3.5 million adult investors used robo-advisor technology in 2021, up 23-percent from the previous year. And experts say that it will continue to grow by double digits in the coming year.
The recent economic uncertainty has left many people reconsidering their financial situation and looking to diversify their investment portfolios and strategies.
Investing provides you an opportunity to grow your wealth and finances, giving you better flexibility with your budget and helping you save up for future projects such as purchasing a house or perhaps retirement.
While investing may seem like a daunting challenge at first, especially if you’re a first-time investor, advancements in the field of investing and trading have become a lot more digital and streamlined. Especially during the pandemic, millions realized that their current financial situation might not be as healthy as they had thought, and turned to online and digital platforms for assistance in an ever-growing technological era.
Today, the outlook of robo-advisors is looking a lot more promising, as it becomes more mainstream to help the average investor grow their wealth with minimal risk and higher returns.
If you’re one of the many people who is still considering putting your savings to work, it’s time to look for smart and innovative ways to improve your financial situation while avoiding high risks.
What are Robo-Advisors?
A robo-adviser is a wealth management platform or service that provides financial planning services using automated algorithms. That means minimal human intervention is required.
The robo-advisor requires the user to upload necessary information about their current financial situation and how they would like to grow their investments. This usually comes in the form of setting a specific savings goal, whereby the robo-advisor would then use available passive income information to build a related strategy.
Usually, you will notice that a robo-advisor is a digital or online platform operated by a wealth management company.
How trustworthy are Robo-Advisors?
Robo-advisors have become immensely popular among younger generations who are serious about their finances.
A report by Deloitte found that well-known wealth management institutes predicted that robo-advisors would manage roughly $2.3 and $3.7-trillion worth of assets during 2020. Further estimates predict an increase to more than $16-trillion by 2025, as a cohort of younger individuals are seeking easier ways to make their money grow.
But the algorithms can't predict the future. Using a robo-advisor has the same risks as any investments — market fluctuations and unforeseen changes in economic recovery can significantly impact your return on investment.
How many people make use of robo-advisory services?
According to recent Insider Insight, less than one in ten U.S. households make use of robo-advisory services; this is based on information gathered from the U.S. Census Bureau, Federal Reserve, and analytics firm Hearts & Wallets.
Insider Intelligence estimated that robo-advisors had around $330-billion of assets under management (AUM) at the end of 2019, with expectations to increase to more than $830-billion by 2024.
The data provided by the Insider Intelligence summary represents close to 10 million households, estimating a current market value of the North American wealth management industry at a staggering $43-trillion.
Robo-advisory services are growing exponentially, with families from younger generations finding smarter ways to save up for specific goals such as paying off student loan debt, saving up to purchase their first home, and even creating an early retirement fund.
The Five Best Robo-Advisors To Use This Year
With more than 300 robo-advisory services available worldwide, choosing one that aligns with your financial prospects can be a daunting task.
There are various factors that one should consider before making use of robo-advisors; these include:
- Management fees
- Transaction fees
- Minimum Lump sum deposits
- Monthly contribution amounts
- Percentage growth rate
- Annual interest and
- Each robo-advisor offers products and services.
While these play a role in the decision-making process, we've simplified things for you, by compiling a list of the five best advisory services currently available. So if you’re a beginner, consider one of the following.
Digital investment management services by Betterment have been considered as one of the most impressive robo-advisory services offered by big-name industry companies. In addition, Betterment has some of the lowest annual account fees, starting as low as 0.25% of your fund balance.
The entire process is automated and online, as investors must complete an application or sign-up form to assess their risk. Additionally, you will be required to fill out information regarding personal income, how much you want to save, and how long the investment is set to grow.
Betterment will analyze entered information and data to provide investment recommendations, including stock and bond allocations. Once you have initiated the investment process, you will be able to set up a customer portfolio, track how far you are from your goal, and adjust where you feel needed.
Something to consider is that Betterment will follow your portfolio performance per day and make any rebalance if necessary to ensure your investment is on the right track.
SoFi Automated Investments
For beginners, SoFi Automated Investments is considered one of the best places to start, offering free management and a wide variety of low-cost investment products. In addition, SoFi uses automated rebalancing, just like Betterment, so you can ensure your portfolio is being followed each day, even during high market volatility.
SoFi is an excellent choice for someone who has no initial deposit or lump sum; thus, setting up an account requires no minimum amount, and you can start with whatever amount you feel best. However, it’s good to start with some form of money, to help easily kick start your investments.
Unfortunately, the robo-advisory services offered by SoFi do not have any tax harvesting products to help reduce taxes on investment gains.
While this may be considered one of its drawbacks, SoFi allows unlimited access to a team of financial advisors throughout the start and during your investment period.
With low annual fees at 0.25% offered for most of its accounts and having zero trading commission or withdrawal fees, Wealthfront has been considered one of the more suitable choices for investors who have the desired saving goal.
Investors are, however, required to start their accounts with a minimum amount of $500, but there are more than 500 different plan options available. Wealthfront also offers tax-loss harvesting, so you’ll be able to equal out your investments with the tax paid on your withdrawals.
During the investment process, you’ll be able to evaluate tradeoffs and automatically allocate any excess cash towards a diversified set of investment options.
Wealthfront offers one of the best account aggregator features as opposed to its competitors, meaning that you’ll be able to see your investment grow in real-time, make any necessary changes, monitor progress, and have better comprehensive goal support.
Finally, Wealthfront also offers a borrowing feature with pre-approved credit lenders, with minimum borrowing amounts starting at a minimum of $25,000. This means you’ll be able to borrow initial investment funding from the company itself and create a portfolio that will see you repaying loans and growing investments simultaneously.
Perhaps you’re an investor looking for a robo-advisor who can offer you better assistance with setting up a retirement savings fund. Blooom is one of the few services that provide 401(k) management, and new investors can do a free analysis to see their product options.
Before you commence with an investment structure, you can consult with one of their financial advisors, and there’s no minimum account balance required.
While it does offer 401(k) management, it, unfortunately, has a limited amount of IRA management options for direct investments, which can become a bit of a drawback.
Base annual fees will depend on the type of product you choose, and your portfolio and fees can range from $45 to $250 per annum.
Blooom offers a simple investment model and helps to get your investment growth, especially if you’re serious about saving up for retirement. It’s good to consider the robo-advisory services offered by Blooom, as it may offer a few products and features that mainstream companies sometimes overlook.
Merrill Guided Investing
Starting investors setting off on their financial journey have a lot to learn. With Merrill Guided Investing, you’ll be able to enjoy asset management while learning, as they offer extensive educational products and features.
An account with Merrill Guided Investing does, however, require you to have a minimum investment of $1,000, and annual account fees start at 0.45%. The company does have an attractive partnership with Bank of America clients, offering 0.85% discounts for Preferred Rewards Clients.
There are many ways that you can build your portfolio, and you have the option to explore different products before making a final decision. Then, once you’ve set your financial goal, you can track your investments with many educational resources and planning tools.
However, it does come with the downside that Merrill Guided Investing does not offer tax-harvesting products, and annual account fees are a bit higher than those mentioned earlier.
Starting your investment journey is a great way to improve wealth, and the sooner you start, the better, allowing your money to attain a great deal of compound interest over the years.
Before deciding which robo-advisory service to use, it’s good to set up an investment strategy and have a clear goal. From there, you can start researching different service providers and consider which suits your needs the best.
For beginner investors having some assistance along the road is one of the safest ways to ensure your capital can mature over time without stress about high market volatility and running into potential pitfalls caused by external market influences.
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