Using Robo-Advisors to Manage Investments

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FutureAdvisor is a robo-advisor investment advisory firm that manages retirement accounts, such as IRA, Roth, and other investment accounts. Robo-advisors use a mix of computer algorithms and humans to find the best strategies to manage your portfolio.

FutureAdvisor offers automatic rebalancing, tax-loss harvesting and access to its financial advisors. Analysis of your accounts is free. But if you want FutureAdvisor to manage your investments, you’ll pay a 0.50% management fee and you’ll need a balance of $10,000 or more.

To use the service, you’ll need to have an account with Fidelity or TD Ameritrade. FutureAdvisor has agreements with those institutions that allows FutureAdvisor to assume custody of your accounts and trade on them.

If you already have accounts with Fidelity or TD Ameritrade, you don’t have to even roll over your accounts. You simply add a “management layer” to these accounts. If your accounts are held elsewhere, you’ll need to roll them over to Fidelity or TD Ameritrade.

FutureAdvisor

Summary

Robo-advisors like FutureAdvisor have easily allowed for small investors to understand their portfolios for free and get them managed for a low cost.

Highlights

  • Management Fee: 0.50% for premium accounts (managed services).
  • Account Minimum: $10,000
  • Promotion: Mint users get 6 months free premium service
  • Type of Accounts Managed: Taxable Accounts, 401k plans, IRA, Roth IRA, Trust Accounts, 529 Plan

What Exactly is a Robo-Advisor?

Let’s back up for a second. You may be thinking, robo-what?

A robo-advisor is an online portfolio management service that is automated. It simply means the robo-advisor will trade on your behalf based on your investing goals.

A robo-advisor uses computer algorithms based on your investing style, such as risk tolerance and time you have left to invest. Because there aren’t any humans involved (although you have the option to talk to real people at some robo-advisors), the cost to sign up is minimal, compared to what you’d pay if you had a human portfolio manager overlooking your funds.

There are a lot of robo-advisors to choose from and the industry is constantly evolving to offer more variety in the types of investments and range of services.

Who Should Sign Up for Robo-Advisors?

If you’re like many people who aren’t sure where to start or what to invest your money in, a robo-advisor like FutureAdvisor may be a good option. The fees are low and you won’t need to be hands-on.

This is one of the main reasons why robo-advisors were created in the first place and speaks to their success. Today’s average investor doesn’t have the time or knowledge to constantly research what she should be doing with her long-term investment strategy money. It’s also great to not have to worry about paying high management fees.

What is FutureAdvisor?

The company was launched in 2012 and offers robo-management of IRAs, including traditional, Roth, rollover, and SEP IRAs.

If you’re into a low-maintenance approach, you may want to consider FutureAdvisor, since it offers a free service that tells you when you should rebalance.

You can choose to have direct management (a blend of a real human and robot involvement) but if you opt to have a person help make the trades for you, you will incur a higher fee. If you do want a real person’s help, it’s good to know you at least have that option.

A FutureAdvisor can help you via chat, email, and phone, five days a week. You can set up an appointment and the trades are monitored by a real human.

How to Get Started with FutureAdvisor

After you sign up, which you can do for free, you need to link your investment accounts (similar to linking your accounts on Mint or YNAB). You can also manually report your holdings.

FutureAdvisor will then provide an analysis and recommendations for products and services based on your goals. The nice thing about FutureAdvisor is that it gives you explanations for why it is making such recommendations so you can understand and grow your knowledge as an investor.

Pros of FutureAdvisor

FutureAdvisor helps you with overall retirement planning because it analyzes your funds so you can improve your overall strategy and portfolio.

Here are some specific FutureAdvisor benefits:

  • It offers free advice about your employer-sponsored 401k.
  • You can link your brokerage account, which allows you to see your funds easily.
  • For non-retirement accounts, FutureAdvisor offers tax-loss harvesting, which can decrease your taxes. Tax loss harvesting involves selling a losing investment in order to claim a loss and offset it against a capital gain.
  • If you already have TD Ameritrade or Fidelity accounts, it’s easy to hand over your management rights to FutureAdvisor without the need to transfer funds.

The Option for a Human Touch

This is a pro, in my opinion (even though there’s a fee involved), because sometimes, you may want to talk to someone. Let’s face it, robots can’t answer everything.

It’s a nice option to have and FutureAdvisor (and other robo-advisors) offer this. Of course, it’s not free. With FutureAdvisor, this service is 0.5% annually but only affects the assets that you want them to manage for you.

College Fund Help

If you have kids, you want them to get the best education possible, without having to worry about the burden of debt. So, how do you save for their education and for your golden years?

Experts recommend making your retirement accounts a priority. In a pinch, your children can get loans to help them pay for college, but there is no such fallback for you if you don’t have enough for retirement.

Yet, a T. Rowe Price survey found that more than 69% of parents save for their kids’ college funds before they put away money into their retirement funds. You may understand this dilemma but working until you’re 70 or 80 may not be ideal either, especially if you get sick.

If you have a 529 account set up for your kid’s college fund, FutureAdvisor may help you figure out how much you should be putting away and help you manage it. This includes the distributions.

You can also open a 529 account through FutureAdvisor if you don’t have one already.

Cons of FutureAdvisor

Even though you can gain insightful investment advice that’s based on your portfolio and unique goals, not everyone is so keen to join the robo-advisor bandwagon. Some welcome the low fees and hands-off approach, while others feel you can do the same thing yourself and save yourself the management fee.

Here are some cons to consider:

  • Compared to Betterment or Wealthfront, FutureAdvisor charges slightly higher fees (0.50% vs. Betterment’s 0.15%–0.25% and Wealthfront’s 0.25%). Note that this may be in addition to investment fees that Fidelity or TD Ameritrade may have.
  • Account minimum is $10,000. The high minimum investment may make it difficult for people who don’t have a large lump sum saved up. This may be the biggest reason why investors seek other robo-advisors such as Betterment ($0 minimum opening investment) or Wealthfront ($5,000 minimum opening investment.)

Transaction Fees to Watch Out For

You need to watch out for transaction fees with any robo-advisor.

Here are some examples of fees:

  • Initial rebalance fee: You might get charged for this in the beginning, but trading commissions are usually $0 for every rebalance that follows.
  • TD Ameritrade transaction fees may be $9.99 per stock/ETF trade.
  • Fidelity transaction fees may be $7.95 per stock/ETF trade and a maximum of $50 per mutual fund trade, depending on the fund.
  • For tax loss harvesting, you may get charged a per-ETF trading commission of $7.95 or $9.99.
  • Account transfer fee: $50 to $100 per account to transfer or close your account.

What Kind of Index-Based ETFs Does FutureAdvisor Offer?

The following are some of the stock and bond funds FutureAdvisor uses, along with their trading symbols:

Stocks

  • US: Vanguard US Total Stock Market (VTI)
  • US: iShares S&P 500 Index ETF (IVV)
  • Foreign: iShares MSCI EAFE Value Index (EFV)
  • Foreign: Schwab Fundamental International Large Company Index (FNDF)
  • Real Estate: Vanguard REIT Index Fund (VNQ)
  • Real Estate: SPDR Dow Jones International RelEst ETF (RWX)

Bonds

  • US: iShares U.S. Aggregate Bond (AGG)
  • US: Schwab US Aggregate Bond (SCHZ)
  • Foreign Government: iShares International Treasury Bond (IGOV)
  • Foreign: Vanguard Total International Bond (BNDX)
  • Short-term U.S. inflation-protected Treasury bonds: iShares 0–5 Year TIPS (STIP)
  • Short-term U.S. inflation-protected Treasury bonds: PIMCO 1–5 Year U.S. TIPS Index (STPZ)

FutureAdvisor vs. Betterment

One of FutureAdvisor’s biggest competitors is Betterment, which offers similar services, advice, and products, but with slightly varying fees.

Betterment doesn’t have a minimum opening deposit. Plus, its management fees are lower than FutureAdvisor’s. Betterment charges 0.15% to 0.25% per year, which is less than FutureAdvisor’s 0.50%.

Betterment has a premium option for an additional annual fee of 0.15%, which gives you unlimited access to its certified financial planning professionals for guidance on life events. In order to open this account, however, you need a minimum of $100,000.

FutureAdvisor vs. Wealthfront

Wealthfront is another option worth considering. You need a minimum opening investment of $500 to open an account.

Wealthfront will manage up to $5,000 for free, but for higher balances it charges an advisory fee of 0.25% per year.

It doesn’t have any other fees such as trading, withdrawal fees, minimum fees, or transfer fees.

5 Other Investment Robo-Advisors

Choosing a robo-advisor for your long-term investments isn’t always just about who has the lowest fees. Since it’s all online and these companies are fiercely competitive, do your research. While Betterment and Wealthfront lead the pack, there are a number of others you may want to consider.

Other robo-advisors that are worth considering include:

1. Blooom

Blooom is a robo-advisor for 401k’s and other workplace-backed retirement accounts.

  • Fees: $10 a month, regardless of account size.
  • Account minimum: $0
  • Promotion: One month free

2. WealthSimple

WealthSimple‘s management fees are 0.40%–0.50% of your balance, depending on how large it is. There’s no account minimum.

Currently they are offering a promotion of up to $1,000 cash bonus with a qualifying deposit.

3. Ellevest

Ellevest is a robo-advisor which targets women and invests in companies that advance women.

  • Management fee: 0.25% of your balance
  • Account minimum: $0
  • Promotion: Up to $750 cash bonus with qualifying deposit

4. SoFi Wealth Management

Here are some of the basics about SoFi Wealth Management:

  • Management fee: 0.25% of your balance
  • Account minimum: $500
  • Promotion: Free management in 2018

5. Schwab Intelligent Portfolios

Here are some of the basics about Schwab Intelligent Portfolios:

  • Management fee: 0.28% of your balance
  • Account minimum: $25,000
  • Promotion: None

But I Already Have an IRA, Do I Need a Robo-Advisor?

Of course not. If anything, you probably need more time and money to grow your retirement funds. Choosing to roll your funds into a robo-advisor is really up to you and how you feel about automation of your retirement money.

The more important concerns that need addressing include:

  • Are you saving enough?
  • Maxing out your 401k?
  • Are you on track to retire by age 50? 65? (Or next year, for those who want FIRE.)
  • Are you keeping your spending in check?

According to an eye-opening Time.com piece, in order to be able to afford a comfortable retirement, a 40-year-old couple with a household income of $100,000 should have a savings of 2.6 times their salary, $260,000. By the age of 45, you should have 3.4 times your salary saved.

My Experience with Robo-Advisors

I’ve only had good experiences with robo-advisors and love the fact that it’s a hands-off approach to my long-term investments.

Besides adjusting my portfolio every now and then (which is now automatic) and saving as much as I can, I don’t want to be bothered. I suppose I have a level of trust in robots that some would not agree with, but it works for me and I’m satisfied. So, for people like me, robo-advisors are a great option. I don’t need a real person to tell me to invest in certain funds mainly because I don’t want to pay for it.

I currently use Betterment and have had a really good experience with it. They send a regular cadence of emails that tell me how much they’re reinvesting and if they are rebalancing. It’s probably one of the few subscription emails I actually read. I also log in about once a month to get an in-depth picture of what my portfolio looks like and how it’s performing in general.

Summary

We’re living in the future, folks. Robo-advisors like FutureAdvisor have easily allowed for small investors to understand their portfolios for free and get them managed for a low cost.

If you want a low-cost, hands-off approach to your retirement portfolio, consider a robo-advisor like FutureAdvisor. Just make sure to do your research and find out what kinds of transaction fees are involved so you can max out how much you’re investing and better prepare for retirement.

What’s your investment style? Are you hands-off or hands-on? Let us know on social media!

This sounds easy!

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