Understanding robo-advisor performance | Vanguard (2024)

FAQs

How well do robo-advisors perform? ›

No guarantee of performance: Robo-advisors invest in stocks and bonds, and the prices of these assets can fluctuate a lot, especially in the short term. These are riskier investments than bank products, and a robo-advisor does not promise performance.

Learn how fees, enhanced features, and investment options can also be key considerations. 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.

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.

Tax-loss harvesting is available at both Vanguard Digital Advisor and Vanguard Personal Advisor (with financial advisor access). To activate TLH at each program, you'll need to request activation. With the Personal Advisor option, you'll first discuss the option with your financial advisor.

But depending on the asset class mix and the particular index funds selected, a robo-advisor may underperform or outperform a broad equity index like the S&P 500.

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

While a robo-advisor can be efficient in managing your investing decisions, a human advisor may be best for more complex decisions like helping you choose the right student loan repayment plan or comparing compensation packages for a new job. Cost: If cost is a factor, robo-advisors typically win out here.

Some would diversify across multiple platforms to minimise platform-specific risk. It's a good consideration but if you understand how the platform handles your money and can sleep at night knowing that your funds are safe, there's no need to diversify across platforms just for the sake of it.

The frequency of portfolio rebalancing by a robo-advisor is ongoing and automatic. This is one of the many benefits of using a robo-advisor like Daffy. Unlike most investors who only rebalance their portfolio idiosyncratically, maybe once a year or every couple of years when they remember, robo-advisors never forget.

In our analysis, the two robo-advisors with the top scores were Wealthfront and Betterment. Wealthfront stands out as a low-cost option with flexible, diversified investment portfolio choices. Betterment also has low fees, and we like that you can add on human advice if you need it.

Which bank has the best robo-advisor? ›

According to our research, Wealthfront is the best overall robo-advisor due to its vast customization options, fee-free stock investing, low-interest rate borrowing, dynamic tax-loss harvesting, and other key features.

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.

If you want to take a hands-off approach, Betterment will get your money invested without you needing to learn the complex world of mutual funds and ETFs. If you'd like to control your money to a degree, Vanguard offers one of the best trading platforms on the market for investors focused on mutual funds.

As with any form of investing, there's always a risk of losing money when using a robo-advisor. Markets can be unpredictable, and no form of investing is immune to potential losses.

While robo-advisors are incredibly efficient at managing investments and can provide general financial advice based on the information you provide, they may not be able to handle all aspects of financial planning.

Robo-advisors, like human advisors, cannot guarantee profits or protect entirely against losses, especially during market downturns—even with well-diversified portfolios. Because most robo-advisors only take long positions, when those assets fall in value, so will the portfolio it has constructed.