Robo-Advisor Performance Is Only One Piece of the Puzzle - NerdWallet (2024)

FAQs

Do robo-advisors outperform? ›

It's just not the way these platforms work. Since robo-advisors typically invest in index funds, there's virtually no chance that you could ever beat the market. And since they also diversify your holdings into bonds and other fixed income assets, you'll generally underperform the stock market during bull markets.

No, Robo Advisors do not beat the market when compared to the S&P 500 index. Robo Advisors use algorithms not to beat the market but to automatically invest your money based on your requirements and risk tolerance.

Limited Flexibility. If you want to sell call options on an existing portfolio or buy individual stocks, most robo-advisors won't be able to help you. There are sound investment strategies that go beyond an investing algorithm.

But according to the Robo Report, the five-year returns (2017 to 2022) from most robo-advisors range from 2% to 5% per year. And Wealthfront, one of the best robo-advisors available, also states that customers can expect about a 4% to 6% return per year, depending on their risk tolerance.

Nearly 7 in 10 Millennial millionaires have some money in robos or automated portfolios. Moreover, nearly 20% of Millennial and Gen Z households who know the investment products they own have some money in robos versus only 13% of Gen X and only 2% of Boomer+ households (Boomers and older).

Net usage of digital advisors declined substantially in 2022, according to the September 2022 report. Overall, U.S. digital advisor use dropped from 27.7% in 2021 to 20.9% in 2022. That's a fall of 24.5%. High-net-worth investors exited robo-advisor arrangements at the highest rates.

ETFs generally cost less than robo-advisors, but buying, selling and monitoring their performance requires more time, understanding, and perseverance. If you're ready to start growing your capital, Titan is ready for you.

The biggest difference between robo-advisors and index funds is that robo-advisors manage your investments automatically, whereas index funds do not. Index funds do tend to be less expensive than robo-advisors. Index funds are baskets of investments that track a market index, such as the S&P 500.

Robo-advisors are often inexpensive and require low opening balances, making them available to retail investors. They are best suited for traditional investing and are not the best options for more complex issues, such as estate planning. Robo-advisors have been criticized for their lack of empathy and complexity.

Are robo-advisors worth it long term? ›

For those who have more straightforward goals, a robo-advisor may be a good fit. But for those who have complex financial needs and want more of a personal touch, a human advisor may prove the best option.

But investing always comes with the risk of losing money, and that's true whether you're investing on your own, hiring a financial advisor or using a robo-advisor.

Half of Americans are more likely to trust robo-advisors compared to traditional financial advisors. Among Americans who have used a robo-advisor or are interested in using one, more than half of consumers polled say cost (54%) and security of investment (53%) was the most significant consideration.

Expanding Investment Offerings

As investor demands evolve, robo-advisors will likely expand their investment offerings to include alternative assets such as cryptocurrencies, real estate and private equity. This diversification will provide investors with even more opportunities to build well-rounded portfolios.

The type of advisor that is better for you depends on what your financial needs are. For core investing and planning advice, a robo-advisor is a great solution because it automates much of the work that a human advisor does. And it charges less for doing so – potential savings for you.

There is no hand-holding—human or otherwise. ETFs generally cost less than robo-advisors, but buying, selling and monitoring their performance requires more time, understanding, and perseverance. If you're ready to start growing your capital, Titan is ready for you.

If you are a beginner investor and you are looking for a simple and easy-to-use investment strategy, then robo advising is the right choice for you. If you are an experienced investor who is looking for a more complex investment strategy, then algorithmic trading is the right choice for you.

Index funds do have a distinct advantage over robo-advisors: They cost less. Robo-advisors tend to charge around 0.25% of your assets under management, so if you had $10,000 managed by a robo-advisor you'd have to pay a $25 management fee that year.