401k Robo Advisor: What You Need to Know

A 401k robo advisor is a digital platform that helps you manage your retirement savings by making investment decisions for you. These platforms are designed to be low-cost and user-friendly.

They typically offer a range of investment portfolios to choose from, often based on your risk tolerance and goals. Some popular 401k robo advisors include Betterment and Wealthfront.

With a 401k robo advisor, you can expect to pay lower fees compared to traditional financial advisors. For example, Betterment charges a management fee of 0.25% per year.

Robo-advisors can be a worthwhile investment option, especially for those who are new to investing or don't have a lot of time to manage their 401k.

In fact, studies have shown that robo-advisors can offer lower fees compared to traditional financial advisors, which can save you hundreds or even thousands of dollars over time.

Robo-advisors also tend to be more efficient and less prone to emotional decision-making, which can be beneficial for long-term investment success.

In a 401(k) account, we don't find a statistically significant difference in returns between the better robo-advisors and the better TDFs.

The Betterment portfolio slightly out-performed the Vanguard TDFs in the quarter ended September 30, 2016, with a quarterly return of 5.00% compared to 4.82% for Vanguard 2045 - VTIVX.

However, over the three year period, the annual performance for Betterment was slightly worse than the Vanguard TDFs.

Here's a comparison of the quarterly, 1 year, 3 year and 5 year performance of the two Vanguard TDFs and the Betterment portfolio:

Despite some periods of out-performance, the Betterment portfolio didn't consistently out-perform the Vanguard TDFs over the longer term.

They can be, especially if you're looking for a hands-off approach to investing. A robo-advisor can provide automated portfolio management, which means your investments are regularly rebalanced to keep them on track with your goals.

The cost savings can be significant, with many robo-advisors offering lower fees than traditional financial advisors. In fact, the formula for many robo-advisors is to automate investment management at a lower cost.

If you're willing to set it and forget it, a robo-advisor might be a solid choice. They can offer financial planning tools, such as retirement calculators, and tax strategies like tax-loss harvesting.

Some popular robo-advisors, like Betterment, have matched the performance of industry major players, such as Vanguard's Target Date Funds (TDFs). However, it's essential to note that the robo-advisor's performance can vary over time.

Ultimately, whether a robo-advisor is worth it depends on your individual needs and preferences. If you're looking for a low-cost, hands-off investing solution, a robo-advisor might be a good fit.

Choosing a robo advisor can be a daunting task, but it doesn't have to be. With so many options available, it's essential to consider your individual needs and preferences. You might want to start by thinking about how much human involvement you want in your investment decisions. If you prefer minimal interaction, consider robo advisors like Wealthfront, which prioritizes online usability over phone services.

If you're just starting out with very little money, you may want to look for robo advisors with low minimum investments, such as SoFi or Fidelity, which offer fee-free management.

To help you narrow down your options, here's a brief rundown of some key factors to consider:

Target date funds, or TDFs, are a great fit for most 401(k) plans. They're designed to automatically adjust to an investor's age, managing risk and return accordingly.

TDFs are comprised of funds that invest in equities and bonds, with a target date that's usually the year the investor reaches retirement age. This target date determines the asset allocation, which gradually shifts from growth-oriented to more conservative holdings.

TDFs handle underlying asset allocation and manage down risk for the investor, automatically. They rebalance internally, handling dividend reinvestments and market movements without any need for human intervention.

TDFs can be very low fee, and they're essentially robo-advisors, using standardized and academically robust algorithms to make investment decisions. According to Roy Adams of Wealthfront, these algorithms are "not magic" but rather a proven approach to investing.

In fact, at ForUsAll, TDFs are used as the Qualified Default Investment Alternative, automatically electing participants into the age-appropriate target date fund based on their age. This ensures participants get the advantages of an age-appropriate investment without needing to take any action.

Finding the best robo advisor for you is a crucial step in taking control of your finances. You can consider your investment goals, risk tolerance, and personal preferences to narrow down your options.

If you want minimal human involvement, consider robo advisors like Wealthfront, which prioritizes online usability over phone services. On the other hand, if you'd like unlimited access to a human advisor, look into options like SoFi Automated Investing or premium tiers at Betterment Digital, Fidelity Go, Schwab Intelligent Portfolios, and Vanguard Personal Advisor Services.

For beginners with little money, SoFi and Fidelity are good options due to their low minimum investments and fee-free management. If you're approaching retirement, consider Betterment or Schwab for their services that turn retirement savings into income.

If you're focused on returns, consider Fidelity, SoFi, Merrill Guided Investing, or Wealthfront, which have logged above-average long-term returns. If you want to address environmental, social, or corporate governance concerns, look into Betterment, Ellevest Digital Investing, Vanguard, or Wealthfront.

Robo advisors generally offer between five and 10 portfolio choices, ranging from conservative to aggressive. You can also consider opening a brokerage account for more control over your investments, but be aware that you'll have to do the research and manage your portfolio yourself.

Here are some key factors to consider when choosing a robo advisor:

Keep in mind that robo advisors can offer a range of services, including financial planning tools, tax strategies, and regular rebalancing of your portfolio. Some robo advisors, like Merrill Guided Investing, offer more targeted or thematic ETFs to help you outperform the market.

Ultimately, the best robo advisor for you will depend on your individual needs and preferences. Be sure to research and compare different options before making a decision.

When choosing a robo advisor, it's essential to consider the types of assets they offer. Betterment and Wealthfront are two popular options, and their available assets differ.

Betterment does not offer individual stocks, but Wealthfront does, allowing portfolios worth more than $100,000 to invest directly in U.S. stock ETFs.

Wealthfront also provides access to mutual funds, whereas Betterment does not.

Both robo advisors offer fixed income options through ETFs.

Betterment only allows REITs in flexible portfolios, while Wealthfront offers them in all portfolios.

Both robo advisors offer socially responsible or ESG options.

Here's a comparison of the available assets between Betterment and Wealthfront:

Crypto and forex are not available through Betterment, but they are offered by Wealthfront.

E*TRADE CORE PORTFOLIOS is a solid option for those looking to invest in a robo advisor. It sets a $500 minimum investment and offers three choices of portfolios.

E*TRADE charges a management fee of 0.3%, which is relatively low. The ETFs in its core portfolio have an average expense ratio of 0.05%.

E*TRADE customers can call and talk to a human about their investments, but there's no general opportunity to consult with a CFP. New services, such as automatic tax loss harvesting, will be added in 2023.

Merrill Guided Investing takes a more hands-on approach, with a computer recommended investment strategy based on goals and risk tolerance. New clients must invest at least $1,000.

Merrill charges a 0.45% fee on top of the expense ratios for the underlying funds in its core portfolio, which average 0.06%. For those who want access to a financial advisor, Merrill charges 0.85% for its hybrid service.

Merrill's hand-picked portfolio has performed well, earning an annualized 3.3% over the past five years.

Financial planning and management are crucial aspects of 401k robo advisors. Robo-advisors like Wealthfront and Betterment offer goal-planning tools that help investors determine their current financial health and make recommendations for spending, saving, and investing.

Wealthfront's Path feature is an incredible tool that provides a comprehensive analysis of all synced data. It's not just about investing, but also about achieving your financial goals. Some robo-advisors, like Betterment, offer monthly and tax statements, as well as goal progress viewable online.

Automatic rebalancing is a key feature of many robo-advisors. Betterment's algorithms check for portfolio drift and rebalance the portfolio when assets veer above or below the selected asset allocation by 3%. Wealthfront, on the other hand, monitors the portfolio daily and rebalances when there are significant differences between the desired asset allocation and the actual asset class balance.

Tax-loss harvesting is another feature offered by some robo-advisors. Wealthfront and Betterment both offer this feature, which can help investors minimize their tax liability. By automatically harvesting tax losses, robo-advisors can help investors keep more of their hard-earned money.

Financial planning is a crucial part of managing your finances effectively. Wealthfront offers a comprehensive goal-planning tool that analyzes all your synced data to determine your current financial health.

Wealthfront's Path feature is an incredible tool that helps investors set and achieve their financial goals. This feature takes into account your income, expenses, savings, and investments to provide a clear picture of your financial situation.

Robo-advisors like Wealthfront can provide an easy and cost-efficient introduction to investing, with algorithms taking the guesswork out of selecting individual securities. This can be especially helpful for those who are new to investing or have limited financial knowledge.

Wealthfront's low minimum investment of $500 and low fees (0.25% management fee and 0.08% underlying core portfolio funds) make it an attractive option for those who want to start investing without breaking the bank.

Some robo-advisors, including Wealthfront, offer the option to personalize your portfolio with hundreds of ETF choices. This allows you to tailor your investments to your specific needs and goals.

Here are some benefits of investing with a robo-advisor:

Target date funds (TDFs) are a great fit for most 401(k) plans because they handle the underlying asset allocation and manage down the risk for the investor, automatically.

TDFs are designed to gradually transition from a growth-oriented portfolio allocation to more conservative holdings as the target date approaches. The rate at which these funds shift their assets is known as their "glide path."

Wealthfront offers a low minimum investment of $500 and low fees, with a management fee of 0.25% and underlying core portfolio funds with an average expense ratio of 0.08%. It relies almost entirely on technology to manage its nearly 500,000 accounts.

Wealthfront's algorithms check for portfolio drift and will automatically rebalance your investments to help your portfolio stick to its target asset allocation. Betterment also offers regular rebalancing, but it has clear guidelines on when rebalancing will occur.

Both Wealthfront and Betterment offer tax-loss harvesting, which can help minimize taxes on your investment returns. They also provide monthly and tax statements, as well as goal progress viewable online.

Here's a comparison of the key portfolio management features of Wealthfront and Betterment:

Merrill Guided Investing offers a more targeted or thematic ETF approach, with a goal of outperforming the market. It charges a 0.45% fee on top of the expense ratios for the underlying funds in its core portfolio.

Wealthfront takes the category for goal-planning tools due to its more comprehensive analysis of all your synced data to determine your current financial health.

Security and support are top priorities for 401k robo advisors. Both Betterment and Wealthfront offer robust security measures to protect your investments.

Betterment takes a comprehensive approach to security, with features like TLS data encryption, two-factor authentication, and biometric authentication for mobile devices. They also have a dedicated in-house security team to monitor and address potential risks.

Wealthfront also prioritizes security, with two-factor authentication and scanning for unusual behavior related to transactions and linked accounts. Their internal security team evaluates risks across the platform to ensure your investments are safe.

Here's a comparison of the security features offered by Betterment and Wealthfront:

In addition to security, both Betterment and Wealthfront offer protection for your investments through FDIC and SIPC insurance. This means your money is insured up to certain limits, giving you peace of mind in case anything goes wrong.

Betterment and Wealthfront take security seriously, offering robust protection for investors' data and identities.

Betterment's security features include two-factor authentication, biometric authentication for mobile devices, and limited data access for employees. This ensures that your sensitive information is safeguarded.

Both Betterment and Wealthfront have dedicated in-house security teams that constantly evaluate risks and implement measures to prevent unauthorized access.

Betterment's security measures also include TLS data encryption, protected password storage for third parties, and fraud protection procedures.

Wealthfront's security features include two-factor authentication, scanning for unusual behavior related to transactions and linked accounts, and limited data access for employees.

Betterment offers investors FDIC and SIPC insurance, providing up to $2 million of FDIC insurance for Cash Reserve accounts, up to $250,000 for individual checking accounts, and $500,000 of SIPC insurance for missing funds.

Wealthfront also offers FDIC and SIPC insurance, covering up to $250,000 of cash deposits in Wealthfront Cash Accounts and $500,000 of investments.

Here's a summary of the security features offered by Betterment and Wealthfront:

When you're investing with a robo-advisor, you want to know that help is just a phone call or click away. Betterment's customer service is a notch ahead of Wealthfront's.

Betterment offers phone support at 718-400-6898, available weekdays from 9 a.m. to 6 p.m. ET. You can also reach out via email, but phone support is a great option for those who prefer to talk to a real person.

Wealthfront also offers phone support, but it's a bit more complicated. You'll need to call their technical support number at 877-910-4232, available weekdays from 7 a.m. to 5 p.m. PT.

If you're looking for a pre-funding phone consultation with a certified advisor, Betterment is the way to go. For a minimum investment of $20,000, you can get personalized advice from a financial expert.

Both Betterment and Wealthfront have comprehensive FAQ sections on their websites, so you can quickly find answers to common questions.

Here's a comparison of the customer service options offered by Betterment and Wealthfront:

In a tie for account services, Wealthfront and Betterment offer similar benefits, but with some differences. Betterment has two choices for cash management and ATM fee reimbursements, and a slightly higher interest rate for new customers.

Wealthfront stands out with a large ATM network and the ability to pay bills with its cash account, while investors enjoy $0 in fees. Betterment's Cash Reserve is only available to clients of Betterment LLC, which isn't a bank, and cash transfers are conducted through the clients' brokerage accounts.

Both platforms offer checking accounts and a debit card, but neither is a bank. Betterment Financial LLC reimburses ATM fees and the Visa 1% foreign transaction fee worldwide.

In the management department, both Betterment and Wealthfront are evenly matched. Betterment's algorithms check for portfolio drift, rebalancing automatically with each cash inflow or outflow, while Wealthfront monitors your portfolio daily and rebalances when there are significant differences between your desired asset allocation and the actual asset class balance.

Betterment offers clear guidelines as to when portfolio rebalancing will occur, whereas Wealthfront does not. This is a personal preference that investors will want to take into account. However, this category remains a tie.

Here are the key features of both platforms:

Both platforms offer regular rebalancing, which is a crucial feature for investors who want to ensure their portfolios remain aligned with their investment goals. However, the specifics of how each platform handles rebalancing differ, with Betterment offering more transparency and Wealthfront relying on more general guidelines.

We put a lot of thought into how we review products and services to ensure our comparisons are fair and helpful.

We consider multiple sources of information, including expert opinions, user reviews, and technical specifications.

Our reviewers are experts in their fields, with extensive knowledge of the products and services they're evaluating.

We take a holistic approach, considering factors like performance, value, and user experience.

We also pay attention to the pros and cons of each product or service, weighing the benefits against the drawbacks.

We're not afraid to give credit where credit is due, highlighting the strengths of each option.

Ultimately, our goal is to provide you with the information you need to make informed decisions.