How to open a robo-advisor account
The exact process for opening a robo-advisor account varies from company to company. But the general process is the same.
- Fill out an account request: This includes information about the type of account you wish to open (eg, individual, pension, or joint) and identifying information about you.
- Answer a few questions: This helps the robo-advisor determine how best to invest your money. The questions typically relate to your age, your investment goals (like saving for college or retiring with $1 million), and the level of risk you’re comfortable with.
- To make a deposit: Or better yet, set up an autodeposit. The easiest way to do this with most robo-advisors is to link your bank account, but you may also be able to send a check, wire money, or transfer assets from an existing investment account, such as a 401(k) from a former employer. .
That’s basically it. The robo-advisor will then use the money you deposit to build a suitable investment fund portfolio for you.
How do the best robo-advisors for beginners work?
All robo-advisors automate the construction of an investment portfolio. You will open an account following the general procedure described in the previous section, and the robo-advisor will allocate it to investment funds. These are usually index funds, but not always. (An index fund is a passively managed mutual fund).
In exchange for this service, robo-advisors charge a management fee. We’ll go into more detail about fees a bit later, but the main takeaway is this: because robo-advisors automate most, if not all, investment tasks, the fees are significantly lower than human financial advisors usually charge.
What differentiates the best robo-advisors for beginners?
Lower fees are better than higher fees, all other things being equal. But that’s not the only thing to consider. Here are some other features that the best robo-advisor for beginners will have.
Low deposit requirements
Some robo-advisors will let you start with a dollar, while others have minimum initial investment requirements of $500 or more. If you’re just starting out and don’t have a lot of money to invest right away, this can be a major factor.
Human advisor access
It’s rare to find a robo-advisor that gives all clients access to human financial planners, especially at no additional cost, but it does exist. Even if you have to pay for their services, it can be a valuable feature if your robo-advisor has a team of Certified Financial Planner® professionals who can offer advice.
Investing is only part of a solid financial plan. Good robo-advisors offer plenty of resources to help you master the art of budgeting, save for college expenses, buy your first home, and more.
Easy to use platform
Most robo-advisors are relatively easy to navigate, simply by the nature of their product. But it might be worth reading the reviews of their apps or websites to see which are the most user-friendly.
Learn more: Best Robo-advisors
This is different from accessing the Human Advisor. Not all robo-advisors offer the ability to simply pick up the phone and speak to a representative if you have a question about your account. When choosing the right robo-advisor for you, consider what level of customer service you are most comfortable with.
Integrates with other accounts
Robo-advisors offered by top investment dealers can often be paired with a self-directed investment account if you want to choose some of your own investments. Those managed by banks can integrate seamlessly with checking and savings accounts. These can be major advantages, especially if you like to keep all your finances in one place.
Other robo-advisor features (and what they mean to you)
Here are some other features of robo-advisors you’ll want to know about.
Most robo-advisors offer this. Automatic rebalancing essentially means that the robo-advisor will re-evaluate your portfolio from time to time to ensure that it is still aligned with your goals and risk tolerance.
Tax loss harvest
This is more important for high balance accounts, but robo-advisors that offer tax loss harvesting will make strategic moves in client accounts that maintain the same investment objectives while simultaneously maximizing the tax efficiency of the portfolio. It is a method that can help people pay less tax.
What fees are charged by the best robo-investors for beginners?
Most robo-advisors charge a management fee of around 0.25%, but they can range from 0% to 0.40% for the best companies. Even at the high end, this is significantly more cost effective than the average 1% management fee charged by financial planners.
Similar to human financial advisors, robo-advisor management fees are generally based on a percentage of assets and are assessed annually.
For example, a management fee of 0.25% means that for every $1,000 you have in your robo-advisor account, you will pay $2.50 per year in management fees.
It is also important to mention that the individual investment funds your robo-advisor uses usually have their own annual management fees (called expense ratios). These are usually quite small, but they add to the total cost of your investments. It is still generally many cheaper to use a robo-advisor – just know that advertised management fee of 0.25% can be 0.30% to 0.35% including individual fund expenses your money is invested.
How to choose the best robo-advisor for beginners
The bottom line is that while we think our list above represents the best robo-advisors for beginners, the best choice for you depends on the features that matter most to you.
For example, if you are planning to invest a large sum of money in a taxable account, you might want to narrow your search to robo-advisors that offer tax loss harvesting. Or, if you want professional help with other aspects of financial planning, such as budgeting, you can find a robo-advisor that has a human financial advisor you can talk to.
In short, start with our list and then narrow it down to suit your personal investing situation. If you want to be a little more active at the start of your journey as an investor, check out our list of the best online stockbrokers for beginners to learn more.