November 24, 2021

Robo-advisors are becoming hugely popular in the United States. The best robo-advisor options out there all utilize cutting-edge algorithms and tailored user experiences that provide early-stage investors with the best possible feedback so that they are able to grow in their journey to successful investing. Beginners often rely on a robo-advisor like those offered by Betterment, Wealthfront, or Vanguard. Essentially, these are a low-cost equivalent to the human advisors that many investors used to depend on for great investment advice. Financial advisors remain a viable source of great data on stocks and other commodity options, but with a robo-advisor, you get a customized experience with AI-driven data analysis, all at a low price point.

The benefits of robo-advisors are numerous and powerful, yet finding a great robo-advisor can be just as difficult as picking stocks yourself. With this guide, selecting the perfect complement to your investing account can be made far easier.

Consider the fee structure.

Fees are an integral part of the investment experience. ETFs, financial advisors, and robo-advisors all charge their clients fees, yet the price you pay can vary greatly among institutions and options. Robo-advisors in the U.S. come in noticeably below the price for a human advisor, but the costs can still vary among providers. Algorithm development, management fees, and other aspects of the back end can create increased pricing from some robo-advisor providers where others may reduce them. Fees are typically tacked on as a percentage charged per dollar in your investing account, but this isn’t always the way costs are calculated.

Understanding the way that any financial product will cost you is the first step in creating a strategy for success that will always produce positivity in your portfolio. Take these fees into account in order to ensure that you know exactly how much you stand to earn during any given investment period.

Think about the underlying algorithm.

Past performance doesn’t necessarily indicate future successes—or failures—yet this can be a powerful indicator of prospective returns. Comparing yearly performance (or quarterly results) side by side is the best way to understand how viable any particular trading strategy or algorithmic approach is within the wider marketplace. Each advisor, ETF, or index fund will utilize its own blend when it comes to asset allocation, rebalancing, and more. But the market can be fickle, and downturns are inevitable. While the market is typically increasing in value, some years will see sharp downward momentum that really cuts into the profits that investors hope to earn.

Down years are some of the best indicators of a stock’s, advisor’s, or ETF’s viability over the long term. If the market, industry, or sector lost 5 percent during the last period, for instance, but your candidate only returned a 2 percent loss, this might indicate a hardier investment option that can withstand downward pressure better than the average. Coupled with a head-to-head comparison of performance during good years, you can start to develop trend recognition that provides a closer look at how any given option stacks up against the overall average as well as other candidates for your business.

Robo-advisors will approach the market in similar yet nuanced ways, and their returns will vary along a spectrum as a result. Selecting one that works for you and your goals requires you to square fee structures as well as comparative performance during both up years and those in which the market sustained heavy losses. Fortunately, 2021 is a fantastic year for evaluating any new asset option. With a significant bearish spike during the height of the coronavirus pandemic sandwiched in between two explosive growth periods (as well as a few other hefty fluctuations), data on performance exists in abundance for the present term.

Consider these approaches for the best possible returns from your new robo-advisor.


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