robot hand touching a human hand

Considering Roboadvisors: The Pros and Cons

Last week, I mentioned that I had finally taken the next step in my investing journey by opening my first real brokerage account. Incidentally, before arriving at that decision, I explored a few other options — namely roboadvisors. See, I had definitely heard of this technology for some time, although it wasn’t until a recent Dyer News article that I really took the time to learn what they were all about.

So although I ended up going a different direction for the time being, I thought it was worth reviewing what it was that attracted me to roboadvisor platforms (along with at least one minor drawback):

Rebalancing, tax loss harvesting, and other automation

As someone who’s definitely interested in learning about investing but is mostly intimidated by the idea of actually managing a portfolio, the biggest reason I’d consider a roboadvisor is for the automation. Although I could probably wrap my head around something like account rebalancing, I still don’t think I 100% understand tax loss harvesting just reading about it — let alone trying to utilize the strategy for myself. That’s why I’d be more than happy to let algorithms and AI handle those aspects for me and I highly doubt that I’m alone in that.

Low minimums

Before I decided to just open my Vanguard account, one of the reasons I was strongly considering a roboadvisor was because of the low minimum initial deposits that most platforms have. Ironically, had I stuck with my plan to go this route, I wouldn’t be stuck in the investment limbo I find myself in now — but I digress. Looking at some of the most popular roboadvisor options, it seems that the highest minimum for the basic tier is just $500 (excluding Charles Schwab Intelligent Portfolios, which has a minimum 10 times that). Because of that, it’s easy to see why these platforms have become increasingly popular among newbies like myself.

Fees

Often times when you read about roboadvisors, there’s talk about how low their fees are. Well, that’s true when you compare them to traditional actively managed funds that not only charge higher fees but also tend to only be open to those with much more money to invest. However, if you’re comparing roboadvisors to certain index funds, then they suddenly look expensive.

On top of that, something that’s not always obvious to those considering roboadvisors is that, in addition to the management/advisory fees, they’ll also need to pay attention to the expense ratios of their portolio. For example, while a platform may charge a .25% advisory fee, the ETFs in one’s portfolio may have an average expense ratio of .15% — bringing the total fees the investor is paying to .4%. Granted, most roboadvisors do say they strive to keep expense ratios low and, even at .4%, these fees are still relatively reasonable. At the same time, those who want to take a DIY approach can probably save some money in doing so.

Ultimately, while I did skip over a roboadivor account this time around, I haven’t ruled them out entirely. A friend of mine recently opened a Roth IRA with Wealthfront, so I’m definitely interested to hear about her experience and perhaps open another retirement account of my own. Eventually, once I get my Vanguard account rolling, it might also be nice to diversify a bit by opening a roboadvisor taxable account as well — who knows?! If nothing else, it’s clear that roboadvisors will continue to be a hot topic, especially as their popularity and capabilities increase.

Author

Kyle Burbank

Founder ~ Moneyat30
Kyle is a freelance writer - including being the head writer for Fioney.com. He also serves as editorial director for the Disney fan site LaughingPlace.com and the founder of Money@30.com. In 2015, Kyle and his wife Bekah moved from Los Angeles to Springfield MO in pursuit of greater financial freedom. Together, the pair enjoy travel, coffee, and spending time with their dog Rigby. Additionally, as of 2023, they become first-time homeowners.

Other Articles by Kyle Burbank

Capital One Savor Card

Capital One is Seemingly Saying "Goodbye" to the Savor Card

Earlier this week, Capital One removed what might have been considered (or at least intended) to be one of its flagship cards from its site. As of July 16th, the bank is no longer accepting applications for its Savor Rewards card. So what was behind this move and what's next?...
phone camera recording a YouTube video

Starting a Second YouTube Channel: Pros, Cons, & Considerations

If you look at some of the top creators on YouTube, something you might not immediately realize is that many have more than one channel to their name. As it turns out, there are several reasons for this — many of which might impact you as a creator as well....
sitting in Delta SkyClub

Travel Tuesday: Could Unbundled Business Class Come to Delta?

There's no question that flying in business class is a completely different experience than in economy. Between having your own pod and a lie-flat seat, suddenly the prospect of sleeping on a long-haul international flight doesn't seem so untenable. Of course, there are also service perks, such as a dedicated...

With the rise of roboadvisors, there are now a lot to choose from. Maybe you could also make a comparisson of the different robo advisors out there.

Leave a Reply

The "Email" field is empty, you must enter some text to proceed.The text you entered in the "Email" field appears to be invalid, please edit it and try again
Get Posts in Your Inbox
Featured Articles
Capital One Savor Card

Capital One is Seemingly Saying "Goodbye" to the Savor Card

Earlier this week, Capital One removed what might have been considered (or at least intended) to be one of its flagship cards from its site. As of July 16th, the bank is no longer accepting applications for its Savor Rewards card. So what was behind this move and what's next?...
phone camera recording a YouTube video

Starting a Second YouTube Channel: Pros, Cons, & Considerations

If you look at some of the top creators on YouTube, something you might not immediately realize is that many have more than one channel to their name. As it turns out, there are several reasons for this — many of which might impact you as a creator as well....
sitting in Delta SkyClub

Travel Tuesday: Could Unbundled Business Class Come to Delta?

There's no question that flying in business class is a completely different experience than in economy. Between having your own pod and a lie-flat seat, suddenly the prospect of sleeping on a long-haul international flight doesn't seem so untenable. Of course, there are also service perks, such as a dedicated...
Away softside luggage

Away Just Released Its First Soft-Sided Suitcase Collection

Over the past few years, I've become well acquainted with the travel accessories brand Away. I'm pretty sure my first introduction came when the American Express Green Card was revamped and launched with an Away statement credit as part of its welcome bonus offer. Although I didn't end up taking...