How to supercharge your investment portfolio with robo-advisors

“Be not afraid of growing slowly, be afraid only of standing still.” ~ Chinese Proverb

Investment managers, hedge funds, wealth managers: Did you ever wonder what kind of services these elite financial managers provide? I did. These wealth managers help wealthy individuals and families preserve and grow their fortune.

Growing up, it was hard to imagine if I could afford a financial advisor, let alone a team to manage my investments; however, thanks to technology, that has changed.

The past couple of years have witnessed a massive growth in the investment management industry, extending premium wealth management services to the average taxpayer.

Technology-driven asset management companies are redefining the wealth management industry. The term “robo-advisors” is no longer an alien term, with more and more people joining the automated-investing bandwagon. Since their inception in 2008, robo advisors have come a long way from being a financial advisor’s tool to the preferred method of investing among regular investors.

What are robo advisors?

Investopedia defines robo advisors as, “Robo-advisors (also spelled robo-adviser or roboadvisor) are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision. A typical robo-advisor collects information from clients about their financial situation and future goals through an online survey and then uses the data to offer advice and automatically invest client assets.”

Interesting facts about robo advisors

Robo advisors had more than $200 billion worth of assets under management (AUM) in 2017.

Several reports indicate robo advisors are likely to have over $2 trillion worth of assets under management by 2020, or $7 trillion by 2025. (Investopedia)

How I intend to grow my investments with robo advisors

The Canadian Robo-advisory industry is booming with innovation and implementation of cutting-edge technology in this newly carved automated investment sector. Some of the leading names in the country include Wealthsimple, WealthBar, and Nest. Robo advisors create diversified investment portfolios by using Modern Portfolio Theory (MPT) proposed by Harry Markowitz in 1952. Let’s find out some interesting facts about some of the leading robo advisors in Canada.

1. Wealthsimple: Wealthsimple leads our chosen group of robo advisors in terms of popularity. In addition to providing automatic portfolios, Wealthsimple offers a Smart Savings Account for investors holding over $100,000 in their portfolio. The automated advisory extends free tax-loss harvesting benefits to its users. With a managing fee of 0.40% to 0.50%, Wealthsimple comes second in our affordability list.

2. WealthBar: WealthBar has created a loyal investor base because of its versatile investment strategy. The robo advisor offers alternative investments, such as mortgages, real estate, and fixed income assets, to its investors, thereby creating a consistent income source. WealthBar provides a private investment portfolio to clients, comprising of income-generating real estate investments, such as retail, self-storage facilities, industrial establishments, and more.

3. Nest Wealth: Nest Wealth, in addition to providing personalized portfolios, focuses on providing efficient low-cost investments to its users. The robo advisor claims to offer the most affordable professional money management service, charging between $20 and $80 from their largest customers. It is the most affordable robo advisor on our list.

The rapid growth of robo advisors and their positive user reviews made me want to test the waters with a robo advisor. I decided to do a test investment with WealthSimple. If you want to see how my portfolio did, click here!

What I like about Robo-advisors

Own fractional ETF shares:

Instead of buying a complete ETF share, robo advisors allow you to own fractional shares of ETFs. This is good news for people who are just starting with investing or have limited disposable income for investments.

Free tax-loss harvesting:

Multiple robo advisors offer free tax-loss harvesting, which means any money that you may lose on an investment will be adjusted in your income, thereby, lowering your tax bill. Wealthsimple is an excellent example of how investors can leverage tax-loss harvesting without any additional cost.

No account minimum:

You don’t have to maintain a minimum account balance, making it easy for new investors to start investing. You will not pay any fee for deposits, withdrawals, or tax-loss harvesting.

Access to financial planners:

Robo advisors provide access to its financial planners irrespective of the membership level of the investor. For instance, Nest Wealth allows investors to contact support by simply sending a message to any of the available support staff. In my opinion, being able to talk to a financial planner is always reassuring, especially during volatile markets.

Say goodbye to exorbitant fees for professional money management:

Unlike traditional money managers, robo advisors charge a small fraction of the portfolio as management fees. Nest clearly indicates on its website that any investor would pay between $20 and $80 irrespective of the size of his account.

Are robo advisors right for you?

In my opinion, robo advisors outrank their competition for various reasons. Their unique features such as access to financial planners, no minimum account balance, free tax-loss harvesting, and easy access to funds make them a winner in my book.