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- Managed portfolios, sometimes called robo-advisors, are investment accounts where you are assigned a professionally designed portfolio based on your investment goals.
- Robo-advisors offer several major advantages over human financial advisors, including improved tax-loss harvesting and lower management costs.
- If you don’t know much about investing, a managed portfolio is a great way to get started with a diverse, professional portfolio.
- Open an account with Wealthfront or Stash today and start investing with the help of a robo-advisor »
If you know you should invest but don’t want to do it yourself, there are several paths forward. One that is growing in popularity, and for good reason, is managed portfolios. Also known as robo-advisors, managed portfolios are professionally designed portfolios customized for your unique circumstances.
These affordable digital financial advisors pick a group of low-fee index funds that align with your investment goals. Let’s take a look at how they work and why 2020 could be the right year to switch to a managed portfolio.
What are managed portfolios?
Before online investing was a thing, the best way to get your money managed was probably a human financial advisor. These experts would get an understanding of your financial needs and build an investment plan to help you reach your goals.
About a decade ago, someone realized that millions of people have virtually the same conversation every day. They could group people together based on factors like their age, risk tolerance, and investment goals and come up with a handful of ideal portfolios aligning with each group.
When you sign up with a robo-advisor or managed portfolio product, you’ll fill out a brief survey listing information like your age, ideal retirement age, income, and how you would react in some market situations. Based on your results, you are assigned to a professionally designed portfolio matched up to your goals and needs.
Because each portfolio isn’t designed for just one person, it’s for thousands of people who are similar to you, the price is a lot lower. Instead of paying a percent of your assets or more every year, fees have fallen to around 0.25% with this kind of financial advisor. That’s a bargain price for a custom investment plan.
Pros and cons of managed portfolios
Managed portfolios are not perfect for everyone. Here are some pros and cons to consider when deciding on whether or not managed portfolios make sense for your assets.
- Semi-customized portfolio: The big benefit of managed portfolios is the ability to get a portfolio of low-cost ETFs weighted to your needs.
- Low cost: Most robo-advisors charge fees around 0.25%, or sometimes less. The underlying funds they choose are also among the lowest cost around.
- Easy to manage: You don’t need an MBA to invest. Just answer the survey, fund your account, and the rest is taken care of for you.
- No human advisor: There’s no person watching out for your specific needs. A team monitors the overall portfolio allocation, but you don’t get handholding in most cases without paying extra.
- Not free: Most brokerage accounts are free and don’t charge fees to trade stocks and ETFs on your own. Managed portfolios do have recurring fees.
Where to find a managed portfolio
There are many companies that offer managed portfolios today. These may be standalone companies, app-based, or an account offered through a traditional brokerage.
Wealthfront is an example of a managed portfolio company with low fees and great features. It charges 0.25% and uses only low-cost ETFs in customer portfolios. Wealthfront also includes tax-loss harvesting and adjusts your portfolio based on your risk tolerance and market performance.
If you like the idea of a managed portfolio but still want to handle things yourself, Stash is a unique investment company that includes coaching and education to help you build a portfolio in alignment with your goals.
Managed portfolios are a big part of the future of investing
Managed portfolios bring scale to something that was once very personal. Contrary to the belief of some, a robo-advisor isn’t a computer picking all of your investments. Teams of brilliant, professional investment managers and computer scientists engineer systems to build the ideal portfolio for each user.
If you are looking to keep costs low and have your investments “just work,” managed portfolios could be a great choice for your needs.
Now tell us your experience and opinions.
Open an account with Wealthfront or Stash today and start investing with the help of a robo-advisor »
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