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:

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:

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

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. I’ve tested research and recommendation services like Motley Fool’s Stock Advisor and Zacks Premium. I utilize my own research strategies using screeners like FinViz, IBD, and Trade Ideas. I’ve pretty much always used a hands-on approach to investing, but I wanted to see what it was like to let someone else take the wheel. I recently became interested in robo-advisors. While I’ve had experience with mutual funds, ETF’s, and even in-person financial advisors, I have never used a robo-advisory service until now.

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

How much can I make using a robo-advisor? 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 .

into accounts at . The target risk level will be moderate for each advisor. (see note #1)

for each advisor. (see note #1) Every month, I will compare the performance of the robo-advisors and update this post

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:

A Note on the S&P 500 Benchmark

As you will notice above, most of the robo-advisor portfolios have a 65/35 split between stocks and bonds, whereas our benchmark (ticker: SPY) is 100% stocks.

Is this a fair, apples-to-apples comparison?

No, but this is deliberate. I could just as easily benchmark against both a broad market ETF and a bonds ETF, but I won’t be doing so for two reasons.

First, I want to compare investment strategies, not portfolios. I’m not trying to see if I can build a portfolio that will outperform these robo-advisors. I want to compare two simple investment strategies: building an automated portfolio and investing in a broad market fund. Many leading financial advisors recommend investing in a broad market ETF or mutual fund and it is incredibly easy for any amateur investor to invest in a single ETF like the SPY (without paying any management fees associated with these advisors). Can robo-advisors offer any advantage over this simple investment strategy?

Second, I didn’t choose the robo-advisor portfolio allocation; I chose a risk level. Stocks are considered higher-risk, whereas bonds are considered lower-risk. Once I set my risk level, the robo-advisors determined the portfolio allocation. While these diversified portfolios may not capture as much upside as a portfolio comprised of 100% stocks, they should limit the downside risk. We will see if that holds true.

The results are below – you’re welcome to use your own benchmarks for comparison.

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

allocated funds within 2 days of the deposit WealthSimple allocated funds within 3 days of the deposit

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

I recognize that the SPY is an ETF that only tracks stocks whereas the robo-advisor portfolios have both stocks and equities. This was done intentionally to see how a managed portfolio performs against one of the most popular index funds (which many respected financial advisors advocate). Most robo-advisors associate bond allocation with safety, meaning the upside may be limited, but the downside should be as well (we’ll see that this isn’t the case later).

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.

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.

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

Wealthsimple Starting Performance

Portfolio Value: $5,049.46

Betterment Starting Performance

Portfolio Value: $5,054.00

Acorns Starting Performance

Portfolio Value: $5,060.86

Ally Invest Starting Performance

Portfolio Value: $5,005.28

SPY Benchmark Performance

Portfolio Value (Hypothetical): $5,250.02

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

Feel free to bookmark the page to stay updated.

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:

SPY (Benchmark): +$461.12 Betterment: + $195.09 Wealthfront: + $189.48 Acorns: + $188.84 Wealthsimple: + $158.10 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.

Here are the results for the past month:

SPY (Benchmark): +$198.71 Wealthsimple: + $98.81 Acorns: + $47.65 Wealthfront: + $25.36 Betterment: + $15.39 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.

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

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

and 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.

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.

I will be switching to posting updates every couple of months or so. As of October 22, 2019, here is the performance update:

SPY (Benchmark): +$495.97 Acorns: + $262.13 Wealthfront: + $236.10 Betterment: + $221.05 Ally Invest: + $180.28 Wealthsimple: + $159.71

Main takeaways for this month:

The SPY ETF continues to outperform all other investments. As more time passes, this becomes even clearer. The SPY investment is 2x most other investments and 3x the worst performing (Wealthsimple).

continues to outperform all other investments. As more time passes, this becomes even clearer. The SPY investment is 2x most other investments and 3x the worst performing (Wealthsimple). Acorns shot up to the lead this month which surprised me. I’ve always considered Acorns a bit gimmicky but money talks loudest. Acorns not only has the lowest fee, but they also have the best performance to date.

shot up to the lead this month which surprised me. I’ve always considered Acorns a bit gimmicky but money talks loudest. Acorns not only has the lowest fee, but they also have the best performance to date. Wealthsimple is underperforming AND charging the highest management fee. For a firm that is charging double the management fee of the competition, I would expect much better performance.

is underperforming AND charging the highest management fee. For a firm that is charging double the management fee of the competition, I would expect much better performance. Ally Invest removed their management fee this month (previously 0.30%). The portfolio is still lagging compared to the others in the test, but this reduced management fee may have longer term impacts.

The market has been on a wild ride lately. On March 23, 2020, the S&P 500 put in a short-term bottom. Here’s what the performance looked like for each robo-advisor on the close of that day.

Wealthsimple: ($481.18) Ally Invest: ($742.52) Acorns: ($743.01) Wealthfront: ($831.81) SPY (Benchmark): ($834.53) Betterment: ($903.82)

Main Takeaways:

Wealthsimple and Ally Invest had some of the poorest performance when the market was going up BUT they were some of the best performers when the market went down. What these portfolios lacked in upside profit maximization they made up for in downside risk minimization. This is exactly what I’d expect from an effective risk-balanced portfolio.

and had some of the poorest performance when the market was going up BUT they were some of the best performers when the market went down. What these portfolios lacked in upside profit maximization they made up for in downside risk minimization. This is exactly what I’d expect from an effective risk-balanced portfolio. Acorns continues to perform exceptionally well. While the portfolio rankings have been shifting every month, Acorns has been ranked in the top 3 positions almost every month.

continues to perform exceptionally well. While the portfolio rankings have been shifting every month, Acorns has been ranked in the top 3 positions almost every month. The SPY (Benchmark) performed exceptionally well under bullish conditions, however it was exposed to the most risk when the market turned bearish. It quickly fell from the top spot in our rankings to the #5 spot. Keep in mind that all of the robo-advisor portfolios are comprised of ~60% stocks and ~40% bonds. Considering the stock market was hit hardest, the SPY’s major drop makes complete sense (as it is 100% stocks).

On April 8, 2020, the market continued an impressive rally off of its lows. Here’s how the robot-advisors recovered.

SPY (Benchmark): + $95.64 Wealthsimple: + $66.08 Acorns: ($123.54) Ally Invest: ($173.34) Wealthfront: ($168.22) Betterment: ($286.04)

Main Takeaways:

(SPY Benchmark) is clearly the most volatile investment. It has been the top performer (#1 spot) for every month besides March when the market dropped sharply. While the drop highlighted the risk of this investment, the subsequent rally showed how fast it can recover.

is clearly the most volatile investment. It has been the top performer (#1 spot) for every month besides March when the market dropped sharply. While the drop highlighted the risk of this investment, the subsequent rally showed how fast it can recover. Wealthsimple, which was the poorest performer in October 2019 when the market was rallying, has handled the recent market volatility very well. This portfolio limited downside risk better than any of the other portfolios (by a long-shot) and it is is currently the only profitable portfolio.

which was the poorest performer in October 2019 when the market was rallying, has handled the recent market volatility very well. This portfolio limited downside risk better than any of the other portfolios (by a long-shot) and it is is currently the only profitable portfolio. Acorns finds itself in the #3 spot yet again, meaning it offers some of the most consistent performance.