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How To Choose The Best Automated Investment Service

Using a robo-advisor reduces management fees on your investments. Here are the main issues when choosing the best automated investment services.

If you’re looking to save money or maximize the performance of your investments, there’s another option to consider instead of creating your own portfolio or paying for a financial advisor. Today, savvy savers are using automated investment services – which are more snappily termed robo-advisors – to balance portfolios and manage investments. There are plenty of robo-advisors to choose from these days, so here is a list of the main issues to consider when choosing the best robo-advisors for your money.

Your Total Assets

Your decision about the best robo-advisor is going to be affected by how much you have to invest. If you’re starting out with barely any savings and you want to build up your portfolio, you’ll want a robo-advisor that doesn’t have any minimum account balance, such as Betterment, or a very low account minimum, like WiseBanyan, which only asks for a balance of $1. Savers who have some balance to invest might prefer a service like SigFig, which requires a minimum account balance of $2,000, or TD Ameritrade, which asks that you keep $5,000 in your account.

However, investors at the other end of the scale might choose a robo-advisor that requires a much higher minimum account in exchange for more personalized services and extra features. Rebalance IRA is clearly aimed at older customers who have amassed a decent investment amount, since the account minimum is the highest around at $100,000. Vanguard requires $50,000 as the minimum account balance, but it does offer a different level of service once you have over $100,000 in your account.

Your Attitude Toward Risk

Although every automated investment service begins by discussing your financial goals and how aggressive you’d like the mix of funds, each service also has its own particular approach to investments. This means that every robo-advisor will mix a slightly different combination of stocks, bonds, and cash equivalent holdings for the same client. Many things will inform how much risk you’re comfortable with in your investments, including your financial goals, the size of the investment, and your own personal attitude toward risk.

Whatever your preferences, you’ll feel much better if you go through a robo-advisor that shares your attitude toward risk. You can get an idea of the robo-advisor’s risk preferences by comparing its sample portfolios. Some, such as Betterment and Vanguard, have a much more aggressive approach to risk with a sample portfolio that is 90% weighted toward shares and does not have any cash holdings. Investors who are more risk-averse might prefer to use Schwab Intelligent Portfolios or Wealthfront, which place around a third of investments in bonds and cash holdings.

Your Financial Goals 

Your goals for your investments also affect the choice of robo-advisor that you make. A young, single worker who is just starting to amass savings will need something different than an investor who is approaching retirement with a large existing portfolio. For example, young customers might prefer a robo-advisor with a low minimum account balance and low ongoing fees, like WiseBanyan, which doesn’t include services like tax-minimization and estate planning that aren’t very relevant at this stage.

On the other hand, older workers who are focused on saving for retirement could be better served by Rebalance IRA, for example, which charges higher fees but delivers strongly in areas like tax-loss harvesting and IRA rebalancing. Customers who want to be able to save for multiple financial goals at the same time could do best with Betterment, which allows users to save for more than one goal simultaneously. It also draws together financial information from external accounts so that you can track all of your investments in one place.

What Type of Account You Want

Not every automated investment service provides the same range of account types. First of all, it’s important to note that robo-advisors are not permitted to offer all account types. They can manage taxable accounts and retirement accounts like Roth IRAs and traditional IRAs, but 401(k) and 403(b) accounts are off the menu.  

There are some robo-advisors such as Rebalance IRA, which only offer IRA retirement accounts. Others, like Wealthfront, provide management for a very wide range of accounts that include individual and joint taxable accounts, trust accounts, IRAs, and 529 college savings plans. And, still more fall somewhere in the middle, like Schwab Intelligent Portfolios, which offers multiple retirement accounts and trust accounts, or WiseBanyan, which manages both taxable and retirement accounts but still has some odd omissio