Automated investment products (pro-con)
Update: I decided to put a small portion of my Roth into an automated/intelligent portfolio with the goals of simplifying and diversifying. I had taken some tech stock profits last year and dragged my feet on reinvesting them in a more balanced way, so that wasn't doing me any good. In fact, I would have been better off doing nothing…I will watch the automated portfolio for a while and evaluate it after that. Often, a bad year (in the market) is followed by good years, so one year might not be enough time to evaluate. I will report back if I have anything intelligent to say about the experience (pun intended). Thank you for all of your input - very helpful.
I previously posted about simplifying a portfolio and received helpful replies (thanks!) I then started to wonder if anyone uses the automated portfolios that brokerage companies offer to approximate a desired allocation (eg Schwab automated/intelligent portfolios or equivalent)? If you use an automated investment product, are you happy with it? If not, did you exit and go back to DIY? Schwab's choices seem a bit rigid to me, but I know someone who decided to go this route for a Roth account and is having good results. Schwab makes money on the cash in the portfolio, but the higher risk allocations don't have an outsized cash position (appropriate for, say, a Roth). I'm not sure how other companies organize similar products.
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I didn't find it compelling for my case (I have everything at Schwab), but I did recommend to it a family member who is retired and who was wary of dealing with an advisor (due to previous bad experience) but who is not the sort of person who should DIY investing. It's nice because you can choose an asset allocation, draw cash when you needed (based on your individual safe withdrawal rate), and the intelligent advisor thingy will handle the rebalancing automatically.
Instead, if you are just wanting automated regular rebalance of a broad based passive stock/bond allocation, a low fee allocation fund may be a better choice. An example would be VBIAX. You likely won't be able to find pre-defined allocation funds maintaining custom allocations of many different asset classes or factors, but for rebalancing of simple allocations, a low cost allocation fund could be a great choice.
For a portion of my investments I use Wealthfront automated investing. I’ve been happy with the results. They are able to quickly get cash back into the market, rebalance on downturns and build a portfolio appropriately matched to my risk tolerance. It’s .25% cost.. which I easily pay for with tax loss harvesting they perform for me.
Truly a set it and forget it account. The portfolio beat last years S&P returns, mostly due to having some gold in the portfolio. I can add investment money or take some out by linking it to my working checking account. It’s also possible to go in and tweak their choices…if you do desire.
Last year I was much less confident about investing and went crosseyed looking at roboadvisor portfolios at Schwab, Vanguard and Fidelity. I was quibbling with myself over things like higher cost than DIY and enforced cash drag. Eventually I gained a little more confidence and pivoted to settling on a self balancing fund that aligned with my goals (AOA; 80/20, with some international diversification), plus slices of VTIP (inflation protection) and SGOV (my cash-plus position).
I felt very comfortable with that and saw the .15 expense ratio of AOA as a more reasonable convenience cost than the roboadvisors. That was my stance as I entered retirement earlier this year. But then my confidence level clicked up another notch and I recently moved to 65% VT/20% BND/10% VTIP/5% SGOV. This is a setup that I’m very happy with, and I’ll be rebalancing periodically to keep the portfolio consistent with my risk capacity/risk tolerance profile. The rebalancing part was a concern because I envisioned doing tedious calculations to get my rebalancing correct. But I found Snowball Analytics, which calculates exact percentages of the portfolio in real time and shows you how much you’d have to buy and sell of each fund to restore target allocation percentages.
I like that my new portfolio is less automated and I have flexibility to choose whether I want to draw from any combination of my fixed income and SGOV sleeves in a market downturn and/or deploy BND or VTIP to opportunistically rebalance.
FWIW, if I were younger/not retired I would probably have the same elements but would just adjust the percentages to make sure I captured more growth consistent with that risk capacity/risk tolerance profile.
Thanks - I agree that confidence plays a role (for me as well).
Honestly the leaps I made from considering the roboadvisors to actually using the AOA fund to finally settling on simple DIY were quite small. Getting steeped in boglehead principles was a quick learning curve and this all happened over several months. Also, to your point about Schwab: that cash issue was a major sticking point for me. Ultimately, I decided that even though I could workaround that with a more aggressive portfolio, I decided that I didn’t want to keep my money with a company that would engage in that kind of profit skimming behavior. I read they were successfully sued over that issue, but that resulted in them just improving their disclosure of that practice rather than actually changing their ways. I guess that litigation enforced disclosure is what caught my attention immediately when I was shopping the roboadvisor offerings.
All good points. Thanks.
I used the Schwab Robo advisory service for about 6 months on a smallish account I transferred in. The 5% cash drag was what caused me to rethink that approach. I now self-manage at Schwab with a few low cost index funds and happy to have 100% of the funds invested in the market.
I use the Schwab Robo advisory service for an IRA and Roth IRA account I have w Schwab. Overall, I am happy with the service but like most other commenters I was concerned about the "cash drag." I literally just checked the APY for April 2026 (I believe the APY adjusts monthly) and its currently paying 3.36%. Each of my accounts have about 6-7% in cash as a part of their overall asset allocation. I found this acceptable given the Robo advisor's overall performance, diversification, zero fees, ease of use, etc. I also have a 401k through work in which I manually manage the portfolio diversification using low-cost ETFs. Using both types of investment styles lets me compare and contrast the pros and cons of each and so far, both methods are working for me. Good luck in finding your path.
I like what I see from Betterment. They have a lot of options but at a high level they charge a .25% AUM fee and have robo-investing options. They also have HYSA, crypto, etc and offer the option to turn on "tax loss harvesting". The automated rebalancing and loss harvesting has been nice for my family (myself and parents) for a relatively small fee.
I did an experiment with a Schwab Intelligent Portfolio. Put a lump sum in at the most aggressive growth option then never touched it. It took 10 years to double my money. It underperformed my retirement accounts probably due to cash drag. I am in an accumulation phase so it did not match my goal and I have since closed the account. It may be better for someone looking to diversify, reduce risk and who is more concerned with preserving rather than growing wealth.
The most aggressive portfolio of theirs has about 94% equities and 6% cash. It’s a US-focused portfolio with a little bit of international exposure. I thought that the global portfolio they offer cannot be made to be that aggressive, but I was wrong about that. My goals are simplification and diversification. It’s possible that in previous years when interest rates were close to zero that the cash drag was even more of a drag, and some 10-year periods have done better than others especially for some sectors and asset classes. I wonder if in some cases the diversification ends up watering down the total result, in particular if underperformance in one area undercuts total returns.
Just wanted to add another comment to this topic. I did some more research on Schwab Intelligent Portfolios (SIPs) and found this really interesting article that provided a good breakdown of the pros and cons of SIPs vs DIY portfolios. Def worth the read! Schwab Intelligent Portfolios vs Managing Your Own: A Cost Analysis | Mezzi
I didn't know about automated portfolios. I think that has appeal to someone like me. I also want simplicity. For some of my accounts I have low fee target date funds since those make things simple.
Actually a target date fund is a variety of portfolio automation. It’s just more like an automated portfolio that has the superpower of automatic risk profile adjustment on top of standard rebalancing found in regular automated portfolios.
Good to know. That was the appeal of those funds for me… a sort of middle of the road solution with a glide path and low fees. Enough to get me started and if I want to DIY optimize in the future I always could. But it feels like the target date fund is like 95% of what I need
When I emerged from the lifelong fog of ignorance about investing and reviewed the past 18 years of history of my 401k, I realized that Empower saved me from myself by putting me in a well diversified portfolio that they periodically rebalanced while I toiled away at my job. It wasn’t a target date fund, but the portfolio behaved similarly to a target date fund. So I think good target date funds are quietly saving tons of people from themselves all the time. That said, a good dose of Boglehead education can free most people from that paradigm and replace the automated funds with simple, risk appropriate ETF driven portfolios.