Advertiser Disclosure

Investing

What Is the Best Way to Invest $100k?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It may not have not been reviewed, commissioned or otherwise endorsed by any of our network partners or the Investment company.

Written By

Reviewed By

The best way to invest $100k comes down to figuring out what’s optimal for your unique financial situation. While that may seem like a daunting task, you can start by considering your current financial profile and various investing and savings options.

You might consider investing your $100k in exchange-traded funds (ETFs), mutual funds, stocks, real estate or cash. And, of course, you can always consult a financial professional if you need help. We’ll walk you through how to figure it out, what to know about your investing options and what to keep in mind throughout the process of investing $100k.

What do to with $100k: 4 steps to figure it out

Step 1: Assess your current financial situation

Before you make any decision about what to do with $100k, you first need to take a step back and look at your current financial situation. Consider if there are any pressing issues you need to take care of, like tackling high-interest debt, such as credit card debt. You may also want to think about other financial priorities, such as ensuring you have some sort of emergency fund.

You may not want to put all the money toward paying down debt or starting an emergency fund, however. Consider taking the time to really think about where the money will have the most impact on your finances.

Also, understand that if you received this money due to the death of a close relative or other significant life event, you may want to wait to make any major decisions until you have worked through the emotions of such an event. A financial advisor may be able to help you work through different scenarios and figure out how to best proceed.

Step 2: Make sure you’re already making the most of your retirement accounts

If you want to determine your best way to invest $100k, first look at your retirement accounts, if you have any. Tax-advantaged retirement accounts can be more efficient in the long run, providing you a chance to grow your money in a way that comes with a tax benefit.

Review the contribution limits of your accounts, and consider the tax deduction phaseouts. With the help of tax-deductible contributions, you can reduce the immediate tax impact of your $100k windfall. For 2020, you can contribute up to $19,500 to a 401(k) and $6,000 to a traditional or Roth IRA. People who are at least 50 years old can make a catch-up contribution of $6,500 to a 401(k) or $1,000 to an IRA. If you’re self-employed, though, you might be able to contribute even more to a SEP IRA.

With a traditional 401(k) or IRA, or a SEP IRA, you contribute with after-tax money. This allows you a tax break today, even though you pay taxes later, when you withdraw the money from the account. Or you may fund a Roth 401(k) or IRA with after-tax dollars. While you won’t see a tax break today, the money you invest grows tax-free and you won’t have to pay taxes later when you take distributions.

Don’t assume that you need to max out your tax-advantaged retirement accounts if you already have a pretty good nest egg, or if you know you’ll want access to your money without worrying about early withdrawal penalties. Consulting with a tax professional can help you figure out your best way to grow your wealth while paying attention to tax consequences.

Step 3: Determine your risk tolerance and time horizon

Your risk tolerance and time horizon can affect what you decide to do with $100k. Basically, your risk tolerance is how much potential loss you might be able to sustain in your portfolio. Your time horizon, or how long you plan to need to be able to hold an investment, is connected to your risk tolerance.

For example, if you are young, and at least a couple of decades away from retirement, you’re likely to have a higher tolerance for risk. Your portfolio will have time to recover from market downturns, so you might be able to devote more of your assets to stocks, which are generally a riskier asset than bonds or other fixed-income investments like certificates of deposit (CDs).

On the other hand, if you’re within a few years of your planned retirement, you might be wary of putting too much into stocks. Instead, you can have more of the so-called safer investments in your portfolio, and fewer risk-on assets. The older you are, the less time you will have to recover from stock market downturns, so less risky assets can create a degree of stability in your portfolio.

Step 4: Decide if you’d prefer passive or active investing

Finally, when figuring out your best way to invest $100k, you need to consider your own investment strategy preferences. Because $100k is a significant amount of money, you should carefully consider how involved you want to be in the day-to-day decisions.

If you enjoy hands-on, DIY investing, you may want to choose your own stocks or funds, and take on the job of rebalancing your portfolio. You’ll have to spend time and energy researching your choices.

On the other hand, if you prefer to let others do most of the heavy lifting, you can automate with a robo-advisor, or hire a human investment advisor to manage your portfolio. That way, you can provide a general direction and goals, while either an algorithm or a human professional largely manages your investments.

Where to invest $100k

ETFs and mutual funds

Mutual funds, which represent a collection of investments that are similar, can give you a degree of instant diversity. Rather than owning one stock or bond, you could own pieces of hundreds of securities, all in one fund. You might, for example, consider an index fund that tracks a stock market benchmark like the S&P 500. This can potentially protect you to some degree when a single stock drops, as it doesn’t have as big an impact on your portfolio. At the same time, if the broad stock market drops, your index fund will drop along with it. Through mutual funds, you can invest in stocks, bonds (both domestic and international) and a variety of specific sectors, such as energy, health care and industrials.

Exchange-traded funds (ETFs) are similar, in that they can give you exposure to a wide variety of investments in a single fund. A key difference is that an ETF trades like a stock on the exchange, meaning you can trade it throughout the day, like an individual stock. Mutual funds can only be traded once a day.

Mutual funds and ETFs may be considered less risky than choosing just a few individual investments, because of their diversity and wide market exposure. They also represent different degrees of risk. For example, a stock ETF may have more risk than a bond ETF, because bonds in general are often considered less risky than stocks.

ETFs can be a good choice for those who want a somewhat hands-off approach to investing. You can focus more on asset allocation than on picking individual securities. You can invest in stocks, bonds, currencies and commodities, and different sectors. You can rebalance your allocations according to your risk tolerance and time frame as you approach retirement or other financial milestones.

Individual stocks

Individual stocks are often considered riskier than mutual funds and ETFs. When investing in individual stocks, you encounter single-stock risk. This means you could lose all of your initial capital if bad news bankrupts a company, or there is some other problem that sends the stock reeling. However, for those who like to choose their own investments or trade frequently, individual stocks can provide a potentially rewarding way to invest a portion of $100K. And you can choose several stocks in order to diversify, instead of focusing on only a few.

It’s important to note that average annual returns depend on various companies, and trying to pinpoint exactly what individual stocks will return can be difficult. You may have one small-cap stock that is extremely volatile and loses 50% in a week on bad news, while you have another that returns 300% in a year, and yet another that is less volatile and returns only a small percentage in a year. You can do your research and see how the company has performed in the past, but you must understand that when it comes to stocks or funds, past performance is no guarantee of future returns.

There are different ways to trade stocks, including buying and holding for long periods of time and day trading. Day trading is often considered far riskier than buy and hold, and many experts advise against it for everyday investors.

Additionally, you can look for dividend-paying stocks, which pay shareholders a portion of a company’s earnings, often on a quarterly basis. Some funds offer dividend payments as well. Dividend aristocrats, for example, are companies that have raised dividends consistently for decades. While nothing is a sure thing, a company that can keep increasing its dividends may be a solid choice for the long term, even if the annual returns aren’t dramatic.

Real estate

Real estate investment trusts (REITs) can provide a way to add real estate exposure to your portfolio without the need to buy properties. REITs can also provide some income, as these entities are required to pay out 90% of their taxable income annually to shareholders. Income investors disappointed with dividend yields from some stocks, or with income from bonds, can consider adding REITs to their portfolio to provide access to potential dividend income.

However, there are tax complications associated with some REITs, so you need to understand these. This may be something you choose to discuss with a financial advisor or tax professional. Additionally, there are some higher-risk REITs that could potentially offer bigger returns — but also increase your chance of loss. It’s important to carefully consider the types of REITs you choose and make sure you understand them before you invest.

For those who are interested in having a more hands-on experience with real estate, putting some money toward investment properties with tenants can offer a source of income.

Savings

There are a number of different savings products available, including savings and money market accounts and CDs. Depending on the type of account and the current interest-rate environment, you might see yields as low as 0.01% on traditional savings accounts to 2% or more on high-yield savings accounts or CDs.

CDs often require you to lock your money away for longer periods of time, and there can be penalties for withdrawing before that period is up. While they can offer higher returns than even a high-yield savings account, it’s important to note that in a low-rate environment, you might have a hard time finding yields of even 1%.

In general, savings can be good for those using a bucket strategy when they need to access cash. For example, you might keep what you need to cover expenses in the next six months to a year or more in a cash account you can access easily. That way, if you need cash quickly, you don’t need to sell investments at a loss, or pay capital gains tax on a gain in order to access it.

Savings also can be a good choice for those who need to shore up an emergency fund, or are putting aside money for a short-term goal, such as a down payment on a home. Remember that, in a low-rate environment, your cash may not earn enough interest to even keep up with inflation. However, the main goal with cash savings is not to get great returns but to have it on hand if needed. It might make sense to put the entire $100k in a high-yield savings account for six months or more while you consider your options.

 What to keep in mind before investing $100,000

  • You don’t need to invest $100k all at once: Rather than trying to pinpoint your best way to invest $100k all at once, you can consider dollar-cost averaging. With this strategy, you put your money into the stock market in increments, allowing for consistent investing that can provide you with a way to take advantage of market drops through buying shares at lower prices.However, there is research that indicates you might benefit by putting all your money into the stock market at once. Carefully consider your own risk tolerance and needs, as some people prefer to spread out the risk of a volatile market.
  • Make sure you diversify: When trying to figure out how to invest $100k, you shouldn’t put it all in one place. Consider a portfolio allocation that is likely to help you reach your goals while providing you with some stability. A mix of assets including stocks, bonds and short-term reserves, such as cash, can prevent you from being too exposed to one particular asset class.Eventually, through a careful balance of risk and protection in your portfolio, you may be able to turn that $100K into $1 million or more. But remember that you can never fully predict the performance of your portfolio, as there are many unexpected events that may shake it up at a difficult time, such as when you are close to retirement.
  • Don’t forget about fees: Pay attention to fees. Higher fees can erode your real returns. For example, if you use individual stocks and trade frequently, commissions may reduce how much you actually end up with (not to mention that you might have to pay short-term capital gains). However, you can reduce this risk by choosing one of the many platforms that offer commission-free trading. Also keep in mind that actively managed mutual funds and ETFs can charge higher fees than passive funds that simply track an index, and a human financial advisor might charge more than a robo-advisor. Consider your needs and then look for your best way to meet them in a cost-efficient manner.
  • Regularly check in on your asset allocation: You’ll want to review your asset allocation to make sure it’s on track. If you have one asset class that has gained, you can sell the excess shares and use the profits to buy into other asset classes at lower prices. Depending on your situation, you might want to rebalance your portfolio at least once a year, or when your asset allocation strays by 4% to 5%.
  • Give your money time to grow: Realize that no matter what you decide to do with $100k, you need to give your money time to grow. Any investment strategy requires a degree of patience and discipline. Don’t be swayed by short-term volatility, and instead put together a long-term strategy that can help you grow your wealth consistently.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

magnifymoney

Connect with a Financial Advisor to Help You Grow & Protect Your Wealth

Find An Advisor
Terms & Conditions Apply.

Advertiser Disclosure

Investing

Axos Invest Review 2020

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It may not have not been reviewed, commissioned or otherwise endorsed by any of our network partners or the Investment company.

Written By

Reviewed By

Axos Invest, formerly Wisebanyan, is an automated investment platform that recommends tailored portfolios for short- and long-term financial goals. Investments come from a pool of over 1,400 low-cost exchange-traded funds (ETFs). Axos Invest charges a minimal flat annual fee, and offers features like tax-minimization tools and automated rebalancing.

The platform is a solid choice for beginners who desire a hands-off approach, though sophisticated investors might feel constrained by the limited investment and account options.

WiseBanyan Inc.
Visit Axos Secured
on Axos Invest’s secure website
The bottom line: Axos Invest provides beginner investors with a low-fee way to invest in well-diversified portfolios to help meet their personal financial goals.

  • Charges a flat annual advisory fee for all of its services
  • Has a wide-range of ETF offerings, making it easy to diversify
  • Features, such as rebalancing and tax-loss harvesting, are automated and included in the flat advisory fee

Best for...
  • Beginner investors who need help crafting a financial plan to reach their financial targets and goals 
  • Investors who can make a relatively sizable minimum investment in return for a low annual advisory fee 
  • Hands-off investors who value passively managed investing and automatic rebalancing features
Minimum investment$500
Management fee0.24%
Accounts offeredIndividual brokerage account, SEP IRA, traditional IRA, Roth IRA
Access to human advisorsNo
Banking servicesYes 

What is Axos Invest and how does it work?

Like many of its robo-advisor peers, Axos Invest recommends investment portfolios made up of passively managed ETFs, with asset allocation based on factors such as the investor’s time horizon, risk tolerance and financial targets. Axos Invest offers individual personal investment accounts, SEP IRAs, traditional IRAs and Roth IRA accounts, with automatic portfolio rebalancing.

Axos Invest charges a low, flat annual fee of 0.24% and requires a minimum of $500 to get started. However, unlike some of its competitors, Axos Invest doesn’t provide access to human advisors.

Pros

  • Low fees: One benefit of Axos Invest is the relatively low advisory fee it charges for its services: 0.24% of your account balance. That’s lower than you would pay for a typical human advisor, and is in line with or slightly lower than some of its robo-advisory peers — Betterment and Wealthfront, for example, charge 0.25%, while Blooom charges $45 per year for its most basic platform, even if you have a very low balance.
  • Large selection of ETFs: Axos Invest stands out for its robust offering of low-cost ETFs, which span over 30 asset classes and range from emerging market stocks to U.S. Treasury bonds. Additionally, with its Premium Plus feature, you can select which asset classes are included in your portfolio and their allocation.
  • Financial planning services: While Axos Invest does not offer access to human advisors, it still provides customers with a financial planning service called Milestones. With Milestones, you are able to set a financial goal (such as investing for a new home),  and Axos will help you reach that goal by providing you with a deposit plan, rebalancing your investments and tracking your progress.
  • Tax minimization strategies: Axos Invest features a Tax Protection package that aims to lower your tax bill through three different strategies — tax-loss harvesting, selective trading and IRAutomation. All of these features are included in its basic package.

Cons

  • Lack of access to human advisors: Axos Invest does not offer a way for consumers to connect with human financial advisors. For people who would like their robo-advisor to provide at least some level of human help, there are other robo-advisors out there that offer this.
  • High minimum required: Axos Invest requires a minimum of $500, which is higher than many of its peers. It’s worth nothing that the robo-advisor recently revamped its pricing structure, and previously did not require such a hefty minimum. Axos Invest users who have a balance of less than $500 after Aug. 1, 2020, will incur a $1 monthly fee.
  • Limited accounts available: While Axos Invest does feature an array of retirement accounts — such as a SEP IRA, traditional IRA and a Roth IRA — it notably lacks joint brokerage accounts, Coverdell ESA accounts and custodial accounts. If you are looking for a larger selection of account types, other robo-advisors offer more options.
  • Confusing structure: At times, Axos Invest seems unnecessarily complex and convoluted — such as offering “premium” features for no additional cost. Additionally, at times, its “milestones” (or financial targets) can be misleading. For example, Axos Invest features a Cash milestone. The money you put toward your Cash milestone isn’t actually invested, and simply remains as cash.

Axos Invest’s investment approach

Investment optionsETFs
Tax-loss harvesting
Portfolio rebalancing
Smart Beta
Socially Responsible Investing
Fractional shares

Asset allocation

Axos Invest uses Modern Portfolio Theory, a popular investing framework that aims to garner the highest returns possible, given a certain amount of risk, to build its customers’ portfolios. Your portfolio’s recommended asset allocation is based on your personal information (such as your income, net worth and risk tolerance), coupled with your time horizon and financial targets.

Upon signing up, Axos Invest will ask you to select a “milestone,” which acts as your financial target. Predetermined milestones you are able to select from include a Rainy Day fund, Saving Cash fund and Retirement fund, as well as the option to completely create a custom milestone.

You can think of Axos Invest’s milestone approach as the robo-advisor’s take on goal-based investing. The milestones come with time horizons, which are used to help determine your portfolio’s asset allocations, with longer-term milestones being invested more aggressively in stocks, while shorter-term milestones will be invested more heavily in bonds. Axos Invest also offers a Glide Path feature, which will automatically rebalance your portfolio as you get closer to achieving your milestone.

Axos Invest’s portfolios are built of ETFs across 32 different asset classes. Investments come from a database of over 1,400 different ETFs that were selected based on their investment focus, tracking error, historical performance and operational efficiency.

The ETFs in your portfolio are passively managed, meaning Axos Invest uses a buy-and-hold strategy in an effort to reap the benefits of the longer-term capital gains rate, as opposed to the higher, short-term capital gains rate. For investors who want more control, Axos Invest also has a Portfolios Plus feature, which allows you to control the types of investments that go into your portfolio and their designated allocations.

For its Core Portfolios, Axos Invest’s asset allocation includes the following broad investment categories:

  • U.S. stocks
  • Foreign stocks
  • Emerging market stocks
  • U.S. treasuries
  • U.S. short-term treasuries
  • High-yield corporate bonds
  • Treasury inflation-protected securities (TIPS)
  •  Real estate investment trusts (REITs)

Additionally, the platform features the following investment categories for its Portfolio Plus package (which is also available for the 0.24% advisory fee):

  • Blockchain (stocks)
  • Precious metals (stocks)
  • Internet innovators (stocks)
  • Technology (stocks)
  • Consumer staples (stocks)
  • Socially minded (stocks)
  • Municipal bonds
  • Small-cap (stocks)
  • Mid-cap (stocks)
  • Large-cap (stocks)
  • Clean energy (stocks)
  • Healthcare (stocks)
  • Water (stocks)
  • Utility (stocks)
  • Home builders (stocks)
  • Defense (stocks)
  • Artificial intelligence (stocks)
  • Digital security (stocks)
  • Banking and finance (stocks)
  • Wonder Woman (stocks)
  • Oil and gas (stocks)

Tax strategy

Beginning on Aug. 1, 2020, Axos Invest is offering its Tax Package as part of its standard 0.24% fee. The Tax Package takes a three-pronged approach to minimizing a client’s taxes, including tax-loss harvesting, selective trading and IRAutomation.

  • Tax-loss harvesting: Axos Invest uses tax-loss harvesting, and finds ways to turn minor losses in your portfolio into deduction opportunities. Axos Invest says it scans daily for tax-loss harvesting opportunities (as opposed to quarterly or annually) and protects against wash sales. With wash sales, you sell a stock to harvest a loss and replace it within 30 days before or after with a  similar stock. If the IRS detects a wash sale transaction, they won’t give you the tax deduction for the loss.
  • Selective trading: With selective trading, Axos Invest allows you to withhold certain ETFs you may have in outside investment accounts from being traded, which can help prevent wash sales.
  • IRAutomation: Axos Invest’s IRAutomation feature is essentially a suite of tools designed to automate the process of using an IRA as a tax-advantaged way to save for your retirement years. This includes tools that help you manage and maximize your annual contributions and ones that assist you if you are converting from a traditional to a Roth account.

Axos Invest fees

  • Annual management fee: 0.24% of your account balance
  • Investment expense ratios: Average fund fee of ETFs in its Core Portfolios is 0.12%

Axos Invest’s flat annual advisory fee of 0.24% is calculated monthly and based on your average account balance of non-cash assets. This fee is automatically deducted from your account.

Additionally, there may be closing fees charged by Apex Clearing, and there is a $75 fee charged by Apex Clearing for transferring securities from your Axos Invest Managed Portfolio account to another brokerage firm. There is also a $10 closing fee on all IRA accounts.

Axos Invest’s features and tools

Portfolios Plus

As noted earlier in this review, Axos Invest also features a Portfolios Plus option in addition to the Core Portfolios offered. With Portfolio Plus, you are able to pick and control the assets you invest in and their corresponding allocation, choosing from a lengthier list of investments across a larger variety of asset classes and sectors. Portfolio Plus allows you to create custom portfolios or to select from a Featured Portfolio crafted by the Axos Invest investment team.

On that list are socially responsible ETFs, including a Wonder Woman fund made up of stocks of companies with a strong history and representation of female leadership; a Clean Energy fund composed of stocks of clean energy companies and a Socially-Minded fund featuring stocks of companies that engage in social justice or environmental initiatives.

Fast Money

Axos Invest’s Fast Money feature allows you to make deposits faster using tools called the Quick Deposit and Auto-Deposit Scheduler. With Quick Deposit, your deposits are made the same day, and if those deposits are put toward non-cash milestones, they will be invested that day or the next trading day. The Auto-Deposit Scheduler allows you to schedule out your auto-deposits.

Formulas

The Formulas feature is designed to help customers take advantage of unique opportunities that crop up, in order to maximize the money that’s invested. If you select a Formula, Axos Invest will automatically transfer cash to take advantage of such opportunities.

Examples of Formulas offered by Axos Invest include Round-Up, in which cash will be used to top off your milestone each day, and Dividend Match, which matches any dividends earned.

Wallet

With the Wallet tool, you can stash away cash to help reach your milestones through the Formulas tool. You link your Wallet to your bank account, and it essentially acts as a savings account, where you can transfer cash to power your Formulas, either through one-time deposits or recurring deposits.

Automatic rebalancing

Another hallmark feature of Axos Invest is that it automatically rebalances your portfolio when your allocation moves by 5% or more. While this isn’t a revolutionary concept with robo-advisors, it is still a nice feature to take advantage of. Axos Invest says that instead of selling your ETFs when rebalancing, it first aims to use your dividends and deposits — which is a nice added bonus, as it could lower your tax bill.

Axos Invest user experience

Axos Invest has a website and an app that works on iOS and Android. The company prides itself on its user-friendly interface, which is apparent in the app. On the iOS app, for example, you can view a snapshot of all your current milestones and your progress on them on a single screen, as well as pie charts that show the asset allocation of your portfolios.

Support for Axos Invest is available by emailing [email protected], as well as by phone Monday through Friday (8 a.m. PST to 4 p.m. PST) at 888-585-4965.

Axos Invest safety and security

  • SIPC Protection

Axos Invest does offer Securities Investor Protection Corporation (SIPC) protection, in which a nonprofit corporation created by U.S. Congress covers up to $500,000 per client (including a $250,000 limit for cash) if the brokerage firm enters bankruptcy.

Additionally, Axos Invest says your information is encrypted and securely stored, and features two-factor and one-time password login security.

Is Axos Invest worth it?

By using a goals-based approach to investing, offering a variety of financial planning tools and having a low annual advisory fee, Axos Invest could be a good option for people who are new to investing.

However, its $500 minimum could alienate new investors who want to invest just a small sum of cash to start. Additionally, sophisticated investors who want to invest in more than just low-cost  ETFs (such as individual stocks, futures and options) will want to look elsewhere.

Alternatives to Axos Invest

 Account minimumAnnual feeAccounts offered
Axos Invest $500 0.24%Individual taxable brokerage account, SEP IRA, Roth IRA, Traditional IRA
Betterment $0 0.25%Individual taxable brokerage account, joint taxable brokerage account, Traditional IRA, Roth IRA, SEP IRA
SoFi Automated Investing$1$0Individual taxable brokerage account, joint taxable brokerage account, Traditional IRAs, Roth IRAs, SEP IRAs

Axos Invest vs. Betterment

Axos Invest and Betterment are highly comparable. Both allow you to invest in a recommended portfolio based on your own financial needs and targets, charge a low annual advisory fee, feature portfolios consisting of a  diversified mix of ETFs and take a goals-based approach to investing.

However, for its most basic, Digital package, Betterment does not require a minimum deposit, making it more accessible to investors. Also, unlike Axos Invest, Betterment offers a separate package with a higher annual fee that includes a number of premium features, including access to a CFP. For people who want to make sure they will have access to an actual human expert, Betterment is the better fit.

Open a Betterment account Secured
on Betterment’s secure website

Axos Invest vs. SoFi Automated Investing

SoFi Automated Investing’s product shares many similarities with Axos Invest, as it takes a goals-based approach to investing and automatically rebalances your portfolio. However, it provides all of these services without charging a management fee — unlike the 0.24% charged by Axos Invest.

Additionally, for those who want to take a more hands-on approach to investing, SoFi Automated Investing is the better option. Along with its automated investing option, it also offers an active investing route — meaning you will have the ability to buy and sell stocks on your own (and even actively purchase fractional shares of stocks and ETFs) at no additional trading costs.

Open a SoFi Automated Investing account Secured
on SoFi Automated Investing’s secure website

All information included in this profile is accurate as of 10/20/2020. For more information, please consult Axos Invest’s website.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

magnifymoney

Connect with a Financial Advisor to Help You Grow & Protect Your Wealth

Find An Advisor
Terms & Conditions Apply.

Advertiser Disclosure

Investing

What Does a Financial Advisor Do?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It may not have not been reviewed, commissioned or otherwise endorsed by any of our network partners or the Investment company.

Written By

Reviewed By

Financial advisors can help you manage your money, which may include budgeting, creating a plan to save or pay down debt or offering advice on how to invest. When you need help mapping out your financial future, working with a financial advisor is one option you can pursue if you’re looking for something beyond a DIY approach.

We’ll delve into what financial advisors do and how they can help you achieve your financial goals to help you decide if working with one is right for you.

What do financial advisors do? A breakdown by advisor type

Financial advisor is a general term that can be used to describe professionals who offer financial advice and guidance to individuals, businesses and/or other entities. The services and advice a financial advisor provides can vary based on the type of advisor.

What in-person financial advisors do

Working with a financial advisor in person may be the most comprehensive option, in terms of the range of services they may provide. For example, your financial advisor may assist with college and retirement planning, insurance planning, legacy planning and/or investment planning.

Financial advisors that offer these types of services can take a narrow or broad approach. An investment advisor, for instance, provides advice about investments for clients who need help building a portfolio. Financial planners, on the other hand, may help with a broader range of services, including investments, insurance, retirement planning, taxes and estate planning.

Working with a financial advisor in-person can offer advantages. For instance, a human advisor can help guide investment decision-making during periods of stock market volatility, or offer recommendations for insurance products that could be helpful for rounding out your financial plan. (Keep in mind that an in-person financial advisor needn’t work with you literally in person; you can have a relationship that is mostly based on video chats and phone calls as well.)

What robo-advisors do

Robo-advisors offer investment advice with little or sometimes no interaction with a human financial advisor. Instead, your investment strategy is guided by the robo-advisor platform’s unique algorithm. Generally, these algorithms take into account specific factors, such as your age, risk tolerance and time horizon for investing to create a portfolio management strategy.

Robo-advisors charge a range of fees that may be less than working with a human advisor, but there are some potential downsides. For example, a robo-advisor’s algorithm wouldn’t be able to offer personalized advice about how to adjust your portfolio in an unstable market the way a human advisor could, and it cannot offer detailed, holistic financial planning.

What online financial planning services do

Online financial planning services can offer a more personalized approach to advice than a simple robo-advisor, acting as a hybrid of automated and comprehensive planning services. Human interaction is typically limited to phone calls, emails or live chats with a professional advisor.

Online financial advisors can take a holistic approach to planning. Vanguard Personal Advisor Services, for instance, can help with retirement planning, estate planning, creating a goal-centered strategy, managing your finances and more. Though you won’t meet with an advisor in-person, online financial planning services can offer a similar level of financial advice. There is an account minimum of $50,000 for the Vanguard service.

Robo-advisor Betterment also offers a hybrid service with access to certified financial planners (CFP), but you have to invest $100,000 to get the Premium plan that allows access to human advisors.

How much does a financial advisor cost?

In addition to what do financial advisors do, another important question to ask is how much they charge for their services. The costs to hire a financial advisor can vary based on the type of advisor and the services they offer.

The cost of an in-person financial advisor

The amount you’ll pay for an in-person financial advisor depends largely on whether they are fee-based or commission-based.

Fee-based: A fee-based advisor may take fees from third parties along with charging you a fee, in contrast to fee-only advisors, who are solely paid through fees for services. Both fee-based and fee-only advisors can charge by the hour, as a percentage of assets under management or as a flat rate.

A report by Advisory HQ found that average financial planner fees can range from $6,000 to $11,000 per year for a retainer, depending on the advisor, the location and how complex your financial needs may be. Your rate may also decrease the larger your portfolio is.

Commission: Commission-based advisors charge nothing to their clients in terms of fees for services rendered. Instead, they earn commissions from financial institutions for purchasing specific investment or insurance products on behalf of their clients.

One risk of working with a commission-based advisor (or a fee-based advisor who uses a combination of fees and a commission structure) is that they may recommend products you don’t need in order to earn compensation. They may also encourage frequent trades to earn commissions, a practice known as churning.

The cost of a robo-advisor

Robo-advisors usually charge their fees as a percentage of assets under management. These fees are typically charged on an annual basis and the amount you pay can vary from advisor to advisor and by account balance. Some robo-advisors may also charge commission for making investment trades.

Wealthfront and Betterment, for instance, both charge a basic digital portfolio management fee of 0.25%. SoFi, on the other hand, charges no annual management fee and instead charges fees based on the expense ratios of running the ETFs in your portfolio.

The cost of online financial planning services

Online financial planning services can base fees on a percentage of assets under management, though they may apply an hourly or flat rate fee instead. Similar to robo-advisors, annual management fees may decrease as you accumulate more assets under management.

Vanguard Personal Advisor Services, for example, charges 0.30% for accounts up to $5 million but just 0.05% for accounts of $25 million or more (which, of course, will not apply to the vast majority of investors).

5 signs you need a financial advisor

Wondering whether you need a financial advisor? Here are five signs that it’s time to get professional help with managing your money.

  1. You’re struggling to get your financial life organized. Organization is key for items such as budgeting, saving and staying on top of your financial goals. If you’re looking for ways to organize and simplify your finances, a financial advisor can offer help with streamlining your money.
  2. You need investment advice. Investing is important for building wealth, but it can be overwhelming if you’re unfamiliar with how stocks and other securities work. And even if you’re an experienced investor, you may still need a sounding board for investment questions. Talking to a financial advisor can help with creating an investment strategy that fits your needs and goals.
  3. You’re debating whether or not to retire. Retirement is a major life change and it can also have significant financial implications. And if you are looking to retire early, you need a finely-tuned plan for saving and investing. If you’re on the fence about whether the time is right to leave your 9-to-5, a financial advisor can help weigh the pros and cons.
  4. You’re facing a big life change, such as getting married or having a family. Getting married or having kids can affect how you budget, save and plan for the future. Financial advisors can offer guidance on items, such as merging finances with your spouse, budgeting for a new baby, college planning or navigating how to raise a family on one income if you or your partner opt to become a stay-at-home parent.
  5. You have a high salary or net worth. Earning a higher income and having more assets can present challenges when it comes to strategies like minimizing taxes. Your financial advisor can review your income and expenses to help manage your tax liability year to year, which may include maxing out tax-advantaged retirement accounts or going over your spending to find deductions. Also, the larger your estate, the more likely it may be that you need help managing it and making financial decisions that will affect how much you leave your heirs.

How to find a financial advisor

When looking for a financial advisor, you may start your search online but you can also ask friends and family for recommendations. In comparing advisors, be sure to ask questions about the types of services they offer, the typical kinds of clients they work with and how they’re paid. Specifically, be sure to ask whether they’re a fee-only fiduciary or a commission-based advisor, as that can influence the type of advice they offer and how much you’ll pay for their services.

When comparing advisors, you can check for each one’s Form ADV. This form will indicate how they collect their fees, any potential conflicts of interest, the types of services they offer, their assets under management and more. You may also be able to find financial advisors who specialize in serving certain groups, such as women or business owners.

Like some in younger generations, you may decide that a robo-advisor is best for you at this time, or you may want to consider a hybrid advisor that offers both automated and human-touch services. Consider every factor before you make your decision, and understand that you can always switch up your strategy when your life circumstances change.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

magnifymoney

Connect with a Financial Advisor to Help You Grow & Protect Your Wealth

Find An Advisor
Terms & Conditions Apply.