Robo Advisor

Robo Advisors vs S&P

9.40%

Versus S&P

11.40%

an hour ago

9.40%

Versus S&P

11.40%

an hour ago

6m High

6m Low

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Robo Advisor

188.74

168.67

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S&P 500

5,762.48

5,127.79

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Robo Advisor

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S&P 500

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Same Direction as the Stock Market

Sources: Backend Benchmarking Robo Index, SPX

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Highlights

Good For

Hands off stock investing

Time Horizon

3-10+ years

Robo-advisors, also known as automated investing services, use computer algorithms and advanced software to build and manage your investment portfolio. Services range from automatic rebalancing to tax optimization, and require little to no human interaction. Robo-advisors are much cheaper than a human financial advisor. Robos often charge fees of between 0.25% and 0.50% of assets under management (AUM), with some also offering this for free. This is compared to 1% or more charged by human advisors.

Did you Know

  • poitStar

    According to a NerdWallet study, the top 3 reasons people use robo advisors are: 1) They are easy to use, 2) They are cost-effective and 3) There's a low barrier to entry.

  • poitStar

    More than 80% of the stock market is now automated, showing that machines already do the vast majority of US trades.

  • poitStar

    The first robo-advisors were launched in 2008 during the financial crisis. In 2010, Jon Stein, a 30-year old entrepreneur, launched Betterment.

  • poitStar

    As of May 2021, Betterment users top 615,000 clients. Betterment’s average account size is approximately $44,000.

Considerations

    Reasons to Invest

  • Set it and forget it — robo advisors enable low-effort investing

  • Track the market or choose a bespoke investing strategy without having to pick your own funds and stocks

  • Invest in alternative assets like crypto and gold via modern robo advisors

    Drawbacks

  • Robo advisors automate investing for you, which usually means there's limited personalization and flexibility. They're not ideal for people who prefer to actively choose their investments.

  • If you want one-on-one attention from an investment advisor, a robo advisor isn't the best choice as most don't offer personal assistance.

  • Most robo advisors attempt to match the market, so if your goal is to beat the market, you probably don't do it with these apps.

How You’re Taxed

Capital Gains

Capital Gains

As with any stock realized stock gains, investors are subject to capital gains tax. If gains are realized within one year, you are taxed at your income tax rate. If gains are realized after one year, you are subject to a long-term capital gains tax of 0% to 20%. A common service that some robo-advisors offer through their systems is automatic tax-loss harvesting. Tax-loss harvesting is a deliberate strategy whereby any loss from the sale of a security in a taxable account is used to offset a capital gain or taxable income, thereby reducing the tax paid.

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