Jump to content
  • 0
Sign in to follow this  
Jane Goodwin

Where can I find performance data for robo-advisors?


1 answer to this question

Recommended Posts

  • 0
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.

Share this post

Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Create New...