars, which means you’ll likely get a tax deduction in the year you make contributions, but you’ll have to pay income taxes on the funds later on when you withdraw them in retirement. Any taxpayer who earns income, or who is married to someone who does, can contribute to a traditional IRA, and a traditional robo IRA makes management easier than ever.
Roth IRAs work in essentially the opposite way from how traditional IRAs do. The money you invest in a Roth account is after tax, which means you get to take tax-free withdrawals in retirement, so long as you also follow the five-year rule. Many providers offer both Roth robo IRAs and traditional robo IRAs, and many retirement savers choose to have one of each to maximize their returns. Just make sure you only contribute up to the annual limit to any and all IRAs you hold. For 2024, that limit is $7,000 or $8,000 for savers aged 50 and over.
SIMPLE IRAs are designed for small business owners whose companies have 100 employees or fewer. A SIMPLE IRA allows both employees and employers to contribute to employee retirement plans, which can help employees save more in a shorter period of time.
A SEP IRA is a lot like a SIMPLE IRA, except only employers contribute. Like a SIMPLE IRA, a SEP IRA can drastically increase annual retirement savings and is a good choice for self-employed people as well as small business employers. SoFi automated investing offers both robo SEP IRAs and robo SIMPLE IRAs.
Yes, you certainly can have a robo-advisor manage a Roth IRA account.
Many robo-advisors support a variety of account types, including traditional IRA, Roth IRA, SEP IRA, and even regular, taxable investment accounts.
While robo-advisors do make it simple to “set and forget” your investments, by nature, they don’t offer the ultimate control and the flexibility of an actively-managed investment account. In other words, for investors who want to know exactly where their money is going and to be able to change directions whenever they choose, a robo-advisor may not be the best fit.
Additionally, robo-advisors may only allow investors to choose from a relatively small pool of asset classes, usually ETFs and mutual funds. For those hoping to invest in specific stocks or explore alternative investment classes, an actively managed IRA might work better.
No one can predict the future, and no one can tell you exactly how your investments are going to perform. The performance of each robo-advisor will depend on many factors, including the specific assets it invests in, what your goals and parameters are as an investor, and its algorithm. Which is to say, sometimes they outperform the S&P 500, and sometimes they don’t.
Automated IRAs can be a great way for investors to see success with minimal effort and low fees. Some of the top robo IRA providers, according to our customers, include:
At the end of the day, only you can decide which robo-advisor is best aligned with your needs and goals—but if you’re considering rolling over an old 401(k) into a robo-IRA, Capitalize can help. We make the rollover process simple so you can stay focused on planning your financial future… or choosing the right robot for the job.
