Every investor who’s fired a bad advisor and become a do-it-yourselfer has probably had mixed feelings. On one hand, it’s liberating to get away from a costly strategy that was performing poorly. But if you’ve never managed your own portfolio, it won’t take long to realize it’s not as simple as you first thought. In the last couple of years a growing number of US investors has been bridging that gap with online services that design, implement and manage ETF portfolios for a fraction of the cost of a human advisor.
These so-called “robo-advisors” take you through a series of questions to determine your goals and your risk tolerance and then build a diversified portfolio using an appropriate mix of equity and bond ETFs. The service looks after rebalancing and reinvestment of dividends: all you do is contribute regularly and the software does the rest. Wealthfront, which bills itself as “the largest and fastest growing software-based financial advisor,” even includes tax-loss harvesting for accounts over $100,000.
The cost for all of this? At Wealthfront you can invest your first $10,000 for free, after which the fee is 0.25% annually.