Automated investment services promise to make investing easy, inexpensive, and even fun. Sometimes called robo advisors, these companies can take the pain and uncertainty out of investing by constructing a portfolio, investing in ETFs, rebalancing, reinvesting dividends, and even harvesting tax losses.
On the surface robo advisors appear to be virtually identical. Popular options such as Betterment and WealthFront offer a diversified portfolio of low cost ETFs. All an investor needs to do is choose a stock and bond allocation, and the robo advisor does the rest.
A closer look, however, reveals some significant differences from one service to the next. Key differences include the following:
Cost: The cost of automated investing services range from free to 50 basis points or more;
Custody: Some services require you to transfer your money to their custodian, while others allow you to keep your investments at well know brokerages;
Account Types: While all offer taxable accounts and IRA retirement accounts, they don't all offer SEP IRA accounts for the self-employed;
Investments: Some limit investors to the ETFs selected by the service, while others offer more flexibility;
Taxes: Some services offer sophisticated tax loss harvesting features, while others do not; and
Stocks: Some services allow you to invest in individual stocks, although most do not.
These differences are important. Selecting the robo advisor that best meets an investor's needs requires understanding the different features and costs of these services. For that reason, below you'll find an extensive list of popular robo advisors and the key features and costs of each.
Fully Automated Investment Services
Several robo advisors handle virtually every aspect of investing. Once money is transferred to a new account and a stock/bond allocation chosen, the service handles everything from rebalancing to dividend reinvestment to even tax loss harvesting. These services don't offer much flexibility. The ETFs and asset allocation, for example, are determined by the advisor. What they lack in flexibility, however, they make up with the ease of using their service.
Betterment: One of the first robo advisors, Betterment (review of Betterment) has built a robust set of tools to help the most novice of investors. One need only select how much they want invested in stock ETFs and how much in bond ETFs. Betterment provides easy to use tools to help investors make the stock/bond allocation decision. Once made, Betterment allocates the investments across several low cost ETFs.
Betterment's asset allocation favors value ETFs. It does not include REITs or Commodity ETFs on the theory that total market ETFs provide exposure to these asset classes. Taxable accounts of at least $50,000 can take advantage of Betterment's automated tax loss harvesting tools.
There is no minimum deposit to open an account. The fees charged, however, range from 0.15% to 0.35% based on the account balance. The lowest fee of 0.15% is available for accounts with $100,000 or more.
Betterment's most notable feature is its website. It offers beautifully designed tools that make understanding investments a joy.
On the surface robo advisors appear to be virtually identical. Popular options such as Betterment and WealthFront offer a diversified portfolio of low cost ETFs. All an investor needs to do is choose a stock and bond allocation, and the robo advisor does the rest.
A closer look, however, reveals some significant differences from one service to the next. Key differences include the following:
Cost: The cost of automated investing services range from free to 50 basis points or more;
Custody: Some services require you to transfer your money to their custodian, while others allow you to keep your investments at well know brokerages;
Account Types: While all offer taxable accounts and IRA retirement accounts, they don't all offer SEP IRA accounts for the self-employed;
Investments: Some limit investors to the ETFs selected by the service, while others offer more flexibility;
Taxes: Some services offer sophisticated tax loss harvesting features, while others do not; and
Stocks: Some services allow you to invest in individual stocks, although most do not.
These differences are important. Selecting the robo advisor that best meets an investor's needs requires understanding the different features and costs of these services. For that reason, below you'll find an extensive list of popular robo advisors and the key features and costs of each.
Fully Automated Investment Services
Several robo advisors handle virtually every aspect of investing. Once money is transferred to a new account and a stock/bond allocation chosen, the service handles everything from rebalancing to dividend reinvestment to even tax loss harvesting. These services don't offer much flexibility. The ETFs and asset allocation, for example, are determined by the advisor. What they lack in flexibility, however, they make up with the ease of using their service.
Betterment: One of the first robo advisors, Betterment (review of Betterment) has built a robust set of tools to help the most novice of investors. One need only select how much they want invested in stock ETFs and how much in bond ETFs. Betterment provides easy to use tools to help investors make the stock/bond allocation decision. Once made, Betterment allocates the investments across several low cost ETFs.
Betterment's asset allocation favors value ETFs. It does not include REITs or Commodity ETFs on the theory that total market ETFs provide exposure to these asset classes. Taxable accounts of at least $50,000 can take advantage of Betterment's automated tax loss harvesting tools.
There is no minimum deposit to open an account. The fees charged, however, range from 0.15% to 0.35% based on the account balance. The lowest fee of 0.15% is available for accounts with $100,000 or more.
Betterment's most notable feature is its website. It offers beautifully designed tools that make understanding investments a joy.
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