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Jane Goodwin

Where can I find performance data for robo-advisors?

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That is a difficult question to answer. The algorithmically driven portfolios robo-advisors create for their clients are all different, containing a different mix of different ETFs, and with different underlying asset allocations, so there’s no real benchmark with which to compare performance across the different platforms. In other words, there isn’t a “standard” portfolio across all robo-advisors you can use to compare. With index funds, for example, you can make an apples-to-apples comparison between Vanguard’s 500 Index Fund and Fidelity’s Spartan 500 Index Fund, because both are tracking the same underlying index. With robo-advisor portfolios, however, every company has its own preferred funds and asset allocation formulas for each category of investor, so it is impossible to compare portfolio performance with a particular mutual fund, or with a “similar” portfolio offered by another robo-advisor platform. To make it even more difficult, most robo-advisors don’t publish performance figures for their portfolios, and those that do may have only a few years of historical data, which isn’t really enough to make an accurate comparison. That said, there are still ways to see how your robo-advisor portfolio compares. It isn’t easy and takes a bit of research, but it can be done. You can start by looking at non-advised fund portfolios with similar investment strategies. Vanguard, for example, offers a group of LifeStrategy portfolios that range from low-risk, fixed income funds with an 80/20 mix of bonds to stocks up to a more aggressive growth fund containing an 80/20 mix of stocks to bonds. Obviously, the underlying assets will be different, but you can compare your robo-advised portfolio against one of these non-advised funds and see how you’re doing. Again, it won’t be an apples-to-apples comparison, but it can give you a ballpark figure. You can also compare prices for the non-advised versus robo-advised portfolios. The Vanguard funds, for example, have an expense ratio of 0.14%, while most robo-advised portfolios will cost between 0.25% and 0.50%. On the other end of the spectrum, you can compare your robo-advisor portfolio of passively managed ETFs with an actively managed fund with similar objectives, such as the Fidelity Puritan fund, which has an expense ratio of 0.55%, slightly above most robo-advisors. Finally, you can do some very imprecise back-of-the-envelope math to give you a rough estimate of performance against a benchmark. For example, if your robo-advisor portfolio has an asset allocation of roughly 70% stocks and 30% bonds, you can choose a broad stock index such as the S&P 500 or the DJIA to represent your stock section, and a bond index such as the Bloomberg Barclays Aggregate Bond Index to represent your bond section. If the stock index has 9% gains for the year and the bond index has 2% gains for the year, an “average” 70/30 stock/bond portfolio would earn about 7% for the year. That gives you a very rough figure to benchmark your robo-advisor portfolio against. Returns are probably not the best way to compare robo-advisors, quite honestly. You’re better off comparing fees, including ETF trading fees if your robo-advisor doesn’t waive them, services such as rebalancing and tax-loss harvesting, and optional add-ons such as “advice packages” or access to a human advisor. These factors are a better indicator of whether or not a particular robo-advisor is best suited to your individual investment needs and financial situation.

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