Are you confused about how to start investing? If so, you’re hardly alone. The hardest part of investing is just getting started. If you’re just striking out on the financial path of life, you’ll want to take a close look at robo-advisors to help you begin investing. They’re a hands-off, stress-free way to enjoy professional investment management, but with very little money and low- or no-fees.
Interested? If you are, below is our list of what we believe to be the six best robo-advisors for beginners.
But let’s start with something more basic…
Though robo-advisors can work for investors at any level, they’re a perfect fit for beginners. A robo-advisor is an online, automated investment service. With a minimal investment and very low fees, they’ll design a portfolio for you, then manage it going forward. This will include periodic rebalancing of your portfolio to maintain target allocations, dividend reinvesting, and even strategies to minimize the tax liability from your investment income.
With a typical robo-advisor, you’ll complete a questionnaire that will be used as the basis for your investment portfolio. It will determine your investment goals, time horizon and risk tolerance. Risk tolerances can range anywhere from conservative to aggressive, with variations in between.
Your portfolio will be constructed using exchange traded funds (ETFs), which are low-cost funds tied to popular investment indexes. Each fund will include hundreds or thousands of individual stocks or bonds, representing a cross-section of the entire investment sector. With just a few funds, you’ll have exposure to the entire investment spectrum, including broad diversification.
You can open an account with just a few dollars and pay an annual advisory fee averaging only 0.25% of your account balance. This means you can have $1,000 managed for just $2.50, or $10,000 managed for just $25 for the entire year. And some robo-advisors charge no advisory fee at all.
Once you set up an account, all you need to do is fund it on a regular basis and watch it grow. That will mean the investment part of your financial life is fully covered by the robo-advisor, freeing up your time to take care of everything else.
That’s why robo-advisors are the perfect choice for investment beginners.
With that in mind, below is our list of what we believe to be the six best robo-advisors for beginners:
Best for: Best all-around robo-advisor for beginners.
Why SoFi Automated Investing is a good robo-advisor for beginners: SoFi Automated Investing wins our top spot based on being best-in-class in several categories. For example, no minimum investment is required to open an account, and there is no annual advisory fee charged. But they also offer SoFi Active Investing, giving you an opportunity to participate in self-directed investing, including cryptocurrencies. And if that isn’t enough, you’ll have access to certified financial planners at no additional cost.
But there’s another feature of SoFi that may be of particular interest to beginning investors. SoFi is one of the top providers of student loan refinances in the industry. It’s what the company has come up on, and what they’re best known for. If you have student loans to refinance, you can do it through SoFi, while also opening your first investment account on the same platform. SoFi has plenty of other financial products and services to offer for beginning investors looking to get their start in life.
SoFi Automated Investing Pros:
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Best for: Robo-advisor with the ability to transition to self-directed investing with the same company.
Why Fidelity Go is a good robo-advisor for beginners: This robo-advisor has the built-in advantage of being part of one of the largest investment groups in the country, Fidelity Investments. As a beginner, you can start out investing through Fidelity Go – with no minimum initial investment and no advisory fees on your first $9,999 – then open a brokerage account where you can take part in self-directed investing. In that way, Fidelity Go gives you the ability to grow as an investor without the need to transition to another investment company.
Though Fidelity Go is a robo-advisor, it does include investment management from a team of strategic advisors. That makes it something of a hybrid, providing the benefits of both automated investing and human guidance. Also, your account will be invested using Fidelity Flex Funds. These are a mix of active and passively managed mutual funds with no fund expenses. That alone gives you the potential to outperform other robo-advisors using Fidelity Go.
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Best for: Comprehensive financial management, including high interest savings and no-fee checking.
Why Betterment is a good robo-advisor for beginners: Betterment was the first robo-advisor and remains the robo all others are trying to beat. That’s in no small part due to the fact that Betterment has been steadily evolving their platform since it was launched over a decade ago.
Betterment offers two plans, Digital and Premium. As a beginning investor, you’ll start with the Digital plan. It requires no minimum initial investment and charges a fee of just 0.25% of your account balance. The Premium plan is available with a minimum account balance of $100,000, and gives you access to live financial advisors. This plan will take the robo-advisor concept to a higher level, bringing human financial advice into the picture.
Betterment also offers an interest-bearing cash account paying interest of 0.40% APR, which is many times higher than what you’re probably getting at your local bank. They also offer multiple account options, such as retirement, emergency savings, and accounts for near-term spending, like saving for the down payment on a house. They even offer a no-fee checking account, complete with a Visa debit card.
Betterment Basic Features:
Best for: Comprehensive financial management with broader diversification, including high interest savings and no-fee checking.
Why Wealthfront is a good robo-advisor for beginners: Wealthfront is Betterment’s primary competitor, so it’s no surprise the two robo-advisors nearly match one another in service and features across-the-board. Wealthfront’s primary distinguishing feature is that it offers advanced tax-loss harvesting on taxable investment accounts balances over $100,000 – though that won’t matter to most beginner investors. What may matter more however, is that Wealthfront provides broader diversification, offering allocations in real estate and natural resources.
Like Betterment, Wealthfront also offers a high-yield cash account, as well as no-fee checking with a Visa debit card. You can add all your financial accounts on the Wealthfront app to provide you with a comprehensive view of your entire financial life.
Best for: Beginning investors who are also looking for help with saving the money needed to invest.
Why Acorns is a good robo-advisor for beginners: Acorns is a robo-advisor, but more importantly, it’s also a micro-savings app. Not only will it manage your investments for you, but it will help you accumulate the money you need to invest. Best of all, that accumulation will take place automatically, and largely out of sight.
They do this through a process known as “round ups”. Using your mobile device, you can connect the Acorns app to spending accounts, like credit cards and bank account debit cards. Each time you make a purchase through a connected account, Acorns will round it up, and move the “change” into your investment account. For example, if you make a purchase for $6.25, your spending account will be charged $7, with the remaining $.75 going into your investment account. However, you can also make regular direct contributions or even lump sum contributions to your investment account.
Acorns Spend comes with a heavy metal Visa debit card you can use for round-up purchases.
Best for: A robo-advisor that lets you choose your own investments.
Why M1 Finance Expert Pies is a good robo-advisor for beginners: Though we’ve put M1 Finance Expert Pies in only sixth place, it can just as easily be first. That is, if you prefer to choose your own investments. If so, M1 is clearly the best option in the robo-advisor universe. But since this is a list of the best robo-advisors for beginners, we’ve made the assumption you won’t be quite ready to choose your own investments, which lowered the rank.
M1 Finance Expert Pies is a completely unique provider in the robo-advisor space. They work on a system referred to as “pies”, which are actually mini-portfolios. Each pie can include up to 100 ETFs and/or individual stocks. You can either select from one of 80 prebuilt pies or create one of your own. In fact, you can create as many pies as you want, each built around a specific investment theme. Once a pie has been created, it will be fully managed for you, including periodic rebalancing to maintain target allocations.
If you have any desire to engage in direct investment selection, M1 Finance Expert Pies is the robo-advisor for you.
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If you’re just coming out of the financial starting gate in life, you probably don’t have the bandwidth to begin managing your own investments. But you need to begin investing as soon as possible to build a solid financial foundation for the future.
Using a good robo-advisor will turn investing into an automatic and stress-free process. You’ll provide the funds to invest, and the robo-advisor will do all the heavy lifting for you. There’ll be no need to design a portfolio, select individual securities, make buy and sell decisions, or manage your account – the robo-advisor will do all that for you.
The most important step in investing is to begin. And a robo-advisor is the very best place to do that.