What is the average return for a robo-advisor?
For instance, the total return for portfolios composed of 60% stocks and 40% bonds showed a wide variation in a backend benchmarking analysis of 44 robo-advisors. Returns ranged from a low of 13.37% to a high of 25.17%, after fees were subtracted, in the 12 months ended Sept. 30, 2021.
Five-year returns from most robo-advisors range from 2%–5% per year. * And the performance of these automated investment services can vary based on asset allocation, market conditions, and other factors.
The return on investment will vary by portfolio, and not everyone will have the same investment mix. Most robo-advisors don't have a long track record. But according to the Robo Report, the five-year returns (2017 to 2022) from most robo-advisors range from 2% to 5% per year.
The bottom line is: we've been good for our clients' bottom lines. Investors in Wealthfront's Classic Automated Investing Account, with a risk score of 9, watched their pre-tax investments grow an average of 8.11% every year since we started.
Key Takeaways. Robo-advisors can be worth it for set-it-and-forget it investors who want automated, diversified portfolios. These low-cost, low-minimum platforms are ideal for novice investors seeking competent portfolio management.
However, robo-advisors offer limited flexibility to customize your investment strategy, and they can't provide more integral financial advice that accounts for things like tax and estate planning.
Robo-advisors are safe to use. You can trust robo-advisors with your money after more than a decade of regulation and scrutiny. Some robo-advisors, like Personal Capital, even offer free financial tools for you to use to keep track of your net worth and analyze your own investments if you wish.
Robo-advisors are less expensive than traditional advisors—but their low, up-front price comes with a loss in quality. Robo-advisors lack an irreplaceable human element, which prevents them from providing the essential qualities and services characteristic of traditional financial advisors.
This will vary significantly depending on the risk profile of the portfolio, broader market conditions, and the specific robo-advisor used. Some robo-advisor portfolios may outperform the S&P 500 in certain years or under specific conditions, while in others, they underperform.
Limited human interaction: Robo-advisors do not offer the same level of human interaction as traditional financial advisors. This can be a disadvantage for investors with more complex financial needs or investment goals.
What is a realistic annual return?
Most investors would view an average annual rate of return of 10% or more as a good ROI for long-term investments in the stock market.
The average stock market return isn't always average
While 10% might be the average, the returns in any given year are far from average. In fact, between 1926 and 2022, returns were in that “average” band of 8% to 12% only seven times. The rest of the time they were much lower or, usually, much higher.
While quite a few personal finance pundits have suggested that a stock investor can expect a 12% annual return, when you incorporate the impact of volatility and inflation, 7% is a more accurate historical estimate for an aggressive investor (someone primarily invested in stocks), and 5% would be more appropriate for ...
| Company | Forbes Advisor Rating | Annual advisory fee |
|---|---|---|
| Betterment | 5.0 | 0.25% |
| SoFi Automated Investing | 4.7 | None |
| Vanguard Digital Advisor | 4.6 | No more than 0.20% |
| Vanguard Personal Advisor Services | 4.6 | 0.30% |
Online brokers are ideal for those who prefer a hands-on approach, making their own decisions and doing their own research. Robo-advisors are best suited for those who value simplicity and hands-off automation.
Doing it yourself can give you more control, flexibility, and customization over your investments, but it also requires more research, monitoring, and discipline. You should consider your goals, risk tolerance, and investment style before choosing between a robo-advisor or doing it yourself through an online broker.
Key findings
Despite this willingness, just 1% of respondents with investments say they use a robo-advisor. Looking more widely, 41% of consumers with investments have a financial advisor. Six-figure earners (56%) and baby boomers (50%) are most likely to have one.
Getting your retirement right is a big deal, and a robo-advisor can help you get there. These automated advisors can build an investment portfolio based on your needs, such as when you want to retire and how much risk you can stomach. It's simple to get started and easy to continue growing your wealth.
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. Plus, the ease of starting and managing the account can't be overstated.
According to our research, Wealthfront is the best overall robo-advisor due to its fee-free stock investing, low-interest rate borrowing, dynamic tax-loss harvesting, and other key features.
Why robo-advisors will fail?
The problem is that most robo-advisors do not offer comprehensive exposure to these assets. This means that investors must either open separate accounts elsewhere in order to gain exposure to these asset classes, or else capitulate to accepting a portfolio consisting only of stocks and bonds.
If you require a high level of personalized service and direct management of your investments, a traditional human advisor might be better suited to your needs. Conversely, if cost and simplicity are your primary concerns, a robo-advisor might be the better choice.
An SEC order found that Redwood City, California-based Wealthfront Advisers LLC (formerly known as Wealthfront Inc.), a robo-adviser with over $11 billion in client assets under management, made false statements about a tax-loss harvesting strategy it offered to clients.
Rebalancing often is done at a set time, such as once a year. Other services, such as robo-advisors, rebalance anytime the portfolio mix deviates too much from the target asset mix.
If you have 30 years until retirement
Waiting just 10 years has a huge effect on the amount you'll have to save to reach your goal. Even with an average annual return of 10%, you'll have to save $481 per month to get to $1 million before you retire. At 6%, you would need to save $1,021 per month.
