You are ready to invest. If you are new to investing, or have a smaller account, perhaps you have determined that an automated robo investment account is the right next step. Now, of all the options out there, which robo is best for you?
Alternatives: At the moment, there are approximately 30 viable robo platforms that we've researched and feel comfortable with. Some allow you, the investor, to invest directly in individual stocks (or companies that your research and select, all on your own, owning the complete risk yourself), However, the current trend is to simplify investing for the user by suggesting a basket of investments. The robos begin asking the user a series of questions to determine your "risk tolerance" (how nervous you get about the movement in the stock market and your potential to "wait out the storm" as your investments decrease in value with the market) and then putting the investor into a basket of investments that span across industry, company size, and location. This is to increase investment "diversification" and ultimately remove some risk. The robos do this by selecting 5-10 mutual funds or ETFs which are in themselves, a diverse basket of individual stocks. You can see the multiple layers of diversification in this model, which can be a great thing for an inexperienced investor. Make sense? Clear as mud.
We Recommend: Simply, a bit of research and thought on your part. Assuming you've determined that opening a robo investment account is the right next step for you (meaning you've already paid off any high interest personal debt, you have a student debt plan in place, you've determined that your cash reserve is appropriate, you are comfortable with your budget and you're maxing out your contributions into any tax deferred accounts like 401ks, 403bs) now you're left with the question "which robo is right for me?". Despite the many robo platforms, if you know what you are looking for, there's a pretty clear fit for everyone.
Ask yourself these questions first to determine what you are looking for in a robo:
My picks of individual companies or allow "the experts" to pick a basket? Do I want to invest in a broad, diverse basket of investments suggested to me by my robo platform which are typically based on deep market research and industry experience? OR, do I want to pick the individual companies I'd like to invest in? I want to research these stocks myself and understand more about investing, electing when, what and how to invest in specific companies?
Buy "The Market" or Impact Investing? Do I want to invest simply in "the market" where my returns would mimic the market movement more or less? OR is it important to me to align my investments with my values and focus on 'Impact Investing"? (Which some robos do - contact us to discuss)
Company specifics about my robo? Here's the simple research on your end:
What is the minimum investment your robo requires from you to begin?
What does the "exit" look like if you'd like to close your account?
What are they charging in fees?
How long have they been around?
How many assets under management do they have?
What kind of returns do they have?
Do they have a good user interface that you are comfortable with?
What is their additional mission/focus?
How are their portfolios allocated? Will your investment have exposure to both stocks and bonds, both the US and international markets
Do they allow for any hand holding? Is there a phone number to call if you would like to ask someone questions
Barron's recently published a summary article on the big robos and their performance,and basic company data. Despite only addressing the large most well known firms, it's a great place to start your research - see below.
Source: Barron's, July 2017 Robo 2.0
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