We interviewed the following investing experts to see what they had to say about the best robo-advisors.
- Sandra Cho, RIA, wealth manager, and CEO of Pointwealth Capital Management
- Tessa Campbell, Investment and retirement reporter at Personal Finance Insider
What are the advantages/disadvantages of investing through a robo-advisor?
Sandra Cho:
"Advantages include:
- On-demand general guidance: In my experience, robo-advisors are best used as a starting point to determine risk tolerance and get a handle on your financial situation and a broad roadmap to what you need to do. Sometimes you just need a catalyst to get moving in the right direction.
- Simple to use.
- Feeling of control: There is no concern about hurting a person's feelings if you don't take their advice, and you don't feel rushed or pressured."
"Disadvantages of using a robo-advisor
- No one is second-guessing you. Sometimes, you need someone to read between the lines. Maybe you think you are an aggressive investor who can tolerate high risk, but you pull all your money out the minute your portfolio goes down. The risk tolerance result I get if clients complete the questionnaire alone is significantly different from when I walk them through it.
- Lack of EQ, or emotional IQ. EQ is sometimes more important than IQ. It's hard for a robo-advisor also to tell you what you don't know that you don't know. It's hard for a robo-advisor to help you work through concerns, fears, and anxiety and help keep you invested through turbulent markets and life events that inevitably affect your financial path."
Tessa Campbell:
"Robo-advisors do the hard, time-consuming part of investing for you. Once you set your goals, risk tolerance, and time horizon, a robo-advisor can create a customized investment portfolio based on those characteristics. This makes these platforms accessible to beginners and ideal for passive investors.
"Robo-advisors also tend to be the better option for folks wanting low-cost investing as most robo-advisors mainly trade ETFs.
"However, robo-advisors can be limiting. You won't get the same level of control or influence over your assets as you would with self-directed investing or a professionally managed platform. If you want to pick and choose how you invest your money, then a robo-advisor isn't the best option for you."
Who should consider opening a robo-advisor?
Sandra Cho:
"Someone who is a DIY investor and is tech-savvy enough to use the software involved. Larger groups of people need to be processed faster, such as participants in a 401(k) or other retirement plan.
"Investors who have smaller amounts of assets might not have the need for sophisticated financial planning."
Tessa Campbell:
"Robo-advisors are best for beginners and passive investors who don't want to be glued to their computers, watching the ups and downs of the market and trying to decide when is the best time to buy and sell.
"It's also the better option for cost-conscious investors. With a robo-advisor, you can easily and affordably get exposure to different sectors of the market with low-cost ETFs. This way, you're paying the price of individual stocks."
Is there any advice you'd offer someone who's considering opening a robo-advisor?
Sandra Cho:
"1) Treat it like a starting point, not the endpoint.
2) Find a good one. Not all robo-advisors are the same. Like financial advisors, there are good and bad ones.
3) Be aware of the investments you have, and do not have, through the robo-advisor you use. For example, if you are using a robo-advisor at a particular investment company, that robo-advisor will likely limit their recommendation to the mutual funds or other investments of only that company."
Tessa Campbell:
"Make sure to compare all the robo-advisor options before opening an account. Not all robo-advisor provide the same investment options, account types, or features. And while many robo-advisors have low-trading fees and account minimums, not all of them do, so make sure you know what you're getting into before opening a brokerage account with an automated investment platform.
"On a different note, make sure that you still frequently monitor your investment portfolio. Although you won't do much on the day-to-day, it's important to update your portfolio based on your current goals, financial situation, and market performance."
Why You Should Trust Us: How to Choose a Robo-Advisor
Business Insider's methodology for rating investment platforms was used to analyze and compare dozens of robo-advisor platforms. The best robo-advisor platforms feature some of the lowest fees, multiple portfolio types, human advisor access, and excellent customer service.
We also favored platforms that offered a range of other features and products, such as tax-loss harvesting and flexible account types. Investment platforms are rated between 1 and 5.