Is Charles Schwab robo-advisor worth it?
Schwab Intelligent Portfolios: Performance: Schwab Intelligent Portfolios is a quality robo-advisor with very low expenses. It doesn't charge a monthly advisory fee, making it an excellent option for cost-conscious investors. User Experience: The platform is user-friendly with excellent planning tools.
Schwab Intelligent Portfolios has all the characteristics of an ideal robo-advisor: The company has a strong reputation, its portfolios feature low-cost ETFs and offers all this with an ongoing $0 management fee. We're not fans of the high cash allocation, especially for younger investors.
Learn more about how we review products and read our advertiser disclosure for how we make money. According to our research, Wealthfront is the best overall robo-advisor due to its vast customization options, fee-free stock investing, low-interest rate borrowing, dynamic tax-loss harvesting, and other key features.
Five-year returns from most robo-advisors range from 2%–5% per year. * And the performance of these automated investment services can vary based on asset allocation, market conditions, and other factors.
Robo-advisors often build portfolios using a mix of various index funds. But depending on the asset class mix and the particular index funds selected, a robo-advisor may underperform or outperform a broad equity index like the S&P 500.
High-net-worth investors exited robo-advisor arrangements at the highest rates. Here's how the data broke down along asset levels: $50,000 or less: A drop from 23.6% to 20.6% in 2022, which translates to a decrease of 3 percentage points.
Limited Flexibility. If you want to sell call options on an existing portfolio or buy individual stocks, most robo-advisors won't be able to help you. There are sound investment strategies that go beyond an investing algorithm.
Markets can be unpredictable, and no form of investing is immune to potential losses. Robo-advisors, like human advisors, cannot guarantee profits or protect entirely against losses, especially during market downturns—even with well-diversified portfolios.
Do robo-advisors outperform the S&P 500? Robo-advisors can outperform the S&P 500 or they can underperform it. It depends on the timing and what they have you invested in. Many robo-advisors will put a percentage of your portfolio in an index fund or a variety of funds intended to track the S&P 500.
Schwab doesn't charge management fees but requires you to hold cash in the portfolio. Wealthfront offers greater customization options and excellent digital financial planning tools at a lower account minimum and competitive fee. It really does depend on what you are looking for.
Is it a good idea to use a robo-advisor?
“The biggest advantage they provide is low cost,” says Max Pashman, a CFP and owner of Pashman Financial. “You can have your portfolio managed for a very low management fee compared to the average rate of an advisor that typically charges 1% or more to invest [your] money,” he says.
- Wealthfront – Best for Goals-Based Investing.
- Betterment – Best for Beginners.
- Empower – Best for Net Worth Tracking.
- Axos Invest – Best for Self-Directed Trading.
A robo-advisor can help you manage this complexity by suggesting withdrawals across accounts and, if it makes sense, harvesting losses to help minimize your tax bill. Some robo-advisors will even estimate a tax-smart monthly withdrawal amount based on your portfolio value and time horizon.
While it's smart to be cautious when trusting others with your money, a robo-advisor may be just as safe as a human financial advisor. But investing always comes with the risk of losing money, and that's true whether you're investing on your own, hiring a financial advisor or using a robo-advisor.
Our robo-advisor can help you invest for retirement, college, vacations, building long-term wealth, or creating a sustainable income stream. Here's what you get with Schwab Intelligent Portfolios.
If you require a high level of personalized service and direct management of your investments, a traditional human advisor might be better suited to your needs. Conversely, if cost and simplicity are your primary concerns, a robo-advisor might be the better choice.
Suppose you're starting from scratch and have no savings. You'd need to invest around $13,000 per month to save a million dollars in five years, assuming a 7% annual rate of return and 3% inflation rate. For a rate of return of 5%, you'd need to save around $14,700 per month.
Because there isn't an advisor's salary to pay, robo-advisors charge a fraction of the management fee of traditional financial advisors. By nature, most robo-advisors are appropriate for beginners.
However, based on the data we have, it seems that robo advisors are just as effective as traditional investment services over the same time periods and can secure a return at or above the average rate.
Unlike live financial advisors, robo-advisors use computer algorithms to manage investment portfolios and make investing decisions. They typically have lower minimum investment requirements than financial advisors, and they tend to be less expensive.
Why are more younger people using robo-advisors instead of human advisors?
Robo-advisors are believed to appeal more to younger people because this demographic tends to trust robots more and prefers doing everything online. Robo-advisors are also more accessible in terms of cost and the amount you can invest.
The return on investment will vary by portfolio, and not everyone will have the same investment mix. Most robo-advisors don't have a long track record. But according to the Robo Report, the five-year returns (2017 to 2022) from most robo-advisors range from 2% to 5% per year.
Robo-advisors make money through annual fees, primarily management fees called a wrap fee. The wrap fee covers a percentage of the assets under management (AUM). Compared to a traditional financial advisor, robo-advisors charge lower advisory fees, typically around 0.25%.
Some would diversify across multiple platforms to minimise platform-specific risk. It's a good consideration but if you understand how the platform handles your money and can sleep at night knowing that your funds are safe, there's no need to diversify across platforms just for the sake of it.
Robo-advisors typically cost less than human advisors. The fees are usually based on the amount of money you have invested in the account. And depending on which platform you use, you'll typically pay an annual management fee between 0.25% and 0.50%.
