So you’ve graduated and got some money left. Nowadays, the stock market seems like something complicated. You want to make your money grow, but you don’t want to spend your whole life looking at your charts. And that’s exactly why robo-advisors were invented.
These are automated financial planners. The algorithms assemble the investment portfolio for you using ETFs. The software asks you a couple of questions and does all the work. The easiest way to start investing without becoming a financial expert.
First of all, you need to check the fee structure. Robo-advisors earn through charging a certain percentage of your assets. The typical fee for Wealthfront and Betterment is 0.25%. Though it sounds little, remember that it accumulates during many years.
Look at the minimum deposit necessary to use the service. The service of Schwab Intelligent Portfolios doesn’t charge any fee, but you need at least $5,000 to start. For a young man, that’s a lot of money. But Betterment will allow you to start investing even with zero dollars.
Don’t forget about the fees charged by the underlying fund. Apart from the fee you’ve paid, the fund itself charges another fee. Ideally, you’ll be able to minimize the total fee to less than 0.50%. Every dollar saved on fees is one more dollar invested.
Also look for the presence of any tax-loss harvesting function in the app. Simply put, the software sells off your losing investments in order to balance out your taxes. Wealthfront and Betterment both provide such feature. That’s a good service which used to be available only for rich people.
Look if the platform provides you with a good interface. As you’ll be using the app every day, you’ll probably prefer the nice one rather than the ugly one. For instance, Wealthsimple is famous for its perfect design. Vanguard Digital Advisor works excellently, but it looks rather boring.
Also check if the platform provides fractional shares. In this case, you’ll be able to buy a fraction of the share of Amazon or Tesla for $5. In this way, you’ll know for sure that all of your money is generating the profit. Any decent platform provides the possibility to buy fractional shares.
It’s needless for you to think about the possibility of socially responsible investments. Both Betterment and Wealthfront offer such kind of portfolio. Choose one of them if you want to make sure how your money is invested. Otherwise, a regular portfolio will suit you just fine.
You can think about using Robinhood as a robo-advisor. But you shouldn’t, because it is meant mainly for traders and makes trading very easy. Because robo-advisor makes you boring and hence successful.
All you need is to set up your automatic transfers. Starting from $20 a week is great. The algorithm doesn’t care about how the market changes – it simply buys the stocks. Thus, the emotional part of investing is removed, which is the biggest problem for a newbie investor.
Honestly, you can choose any of them. Betterment and Wealthfront will be a safe choice for a beginner. You’ll be able to move your money elsewhere if you don’t like the design of the app. The most difficult thing about using robo-advisors is to create an account. Go do it now!