Automated Investing
Check out our comprehensive reviews to pick the best robo-advisor for your needs.
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Robo-advisors are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision. A typical robo-advisor asks questions about your financial situation and future goals through an online survey; it then uses the data to offer advice and automatically invest for you.
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There is a range of account minimums for robo-advisors. While there are some
robo-advisors that have no minimum, like Betterment, SoFi Automated investing, and Blooom, some of these allow you to open the account but won’t fully invest your money in the model portfolio until a threshold of cash is reached. Aside from the small number of robo-advisors that require $0 to open an account, account minimums range from $10 to $100,000. In general terms, you should try to have $100 to invest in even the no-account-minimum robo-advisors, as that will usually ensure the money goes into the market. From there, the key is contributing more investment dollars at regular intervals.Learn More: Best Robo-Advisors -
Robo-advisors typically charge less than 0.50% of assets under management, which is far below the traditional asset management fees charged by human advisors. Premium offerings from the platforms that are split into basic and premium will be closer to that 0.50% line. Only Personal Capital exceeds this line, but it is designed specifically for high net worth clients and diversifies and manages their portfolio with direct asset purchases rather than simply using ETFs as a proxy. This feature may well justify the higher fee for wealthy investors looking to automate their portfolios.
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Although some of the robo-advisors we reviewed do offer some funds designed to
outperform the market, the vast majority of robo-advisors are designed to match the overall returns of the market. Many of the ETFs that robo-advisors use to develop a balanced portfolio either are or have elements of index-tracking funds. Depending on the robo-advisor, your funds may also be diversified globally as well as by asset class. This means portions of the portfolio's holdings could outperform or underperform your domestic stock market, when the idea is to have the portfolio keeping pace with the overall market rather than outperforming or underperforming it.Learn More: Best Robo-Advisors -
Yes, you can lose money with robo-advisors, particularly with rebalancing costs, fees, and tax-loss harvesting.
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Robo-Advisor
Robo-advisors are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision.
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Rebalancing
Rebalancing is the process of realigning the weightings of a portfolio of assets. Rebalancing involves periodically buying or selling assets in a portfolio to maintain an original or desired level of asset allocation or risk.
For example, say an original target asset allocation was 50% stocks and 50% bonds. If the stocks performed well during the period, it could have increased the stock weighting of the portfolio to 70%. The investor may then decide to sell some stocks and buy bonds to get the portfolio back to the original target allocation of 50/50. -
Tax-Loss Harvesting
Tax-loss harvesting is the timely selling of securities at a loss in order to offset the amount of capital gains tax due on the sale of other securities at a profit.
This strategy is most often used to limit the amount of taxes due on short-term capital gains, which are generally taxed at a higher rate than long-term capital gains. However, the method may also offset long-term capital gains. -
Capital Gains Tax
The capital gains tax is the levy on the profit that an investor makes when an investment is sold. It is owed for the tax year during which the investment is sold.
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Asset Allocation
Asset allocation is an investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance, and investment horizon. The three main asset classes—equities, fixed-income, and cash and equivalents—have different levels of risk and return, so each will behave differently over time.
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Modern Portfolio Theory (MPT)
The modern portfolio theory (MPT) is a practical method for selecting
investments in order to maximize their overall returns within an acceptable level of risk. -
Smart Beta
Smart beta investing combines the benefits of passive investing and the advantages of active investing strategies.
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Passive Investing
Passive investing is an investment strategy to maximize returns by minimizing buying and selling. Index investing in one common passive investing strategy whereby investors purchase a representative benchmark, such as the S&P 500 index, and hold it over a long time horizon.
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Active Investing
Active investing refers to an investment strategy that involves ongoing buying and selling activity by the investor. Active investors purchase investments and continuously monitor their activity to exploit profitable conditions.
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