You won’t get rich by saving money.

You can work 80 hours per week, chase promotion after promotion, and save 80% of your income, but you’ll still be on the slow track to wealth. In fact, every dollar you save is losing value to inflation every year. In order to maximize your financial potential, you need an investment strategy. This isn’t optional.

Investing has the potential to be one of the smartest things you do. It allows you to put your money to work, multiplying the power of every dollar you earn.

Creating an investment strategy can seem intimidating, but, modern tools have made investing easier than ever. You don’t need to spend weeks reading financial books and researching hot stocks nor do you need to pay a hefty fee to a financial advisor. Robo-advisors aim to democratize investing by harnessing the power of technology.

What is a Robo-Advisor?

Financial advisory services have been around for a long time. The industry works something like this. You pay an advisor to manage your money and, in return, the advisor takes a small percentage every year. This fee generally ranges between 1-2% depending on the advisor, and the fee is paid regardless of whether or not your portfolio is profitable.

This advisory fee can quickly eat into your returns, and when you consider the fact that your advisor is probably just picking a few mutual funds, you may want to think twice. This is how the management fee adds up on a $10,000 investment that returns 10% per year:

Fund Fee Comparison

While it may be nice to have your money managed for you, you don’t want to be charged excessive fees that limit your long-term returns.

This is where robo-advisors come in. Robo-advisors are designed to be a more cost-effective financial advisory solution.

While the name itself might sound complex, robo-advisors are actually quite simple. These advisors create investment portfolios based off of automated strategies.

Here’s how the process usually works:

  1. Enter your investment goals and personal financial situation
  2. Choose your risk threshold and/or asset allocation
  3. The robo-advisor builds a custom portfolio

Robo Advisor Process

Setting up your account is easy, and since this approach requires less human involvement, the fees are much lower (generally between 0.25%-.5%).

This automated approach shouldn’t be mistaken for a rigid “one-size-fits-all” investment strategy. In fact, many of the top robo-advisors pride themselves on their flexibility in creating and rebalancing portfolios.

These automated portfolios are built to fit unique investment strategies for a variety of financial goals. For example, a college student may prefer a more aggressive portfolio comprised heavily of growth stocks whereas a retiree may prefer an income-generating portfolio consisting of bonds and dividend stocks.

Here are some of the key reasons someone may choose a robo-advisor over an in-person advisor, ETF, or mutual fund:

  • Convenience
  • Lower advisory fees (compared to human advisors)
  • Automated management
  • Lowering taxes (for certain robo-advisors)
  • Diversification

Robo-advisors are growing increasingly popular, but the question is, can they deliver?

Best Robo Advisors

Once you start doing some research on robo-advisors, you’ll realize there are quite a few options to choose from. I wanted to put these advisors to the test with real money –  $25000 in cold hard cash.

We’ll get to the details of the experiment soon, but first let’s discuss the reasoning behind this case study.

Why Investing?

In case you didn’t notice, this site is primarily focused on day trading. While trading and investing share many similarities, the methodology behind each of them is very different. Traders are highly-involved and reactive whereas good investors are patient and passive in their approaches.

Trading is not a replacement for investing and, whether you trade or not, an investment plan is essential.

I’ve found that I need to separate my trading and investing efforts for two main reasons.

First, the separation allows me to apply different strategies. As a trader, I’m trained to react. I watch my positions every day and react to price fluctuations. This highly-involved approach to position management works great for trading but it’s not conducive to an effective investment strategy. In the past, when I’ve traded and invested through the same platform, I became impatient and treated my investments as trades.

Second, investing allows me to increase my capital exposure. Day trading is risky and I would never trade with a large percentage of my net worth – that type of risk exposure is foolish. With investing, I have more conservative performance goals (i.e. yearly returns), but I can use more of my capital. Whereas a 10% annual return wouldn’t justify the work involved in day trading, it would be a great return on an investment portfolio that required minimal management.

Why the Experiment?

There are plenty of different ways to invest in the stock market. You can invest in individual stocks, mutual funds, ETFs, and bonds. Ultimately, the strategy you select will have a major impact on your long-term returns.

I’m always experimenting with new investment strategies and I recently became interested in robo-advisors. I’ve had experience with mutual funds, ETF’s, and even in-person financial advisors, but I have never used a robo-advisory service.

Like you, the main questions I had when doing my research were:

  1. How much can I make using a robo-advisor?
  2. How does this robo-advisor compare to alternatives?

Most robo-advisor sites go on and on about features, but very few show specific performance numbers. Even when I was researching third-party content and reviews, I couldn’t find many people talking about exactly how much they made using a specific robo advisor.

There’s definitely a lot of hype around robo-advisor services, but is it merited? That’s what I’m here to find out.

How the Experiment Will Work

My goal is to track the relative performance of some of the top robo-advisors. While investing is a long-term game, I’m still a trader, which means I’m impatient. I will be posting updates every month to compare the performance of each service.

Here’s how the experiment will work:

  • I will be putting $5,000 into accounts at five of the top robo-advisory services.
  • The target risk level will be moderate for each advisor. (see note #1)
  • Every month, I will compare the performance of the robo-advisors and update this post
  • The SPY ETF will be used as a benchmark to see if fancy, robo-strategies can beat the market. (see note #2)

Note #1: Every robo-advisor has unique portfolio styles, so it will be impossible to compare apples to apples, but I’ll do my best to keep the data accurate by selecting similar portfolio styles.

Note #2: The SPY ETF is an ETF that closely tracks the performance of the S&P 500. The majority of mutual funds do NOT beat the market so this makes for an appropriate comparison.

Robo Advisor Comparison

The following were selected as the top robo-advisors for the test based on the fund sizes (AUM) and the uniqueness of the services. Many traditional brokers offer automated portfolios, but all of the selected companies (with the exception of Ally Invest) are exclusively robo-advisory services.

I will be selecting similar portfolios to keep the comparison as accurate as possible. Here’s the setup:

Robo Advisor Performance Reports

All of the accounts have been funded with $5,000. This section will be updated monthly to reflect performance.

June 2019 (Starting Month)

I started funding accounts on June 3, 2019. The account opening process was simple, and most accounts were funded within two days of the initial deposit.

Each account received a $5,000 deposit and I was happy to discover that the portfolio value fluctuates in real-time (or close to it). I appreciate the real-time performance updates, as many mutual funds will only report performance at the end of the day.

Robo Advisor Funding Times

  • WealthFront, Acorns, and Betterment allocated funds within 2 days of the deposit
  • WealthSimple allocated funds within 3 days of the deposit
  • Ally Invest allocated funds within 4 days of the deposit

Portfolio Benchmark

As mentioned above, we’ll be using the SPY ETF as a benchmark comparison. This is a hypothetical account as I didn’t find it necessary to actually place this trade in order to track it.

We’ll be using the closing prices for all references and dividends will be factored into our analysis.

  • $5,000 would buy 18.21 shares of SPY at 274.57 on June 3, 2019

SPY Benchmark

First Impressions

Obviously, it’s too early to draw any conclusions from this project and, ultimately, portfolio performance will be the guiding metric, but here are some of my first impressions:

  • Betterment has the best portfolio flexibility because it allows clients to pick their exact stock allocation percentage, whereas the other advisors use pre-built portfolios with fixed percentages based on risk thresholds.
  • Ally Invest has the slowest fund allocation process and the least user-friendly interface.
  • While it may seem nit-picky to worry about a difference of a couple days for funding, it can actually have a noticeable impact, especially for those who like to time their entries. During the period between June 3, 2019 and June 7, 2019, the S&P 500 (SPY) had a range of 5.78%, meaning every extra day it took to allocate funds led to a missed opportunity of ~1% of upside in the portfolio.

All accounts were funded on June 3, 2019. Here’s what the accounts look like as of June 12, 2019:

Wealthfront Starting Performance

Portfolio Value: $5,062.22

Wealthfront Portfolio

Wealthsimple Starting Performance

Portfolio Value: $5,049.46

Wealthsimple Portfolio

Betterment Starting Performance

Portfolio Value: $5,054.00

Betterment Portfolio

Acorns Starting Performance

Portfolio Value: $5,060.86

Acorns Portfolio

Ally Invest Starting Performance

Portfolio Value: $5,005.28

Ally Robo Advisor Performance

SPY Benchmark Performance

Portfolio Value (Hypothetical): $5,250.02

Performance Updates

Performance updates will be posted here during the first week of every month.

Feel free to bookmark the page to stay updated.

July 2019 Update

The account funding date was well-timed and the market has pretty much been straight up since the initial entry.

Here are the returns for each robo-advisor this month:

  1. SPY (Benchmark): +$461.12 
  2. Betterment: +$195.09
  3. Wealthfront: +$189.48
  4. Acorns: +$188.84
  5. Wealthsimple: +$158.10
  6. Ally Invest: +$133.12

The SPY ETF (tracking the S&P 500) yielded more than double the returns of every robo-advisor. In fairness, we need to remember that these portfolios have a ~60/40 equities/bonds split, so only ~60% of the portfolio benefited from the moves in the S&P 500.

Equities will always be more volatile than bonds and this split was designed to hedge downside risk. A higher proportion of equities will benefit the portfolio when the market is going up but it will also increase the downside risk when the market is going down.

We’ll continue to monitor performance to see how these portfolios perform in the long run.

August 2019 Updates

Here are the results for the past month:

  1. SPY (Benchmark): +$198.71
  2. Wealthsimple: +$98.81
  3. Acorns: +$47.65
  4. Wealthfront: +$25.36
  5. Betterment: +$15.39
  6. Ally Invest: -$10.70

These results are being posted after the market took a major hit today. This month provides some interesting insights. As we saw last month, the SPY ETF outperformed all of the robo-advisors. I’d expect portfolios that limit upside to also minimize downside but that wasn’t the case.

What’s interesting is how the robo-advisors shuffled in rank. Here are the insights:

  • Once again, the SPY ETF outperformed all of the robo-advisors by a considerable margin.
  • Wealthsimple went from the second worst performing advisor during a good month to the top performing advisor during a bad month
  • Betterment and Wealthfront gave up almost all of their gains and found themselves at the bottom of the list
  • Acorns  is performing surprisingly well. It was pretty close to the leaders during a good month and it retained more gains during a bad month.
  • Ally Invest is in last place again, with lackluster performance during a good month and even worse performance during a bad month. It’s the only portfolio to go red so far.

Robo Advisor Performance Chart

Robo Advisors Performance Chart