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Best Roth IRA Account Providers of 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 has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Roth individual retirement accounts (IRAs) are a powerful vehicle for retirement savings. That’s because in a Roth IRAs your money grows tax free. Here’s how it works: You deposit money into your Roth IRA on which you’ve already paid income taxes, you earn interest on those funds over the life of the account and withdrawals are not taxed as income — unlike withdrawals from traditional IRAs. There are other benefits of a Roth IRA: No required distributions, unlimited deposits for qualifying individuals, and lenient early withdrawal rules.

For many investors, Roth IRAs are an important component of a well-planned retirement strategy. But where should you open your Roth IRA? There’s no shortage of brokerages that want your retirement dollars, and this embarrassment of riches can make deciding difficult. We have surveyed the field of options and narrowed the list to the best Roth IRA accounts for both active investors and more hands-off savers. Read on for our review.

How we chose the best IRA account providers

To arrive at our list of the best Roth IRA accounts, we thoroughly reviewed the broker and robo-advisor landscape. In our latest round of research, we evaluated 39 different product offerings. For each product we collect dozens of different data points from fees, to portfolio construction, customer service, research offerings, account minimums and firm reputation.

For our rankings for the best Roth IRAs for active investors, the most important criteria were trading fees, account minimum, the diversity of investment products offered (stocks, bonds, ETFs and mutual funds) and low account fees (yearly fees, transfer fees and inactivity fees).

For our rankings for the best Roth IRAs for hands-off investors, the most important criteria were management fees and account minimums and considered ease of use and customer support. See our methodology article for more details on how we created our rankings.

Best Roth IRAs for hands-off investors

Many folks do not have the time, interest, or expertise to invest their money themselves. The great news is that you actually don’t have to. You can hire a robo-advisor to do the job for you. For a competitive annual management fee plus the expenses of the selected funds — usually totalling 0.35% to 0.50% of your portfolio per year — a robo-advisor will invest your money in a portfolio tailored to your financial goals. See below for our picks for best robo-advisors for Roth IRAs.

 Annual Management FeeAverage Expense Ratio (moderate risk portfolio)Account Minimum to Start
Fidelity Go$0Close to 0.00%*$0
E-Trade Core Portfolios$0Close to 0.00%*$500
Wealthfront$00.09%$500
Ally Invest Managed Portfolios$00.08%$100

*Most of the Fidelity Go portfolios are composed of Fidelity Flex funds, which have 0.00% expense ratios. A small amount is held in the Fidelity Government Cash Reserves Fund, which does come with some expense charges. However, some of those fund expenses may be offset by a “variable fee credit”. See Fidelity’s FAQs for more.

Fidelity Go — Transparency and low costs

Fidelity Brokerage Services, LLC What you see is what you get with retirement powerhouse Fidelity’s robo-advisor Fidelity Go. Fidelity charges a 0.35 % annual management fee and close to 0% in expense ratio fees. Considering that almost all robo-advisors pass on to customers ETF expense ratio fees — they range from 0.08% to more than 0.15% a year — Fidelity helps you feel confident you’re lining your own pockets, not the fund manager’s. With no minimum account size and no fees to transfer money in or out of your account, it’s easy to get started whether you’re scraping together Washingtons or swimming in Benjamins. One note of caution: Fidelity Go does invest solely in Fidelity-owned funds, so if you are a conservative investor, you may want to consider also investing with a robo-advisor that spreads your investments across different fund companies.

Fidelity Go Highlights:

  • Low fees: 0.35% management fee and almost 0.00% expense ratios. Fidelity invests most of your money in their proprietary Fidelity Flex funds, which have 0% expense ratios and are only available to select customers. The company also provides rebates to offset the fees they charge to hold other funds.
  • Size and experience: Fidelity is one of the biggest retirement brokerages in the US. The firm manages money for over 30 million customers, so your investment will be in very experienced hands.
  • Both human- and robot-managed funds. The funds in Fidelity Go portfolios are a blend of actively managed and passively managed funds, so you get the advantages of both investing approaches.
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E-Trade Core Portfolios — Smart beta and SRI portfolio options

E-Trade Securities LLC You may know E-Trade from their talking baby commercials, however robo-advisor Core Portfolios is more than just clever marketing. Low total fees — a 0.30% management fee and an average expense ratio of 0.06% — plus a low $500 minimum balance make it easy to start investing and keep investing with Core Portfolios. One aspect that sets E-Trade apart is their diversity of portfolio options. Investors can choose between three different portfolio sets: core portfolios, socially responsible portfolios, or smart beta portfolios, each of which includes a mix of equities designed to meet more tailored investing goals. One item to watch out for with E-Trade retirement accounts are penalty fees: They charge $25 for early IRA distributions, if you need to recharacterize an IRA contribution to a Roth IRA, or if you accidentally overfund your Roth IRA.

E-Trade Core Portfolios Highlights:

  • E-Trade does not invest your dollars in their own proprietary funds, reducing potential conflicts of interest. Some investors prefer this approach, which is the opposite tack to the one taken by Fidelity, for example.
  • Socially responsible investing (SRI) and smart beta portfolios provide options for investors who want to tailor their IRAs for specific goals. SRI strategies allow you to put your money to work with only vetted socially and environmentally responsible companies, while smart beta attempts to outperform more conventional funds with frequent reweighting of equity holdings.
  • Low fees: 0.30% management fee and 0.06% avg expense ratio.
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Wealthfront — Premium strategies for large accounts

Wealthfront Advisers LLC Wealthfront is one of the pioneers of the robo-advisor movement, and their continued commitment to ultra-low fees makes them an attractive place to grow your Roth IRA. The annual cost is a 0.25% annual advisory fee on investments management fee plus an average expense ratio of 0.07% to 0.16%, which is in line with other leading robo-advisors. If you’re looking for guidance, Wealthfront offers a suite of free tools to help you plan for retirement and other major financial life events. Since Wealthfront is all-digital, face-to-face interaction isn’t an option, which some folks may love — or dislike. If you want to shoot the breeze with your broker at their desk, other options may suit you better.

Wealthfront Highlights:

  • Premium investment strategies available for investors with large accounts including Risk Parity for accounts over $100,000 and Smart Beta for accounts over $500,000.
  • A minimum deposit of only $500 to open an account makes Wealthfront accessible for beginning investors.
  • Free financial planning tools for retirement, college savings, college and time off for travel.
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Ally Invest Managed Portfolios — Automatic portfolio rebalancing, extra account options

Ally Financial Inc. Like a trusted family member, Ally Invest Managed Portfolios will babysit your retirement savings so that you can go have more fun — it’s up to you whether that means hiking an extra mile in the woods or rehearsing your Elvis impression for karaoke. Ally’s robo-investing service offers ETF portfolios diversified across five different asset classes to give you the best chance at growth, while keeping fees to a minimum. Ally offers 24/7 support as well, which means that you’ll never be on your own if you have to sort out a complicated retirement question. One drawback with Ally is that, once you deposit money in a Roth IRA, they charge you fees if you try to transfer or close an account — $50 for a full or partial account transfer or $25 to close an IRA account.

Ally Invest Managed Portfolios Highlights:

  • Low, $100 minimum deposit makes it easy to start investing for retirement.
  • Automatic portfolio rebalancing adjusts for market swings, ensuring that your portfolio matches your priorities.
  • Ally offers many services beyond Roth IRAs, including a savings account with a 1.50% APY, traditional brokerage accounts, CDs, and money market accounts.
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Best Roth IRAs for active investors

The brokers below offer up a universe of retirement investing options for investors who are confident making more of their own investing decisions. If the idea of choosing the stocks, bonds and funds for your retirement sounds exciting – and you have the time to devote to it – a Roth IRA account with one of the brokers below will allow you to avoid management fees and keep more of your retirement dollars to yourself.

 Fee per tradeCommission-free ETFsCommission-free ETFs
Fidelity$0.005033,636
Charles Schwab$0.005143,457
E-Trade$0.002774,222
TD Ameritrade$0.005713,985

Fidelity — Best overall offering

Fidelity Brokerage Services LLC It is not by chance that Fidelity leads our rankings for Roth IRAs, both for active investors and hands-off investors. In terms of investing selection, Fidelity has very robust offerings for retirement investors, including over 3,600 no-transaction-fee mutual funds and over 500 commission-free ETFs. There is no minimum deposit to open an account, and while Fidelity’s $0.00 per trade fee is not the lowest in the industry, it is on the low end. Fidelity does not attempt to lock you in to their service, charging no fees to transfer funds or close your account. While their website and app may not have the bells and whistles of some of the newer brokerage startups, Fidelity remains a cornerstone for retirement investors with solid offerings and low fees.

Fidelity Highlights:

  • Low fees: Fidelity charges a $0.00 per trade commission and no fees to transfer funds or close accounts.
  • Fidelity’s proprietary ZERO funds charge 0.00% in expense ratios: This means that every penny of growth stays right in your portfolio.
  • Helpful retirement planning tools and dashboards: These tools help you build a retirement savings plan and stay on track.
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Charles Schwab — Best customer service

The Charles Schwab Corporation The buddy system isn’t just for kids, it’s actually great for retirement planning. Charles Schwab stands out among its peers for IRA customer support, with a dedicated IRA phone line to help answer questions and free consultations with Schwab fixed income specialists, which is a great resource for investors close to retirement. The smorgasboard of investing options that Charles Schwab offers through its Roth IRAs should be enough to satisfy any retirement planner. It’s easy to start, with $0 minimum deposit to open an account, and $0.00 per trade commissions should keep your piggy bank intact. One caveat to keep in mind is Schwab’s transfer fees. It costs $25 to partially transfer an account to another brokerage and $50 to transfer an entire account.

Charles Schwab Highlights:

  • Excellent customer service: Schwab offers a dedicated IRA phone line, 24/7 support and over 350 branch locations for in-person consultations.
  • Strong low-fee investment selection: The firm gives investors access to over 500 commission-free ETFs and more than 3,400 no-transaction-fee mutual funds.
  • A broad selection of educational resources: Schwab’s handy retirement calculators and investing educational resources help you make a retirement plan and keep the plan on track.
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E-Trade — Great mutual fund selection

E-Trade Securities LLC Opening a Roth IRA at E-Trade is simple with no minimum deposit required to start. Once you are in the door, low-cost choices abound: E-Trade offers over 4,200 no-transaction-fee mutual funds and over 270 commission-free ETFs, accompanied by planning tools and screeners to help you make the right selections for your retirement portfolio. The standard trading commission, $0.00 per trade, is on the high side, though this drops to $0.00 per trade when over 30 trades per quarter if you trade more than 30 times per quarter. Fees can sneak up on you if you are not careful, so keep an eye out. E-Trade charges a $25 penalty if you overfund an IRA, if you need to recharacterize an IRA contribution, or if you want to make early IRA withdrawals.

E-Trade Highlights:

  • Trading bonuses: Cash bonuses and 500 free trades available for new accounts with deposits of more than $25,000 within the first 60 days.
  • Wide selection no-fee funds: E-Trade gives investors access to more than 4,200 no-transaction-fee mutual funds and over 270 commission-free ETFs.
  • Powerful mobile trading apps: E-Trade gives you access to charting tools and research materials for when you’re on the go.
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TD Ameritrade — Best investment selection overall

TD Ameritrade The smorgasboard of investing options at TD Ameritrade is enough to satisfy even the largest appetite for retirement investing. TD Ameritrade’s low-fee offerings are impressive with over 500 commission-free ETFs and over 3,900 no-transaction fee mutual funds. TD also provides free analyst reports, tools and watch lists in order to help you sift through these plentiful options. With retirement-specific fees TD Ameritrade generally scores well, with no fees for early withdrawals, over-contributing or recharacterizing IRA contributions. TD Ameritrade’s trading fees are on the high side at $0.00 per trade, so if you plan to trade a lot you may want to consider lower-cost brokers.

TD Ameritrade Highlights:

  • Useful retirement planning resources: TD offers its users a plethora of retirement planning resources, including calculators, educational videos and webcasts.
  • Trading bonuses for large accounts: The firm rewards investors with up to 500 free trades for the first 60 days and cash bonuses for deposits of $25,000 or more.
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Individual retirement account FAQs

What is a Roth IRA?

A Roth IRA is an after-tax investment account, meaning you deposit dollars into your account on which you’ve already paid taxes. Your funds grow tax-free over the life of the account, and you receive qualified tax-free distributions in retirement. A big benefit is that there are no required minimum distributions (RMDs), meaning that you are not required to withdraw funds at age 70 ½. There are also no age restrictions for contributing to a Roth IRA, so as long as you have earned income you can contribute.

In order to make tax-free withdrawals, five taxable years must have elapsed since contributions were first made to the account, and one of the following secondary criteria must also be met:

  • The account owner reaches age 59 ½.
  • The account owner becomes disabled.
  • The account owner meets the IRS’ first-time homebuyer qualifications.
  • The account owner dies, and distributions are made to a beneficiary or the estate.

Roth IRAs are good vehicles for passing on tax-free assets to beneficiaries and heirs because they aren’t subject to required distributions, so they can grow until the account owner’s death.

What should I look for when comparing brokerages for Roth IRAs?

With a large number of brokers to choose from, you need to do research to ensure you choose the best Roth IRA account for your needs. Here are a few factors to compare during your search:

  • Annual fees: Brokers assess an annual fee for Roth IRAs, often expressed as a percentage of the assets under management. Although this fee may be as low as 1% and may seem negligible, as your account grows, that small percentage can become quite a chunk of change. You can start your search by looking for accounts with the lowest annual fees possible. Some providers don’t charge any annual fees and instead make money from trades and commissions.
  • Minimum initial funding: Does the Roth IRA provider require a certain minimum initial deposit to get started, and if so, can you afford it? If you have a decent stash of funds to invest, you also could look for bonuses and promotions, where the account provider gifts money or other perks when you meet a deposit minimum.
  • Commissions and trading fees: Most Roth IRA custodians assess a commission for each trade you make, which means you’ll lose some money whenever you buy or sell assets. However, some brokerages also offer commission-free assets, such as ETFs and mutual funds. Choosing the right broker can help you minimize or entirely avoid these fees.
  • Investor tools to help you make smart investing decisions: Although all investments carry some risk, some investment strategies are smarter than others. Many brokerage accounts offer research tools and access to live financial professionals to help you choose the best funds for your Roth IRA.

Should I get a Roth IRA or a traditional IRA?

Like everything to do with finances, it depends on your unique situation. Generally speaking, if you think you will be in a higher income tax bracket after you retire than before you retire, you’ll want to invest more in a Roth IRA, which allows you to withdraw earnings tax free. If you think you will be in a lower income tax bracket in retirement than before retirement, then you’ll want to have more invested in a traditional IRA.
Realistically, predicting your future income tax bracket can be like trying to predict the weather in Kansas City, Mo. four months from Tuesday: There are a lot of unknown factors. A hybrid approach, with money split between a Roth IRA and a traditional IRA, while also contributing to a 401(k), can be a good balance for many folks. It gets you the main benefits of a Roth IRA — tax-free growth, no required minimum distributions and more lenient early withdrawals — while also leaving open the benefits of a traditional IRA or 401(k) — an upfront tax deduction and tax-deferred growth.

What if I need to take money out of my Roth IRA?

If you watch enough heist movies you know that even best-laid schemes rarely go according to plan. Luckily, if life throws your grand financial plan off track and you need to withdraw money from your retirement savings, Roth IRAs offer flexibility. The principal — the money that you deposited into a Roth IRA account — is always yours to withdraw penalty-free. If you need to withdraw some of the interest earnings — the money earned from the principal — you will have to pay an additional 10% penalty to the IRS on earnings you withdraw before age 59 ½ or before the account is five years old. This 10% penalty is in addition to any taxes you have to pay on the withdrawal as normal income.

How long should I keep money in my Roth IRA?

As with any long-term investment, you should be comfortable salting away funds in a Roth IRA for at least five to eight years, and ideally until you are retired. Stock market fluctuations can cause investments to decline in down years, and a five-to-eight year time frame provides enough time for funds to recover in case of a drop, based on historical market cycles. If you are lucky enough to be able to retire, you’ll want to look at all of your retirement accounts and balance withdrawals from your Roth IRA with your other income strategies.

How much can I contribute to a Roth IRA?

For 2019, you can contribute up to $6,000 per year to your Roth IRA (or $7,000 if you’re 50 or older) as long as your income is not above the IRS limits. Don’t throw in the towel if your income is above the IRS cap, though. There are ways to roll money into a Roth IRA through a “backdoor IRA”, which entails opening up a Traditional IRA that you then convert to a Roth IRA.

What is a Roth 401(k)?

A Roth 401(k) is a type of retirement plan that many employers offer their workers. The main difference to a traditional 401(k) is that contributions are made using after-tax dollars, instead of pre-tax dollars. By using after-tax dollars, you can withdraw any interest earnings tax-free, come retirement time. A main benefit to Roth 401(k) accounts is that there are zero income caps, meaning that you can contribute money to a Roth 401(k) even if you make more than the income caps for a regular Roth IRA. One big difference to a Roth IRA is that you do have to start taking required minimum distributions starting at age 70 ½. Luckily, you can roll a Roth 401(k) over into a Roth IRA, which would help you avoid required minimum distributions.

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Review of Vanguard Personal Advisor Services

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 has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Vanguard Personal Advisor Services is the investment advisory service offered through Vanguard Advisers, a wholly owned subsidiary of Vanguard, Inc., one of the world’s largest investment management firms. Vanguard Personal Advisor Services focuses on serving individual investors, including high net worth individuals. Clients work with human advisors, but also have access to Vanguard’s digital advice platform.

All information included in this profile is accurate as of April 2, 2020. For more information, please consult Vanguard Personal Advisor Services website.

Assets under management: $83.7 billion
Minimum investment: $50,000
Fee structure: A percentage of AUM; one-time financial planning fee for some workplace retirement plan participants
Headquarters: 100 Vanguard Boulevard
Malvern, PA 19355
vanguard.com
800-416-8420

Overview of Vanguard Personal Advisor Services

Vanguard Personal Advisor Services is the investment advisory arm of Vanguard Advisers, a wholly owned subsidiary of Vanguard. The advisory part of the business launched in 2015, decades after Vanguard was founded in 1975 by the late John “Jack” Bogle.

Bogle introduced the first-ever index fund to retail investors and encouraged them to buy and hold a diverse basket of low-cost investments. Though Bogle passed away last year, the firm aims to continue his legacy.

Vanguard Personal Advisor Services is focused on providing ongoing advisory account services for individual investors as well as point-in-time financial planning for retirement plan participants. Vanguard Personal Advisor Services oversees $83.7 billion of Vanguard Advisers’ total $221 billion in assets under management (AUM).

Which types of clients does Vanguard Personal Advisor Services serve?

Vanguard Personal Advisor Services primarily serves individuals, including high net worth investors and those who get services through their workplace retirement plans. For reference, the SEC defines high net worth individuals as those with at least $750,000 under management or a net worth above $1.5 million.

The individual investors either come for financial planning via their workplace 401(k) plans, or they are retail investors with an IRA or other account with Vanguard. In the latter case, there’s a minimum investment requirement of $50,000. The firm does not provide financial planning services to clients who do not have accounts with Vanguard.

Services offered by Vanguard Personal Advisor Services

Vanguard Personal Advisor Services offers financial planning and point-in-time advice to participants in Vanguard workplace retirement plans. Those participants are not eligible for managed account services for assets in those plans.

Clients who have an IRA or other retail account worth at least $50,000 with Vanguard can use Vanguard Personal Advisor Services to get a customized financial plan and enroll in the firm’s “ongoing advised services.” That gives an advisor the authority to make trades on the client’s behalf in accordance with their agreed-upon plan. It also allows participants to call advisors about advice on financial issues that arise as they hit life’s milestones, such as buying a new house or having grandchildren.

Here is a full list of services offered by Vanguard Personal Advisor Services:

  • Investment advisory services/portfolio management
    • Asset allocation strategies
  • Financial planning
    • Retirement planning
    • Estate planning
    • Charitable giving
    • Succession planning
    • Tax planning and management

How Vanguard Personal Advisor Services invests your money

All participants in Vanguard Personal Advisor Services get a financial plan, including the creation of a portfolio with a diverse asset allocation that reflects your personal financial situation, goals and risk tolerance. To do that, the advisors rely on an algorithm, which recommends an investing track and glide path, or asset allocation strategy, that meets your needs. The investment tracks range from very conservative to very aggressive, and the glide paths adjust over time, depending on your goals.

Each portfolio includes a variety of Vanguard index funds with holdings in a specific asset class, such as international stocks or short-term bonds, but it does not recommend investments in individual stocks or bonds. In addition to diversification, the portfolios take taxes into account, aiming to keep the investments as tax-efficient as possible. In general, Vanguard encourages a long-term, buy-and-hold approach rather than switching strategies based on market performance.

Fees Vanguard Personal Advisor Services charges for its services

Employees who use Vanguard Financial Planning Services through their workplace retirement plan pay $1,000 for the service if they have less than $50,000 in assets with Vanguard, and $250 if they have $50,000 to $500,000 with Vanguard. The firm may waive that fee for clients who are over the age of 55 or who have more than $500,000 invested with Vanguard.

For clients of Vanguard Personal Advisor who don’t have a workplace retirement plan and are enrolled in the ongoing advised services, the firm charges a percentage of assets under management. Rates run from 0.30% for accounts of less than $5 million to 0.05% for accounts over $25 million.

Assets under management Annual rate
Under $5 million 0.30%
$5 million to under $10 million 0.20%
$10 million to under $25 million 0.10%
$25 million and over 0.05%

In addition to the above fees, you may also pay fund fees, annuity fees, account fees or retirement plan fees.

Vanguard Personal Advisor Services’s highlights

  • A dedication to low fees. Vanguard literally invented index investing, and the firm remains dedicated to keeping its fees low. Its fee schedule is substantially lower than the industry average total fee rate of 1.17%, according to RIA in a Box.
  • Excellent reputation. Vanguard Personal Advisor Services was named the “Brand of the Year” in 2019 for digital investing by Harris Poll EquiTrends. The title was awarded based on consumer devotion and respect.
  • Fee-only model. Advisors don’t receive commissions for selling products or making recommendations, so they do not have a financial incentive to do so, which can pose a potential conflict of interest.

Vanguard Personal Advisor Services’s downsides

  • High minimum balance for young investors. You need to have $50,000 invested with Vanguard (outside of your workplace retirement plan) to access its investment management services if your employer is not enrolled in the program. That could be a high bar for young investors or for those who haven’t been saving for long.
  • Less potential upside: Since Vanguard’s investment philosophy is built on a buy-and-hold strategy comprised of low-cost funds, you can expect your investments to perform in line with the markets, but advisors aren’t actively trading to try to “beat the market.”
  • Large digital component: While you’ll work with a human advisor to create your initial plan, future check-ins may take place via the platform’s digital interface. Clients with $500,000 or less in assets do not have an assigned financial advisor, though they can call to schedule an appointment at any time.

Vanguard Personal Advisor Services disciplinary disclosures

Vanguard Personal Advisor Services does not have any disciplinary disclosures. All registered investment advisors are required to disclose any legal, regulatory or criminal events in their Form ADV, documents they file with the SEC.

Vanguard Personal Advisor Services onboarding process

To learn more about working with Vanguard, you can call (800) 414-8740 or create an account online to set up an appointment to talk with an advisor. In your initial conversation, you’ll discuss your financial situation and goals, and share information about all your financial accounts. Your advisor(s) will spend a few weeks creating a plan, and then you can decide whether you want to implement that plan and allow them to manage the account on your behalf.

If your portfolio is worth less than $50,000, you’ll work with a team of advisors, while those with a portfolio worth more than $500,000 have a specific, dedicated financial advisor. Advisors will check on your portfolio on a quarterly basis, making adjustments as needed to your asset allocation. You can check in online or call your advisor or team at any time.

Is Vanguard Personal Advisor Services right for you?

The firm may be a good choice if you’re an investor with at least $50,000 looking for a low-cost, low-maintenance way to manage your money (or your employer has chosen Vanguard as its retirement plan provider). Vanguard Personal Advisors offers extremely low fees and boasts a clean disciplinary record.

For investors who have less than $50,000, or who are looking for a more active approach to asset management, another firm might be a better fit. As is always the case when choosing a financial product or service, it’s important to shop around, ask questions of financial advisors and make the choice that’s best for your unique situation.

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.

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Investing

The 7 Best Robo-advisors of 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 has not been previewed, commissioned or otherwise endorsed by any of our network partners.

If you’re new to the world of investing in stocks and bonds, knowing where to begin can be an intimidating prospect. Robo-advisors could be the best choice to start your investing journey. They make putting money in the market simple and intuitive utilizing smartphone apps and sophisticated computer algorithms.

Robo-advisors invest your money in diversified portfolios of stocks and bonds that are customized to your needs. Since computers do the work, they are able to charge much lower fees than traditional wealth advisors.

They begin the process with a questionnaire to assess your financial goals and your risk tolerance. Based on your answers, robo-advisors purchase low-cost exchange-traded funds (ETFs) for you and adjust the portfolio — or rebalance, as they say on Wall Street — on a regular basis, with no further intervention required from you.

To match your risk tolerance, robo-advisors offer more aggressive portfolios containing a greater percentage of stock ETFs, or more conservative ones containing a greater percentage of bond ETFs. The robo-advisor will also consider your age in developing your portfolio.

How we chose the best robo-advisors

We regularly review the latest robo-advisor offerings — we’ve evaluated 19 different ones in this round — and have selected our top choices. All of the robo-advisors on this list may well be worth considering, with those at the top scoring the best in our methodology.

To determine our list of the best robo-advisors, we focused on management fees and account minimums, and also considered ease of use and customer support.

The top 7 robo-advisors of 2020

Robo-advisorAnnual Management FeeAverage Expense Ratio (moderate risk portfolio)Account Minimum to Start
Wealthfront0.25%0.09%$500
Charles Schwab Intelligent Portfolios0.00%0.14%$5,000
Betterment0.25% (up to $100,000), 0.40% (over $100,000)0.11%$0
SoFi Automated Investing0.00%0.08%$1
SigFig0.00% (up to $10,000), 0.25% (over $10,000)0.15%$2,000
WiseBanyan0.00%0.12%$1
Acorns$12/yr0.03%-0.15%$5
Fees
N/A
Account Minimum
$100 one-time deposit or $20 monthly deposit
Promotion
N/A
Fees
N/A
Account Minimum
$0
Promotion

Three months free for new customers who are referred by an existing Betterment account holder

Fees
N/A
Account Minimum
$100
Promotion

N/A

Wealthfront — Low fees, high APR for cash account

Wealthfront
Wealthfront’s stand-out features are its low annual cost and free financial planning tools. The 0.25% management fee and 0.09% average ETF expense ratio adds up to one of the lowest annual costs on this list. In addition, Wealthfront includes a cash management account with an attractive 0.26% APY.

Wealthfront continues to steal share in wealth management as customers fed up with high fees leave traditional brokerages and wealth advisors. Human interaction is intentionally minimal at Wealthfront: This could be a benefit to those who want to be left alone, or a drawback for those who would prefer personal attention or who have complicated tax situations.

Wealthfront’s key attributes:

  • Fees: Management fee of 0.25%, plus 0.09% avg ETF expense ratio
  • Minimum starting deposit: $500
  • Investing strategy: Wealthfront invests your money in one of 20 different automated portfolios. Each portfolio is a different mix of 11 low-cost ETFs, which are rated with risk scores from 0.5 (least risk) to 10.0 (most risk).
  • Average annual return over the past five years: 5.40% per year, based on Wealthfront’s mid-level 5.0 risk score.
  • Other notable features: Tax-loss harvesting (see below for a full explanation of tax-loss harvesting) comes standard, also includes an FDIC-insured cash management account yielding 0.26% APY.

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Charles Schwab Intelligent Portfolios — Brand-name brokerage

Charles Schwab
Intelligent Portfolios can be a smart choice, but do not be misled by the 0% management fees — investing with this robo-advisor still comes at a cost. Intelligent Portfolios requires users to hold 6% to 30% of deposited funds in cash at a 0.70% APY, which will eat into overall returns in years where the market returns above 0.7%. This is on top of an average 0.14% expense ratio for a moderate portfolio. The $5,000 minimum deposit to open an account may also be too high a bar for investors just starting out.

That said, Intelligent Portfolios has an exceptionally detailed description of their ETF selection methodology, and a major brokerage like Schwab can be a good launchpad for folks who anticipate getting deeper into investing. Intelligent Portfolios users get access to Charles Schwab’s 300 U.S. branch locations where you can talk to advisors and handle administrative tasks in person.

Key attributes of Intelligent Portfolios:

  • Fees: Zero management fee, but customers must hold 6% to 30% of their portfolio in cash at 0.7% APR, plus 0.14% avg ETF expense ratio.
  • Minimum starting deposit: $5,000
  • Investing strategy: Schwab invests your money in a custom portfolio with two main components: ETFs representing up to 20 different asset classes, including stocks and bonds; and cash, in the form of a FDIC-insured cash sweep program earning 0.7% APY. Cash must be between 6% and 30% of the portfolio.
  • Average annual return from 3/31/2015 to 12/31/2018: 3.1% per year for medium-risk portfolio
  • Other notable features: Tax loss harvesting available for accounts over $50K, includes access to in-person assistance at over 300 U.S. branch locations.

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Betterment — Low fees for balances under $100K

Betterment
Betterment offers a full suite of robo-advisor features at low cost with no minimum deposit. The annual management fee for accounts under $100,000 is 0.25%, plus an average 0.11% expense ratio. Unfortunately, accounts over $100,000 will see the annual management fee jump to 0.40%. One advantage Betterment gives to accounts above the $100,000 threshold is that they can actively manage some assets. If active management is your goal, though, you can avoid Betterment’s 0.40% fee by opening a free brokerage account — so if you are managing more than $100,000, you may want to consider a different robo-advisor.

Betterment’s key attributes:

  • Fees: If total balance is less than $100,000, the annual management fee is 0.25% of assets; for balances over $100,000, management fee rises to 0.40% of assets. The average ETF expense ratio is 0.11% (for a 70% stock and 30% bond portfolio).
  • Minimum starting deposit: $0
  • Investing strategy: Betterment invests your money in an automated portfolio comprised of stock and bond ETFs in 12 different asset classes.
  • Average annual return over five years: 6.2% per year on a 50% equity portfolio (July 2013 to July 2018).
  • Other notable features: Tax-loss harvesting comes standard; active management features for clients with $100,000+ balance; several premium portfolios available.

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SoFi Automated Investing — Low costs, great perks

SoFi
SoFi Automated Investing’s 0.00% management fee and ultra-low 0.08% average expense ratio makes it one of the most competitively-priced robo-advisors in the market. Valuable perks come with opening a SoFi account, including free access to SoFi financial advisors, free career counseling and discounts on loans.

Automated Investing’s main downside is that their portfolios are less customizable than its peers’, with only five different risk levels to choose from, as opposed to at least 10 available from others. SoFi does not offer tax loss harvesting yet, though this may change in the near future.

SoFi Automated Investing’s key attributes:

  • Fees: Zero management fee, plus 0.08% avg expense ratio.
  • Minimum starting deposit: $1
  • Investing strategy: All SoFi Automated Investing portfolios are actively managed. This means that real humans at SoFi decide the makeup of the five model portfolios, which they believe will add value beyond what passive investing offers. SoFi invests your money in one of five portfolios of low-cost ETFs, covering 16 different asset classes. Each of the five portfolios has two versions: one is for taxable accounts and the other for tax-deferred or tax-free accounts, like IRAs and Roth IRAs. SoFi only rebalances portfolios monthly, versus some peers which check for this opportunity daily.
  • Average annual return over five years: 6.78% per year on the moderate risk portfolio (60% stocks / 40% bonds).
  • Other notable features: Commission-free stock trades in separate Active Investing accounts. SoFi’s combined checking/savings product, SoFi Money, offers 1.10% APY on deposits. Customers must open this account separately.

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SigFig — Free access to advisors

SigFig
Free access to financial advisors by phone and 0.00% management fees on the first $10,000 deposited are SigFig’s biggest strong points. On deposits over $10,000, management fees rise to 0.25%. Expense ratios are on the high side compared to the competition, at an average of 0.15%.

One of SigFig’s peculiarities is that they do not hold your assets. If you open a new account, SigFig will open an account at TD Ameritrade for you and then manage it. Current TD Ameritrade, Fidelity and Charles Schwab customers can also use SigFig’s robo-advisor services.

The $2,000 minimum deposit may put SigFig out of reach for some, but SigFig is worth a look for investors looking to keep robo-advisor costs low.

SigFig’s key attributes:

  • Fees: Zero annual management fee for the first $10,000; management fee rises to 0.25% of assets on balances over $10,000. Average ETF expense ratio of 0.15%, depending on allocation.
  • Minimum starting deposit: $2,000
  • Investing strategy: SigFig invests your money in an automated portfolio based on how you indicate you want to invest. Each portfolio is made of ETFs from Vanguard, iShares and Schwab, comprising stocks and bonds in nine different asset classes. The specific ETFs SigFig invests in will vary based on whether your account is held at TD Ameritrade, Fidelity, or Schwab.
  • Average annual return over five years: 5.45% per year for moderate portfolio (as of 4/24/2019)
    Other notable features: SigFig has a free portfolio tracker that allows investors to track their entire portfolio’s performance across multiple brokers.

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WiseBanyan — No-frills choice for beginners

WiseBanyan
A 0.00% management fee for core robo-advisor functionality makes WiseBanyan a good choice for beginning investors who can get by with a no-frills offering. Make sure to notice that they still charge a 0.12% average ETF expense ratio, so it is not completely free.

WiseBanyan charges premiums for features that come standard with other robo-advisors, including tax loss harvesting (0.24% of assets up to $20/month max), expanded investment options ($3/month) and auto-deposit ($2/month). If you care about these other features, do the math based on your own portfolio size to compare WiseBanyan to its peers.

WiseBanyan’s key attributes:

  • Fees: Zero management fee, plus average ETF expense ratio of 0.12%. Premium features carry additional fees and higher expense ratios.
  • Minimum starting deposit: $1
  • How WiseBanyan invests your money: For basic Core Portfolio users, portfolios comprise ETFs across nine asset classes, with an average expense ratio of 0.03% to 0.69%. If you upgrade to the Portfolio Plus Package, you gain access to 31 total asset classes with exposure to ETFs tracking oil and gas, precious metals and other industries, with an average expense ratio of 0.03% to 0.75%.
  • Average annual return over five years: Not provided
  • Other notable features: Premium offerings, including tax loss harvesting (0.24% /month up to $20/month max), Fast Money auto-deposit ($2/month) and Portfolio Plus ($3/month).

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Acorns — Unique savings functionality

Acorns
By rounding up the spare change from your transactions and placing it into an investment account, Acorns provides a clever way to get started with investing. The main drawback is that, until you have more than $4,800 deposited in an Acorns Core account, the $1/month fee will actually be proportionally higher than the 0.25% management fees that most competitors charge.

Acorns does not offer tax loss harvesting, joint accounts, or access to financial advisors currently. Still, if you’re looking for an easy way to start investing, give Acorns a shot.

Key attributes of Acorns:

  • Fees: $1/month for Acorns Core, plus ETF expense ratios ranging from 0.03% to 0.15%
  • Minimum starting deposit: $5
  • How Acorns invests your money: Acorns invests your money in one of five automated portfolios— notably, this is a more limited number of portfolios than some other competitors. Each portfolio comprises ETFs across seven asset classes.
  • Average annual return over past five years: Not provided
  • Other notable features: Offers two add-on accounts for expanded functionality with Acorns Later retirement product ($2/month) and Acorns Spend checking account ($3/month).

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What is a robo-advisor?

A robo-advisor is a service that uses computer algorithms to invest customers’ money in portfolios customized to their needs. Since robo-advisors create these portfolios using automated algorithms, they can charge a fraction of what human advisors do and still offer advanced benefits like auto-rebalancing and tax-loss harvesting to boost overall returns. Most robo-advisors start with a questionnaire to assess your financial goals, risk tolerance and assets. Based on the answers, the robo-advisor allocates your investments accordingly.

How do I choose the right robo-advisor?

When considering which robo-advisor to choose, you should focus on management fees, minimum balances, ease of use and customer support. The lower the fees, the more money stays in your account. The top robo-advisors typically charge a flat management fee of 0.00% to 0.50% of your deposited balance. In addition, you pay an expense ratio to cover the fees charged by the companies offering the ETFs that comprise your investment portfolio. Note that some robo-advisors claim to offer zero management fees, but still charge an expense ratio.

Make sure you are comfortable leaving your deposits with a robo-advisor for the medium to long term — think five to eight years. There are a number of robo-advisors with $0 account minimums and most are under $5,000 today.

How do I open a robo-advisor account?

Most robo-advisors can have you up and running with an account in a few minutes. Typically you create a username, fill out a questionnaire to assess your financial goals and risk tolerance and connect your profile to a bank account. There may be some additional steps required for verification depending on the robo-advisor.

What other features should I consider?

Robo-advisors offer a host of additional features, including tax loss harvesting, cash management options, checking accounts and rewards programs. Cash management can provide a meaningful compliment for users who keep some of their portfolio in cash. Some robo-advisors offer an APY of more than 2.00% on cash management accounts. Tax loss harvesting can make a difference for users looking to lower tax exposure.

What is tax loss harvesting?

Tax loss harvesting is a tax strategy that some robo-advisors offer to help clients reduce their tax bill. Generally, this involves selling an asset that has lost value for a loss, using that loss to offset capital gains taxes or income taxes, then purchasing a similar but not “substantially identical” asset to maintain exposure to the asset class. The details behind each robo-advisor’s strategy can get complicated and should be looked at in detail to make sure you understand what you are getting into.

Capital losses from tax loss harvesting can be used to offset capital gains and can potentially offset up to $3,000 (or $1,500 if married and filing separately) of ordinary income.

What if my robo-advisor goes out of business?

While not a pleasant thought, it is possible that a robo-advisor could go out of business. Most robo-advisors insure clients’ assets through the Securities Investor Protection Corporation (SIPC). This is different from the bank account coverage provided by the FDIC; generally, SIPC coverage includes up to $500,000 in protection per separate account type, with up to $250,000 of cash assets protected.

Keep in mind that the SIPC will take necessary steps to return securities and account holdings to impacted clients, but will not protect against any rise or fall in value of those holdings. This means that if you make a bad investment in a stock, the SIPC ensures you still own that bad stock, but do not replace losses from a poor investment. Some brokers also insure assets beyond the $500,000 in SIPC coverage through “excess of SIPC” insurance.

See the full list of SIPC members at their site, along with a detailed explanation of how SIPC coverage works.

The bottom line

Robo-advisors can be an excellent option for users who are starting their investing journeys, rolling over a 401(k) or who want to minimize the time needed to manage their investments. By creating a customized portfolio based on your financial goals and automatically rebalancing your account, a robo-advisor can help to maximize your return while taking on the right amount of risk.

Because robo-advisors run off of automated algorithms, you should be comfortable with little or no human touch for your investments. The upshot to low human interaction is that fees are generally much lower than with a registered investment advisor, which may be worth the tradeoff as part of an overall financial plan.

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