The rise of robo advisors in recent years has been tremendously beneficial for novice and experienced investors alike. Robo advisors manage investment portfolios with the help of advanced algorithms. These algorithms were developed by financial experts and specifically designed to maximize returns while charging substantially lower fees than traditional advisors.
Approximately 6.6 million investors currently use robo advisors, and that number is expected to grow to over 12.6 million investors by the year 2022. Total assets managed by robo advisors surpassed $222 million in 2017, and that number is expected to double or even triple within the next couple years.
So why do people love investing with robo advisors? There are many advantages to letting a computer algorithm determine the best allocation of your assets instead of a human advisor. Robo advisors offer lower fees, better portfolio performance, lower account minimums for investors just starting out, more account features, and more.
If you’ve considered switching to a robo advisor or perhaps adding a robo advised portfolio to improve your retirement savings strategy, here are some of the many ways robo advisors are currently beating traditional advisors.
How Robo Advisors Are Beating Traditional Advisors
Robo Advisors Outperform Traditional Portfolio Management
Because each individual portfolio differs based on the investor’s unique tolerance for risk, gauging the performance of robo advised portfolios can be difficult. However, it’s been reported that between the start of 2016 and the end of 2017, the top seven robo advisors raked in significant returns averaging 21-27% for investors with taxable portfolios.
Additionally, robo advisors typically charge much lower fees than traditional human advisors, who charge 1-2% fees on investable assets each year. Robo advisors are able to outperform their human counterparts thanks to their advanced algorithms, which are designed to monitor a vast multitude of factors.
Best of all, most robo advisors offer highly secure smartphone apps, through which you can monitor your portfolio whenever you’d like at the press of a button. You don’t have to get updates on your investments if you’d prefer a “set it and forget it” style of passive portfolio management. But, it’s a nifty feature for any investor who wants greater transparency and quick access to their portfolios on-the-go.
Betterment Case Study
There are countless robo advisors out there today, but don’t let too many investment options overwhelm you. There is a clear winner when you take management fees, average returns, account features, and customer service into account.
With these factors in mind, one of the best robo advisors available to investors today is arguably Betterment. It has over $14 billion assets under management (AUM) and charges investors just 0.25% in annual fees on its accounts for Betterment Digital. Betterment Premium includes in-depth investment advice and unlimited access to CFP professionals for investors who have a minimum balance of $100,000 in their accounts, and there’s a 0.40% fee.
Betterment Digital is advantageous for new investors who want a better alternative to traditional human advisors for several key reasons.
- $0 minimum balance to open an account.
- Personalized financial advice and portfolio management based on your age and investment goals.
- Automated portfolio rebalancing, tax loss harvesting, and asset location.
- Easy access to knowledgeable customer service representatives and licensed financial experts to assist you with any questions you may have.
With low fees, hundreds of thousands of clients, and billions of dollars in assets under management, Betterment is one of the best options for anyone who wants great returns on their investments, minimal fees, and hands free management of their portfolio.
Should You Invest with a Robo Advisor?
Robo advisors have transformed the financial industry for the better. Not only do they offer investors better rates when it comes to portfolio management, but many robo advisors have demonstrated a solid history of consistent and excellent returns on the investments they manage.
Even if you have only a little money to begin investing, robo advisors can be great options for small-time and wealthy investors alike, thanks to low account minimums and a plethora of additional services for those who want a top-tier portfolio management experience.