September 6, 2022
The idea of a robo-advisor managing your money is appealing. After all, you can sit back, let them do the work, and reap the rewards.
However, if it sounds too good to be true, it probably is. And that’s definitely the case with robo-advisors.
But that doesn’t mean they have nothing to offer. There are many benefits of turning over your investments to a robo-advisor, including but not limited to:
- The ability to save time
- Investment guidance
- Ability to remove yourself from the research and investment process
If you’re seeking a robo-advisor, there’s a good chance you’ve heard of the two major players in the field:
- Betterment
- Wealthsimple
Let’s start with Betterment, one of the most well-known and powerful robo-advisors.
For many, the biggest benefit is no minimum deposit to begin investing. This is perfect for people who want to get into investing, but don’t have a lot of money.
Adding to this, its 0.25% management fee is among the most competitive, meaning you’re not putting too much money out for the guidance you receive.
Betterment’s goal-based savings approach is appealing to many. It allows you to set goals, track progress, and ensure that you’re always on the right track.
Also, with the ability to purchase fractional shares, you never have to worry about how much money you have to buy stocks. For example, if a stock is trading at $100 but you only have $50 to invest, you can buy a half share.
Finally, Betterment offers a premium tier for those who are interested in next-level service. You qualify as long as you have an account balance of $100,000 or more. This gives you unlimited calls with professional advisors. However, its management fee increase to 0.4%, so that’s something to keep in mind.
If you’re seeking an easy to use robo-advisor that’s packed full of features, Betterment is a good place to start.
Wealthsimple is similar to Betterment in many ways, but as you learn more about the finer details of each service you’ll come to find that the approach and platform are completely different.
Wealthsimple is known for its focus on socially responsible investing, which is more popular today than ever before. Also, it has a variety of halal investing products, thus allowing it to appeal to a broader audience.
The one thing that Wealthsimple users tend to agree on is that its interface is among the best in the industry. Not only is it easy to use, but it’s perfect for both beginners and advanced investors.
When compared to Betterment, you may find Wealthsimple’s management fee a bit high. Sitting at 0.4% to 0.5%, you’re definitely paying more than many competitors.
Also, Wealthsimple lacks some key features of its competitors, such as financial calculators, retirement-planning tools, and investor education content.
Wealthsimple has built its business on these benefits:
- Every user has access to human financial advisors
- A focus on socially responsible investing
- No minimum to open an account
- Free portfolio analysis
On the downside, you must consider if the higher account management fees and lack of tools will be an issue for you.
Betterment and Wealthsimple, among many others, are a new breed of services known as robo-advisors.
For the most part, these are “set it and forget it” tools that take all the guesswork out of investing.
However, if you completely ignore your portfolio, you could find yourself making a variety of mistakes. You are still responsible for things such as:
- When you buy and sell
- Contributing funds to your account (you can set up automatic deposits, though)
- Increasing or decreasing your contributions as it makes sense to do so
There will always be people who enjoy the features of a robo-advisor, particularly the ability to hand off their portfolio to a professional.
However, this isn’t the answer for everyone, as many investors are better off taking a more active approach.
The opposite of a robo-advisor is self-management. Just as it sounds, this is when you take responsibility for all your investment decisions. You don’t rely on a “robot” or automated system to do the work for you.
Even though there is more work involved, there are reasons to go down this path:
Total control: You don’t give up any control. Every decision is made by you and you alone. And even if that scares you, you realize that it’s the best approach.
More exciting: This doesn’t hold true for everyone, but some investors enjoy the thrill of managing their own investments. They love the research. They love watching their investment pay off.
No concerns about shady advisors: Even though robo-advisors take great pride in selecting responsible, professional advisors, there’s no way of knowing for sure if they have an agenda. And for many investors, that’s enough to scare them away. Your money is important to you, and you may not trust it to anyone else.
When you self-manage your investment account, you’re in charge of every last detail. While that sounds like a big responsibility - and it is - there are more tools available today than ever before. Relying on these, such as for research, makes it easier to feel confident in every investment you make.
There’s no denying the fact that Betterment and Wealthsimple have a lot to offer a specific subset of investors. However, most investors soon come to find that self-management is the way to go.
You don’t have to concern yourself with management fees, poor investment advice from others, or account minimums. You’re free to do what you want, when you want.
If you’re ready to give self-managed investing a try, learn more about Passiv and its many offerings. It’s this type of system that will put you on the right track to reaching all your investing goals, even if you don’t have a robo-advisor showing you the way.
Automatically calculate trades
Get notified of cash & dividends
Connect multiple brokerages
