Robo-advisors are growing increasingly popular, especially with Millennial and Gen Z investors, as an alternative to traditional portfolio management. But not all robo-advisors are created equal.
Robo-advisor—an automated investment platform that uses computer algorithms to invest your money for you—is certainly a hot buzzword in today’s economic landscape (perhaps second to only cryptocurrency). Don’t be lured in by the charm of the first robo-advisor you find.
If you’re ready to jump on the bandwagon, review our list of the best robo-advisors of 2021 to choose a quality option that meets your needs.
8 Best Robo-Advisors of 2021
|Advisor||Account Minimum||Best for||Ease of Use|
|Wealthfront||$500||Best overall||Very easy||SEE DETAILS|
|Betterment||$10||Mobile investing||Very easy||SEE DETAILS|
|SoFi Automated Investing||$1||Fee-free investing||Very easy||SEE DETAILS|
|Vanguard Digital Advisor||$3,000||Retirement planning||Moderate||SEE DETAILS|
|Ally Invest||$10||Beginners||Very easy||SEE DETAILS|
|Charles Schwab Intelligent Portfolios||$5,000||Large accounts, low fees||Easy||SEE DETAILS|
|M1 Finance||$100||Experienced investors ss||Moderate||SEE DETAILS|
|Acorns||$0||Micro-Investing||Very easy||SEE DETAILS|
Best Overall Robo-Advisor
- Free access to advisors
- Tax-loss harvesting, auto rebalancing
A common criticism of robo-advisors is that investors get very little say in how they are investing, but Wealthfront allows you to curate your portfolio toward your interests, including social responsibility, clean energy, crypto, tech and foreign and emerging markets. If you get carried away, Wealthfront steps in to let you know if your decisions aren’t in line with your risk tolerance.
You can use Wealthfront to invest for retirement (Traditional and Roth IRAs, SEP IRA, 401(k) rollover), education (529 college savings plan) and general investing (Individual Accounts, Joint Accounts, Trust Accounts).
While the beauty of automated investment services is that the robot does everything for you, Wealthfront has a team of financial planners available who can talk through any questions you have.
Wealthfront also offers a cash account to make investing easier.
Best for Mobile Investing
Betterment allows you to specify your risk tolerance and your financial goals in order to invest for you, with typical features like rebalancing and tax efficiency. While Betterment has one of the lowest fees for assets under management, it jumps up 0.15% for Premium access to human advisors.
Betterment, the first robo-advisor to enter the market back in 2008, offers socially responsible investing, as well as checking and cash reserve accounts. Its mobile app is perhaps the best one on the market.
You can trust that you’re in good hands with Betterment. They manage $32 billion (with a B) in assets for more than 650,000 customers.
Betterment is currently running a promotion: Sign up now and get one year of free account management.
SoFi Automated Investing
Best for Fee-Free Investing
- Easy to set goals
- Free access to human advisors
The fee-free setup for So-Fi is the big selling point. That and its $1 minimum investment make it appealing to young investors. However, you get less from SoFi than from other top robo-advisors. For example, SoFi does not include a tax efficiency feature.
SoFi Automated Investing
Another nice perk of SoFi is free access to certified financial planners. But investment options are generally more limited, i.e., there’s no comprehensive financial plan.
SoFi’s expense ratio is waived until June 2022. After that, it jumps to 0.19% — much more than the typical .03% for a Vanguard S&P 500 fund.
Vanguard Digital Advisor
Best for Retirement Planning
- Great retirement planning
- Proven track record
Vanguard is one of the most highly regarded investment management companies. Case in point: Most robo-advisors on this list invest in Vanguard ETFs. Its decades of experience make Vanguard Digital Advisor the best bet for long-term retirement savings. With a higher account minimum, Vanguard Digital Advisor is not for beginners.
Vanguard Digital Advisor
Vanguard’s platform isn’t as simple as some, but if you’re interested in decades of data rather than a pretty app, Vanguard may be right for you. You can talk with investment professionals through its Vanguard Personal Advisor Services.
Best for Beginners
Ally Invest is free … sort of. To get 0% advisory fees, you have to opt for the Cash-Enhanced Managed Portfolio, which sets aside 30% of your money in an uninvested account. Otherwise the Market-Focused Managed Portfolio has a 0.30% advisory fee. Beginners will appreciate Ally’s mobile app, 24/7 free live support and easy portfolio choices. Experienced investors probably want more choices.
Beginners will appreciate Ally because of its leading mobile app, the $100 minimum deposit, 24/7 free live support and easy portfolio choices. The choices include Core (best for hands-off investors), Income (lower risk), Tax Optimized (tax-advantaged investments) and Socially Responsible (eco-friendly companies).
Ally can be a one-stop shop for all your financial needs. Ally Bank is a highly recommended online bank with high-yield savings and interest-earning checking accounts. Ally also offers CDs, money market accounts and mortgage, auto and personal loans.
Another highlight: It takes just 10 minutes to get set up.
Charles Schwab Intelligent Portfolios
Best for Large Accounts
- Low expense ratios
- Broad customization
Schwab Intelligent Portfolios caters to experienced investors and offers wider customization than other robo-advisors. You can choose from three investment strategies and six risk profiles. The barrier for entry is higher, and like Ally, Schwab may put some of your funds in an FDIC-insured deposit account depending on the risk profile you select.
Charles Schwab Intelligent Portfolios
Schwab’s robo-advisor charges no management fee. The company makes its money off the expense ratio for Schwab ETFs. Like other robo advisors, this one includes auto rebalancing and tax loss harvesting.
Best for Experienced Investors
- Low expense ratios
- Great apps
Even experienced investors can benefit from automated investment services. M1 Finance is ideal for such customers because it’s a hybrid, offering both automated and hands-on options. Its financial advisors put together 80+ curated “Pies” (pie charts that show how funds are diversified to meet different objectives), but you can also bake your own Pies.
With M1, auto rebalancing stays on top of your investments with built-in tax efficiency. You can set up taxable investment accounts, as well as retirement accounts.
There is no management fee, though you will pay an expense ratio for trades. In addition, you can upgrade to M1 Plus (free for the first year, $125 thereafter), which includes 2% loans through M1 Borrow, two trade windows, custodial accounts and smart transfers.
With M1 Finance investment accounts, you can set up individual and joint taxable accounts, as well as retirement accounts like Roth, traditional and SEP IRAs. It also offers trust accounts.
To get the most out of M1 Finance, don’t just open an Invest account. Consider Borrow and Spend to unlock the full suite of features.
Best for Micro-Investing
- Transparent pricing
- Fractional shares
What makes Acorns stand out is its round-up feature. Just link your debit and credit cards to the account, and every time you make a purchase, it’ll round up the purchase amount to the nearest dollar and invest that spare change. So if you buy a taco for $6.35, it’ll round up to $7.00, and $0.65 will be invested.
Acorns pricing structure is different from other automated advisors. That’s good because 1) it’s cheap and 2) it’s consistent. Other services charge a fee as a percentage of assets under management, so the management fee can fluctuate.
The downside is, most people who start with Acorns aren’t investing a lot, so they’re actually spending more ($36 a year) than they would if they invested with a robo-advisor platform that charges a 0.25% fee. In fact, an investor wouldn’t own $36/year with a robo-advisor charging 0.25% until they hit nearly $15,000.
Acorns invests your funds into diversified ETFs and performs automatic portfolio rebalancing. As with other robo investment services, you only need to answer a few questions for it to make the tough decisions for you
Acorns also allows fractional shares, which is a cool feature that lets you own a fraction of stocks with a high price per share.
As part of its investment portfolio, Acorns includes traditional retirement accounts. In addition to investing, Acorns offers a checking account insured by the FDIC. (No savings account, however.)
Best Robo-Advisor Honorable Mentions
While these automated investment platforms didn’t make our list of the eight top robo-advisors, they are also worth your consideration:
- SigFig: Good for access to human financial advisors
- Ellevest: Good for goal-driven investing
- TD Ameritrade: Good for traditional investors
- Interactive Advisors: Good for socially responsible investments
- E*TRADE: Good for mobile investing
In addition, Personal Capital is often referred to as a robo-advisor, but they prefer to brand themselves as a “digital wealth manager.” Splitting hairs? Maybe. Either way, it’s a great platform if you can afford the $100,000 minimum account balance, which makes them more like traditional advisors.
Hallmark Features of the Best Robo-Advisors
What should you look for in a robo-advisor? Here are just some of the top features that the best robo-advisors offer:
Automatic rebalancing of the investment portfolio is a key feature of top robo-advisors. Some do this in real time while others do it on a schedule, like once a quarter.
The best automated investment companies should give you access to their platform for a small management fee. Look for one with a management fee between 0.25% and 0.40%. Anything higher, and you might as well pay a human investment advisor.
Some robo-advisors don’t charge a management fee at all, but remember: Nothing is free. They likely have expense ratios to consider.
Low Account Minimum
The barrier for opening traditional investment accounts with a human financial advisor is challenging for beginners to overcome. Many require tens of thousands of dollars to get started. If you are a beginner, look for a robo-advisor with a low or no account minimum.
Diversified Investment Portfolio
Some robo-advisors only invest in their own ETFs. While not inherently bad, we recommend options with more investment options, including multiple ETFs, mutual funds and even real estate investment trusts (REITs).
Most robo-advisors offer retirement investments, income investments and additional services. Find one that suits all of your investment goals.
This essential strategy involves selling off poorly performing investments at a loss to offset capital gains on other investments. A lot of the automated investment advisors with free account management don’t offer this, even some on this list. If free account management outweighs tax efficiency for you, that’s something to consider.
Access to Human Advisors
Whether free or at a low cost, a good robo-advisor will get you access to a human for investment advice and financial planning. Free financial planning is an obvious plus.
An Easy-to-Use Platform with Educational Tools
Look for a robo-advisor with a great mobile app and desktop platform. You should be able to easily find educational resources about personal finance and investment strategy.
Other Banking Services
Some automated investment advisors offer additional services with their brokerage account, as part of a full-suite online bank. If you want a checking and savings account along with your investment account, find a robo-advisor that offers this.
Pros and Cons of Using a Robo-Advisor
There are several advantages to using a robo-advisor, but they are not for everyone. They also have some pitfalls that serious investors should consider.
Here are some of the top benefits of using automated investment services:
- You’ll save money. Robo-advisors are significantly cheaper than traditional human financial advisors.
- You have around-the-clock access. While financial planning with a real person has its perks, you are limited to their operating hours. With a robo-advisor, you have 24/7 access to make changes and review your portfolio.
- Lower account minimum. The account minimums are much lower than traditional brokerage accounts. Some robo-advisors have $0 account minimums.
- They’re great for beginners. Robo-advisors do all the work for you, so even if you have limited knowledge, you can feel good about your investments. Definitely make use of their educational resources, however.
- Robo-advisors are safe. Just like a traditional financial advisor, a robo-advisor must register with the US Securities and Exchange Commision (SEC).
There are some pitfalls of using a robo-advisor
- Limited investment options. A robo-advisor typically gives you little control over how your money is invested and typically offers a smaller set of portfolio options.
- Limited services. If you need help with something like estate planning or trust administration, you’re better off with a human financial planner. A robo-advisor is meant for basic investment services.
- No growth in financial literacy. When you let a robot do all the work for you, it can be hard to be motivated to learn for yourself. However, it is important that investors at any level feel empowered to understand how their money is invested.
Frequently Asked Questions About Robo-Advisors
Have questions? We’ve got answers!
What Is a Robo-Advisor?
A robo-advisor is an automated investment platform that relies on computer algorithms to determine the best way to invest your funds, based on your answers to a questionnaire regarding risk tolerance, financial goals, time horizon and more.
How Does a Robo-Advisor Work?
Robo-advisors rely on proprietary software that real-life financial advisors use as well. To determine the proper asset allocation, they utilize information you provide on how you want to invest.
How Should I Choose a Robo-Advisor?
Think about the features that are most important to you. To get started, look at our list of the eight best robo-advisors and choose the one that is rated for your specific need (for example, micro-investing or mobile investing).
How Much Do Robo-Advisors Cost?
Robo-advisor fees vary. Some charge a very low percentage of assets under management while others rely on expense ratios for their own funds. Overall, they charge much less than traditional investment professionals.
Which Robo-Advisor Has the Best Returns?
This also varies, depending on how funds are invested and how the market is doing. Most robo-advisors perform similarly. Choosing the right one is more about the features and pricing that are right for you.
Which Robo-Advisor Should I Use?
This depends entirely on your preference. Think about the fees you’re comfortable paying, the maximum investment you can afford to make and the features that meet your needs.
Do Robo-Advisors Beat the Market?
Robo-advisors perform similarly to other brokerage accounts. Performance varies depending on the state of the market and the diversification of the investment portfolio. It also depends on how aggressive you have indicated you want your portfolio to be.
Timothy Moore is a contributor to The Penny Hoarder.