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Vanguard Personal Advisor Services Review 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

As investment companies go, Vanguard is one of the major players in the industry, well-known for its vast selection of investments and consistently low fees. (The average expense ratio is 0.11%.) The company has taken advantage of its size and ability to scale costs to offer investors a low-fee hybrid investing option: advisor plus machine.

Investors who are looking for more guidance for their portfolio can sign up for Personal Advisor Services. Users create an online login, fill out a brief questionnaire about risk tolerance and goals, and then schedule a phone call with an advisor, who’ll dig a little deeper into the information the user has provided. That’s followed by a phone call with an advisor, who presents a customized plan and portfolio. Once that plan is implemented, clients can contact Vanguard whenever they have questions or want to make changes.

You won’t have a dedicated advisor unless you hit a certain asset level, but a team of advisors is available via phone or video appointment. The design of the portfolio and ongoing monitoring happen via a combination of algorithms and advisor guidance. However, a minimum investment of $50,000 is required.

Vanguard Personal Advisor Services
Visit VanguardSecuredon Vanguard Personal Advisor Services’s secure site
The bottom line: Vanguard Personal Advisor Services is a solid choice for someone looking to add professional advice to their plan for less, but it may not be ideal for beginners, as it requires a sizable portfolio to sign up.

  • Investors must have at least $50,000.
  • Customers can speak to a financial advisor.
  • Customers with a higher net worth get a dedicated advisor.

Who should consider Vanguard Personal Advisor Services

To sign up for Vanguard Personal Advisor Services, you must first clear the hurdle of the account minimum: $50,000. Ergo, this feature is more suited to investors with some assets under their belt and the desire to add professional guidance to their portfolio choices.

For investors who meet the minimum, this service is appropriate for anyone seeking professional investing advice, including those with complex financial situations and those who just aren’t comfortable doing their own investing. If you don’t have the willingness or time to construct and monitor your own portfolio, this robo-advisor service is a good next step.

Vanguard Personal Advisor Services fees and features

Amount minimum to open account
  • $50,000
Management fees
  • 0.30% for accounts with assets below $5 million
  • 0.20% for accounts with assets from $5 million to below $10 million
  • 0.10% for accounts with assets from $10 million to below $25 million
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $0 full account transfer fee
  • $0 partial account transfer fee
  • $0 yearly inactivity fee
Current promotions

No

Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • Joint taxable
  • Rollover IRA
  • Rollover Roth IRA
  • SEP IRA
  • SIMPLE IRA (Savings Incentive Match Plan for Employees)
  • Trust
Automatic rebalancing
Tax loss harvesting
Tax loss harvesting detailInvestments will be allocated strategically among taxable and tax-advantaged accounts. Tax loss harvesting is available but requires work on the investor's part.
Offers fractional shares
Ease of use
Mobile appiOS, Android, Fire OS
Customer supportPhone, Email

Strengths of Vanguard Personal Advisor Services

  • Low fees: For portfolios under $5 million, Vanguard charges just 0.30% of assets. Taking into account the costs of underlying investments, the company estimates that clients pay about 38 basis points in all. (A basis point is equal to 1/100th of a percent, so 38 basis points is equivalent to 0.38%.) That cost is in line with other robo-advisors in the field — it’s slightly higher than Betterment’s 0.25% management fee, but clients at Betterment can communicate with planners only by app messaging.
  • Investment choices: The company focuses on Vanguard funds for portfolios, with a bent toward Vanguard index funds, which are plentiful and low-cost — the average expense ratio is 70% less than the industry average, according to the company. Users also have the ability to incorporate outside investments.
  • Flexibility: Although the company will manage only the assets you have in nonretirement accounts, IRAs and trusts, Vanguard won’t ignore the money you have elsewhere. It will take your other savings and investments into account when it designs your plan, ensuring that you aren’t overbalanced or underrepresented in any asset class.
  • Human contact: While you aren’t assigned a specific advisor unless you have half a million dollars in assets, you have access to an advisor team no matter the amount you invest. If you want to connect, you can make an appointment online or call and speak to an available advisor. You also can email your questions or set up a video conference.

Drawbacks of Vanguard Personal Advisor Services

  • High minimum: In order to participate in this Vanguard service, you must have at least $50,000 in assets, and that doesn’t include employer-sponsored retirement accounts — just taxable accounts, IRAs and trusts. Given that the median household retirement savings of 35-year-olds to 44-year-olds is just $37,000, this minimum will eliminate a big chunk of people who haven’t saved enough outside of a 401(k) yet.
  • Tax loss harvesting: Although tax loss harvesting is available, it isn’t the default. Vanguard offers this service on a client-by-client basis instead of taking a blanket approach. If your money is in a taxable account and tax loss harvesting is crucial for you, this may not be the right place for you.
  • No dedicated advisor: Although this robo-advisor offers access to real people, if you’re looking for a personal relationship with one planner, you won’t find it here unless you have a high level of assets.

Is Vanguard Personal Advisor Services safe?

All investments carry risk, but Vanguard comes with a solid reputation. In 2017, Vanguard’s Personal Advisor Services had $96.9 billion in assets under management, and Vanguard manages a total of $5.1 trillion globally. The company is a member of the Securities Investor Protection Corporation (SIPC), which protects securities customers of its members up to $500,000. Vanguard has more than 20 million investors in 170 countries.

Final thoughts

Vanguard’s Personal Advisor Services is a strong robo-advisor option. Its fees are comparable to those of other robo-advisors, and clients have access to advice from professional advisors.

That said, the $50,000 minimum may be a high bar for many, shrinking the likely client base to those who are nearer to retirement and who’ve had time to save more. If you have the assets, however, this service has a lot to offer.

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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.

Kate Ashford
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Kate Ashford is a writer at MagnifyMoney. You can email Kate here

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What Is SIPC Insurance?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

When you deposit funds at the bank, you can rest easy knowing that the biggest threat to your money is probably your own spending habits. Thanks to the Federal Deposit Insurance Corporation (FDIC), you never have to worry about the safety of your bank deposits. But what about the money your pour into retirement accounts, like an IRA or a 401(k)?

The FDIC protects your covered bank deposits in case the institution goes under and is no longer solvent. This government corporation insures approximately $12.6 trillion dollars across 5,406 institutions in the country. When it comes to retirement accounts, the Securities Investor Protection Corporation (SIPC) protects your funds, although SIPC insurance works somewhat differently than the FDIC’s guarantee.

Read on to find more on exactly how and under what circumstances the SIPC protects your investment accounts.

What does SIPC insurance protect you from?

“SIPC is an important part of the overall system of investor protection in the United States,” said Josephine Wang, CEO of the SIPC. “SIPC works to restore investors’ cash and securities when a brokerage firm fails. Without SIPC, customers at financially-troubled brokerage firms might lose their investments forever.”

In the event that the broker holding your retirement funds goes out of business, SIPC insurance covers up to a combined $500,000 worth of cash and securities, such as stocks and bonds, per account. That protection covers up to $250,000 in cash in the account.

In other words, if you have $400,000 in securities and $100,000 in cash in your brokerage account, and you see on the news that the entire company’s leadership was charged with acting as a front for drug traffickers and the brokerage fails, you can rest easy so long as it registered with the SIPC.

In the above scenario, if your brokerage account had $500,000 in securities and $50,000 in cash, you wouldn’t be fully covered because the total value in the account exceeds the SICP’s $500,000 limit.

For the purposes of the SIPC’s insurance plan, covered securities include:

  • Stocks
  • Bonds
  • Treasury securities
  • Certificates of deposit
  • Mutual funds
  • Money market mutual funds

Some notable investments that SIPC does not cover are:

  • Any investments in foreign currencies
  • Commodity futures (an agreement to buy or sell a certain commodity, such as gold or frozen orange juice, at a specific time and price in the future).

What types of losses are not covered by the SIPC?

SIPC insurance only makes you whole if your brokerage goes out of business. It does not cover losses that stem from the regular ups and downs of markets, which are part of the normal risks and rewards of investing. SIPC insurance won’t help you if your wealth manager makes terrible investment decisions, or if the account underperforms.

Unlike the FDIC, which promises to replace every last penny you lose in an insured account should the bank go under up to its $250,000 per account limit, SIPC insurance doesn’t take into account the value of investments when you purchased them. It only reimburses you for the market value of the investments when the brokerage went under — plus the full value of cash accounts up to the $250,000 cap.

So, if you bought 100 shares of Pets.com at $11 a share in February 2000 but your brokerage firm went under in November 2000 when Pets.com was trading at $0.19 a share, guess what? SPIC insurance is only obligated to return 100 shares at the price the stock currently trades for.

How does SIPC insurance compare to FDIC insurance?

 

SIPC

FDIC

What does it cover?

Securities and cash related to the purchasing and trading of those securities in an account with an SIPC-registered broker

Deposit accounts of an FDIC bank or financial institutions, such as a checking account, savings account, money market account, etc.

What are the limits of coverage?

$500,000 per account (per separate capacity*), with up to $250,000 for cash

$250,000 per account (per ownership capacity/account type)

Does the insurance require customers to opt in?

No

No

*See the section below for a more detailed explanation of “separate capacity.”

What if I have multiple accounts with the same brokerage?

The issue of multiple accounts with the same broker can quickly become confusing. We can’t stress enough that you should consult directly with your brokerage firm or financial institution about how SIPC insurance covers multiple, separate accounts with the same broker.

In general, the SIPC provides you with the maximum amount of coverage for each separate account you have, as long as those accounts are classified as a different type, what is officially termed as “separate capacity.”

Here are some examples of what the SIPC considers a “separate capacity,” which you may recognize as different account types:

  • Individual accounts
  • Joint accounts
  • Corporate accounts
  • Trust accounts created under state law
  • Individual retirement accounts (IRAs)
  • Roth IRAs
  • Accounts held by executors for estates
  • Account held by guardians for a ward or minor

To help clarify this important point, here are a few scenarios where you might have multiple accounts at the same brokerage with SIPC coverage:

  • You have one individual account open in your name: No surprises here, your account is covered up to $500,000.
  • You have two individual accounts open in your name: Because an individual account is one type of “separate capacity,” your $500,000 worth of coverage is spread across both accounts.
  • You have a traditional IRA account and a Roth IRA account: Each of these accounts is treated as a separate capacity, and so each receives the full $500,000 amount of coverage.

The bottom line on SIPC insurance

Just as investing is inherently more risky than putting your money in a deposit account at the bank, the SIPC insurance doesn’t offer the same iron-clad guarantee that the FDIC provides. While SIPC insurance will make sure you get your securities back should your brokerage firm fail, it isn’t concerned with replacing the value of those securities and protecting you from the fluctuations of the stock market.

That said, it still plays an important role in protecting you from a spectacular failure on your broker’s part. Imagine if you lost your shares in Apple or Amazon before its meteoric rise, and the value of SIPC insurance becomes apparent.

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.

James Ellis
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The Best Robo-Advisors of 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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.

See our methodology article for details on how we created our rankings.

The top 7 robo-advisors of May 2019

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

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 2.29% 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 2.29% 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 2.25% 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.

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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Joshua Rowe |

Joshua Rowe is a writer at MagnifyMoney. You can email Joshua here

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