The Independent Republic

It’s late summer 2018, and the stock market has been on a team for months, years even. We’re a decade past the Great Recession, and personal investment has gone topsy turvy in the meantime. Over the past decade, a large portion of the investing public has determined that Index Funds are a better strategy than individual security investment. And to meet the needs of this growing investor class, a growing number of “Robo Advisors” have changed the way we choose our favourite funds.

Robo Advisors typically employ “Modern Portfolio Theory” to set their clients up with a variety of well diversified funds, which in turn are composed of a well diversified array of securities. Robo Advisors choose the funds on behalf of their clients. These clients may want to invest, but not know just how best to do so. These algorithmic services often perform better than human advisors who used to fill the same role, at a far cheaper price.

While the Warren Buffetts of the world can still smoke computer models, for the average investor, a Robo Advisor may be the best path toward future independence. But the market is crowded. That’s why we’ve done the research and chosen the best robo advisors 2018 has to offer. Check out our selections below and start investing today!

How We Chose Our Best Robo Advisor List

Robo Advisors have one job: to make you money. They can accomplish several ways:

1. Charging low fees
2. Achieving big returns from the funds they buy for their customers
3. Reducing tax burden, with tax loss harvesting and other methods

The best robo advisors in 2018 do all of the above, but some companies still find ways to stand out from the pack. So without further ado, he’s our list of robo advisors.

Top 5 Robo-Advisors for 2018

• Betterment
• Schwab Intelligent Advisory
• Vanguard Personal Advisor Services
• WiseBanyan
• Wealthfront

#1 Robo Advisor: Betterment

• Affordable, intuitive, conservative

If you follow this industry, you guessed it: Betterment is at the top of our list! This isn’t just because Betterment is well known. Betterment was one of the first companies to apply the robo advisor formula, and they have refined their product to such a degree that it’s hard to find true fault with the platform.

From the very beginning, Betterment called itself the “Set it and Forget it” broker. Users create an account, deposit funds, and choose how conservative or aggressive they want their portfolio to be. By “conservative”, a portion of a user’s funds will be put into bonds, which are historically more stable in price than stocks. The user can select the allocation level from 100% stocks to 100% bonds, and everything in between.

Stock funds are distributed between Vanguard ETFs and mutual funds. Vanguard funds are chosen because of their very low cost basis (often less than 0.1% annually). Funds are also distributed between US and International stocks, including some interesting offerings like Emerging Markets.

Betterment offers a great feature called “Tax Loss Harvesting”. In a taxable account, a user will have to pay capital gains taxes every time they sell a stock for more than it cost to buy. This can get pricey. With Betterment, the algoritms automatically sell your portfolio’s losers strategically, because these losses negate your capital gains exposure. In many cases, this automated feature not only wipes out your tax burden, it pays for the cost of the Betterment platform itself!

Betterment charges 0.25% of your balance each year. For premium services (extra guidance, etc.), you’ll pay 0.40%. If you use Betterment for IRA management, you won’t have any extra tax costs on top of this fee. And as we’ve already discussed, even for taxable accounts, tax loss harvesting often eliminates these extra costs.

Perhaps the only criticism of Betterment is that it is, to some, overly diversified. A stock decline in South Korea can wipe out gains from the American market, to name just one example. Frequently, Betterment’s returns flag behind the returns of the S&P. There’s no way to get around this because Betterment chooses your stocks for you. But people don’t use Betterment for control; they use it for convenient access to the world’s markets.

In the end, Betterment is great for new investors who don’t want to think about their portfolio, and don’t want to risk it disappearing through careless investments. The service is especially recommended for users with taxable accounts, as tax loss harvesting doesn’t save any more for those with IRAs and other tax protected accounts.

Note: As we continue our search for the best Robo Advisor, understand that many of these platforms will follow a similar formula to Betterment. Our writeups for these will not be as long, but this doesn’t necessarily mean that these platforms are not as good. 

#2 Robo Advisor: Schwab Intelligent Advisory

• Human/Robo hybrid, More personalized services

Schwab Intelligent Advisory offers robo advisor services to a different population of investors. For those who can afford the $25,000 minimum first deposit ($50k if you want automatic tax loss harvesting), users get all of the automated insight of the robo advisor model, with unlimited guidance from an actual human money manager.

This allows users to have a hand in the composition of their portfolios, something that you can’t have with Betterment. For this privilege, Schwab charges just 0.28% (just 0.03 above Betterment). With trading fees, you’ll pay a bit more, but in the end the cost is very similar to Betterment and its ilk.

So is this a better model? Well, for those who want to have a partially automated investment strategy, but who still want to have a guided, hands on role in building their portfolio, Schwab would be the better choice. However, many people who are looking for a robo advisor don’t want this feature! They simply want to put away money, come back in a couple of decades, and be rich. Schwab can do that as well as most robo platforms, but with a few extra features that would go to waste if you ignored them.

#3 Best Robo Advisor: Vanguard Personal Advisor Services

• Advanced personalized options, Human advisors, Retirement and pre-retirement focused

For those choosing between robo advisor vs human advisor, why choose just one? Vanguard offers personal management through their service, at an annual cost of 0.38%. You’ll have to deposit at least $250,000 to start an account, but once you’ve created it, you’ll have a bevy of investment options geared toward those in or nearing retirement.

You’ll have specialized tools to max out Social Security Benefits, reduce tax burdens, minimize risk and reward. You’ll have unlimited sessions with a human advisor to help you figure it all out. Furthermore, Vanguard is practically the granddaddy of this whole robo advisor fee. It’s their low cost ETFs and funds (an invention of Vanguard founder Jack Bogle) that most of the robo advisor industry is based upon. For all of these reasons, Vanguard has been a favorite broker of serious investors for decades. It’s cheap and it works.

But Vanguard doesn’t do it in a sexy way. While Betterment is slick, intuitive, and built to impress, Vanguard has all the grace of a a huge three-ring binder stuffed with balance sheets. This is not to say that Vanguard is disorganized or that it lacks functionality. Far from it. Instead, Vanguard assumes that its users are knowledgeable about investment. They don’t hold hands or spoon feed. Instead, the offer a no frills investment juggernaut for seasoned traders who want to maximize the potential of their portfolio. If you can afford the minimum fee and can handle the learning curve, Vanguard might be the best option for you on this entire list.

#4 Best Robo Advisor: WiseBanyan

• “Free”, Totally automated, Additional features for extra money

Since 2013, WiseBanyan has been the world’s “free” robo advisor. It takes a first deposit of only $10 to start, and WiseBanyan’s algorithms take care of the rest. New users answer a variety of questions to determine a personalized “risk score”. Then user funds are distributed into a variety of low cost funds, with an associated risk that matches the user’s risk score.

While WiseBanyan charges no commission, users still have to pay for the cost basis of the funds in their portfolio (there’s no way to get around this with any service we know of). Additionally, if users want automated features like tax loss harvesting, they’ll have to pony up for an annual subscription. Finally, users can get human advising at a 0.50% and 1.0% annual fee level, if the full robot experience is not for them.

In the end, to get a full featured experience, users will pay more for WiseBanyan than for its competitors. But for beginning investors with little investment capital to start, there is no cheaper way to get into the robo advisor game. WiseBanyan’s excellent design and multi-device compatibility make it even more convenient for investors in this camp. It may not serve your needs forever (but it might), but start with WiseBanyan if you can’t make any of these other options work.

#5 Best Robo Advisor: Wealthfront

• Free to start, Truly automated, Ever expanding features

Wealthfront is Betterment’s most direct competitor. The two are more similar than different. Both cost 0.25% annually. Both offer features like tax loss harvesting standard for taxable accounts. Both can be used for retirement as well as general investing. Both have slick apps for web and mobile.

The difference is that Wealthfront is truly robo. You won’t have a chat window that can connect you with a human advisor as with Betterment. It’s just you and the algorithms. However, for people who find the robo advisor business model convincing, this isn’t a bad thing. Why do we need those puny humans anyway?

Another key selling point for Wealthfront is that users with balances of less than $5,000 can have their money managed for free. They’ll still have to pay the cost basis of the funds they buy, but for brand new investors, this is a really great perk.

Final Thoughts on Robo Advisors

Robo advising isn’t going away. People have learned that index funds usually beat the returns achieved by human managers, and that algorithms can pick winning funds as well as any analyst. Not every robo advisor will be right for you, but if you invest money at all, there’s certainly one out there that can help you better allocate your investment resources.