Best Robo Advisors of 2021: Manage Your Investments on Autopilot
A robo advisor can make it easy to invest in an IRA or taxable account. But how do you choose? Here’s our 2021 list of the best robo advisors for your money.
This is something of a controversial topic. There are any number of “best robo-advisors” lists, and they all look a little bit different. That’s because all reviews are subjective. Which robo-advisors get top grades largely depends on the investment preferences of the reviewer.
This list review will be based primarily on four criteria:
- Investment management fees
- Investment mix
- Additional services, where available
- Platforms likely to appeal to largest number of investors (as opposed to niche robos)
With that in mind, here is our list of the five best robo-advisors. By the way, the list isn’t in any specific order. Any of the five are worth considering.
Betterment is the largest independent robo-advisor, and for all the right reasons. This platform has it all, and is often the first to add new services.
Betterment makes use of goals based on investing. You can set up specific goals, like retirement, an emergency fund, or saving for a college education–and attach an account to that goal.
Betterment is tailor-made for new and small investors. There is no minimum initial investment required, you can fund your account with monthly deposits. They charge a single low annual management fee of 0.25%. This means that you can have a $10,000 account managed for just $25, or a $100,000 account managed for just $250.
They offer their Tax-Coordinated Portfolio that favors income generating assets, like bonds, into retirement accounts, and capital gains generating assets into taxable accounts. The also offer tax-loss harvesting (TLH), which is an investment strategy that sells losing positions to generate capital losses (to offset capital gains elsewhere), repurchasing similar assets later to retain the desired portfolio allocation.
On the asset allocation side, they offer socially responsible ETF’s, as well as those that invest in stocks and bonds.
Betterment offers a Premium portfolio for investors with a minimum of $100,000. It adds certain services, but increases the management fee to 0.40%.
Read our detailed Betterment review.
SoFi Wealth Management
SoFi Wealth Management is a relative newcomer to the robo-advisor space, having begun operations in the spring of 2017. But like everything else connected with SoFi, it’s one of the most innovative robo-advisor platforms available.
It has a fee structure comparable to both Betterment and Wealthfront, with an annual advisory fee of 0.25%. And like Wealthfront, the first $10,000 in your account is managed for free. But SoFi adds a twist. If you have a SoFi loan, the advisory fee is waived. That gives you a professionally managed investment account for free.
Like other robo-advisors, SoFi constructs your portfolio with index-based ETF’s. But SoFi adds real estate and high-yield bonds to the usual robo mix of stocks and bonds. In addition, SoFi Wealth Management requires just $500 to start an account. And if you don’t have $500, you can open an account with zero, and begin funding it with contributions of at least $100 per month.
The only negative with this platform is that they don’t offer tax-loss harvesting. That isn’t an issue with tax-sheltered retirement accounts, or with smaller balance accounts. But it will be an issue for larger taxable accounts.
Of course, one of the big advantages with SoFi Wealth Management is that it gives you the ability to take advantage of SoFi’s other award-winning services. SoFi has moved beyond providing student loan refinances. They now offer mortgages, personal loans, and even life insurance. It’s fast becoming a one-stop shop for financial services of all kinds.
M1 Finance is something of a hybrid between robo-advisors and traditional investment brokers. Their program offering is unique, but one that can be easily understood by most investors.
M1 Finance provides investment portfolio templates, known as “Pies”. Each is based on Modern Portfolio Theory (MPT), which is common to robo-advisors. But no questionnaire is used to determine your risk tolerance.
You can invest in a Pie as is, or you can customize it anyway you want. This is extremely unusual among robo-advisors, who typically maintain tight control over a very limited number of ETF’s.
Within an individual Pie, you can add both individual stocks and ETF’s. As to the ETFs used by the platform, they select from more than 2,000 ETFs. Most other platforms have a group of about a dozen ETF’s that are included in virtually all portfolios.
The inclusion of your own investment selections gives you an opportunity to outperform the market, rather than to simply match it the way most robo-advisor do.
Pies are available for general investing, retirement, income, responsible investing, hedge fund strategies, specific industries and sectors, or other strategies.
M1 Finance does not have a minimum investment requirement, and there are no fees to manage your account. On the downside, the platform does not offer tax-loss harvesting.
Read our full M1 Finance review.
Wealthfront has rolled out a number of specialized robo-advisor accounts, including their Direct Indexing series. These plans are designed for larger investors, offering specialized plans for portfolios of at least $100,000, $500,000, or $1 million. Portfolios include not only ETFs, but also between 100 and 1,000 individual stocks. That makes this unusual among robo-advisor platforms, who usually hold only ETFs.
Like Betterment, Wealthfront also provides tax-loss harvesting, as well as allocation of specific asset classes into taxable and tax-sheltered plans. But Wealthfront outshines Betterment in investment diversification. Wealthfront adds both real estate and natural resources to your asset mix.
Wealthfront’s fee structure is hard to beat. The first $10,000 is managed for free, and after that the balance is managed for just 0.25% per year. They have a $500 minimum initial investment requirement, but that’s low enough to accommodate most investors.
Just as the name implies, Hedgeable follows the basic investment strategy of hedge funds. On the one hand, Hedgeable is a robo-advisor for more sophisticated investors. But on the other, the platform makes sophisticated investment management available to small investors.
Hedgeable uses an investment strategy that protects your portfolio from catastrophic losses. This is referred to as “Downside Risk Protection”, and it is typically available only to very large investors. As such, Hedgeable has recently been outperforming other robo-advisors. It also uses unique investment assets. Those can include private equity, real estate, commodities, and even Bitcoin.
Unlike other robo-advisors, Hedgeable isn’t a passive, buy-and-hold platform. The asset mix will be adjusted based on market conditions.
The good news is that you need only $1 to open an account. You can even “test drive” the platform before investing any money. But Hedgeable is high on the fee side–mainly because it is an actively managed portfolio. The fee is 0.75% on balances up to $49,000. There is a sliding scale that drops to 0.30% on portfolios of $1 million or more.
This is an excellent robo-advisor if you would like non-traditional investing, with not alot of money.
So there are our choices for the five best robo-advisors. Have you used any of these platforms? Would you recommend them to others?