Kiplinger\'s Personal Finance 02.2020

20 KIPLINGER’S PERSONAL FINANCE^ 02/2020

INVESTING

management service with access to a

human adviser or certified financial

planner. Some firms have dropped

their account minimums. E*Trade

dropped its minimum last year to

$500 from $5,000. (The table on the

facing page gives vital statistics on

14 robos, including fees, minimums

and the types of investments they

use.) And many, including Betterment,

E*Trade, Merrill Edge and Personal

Capital, now offer socially responsible

portfolios that focus on environmen-

tal, social and governance criteria.

Says Demmissie, “We’re innovating

to meet our customer’s needs. What

works for a competitor may not work

for my customer.”

That’s good news. It

means there is, or will be,

a robo for almost every in-

vestor. Below, we’ve sorted

through the offerings to

help you find the right robo

for you.

For Investors

Just Starting Out

At these firms, you don’t

need to have a lot of money

to get going. At Acorns,

for example, just link your

credit card or debit card

to an Acorns Core account,

and any purchases you

make will be rounded up

to the next dollar. The

spare change automatically

moves to your Core account

and is invested in a port-

folio of ETFs that is appropriate for

you. “It ties the hard task of saving

to everyday purchases,” says Acorns

chief executive Noah Kerner. And

Acorns is cheap at $1 a month for a

taxable account, or $2 a month for

an IRA account called Acorns Later.

There’s no management fee and no

minimum to open an account at Axos

Invest (formerly WiseBanyan) or SoFi

Invest, which makes them appealing to

investors with small balances. Better-

ment Digital and Fidelity Go don’t have

taxable accounts, be sure to consider

any potential tax consequences. These

are advisory accounts, not brokerage

accounts. That means, in most cases,

you must stick with the recommended

portfolio—although most firms will

allow you to move up or down a notch

on the risk scale between recommended

portfolios. You can invest in a portfo-

lio with a 90% stock position instead

of the robo’s prescribed 80% stake,

for example. But you can’t go rogue

and decide to put 50% in cash or 100%

in stocks.

There are fees to consider, too. At

most shops you’ll pay the expense ratios

of your underlying holdings. But these

fees tend to be low—less than 0.10%

per year—because most of the portfo-

lios hold ETFs. All in all, you’ll pay far

less than 1% a year, the going rate for a

typical money manager. But be aware,

too, that some firms may charge you

for added services, such as tax-loss

harvesting, a tax strategy that offsets

capital gains with losses.

Robo offerings are still evolving.

Many firms have added a “hybrid”

configuration to their offerings that

combines the algorithmic portfolio

and manage billions of dollars in

assets. Betterment, a pioneer, has

amassed $20 billion in assets under

management since its robo offering

opened in 2010. Schwab’s Intelligent

Portfolios launched in March 2015 and

now has more than $43 billion in assets.

The services bring investment ad-

vice, once the purview of the wealthy,

to the masses. “Robos have democra-

tized investing advice,” says Lule

Demmissie, president of Ally Invest.

No longer is an hours-long sit-down

with an actual f lesh-and-blood adviser

required. “I’d have better luck getting

someone in their twenties or thirties

to go in for a cavity filling,” says Chris

Costello, cofounder and

chief executive of Blooom

(yes, that’s spelled cor-

rectly), an automated re-

tirement savings adviser.

Robo advice is ready

when and where you want

it. Just grab your smart-

phone, tablet or laptop and

click your way through a

few questions about your

goals, your tolerance for

risk and your time horizon.

In minutes, the algorithm

kicks out a recommendation

for a diversified portfolio

designed by professional

investors that’s appropriate

for you, typically filled with

exchange-traded funds.

The robo will monitor the

portfolio daily, automati-

cally rebalance your hold-

ings when required and

shift the stock-bond mix over time

as you near your savings goal. “I am

supremely confident that the digital

adviser will become the dominant

type of investment advice service,”

says Blooom’s Costello.

Before you decide to move your

money or roll over an IRA to a robo

firm, there are some caveats. For start-

ers, opening an account at these out-

fits typically requires that you sell

your existing holdings, move your

money and buy certain funds. With