A financial advisor helps you decide what to do with your money, often more holistically than a robo-advisor would. They help you plan for retirement, build wealth, and reduce financial risks.
The biggest downside of robo-advisers is that … well, they're not human. An algorithm can make recommendations for you based on only the information you provide it.
Robo-advisors are a great option for entry-level investors because of their low fees, low cost threshold and ease of use. If you have $25,000 or less to invest, robo-advisors may be a great option to help you get started.
The Benefits of Using Robo Advisors
Robo-advisor performance
| Robo-advisor | 2.5-year annualized return |
|---|---|
| SoFi | 4.03% |
| TD Ameritrade | 3.62% |
| TIAA | 4.20% |
| Vanguard | 3.42% |
Robo-advisors will fail because most of them are not profitable. In order for a robo-advisor to be profitable at a 0.25% fee, they would need to have somewhere between $15-20 billion assets under management (AUM).
“The diversification provided by robo-advisors isn't super powerful.” While robo-advisors provide exposure to the broad stock market, even with rebalancing and tax-loss harvesting, you're at risk of losing money.
Advantages of Robo-Advisors
How much? On average they're another 0.16% making the all-in fee 0.41%. Now you're making a 9.59% return. Your investments are worth $69,150, and you might be thinking that paying a couple thousand dollars in fees isn't a huge deal because robo-advisors are make investing easy for you — it's worth the cost.
Wealthfront is one of the largest robo-advisors in the U.S., and they offer features that are great for beginners. The sign-up process is easy. You don't need any investment experience to start building a portfolio that matches your investment goals.
Compare Robo Advisors
| Robo Advisor | Why We Picked It | Account Minimum |
|---|---|---|
| Betterment | Best Overall | $0 |
| Charles Schwab | Runner-Up | $5,000 |
| SoFi | Best for No Fees | $0 |
| Wealthfront | Best for Multiple Accounts | $500 |
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