Why I Use a Robo-Advisor and You Should Too

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This website is not an advisor in any way, shape, or form. Results can greatly vary and are not guaranteed. Financial advice that could be right for me or someone else may not work or be right for you. Consult your financial advisor before making any decisions. The smart money says do not invest any more than you can afford to lose. That being said… let us dive in!

What is a Robo-Advisor?

Robo-Advisors have been around for over a decade now. By simply answering a few guided questions on your financial desires, your automated Robo-Advisor will make balanced portfolio recommendations for you. Even large brokerage firms are starting to use Robo-Advisors to help gather clients. These accounts typically involve less personalized attention, leading to lower managed service fees.

What a Robo-Advisor Is Not

A Robo-Advisor is not perfect. Unfortunately, they are only as good as their programmer has made them be. Often, they can see trends and look for telltale signs of stocks rising and falling. These are only signs that change is happening. Nobody can predict 100% that this is what will happen, not even computers.

The Robo-Advisor cannot make you invest. Yes, you can set up automatic investments as they suggest, but it is only a suggestion. These settings can be changed at any time. This is true with any advisor. They are only ‘advisors’ and cannot force your decisions. A Robo-Advisor simply helps automate these decisions. Over time, these decisions need to be reevaluated and your financial plan may need to be modified or increased. A Robo-Advisor may or may rebalance soon enough.

Who Should Not Use Robo-Advisors?

Investors who want to stay involved and know enough to allow for some hands-on trading might not want to use Robo-Advisors. The ability to trade as little or as much as you would like is more suited for an online broker. Brokers can allow for full hands-on control over your investments and ensure that you stay on your desired path.

Who are Robo-Advisors for?

Despite what some people think, your investment power has little to do with who you should use. Robo-advisors should be used by people who prefer to stay hands-off in an automated setup. We live in a busy world and this is ok to have. But might not be for everyone.

With little knowledge and even low investment power, a Robo-Advisor could just be what somebody is looking for. Once you have signed up, answered a few questions, and deposited a little bit of money you are on your way to a brighter future.

A large firm with a personal advisor can be intimidating for some. It could be even embarrassing walking in with a low investment portfolio. By sitting in the comfort of your own home and following some Robo-Advisor advice, you could have similar end results without the fees and hassle.

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What to Look for in a Robo-Advisor

When you initially sign up with an advisor, you will be asked where you are at in life and what your future goals are. Are you saving for a new car or house? Or are you looking down the line at retirement? Possibly you are wanting to do both. Any good advisor will need to know your goals in order to help you achieve your goals. Investing is not a one size fits all. Some investors might want to take huge risks in order to possibly get huge gains. This is very risky and does not always work out as planned. Maybe you want to take things slow and have a more secure income as you are getting closer to retirement. All of these must be personalized to the individual, otherwise, why would we need an advisor at all.

Advantages

The best strategy is to stay the course. If you are in charge of your portfolio, you could make emotional decisions based on market data. Investing should be fun and exciting, but when emotions are involved bad decisions can, and probably will, be made.

Minimum Investment Amounts

Some large brokerage firms require large deposits to get started. This is not typically the case for a Robo-Advisor. Some services may have a minimum balance amount to lessen or even completely waive fees. Comparatively, these automated investing accounts are typically much lower than their counterparts.

Set For Success and Forget It

Are you like me where you need to see benefits and progress or you get discouraged? Most of these Robo-Advisors will show you your current track to success and a forecast of where you will be at the end of your goals. To me, this is perfect for any passive investor, like myself. If I can’t see the progress being made and the benefits of doing something, its easy to lose sight of your vision.

Save Fees, Invest More

Fees definitely add up over time and can cost you thousands of dollars in interest alone in the long run. Simply by lowering your fees, your same investment will grow faster over time. You can invest the same amount of money in and have more money going into your account.

Automatic Rebalancing

Every stock account needs rebalancing every few months. As one investment grows, it will raise your percentage in that particular investment category. At first, rebalancing sounds counter-productive, but by allowing one category to grow larger than your financial plan allows, your risk will change. This happens with both Robo-Advisors and normal brokerage accounts. Different Robo-Advisors account and rebalance your portfolio in different ways. Always remember, when you rebalance, this can be a tax incurring event. Rebalance resposibly and only as necessary.

Tax-Loss Harvesting

Tax-loss harvesting is an amazing, but confusing, tactic. By losing money in a particular investment stock, you can sell at a loss while buying more of the same stock and write off your loss. Once this new investment was to realize a profit, the initial loss would be a tax write-off, leaving you with less profit on paper. In this same scenario, if you were to have just held onto the same investment stock, you would only see profits in the end and pay full taxes on the higher end result. Even once it is explained, it is still difficult to understand.

Disadvantages

There are a number of features that will set Robo-Advisors apart from each other. Because these are Robo-Advisor options, they are mostly run by robots. There is a good chance you might not get a stellar phone and email response service. These brokers have cut back on fees and need to cut back some services and also features sometimes.

Also, some of these could have delays between the time you deposit your money and the time they credit your account. This could be true for brokerage, but from my experience, the big full-service brokers do not have much of a delay in crediting your account. And why would they? The faster they credit your money, the quicker than can charge a commission fee.

Robo-Advisor Recommendations

After a little bit of research and seeing a few things for myself over time, I have decided to stick with a few of the Robo-Advisors listed below. Some of these excel in some areas and fall short in others. Having a well-diversified portfolio is the key to success. While it is not necessary to sign up for all of these, there are instances where this could be beneficial.

Acorns

By investing strategically into over 7,000 stocks & bonds, this gives you a strong diversity across your investment platform. Acorns also offer dividend stocks. This means when a particular stock does well the profit is shared among its investors. These dividends are then reinvested back into your portfolio. Many companies will do this for various reasons, but as far as we are concerned, it is an income we can reinvest or use elsewhere.

Savings Round-Ups

Acorns shines with its Round-Up feature. This is great for anyone that feels they don’t have the money to save. Acorns will automatically ‘Round-Up’ your purchase to the next dollar and invest the difference. I typically use my debit card for everything.

When I buy my coffee and breakfast at my favorite coffee shop in the morning, it typically costs about $9.27. Acorns will see this transaction and round it up to 10.00, investing the other $0.63 into my portfolio. You can also set a multiplier of 2X, 3X, or 10X of your calculated Round-Up. I sometimes use my card 3-4 times per day easily. At this average, I am having Acorns place aside a few hundred dollars per month with my multiplier. With roundups and recurring investments pre-determined, you can forget about investing and enjoy your life.

Earn Found Money

You can also ‘Earn Found Money.’ These are offers that once qualified will add a dollar amount or a percentage spent into your account. The vendor list is quite extensive and will be crucial to take advantage of. Once again, more free found money.

Fees

Acorns does charge a small fee of $1, 2, or 3 dollars based on the program level you signed up for. This sounds expensive at first until you reach $1,200 dollars. My reasoning is that most Robo-Advisors are charging you 0.25% to manage your money. At $1,200 invested, you should break even, which is nothing to complain about. Other advisors can simply end up charging their management percentage, costing you more and more as your portfolio grows.

Conclusion

Acorns Pros

• Easy to start and setup
• No minimums
• Thoughtless savings
• Automatic Round-Ups
• Automated Scheduled Deposits
• Withdrawl Anytime
• Flat Rate Fee

Acorns Cons

• At first starting off, the $1 plan is higher as a percentage
• Paying cash or not enough transactions can cause low balances
• 3-5 business days for transactions

See Our Acorns Experiences and Full Review Here!

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Betterment

Betterment is currently the largest independent Robo-Advisor. Founded in 2008, Betterment was the first widely-available Robo-Advisor. Betterment tends to be more for the hands-off and retirement investors. Its features, fees, and tools are attractive to everybody at any experience level. Although, with its current setup, you cannot build your own portfolio. This is all done automatically for you based on your goals through professionally optimized portfolios.

External Accounts

By linking external accounts, you can get expert advice on how to keep your internal and external accounts balanced. Even though you cannot manage your external accounts the Betterment Advisors can make recommendations based on what you have invested elsewhere.

Socially Responsible Investing Portfolio

Socially Responsible Investing (SRI) is a feature unique to Betterment. This feature not only invests your money but does so in a responsible way through ETFs. The companies involved in this ETFs are hand-picked and are determined by the values it holds, in which it conducts business, and the ‘footprint’ it leaves on the world.

Fees

The fees for betterment are fairly straight forward. The standard service charges 0.25% on your total balance per month while the premium gives you more features at 0.40% per month. With the premium service, you gives you access to a certified professional and in-depth advice on investments outside of Betterment. Well worth the price paid.

Conclusion

Betterment Pros

• No minimum balance
• Fractional shares
• Management fees waived the first year for the qualifying deposit
• 0.25% management fees
• Free automatic rebalancing
• Can link external accounts
• Daily tax-loss harvesting on taxable accounts

Betterment Cons

• No direct indexing
• Can not manage external accounts
• Hefty snail-mail involved closing your account
• Premium requires $100,000 account minimum
• Restrictive in terms of control

See Our Betterment Experiences and Full Review Here

Use my Betterment Link Here to Receive 90 Days Managed Free

M1 Finance

M1 Finance is a hybrid type of Robo-Advisor. This one is a little more hands-on to set up but runs automatically and invests your money as instructed once you do. Do not let the intial setup scare you off. A little more work in the beginning pays off greatly in the end.

Investing Pies

Investing into pies is an amazing idea. You are able to select from a list of expert pies, shared pies from online sources, or build your own. As your money is placed into your account and is dispersed as your pie instructs.

The pie that I chose was an expert pie that mirrors Berkshire Hathaway. This was my first and only pie. All of my money was instructed to go into there. As time has gone on, I built two other custom pies myself. All three of these pies were placed into one portfolio at 50%/25%/25% of each. Combining individual pies is relatively simple and fun. It will be interesting over time to see if I can out perform the big man himself. Yeah… probably not!

Partial Stocks

M1 Finance has become my go-to for Robo-Advisors. Some of the other companies have been around longer and I have had accounts with them for longer. M1 Finance has come through with a ton of great features. The feature I like the most is they sell partial shares. Instead of being forced to buy a full share of $450 dollars, you are able to purchase a smaller percentage.

Fees

M1 Finance is a free service to start with. You can easily open an account and never pay them any fees as part of their base tier of services. As with the other Robo-Advisors, there is a M1-Plus premium service. M1-Plus currently costs $125 per year. This places M1 Finance at the most expensive in the group. You should also know, M1 Finance has put the most money back into my pocket at this point.

Conclusion

M1 Finance Pros

• No fees or commissions
• Automated rebalancing, if you want it
• Invest in fractional shares
• Custom and expert pies to choose from
• Digital bank account and debit card options
• IRA: Roth and Traditional Accounts
• Checking APY and Cash Back for M1-Plus Members

M1 Finance Cons

• $100 minimum initial deposit
• Only stocks and ETFs traded on NYSE and NASDAQ
• SIPC insured up to $500,000
• No tax-loss harvesting
• Cannot view or manage external investments
• Trades Only Once Per Day (Two for M1-Plus Members)
• Not For Active Traders

See Our M1 Experiences and Full Review Here

Sign Up For M1 Financial Here!

Stash

Much like Acorns, Stash operates in a similiar fashion with a few minor differences. Stash is designed to help beginners learn how to invest. During the setup proces, Stash will guide you through multiple questions guiding you to your perfect investment protfolio based on your financial situation.

Debit Card

Unlike Acorns, Stash has their card up and running. Mine arrived within a matter of days of requesting one. Their debit card is both Apple Pay and Samsung Pay compatible. Attaching this card to either service is extremely simple. When I added mine, I simply scanned the card and logged into my Stash account.

Custodial Account

Stash does offer you custodial accounts so you can get you rkids involved. Unfortunately, they charge a premium for this service. The first two kids are currently included in their highest tier costing $9 per month. Each additional child will cost you another $1. If you choose this route, you will gain all of the benefits that are included in the top tier also.

Fees

Like most other services, Stash starts out at $1 per month. Stash also offers two other tiers of service for $3 and $9 per month. You benefits obviously increase as you pay more.

Conclusion

Stash Pros

• $0 Minimum Balance ($5 to Invest)
• Fractional Shares
• Educational Support and Education
• Rewards Program Pays in Stock
• IRA: Roth and Traditional Accounts ($3 Tier)

Stash Cons

• Compared to Others Listed, Can Get Expensive
• Does Not Directly Auto-Invest
• No Automatic Rebalancing
• No Tax Strategy

See Our Stash Experiences and Full Review Here

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Conclusion

No matter which service you choose, even if it hasn’t been mentioned on this page, do something. Your financial future is dependant on this. Save a little now and then so you can have more later. These numbers might sound insignificant, but believe me, they can add up to huge amounts over time. The longer you wait the more you will lose out on.

Prefer To Be More Hands-On? Use These Free Stock Trading Apps!

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