17 July 2019

“Robo Advice” for ETFs

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Several online brokers now offer tools that make it easier for investors to put together an ETF portfolio that gives them the exposure they want to various market sectors, and to keep those allocations on target through market ups and downs. Investors usually have to pay for such "robo advice," so called because a human adviser isn't involved. But online brokers are offering free tools for portfolio construction and management to attract business. One thing to keep in mind: Though the advice is free, you still may have to pay for the trades involved in managing your investments.

Some new systems are less user-friendly than others and some offer more investments to choose from. Others offer more guidance on investments. And some make it easier to keep your portfolio balanced the way you originally set it up. Here's a sampling of what's out there and some of these sites' more notable features.

Portfolios Off the Shelf 

If you want to keep things simple, Motif Investing Inc. offers nine preset, commission-free Horizon portfolios that vary according to the investor's risk tolerance and investment horizon. The portfolios all include the same six ETFs in various proportions—four from Vanguard Group covering U.S. and international stocks and bonds, and two from BlackRock Inc.  covering real estate and commodities.

Motif also makes it easier and cheaper than most other sites to rebalance your portfolio. It will advise you how to adjust your Horizon portfolio annually; if you follow the firm's recommendation, your rebalancing trades are free. But if you choose not to follow the rebalancing or you customize your portfolio at any point, the commission-free status falls away and you have to pay for your trades—$4.95 to buy or sell an individual security, or $9.95 to do your own rebalancing with multiple changes in a portfolio. The site also offers dozens of other ready-made portfolios, or you can create your own, but only the Horizon portfolios are commission-free.

What’s Your Deal? 

On the Folio Investing website of Foliofn Inc., there are more than 160 preset portfolios to choose from, including more than 40 "Folios" pitched as target retirement funds with varying risk levels. With more to choose from—the company doesn't set aside a smaller, easier-to-absorb subset of portfolios like Motif's Horizon packages—Folio does help you choose a portfolio by asking you six questions about your risk tolerance, investment goals and investment horizon.

Like Motif, Folio notifies investors when these portfolios are adjusted, but all trades are left up to you. Unlike Motif, your choice of whether to follow the recommended rebalancing or not won't affect what you pay for trades—but nothing is free. Folio offers a subscription plan for $29 a year that provides for commission-free trades executed in twice-daily windows and charges $3 per trade at other times. Without the subscription, trades are executed twice daily for $4 each and are $10 each at other times.

Different Focuses, Choices 

Fidelity Investments offers an ETF portfolio builder with several preset portfolios that are constructed largely by market sector, capitalization and investment style, such as value or growth, focusing less than some other sites on target risk. Fidelity offers a set of BlackRock and Fidelity ETFs commission-free, including most of the iShares Core funds.

Both Charles Schwab Corp.  and TD Ameritrade Holding Corp. offer portfolio planners that allow investors to choose from one of five target allocations based largely on risk tolerance, with the main difference being the range of commission-free ETFs you can buy on each site to fill out your portfolio.

One other difference: Schwab allows customized orders—such as a limit order, which directs the broker to buy or sell at a specified price or better, rather than whatever the market price is—that are more difficult to manage or can't be made using other portfolio platforms.

Click here to access the full article on The Wall Street Journal.


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