- Robo-advisors are online platforms that provide financial planning without any human help.
- Most robo-advisors cost less with an annual payment of 0.2% to 0.5% of the total account balance.
- For in-depth financial planning, you can consider a hybrid model: online financial planning services.
What if there was someone who could do the boring stuff while you finally make some time to spend with your partner, kids, or your pet? Indeed, that would be great. Guess what? We do know someone.
It may not always be a human helping you in investments as there’s something better that can help you big time in saving you hours of valuable time. Let’s meet the Robo-advisor.
Huh? What is that?
Robo-advisors are online platforms that provide automated investing services using data algorithms to build and manage your investment portfolio, without any human help. They can also help with automatic rebalancing or tax optimization.
Most conventional portfolio management services need a high balance to be eligible; however, in most cases, robo-advisors have low or no minimum requirements and cost very low. Hence, you can start investing within minutes even with a low balance, after signing up.
Are they really cheaper?
Most robo-advisors cost less with an annual payment of 0.2% to 0.5% of the total account balance. It can be paid at your convenience, either monthly or quarterly. This is much lesser than the 1% to 2% (it might be higher for commission-based accounts) charged by a — human — registered investment advisor.
In most cases, you don’t have to pay a fee to a robo-advisor — they normally brush aside the commission you may pay during transactions in a regular brokerage account.
But there are too many! Which one should I choose?
For choosing the right robo-advisor, check if they manage your type of account. Almost all robo-advisors manage individual retirement accounts and taxable accounts. While some manage trusts, only a few handle 401(k). Nearly all of them accept accounts with a minimum of $500 or less.
Keep in mind that there are some who might be ideal for your need, but require $5,000 or more as a minimum balance. Therefore, it is necessary to check the minimum requirement as well.
The first step would mostly be a set of questions. The algorithm will suggest a portfolio based on your answers to these questions. It will evaluate your goals, investing preferences, and risk tolerance. It usually offers 5 to 10 portfolio options varying from conservative to aggressive.
Robo-advisors set up portfolios using low-cost exchange-traded funds (ETFs) and index funds, which are aimed to replicate the functioning of an index like S&P 500. You’ll have to pay a fee called “expense ratio” charged by these ETFs or index funds, besides the robo-advisor’s fee.
How Roboservices help?
Roboservices help in the regular rebalancing of your portfolio at regular intervals. They also offer helpful financial planning tools like retirement calculators. For taxable accounts, plans for tax-loss harvesting and extra tax strategy would be provided.
If you need more in-depth financial planning, you could try visiting online financial planning services.
Who are they?
Online planning services comprise a team of financial planners who would meet you online and not in person. In this, you have a human element looking for the nuances that a computer algorithm might gloss over. They’re considered to be a hybrid model with features from both robo-advisors and traditional methods.
Since it’s completely online, it costs much lower than traditional financial advisors. The cost, however, depends on the minimum investment requirements, level of experience of the certified advisor, and customization.
Some well-known online planning services you can try
Wealthfront, Vanguard Personal Advisor Services, Betterment, SoFi, and Blooom are the widely popular ones. These services have a fee range from 0.05% to 0.40% and a minimum balance from $500 to $50,000. Choose the right one for you after necessary research.