The Best Robo Advisor … For You

September 26, 2014

There's something very personal about choosing the right robot to manage your investments.

This is the seventh and final blog in a series by ETF.com's Director of Research Elisabeth Kashner on the new "robo advisory" industry. The first six, in order of appearance, are as follows: "Which Robo Advisor For My Teen?"; "Ghosts In The Robo Advisor Machine"; "Inside Robo Advisor Asset Allocation"; "Rebooting Robo Advisors' ETF Selection"; "Robots Leave Money On The Table"; and "Inside Robo Advisor Tax Loss Harvesting."

My son is ready to invest his bar mitzvah money.

He's choosing among robo advisors, and one ETF. I've helped him by analyzing the robo advisors' investment philosophies and asset allocations, the ways they select ETFs (here and here), and their tax-loss harvesting programs.

Last but not least, I'm going to help him frame the decision.

How To Choose

A portfolio's asset allocation is the biggest factor in determining long-term returns. It's the key choice.

I'll help my son choose among robo portfolios, starting with the equities. Equities will outweigh bonds in my son's portfolio, for a long time. Bonds come next.

There's no right investment philosophy. It's about finding the right fit.

Costs and services make good tiebreakers. These are personal, too, as their value depends on wealth level, tax status, personality and expectations about the future.

We'll go through all of these—equities, bonds, costs and services—one at a time. I'm going to focus on the robo advisors' 60/40 portfolios, because they'll give us a good look both at equity and fixed income.

Starting With Stocks

I'd like to show each firm's key equity tilt and risk level, so I compared each firm's equity portfolio to the Vanguard Total World Stock (VT | B-100) using ETF.com's tilts scoring (see p.11). The results below show how similar these portfolios are to the global equity markets.

  Wealthfront Betterment FutureAdvisor Covestor WiseBanyan Invessence
ETF.com's Tilts score 83% 95% 76% 81% 87% 77%

For investors who like to hold the whole market, without many over- or underweights, Betterment is the best robo-advisor equity choice. For those who like a bit of variety, though, these tilt scores invite us to look deeper, to find out what drives the differences. If you want to look really deep, check out the appendixes at the end of my Robo Asset Allocation piece. For a shorthand version, read on.

Find your next ETF

CLEAR FILTER