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Robo-Advisors - Barron's Rankings, 2022

edited August 2022 in Other Investing

Overall Ranking: #1-SoFi, #2-Wealthfront/UBS, #3-Fidelity, #4-SigFig, #5-Merrill Edge, #6-Personal Capital/Empower, #7-Vanguard, #8-Betterment, #9-Schwab, #10-US Bank, #11-Morgan Stanley (includes E*Trade), #12-Wells Fargo, #13-Ally, #14-Acorns, #15-JP Morgan Chase

Digital Advice by Firm AUMs: #1-Edelman Financial Engines, #2-Vanguard, #3-Morningstar, #4-Fidelity, #5-Schwab, #6-Betterment, #7-Wealthfront/UBS, #8-Personal Capital/Empower, #9-TD Ameritrade/Schwab, #10-Guided Choice, #11-Bloom. Total industry AUM $987.6 billion.

There are several variations - digital-only, digital+ with some personalization/customization (menu-based) and limited support, tax-loss harvesting.

Related developments include direct-indexing, ESG, mobile apps.


  • The very concept is risible.
  • edited August 2022
    @crash, the concept is absolutely beneficial to most investors. Similiar or possibly better returns than retirement or target date funds. The application and results may differ as shown in this ranking.

    This may not go over well, but I'm guessing from my own experience and the buy and sell posts I see here, these 1 stop options may beat 80% of the people here at MFO. Strict diversification. No buying high, selling low. No chasing hot funds - after they were hot. No toe holds and collecting funds. No alternative funds that work only in specific conditions. Just steady-eddie market returns.

    For disclosure, I have > 1/2 my retirement savings in the Schwab robo, ranked 9th by this poll.
  • edited August 2022
    People often say that allocation/balanced funds are declining, dead, kaput. But they are wrong. Broadly speaking, target-date funds, robo-advisors and age-based 529s are nothing but allocation/balanced funds in some form. So, this universe is expanding. Robo-advisors alone are $1 trillion now.
  • @MikeM, you probably know the story on Schwab robo-advisor better than others. Schwab took some flak on its aggressive ads for its robo-advisors being "free" (ER 0%) but it keeps more in cash at its own Schwab Bank (which lends that money and throws back some profits to the brokerage side). Other industry members complained to the SEC. Barron's excluded Schwab from its 2020 and 2021 rankings noting this mess. At the end, Schwab settled with the SEC, paid some $xxx millions in fines, but so minimally tweaked its ads that it is hard to see what all the fuss was about. And it joins Barron's ranking in 2022 - OK, at #9, but at least it is there. And now that it is "rehabilitated", it will probably move up on these rankings in future. AUM-wise, Schwab + TD Ameritrade have huge assets in robo-advisors.
  • You are absolutely right @yogibearbull. The average 12%, most accounts, invested in cash has been a drawback in returns, but on the other hand has been beneficial in 2022. I've always understood the cash investment is how they keep expenses at zero. Also, early on I thought they seemed to invest more than needed in EM and International while the U.S. was blowing the doors off every other geo-sector. I admit I had second thoughts on holding the robo at that time, but I'm glad now that I did.

    Thanks for the post.
  • @Crash expanding my vocabulary once again. Pathetic, perhaps, but maybe just risible.
  • edited August 2022
    @MikeM’s been a practitioner of the robo approach for near a decade by my count. And he has consistently reported great results. I’d trust his word and judgment. One thing he might have added was that the robo approach he uses and likes excels over other approaches on a “risk adjusted” basis. Those seeking out lower risk due to age, need, circumstances wouldn’t be expected to turn out the same returns. I’d agree too that alternative funds can’t keep pace with a plain vanilla approach over long periods due mainly to the higher fees. Still, for risk averse investors a modest allocation to alts may tamp down volatility. Different strokes …

    Mike said, “The average 12%, most accounts, invested in cash has been a drawback in returns,”

    I don’t think I’d be violating any rule to note that James Stack currently has his investors 30%+ in cash (short term treasuries). I believe that was recently reported in Barron’s. It’s not what I choose to do. Just saying …:)

    @MikeM said, Similiar or possibly better returns than retirement or target date funds

    I have no difficulty at all believing that. I probably track 25+ funds daily that I don’t own. The two formerly successful conservative allocation retirement funds from TRP I follow have really fallen out of bed over the past year. If one cannot easily beat their recent track record on their own, they’ve got a serious problem. TRRIX (-9.51% YTD) and PRSIX (-10.21% YTD). Glad I own neither.

    (In fairness, I’ll note that VWINX has held up much better than have the two TRP conservative allocation funds.)
  • Derf said:
    Thanks for the new info.

    I remembered that Investopedia had its Robo-Advisor Ranking earlier in the year. So, I checked the stuff I saved/bookmarked, and sure, there was this from 2/28/22.

    What you have posted is 7/31/22 "update" with different authors but the info appears the same/similar. I will compare and see what they are trying to do now.

  • People often say that allocation/balanced funds are declining, dead, kaput. But they are wrong. Broadly speaking, target-date funds, robo-advisors and age-based 529s are nothing but allocation/balanced funds in some form. So, this universe is expanding. Robo-advisors alone are $1 trillion now.

    Completely agree. I checked out Wealthfront the other day and opened a portfolio. I've followed them from their earliest days and was a fan of Andy Rachleff (spelling?).

    I was kind of shocked with Wealthfront's suggested "portfolio solution". It was a 3 ETF portfolio that I could of built myself. Is this what Roboadvisors have come to be?
  • Thanks for the feedback @hank. To be clear, I'm not advocating for robo funds because they set themselves up to beat market returns. That are meant to capture market returns. What I like about them is they stay consistent with a diversified portfolio that is automatically re-balanced periodically. In Schwab's case the portfolio is set up by one's risk profile and time horizon. But no doubt a collection of balanced funds or a diversified portfolio of ETFs and mutual funds would return the same, as long as the investor does not try and out-think the system with all the items I mentioned earlier. I do believe we can be our own worst enemy - and I say that from experience.

    To that statement, has anyone ever noticed that when we have those "what are you buying/selling" posts you never hear from the main man at MFO, David Snowball? Maybe a little ironic given the multitude of choices published at this site. When David does post his holdings which he typically does annually, they are long term holdings with very infrequent tweaks. Same as a robo, target date fund or your own set-and-hold diversified portfolio.

    As you, @hank, and I often suggest, if you find your "adjustments" are keeping you under your benchmark, buy the benchmark:)

  • edited August 2022
    @MikeM, The Professor’s a true “buy and holder” from what I can recall. However, does make adjustments occasionally. I’m eager to hear his more recent take on TMSRX. (An alt fund?) I think he owned a fair amount at one time. I and a few others have entirely vacated this one over the past year.

    On another note, I think you’re just a bit harsh on those of us who use some “alternative” funds. What’s in a name? FWIW my “alternative” sleeve does contain some more traditional alt funds, but also included in it are 3 individual stocks representing 3 different (alternative) sectors: Insurance, a large regional bank, and a global food producer / distributor.

    Re the performance chasers, yes, I see what you see but would never call anyone out. And - there are those rare individuals who know and understand momentum investing. But, like you, I see some buying high and selling low.

    I may have indirectly touched on that last point in a different post recently (See below.)

    Relevant Excerpts:

    However, when I see & hear average investors trying to time buys and sells based on the most recent print or electronic pundentary (consumer sentiment / inflation / deflation / recession / depression / interest rate direction / Fed discount rate and Federal Reserve “projections” - duh), I think of the futility of it all.

    Do those concepts matter? Yes. It’s just that I think there are financial professionals making decisions based on those readings who are 2 or 3 steps ahead of most of us. We’re the guy showing up at the fire with a garden hose and shovel after the fire brigade has already arrived. Or the fella dipping a net in the lake right after the commercial trawlers have swept through.”

    Here’s the Thread
  • I have not delved into Robo-Advisors or their products.

    Since Schwab Robo is mentioned a few times, how does their performance compare against a moderate allocation fund such as PRWCX, FBAKX, & VWELX over a 1, 3, & 5 year period.

    I am always looking for passive, buy and hold options. If the Schwab Robo performance (inclusive of cash) keeps pace with a combination of the above three active funds, then Schwab Robo is attractive.

    What is Schwab's stated logic of keeping 12% permanently in cash?

  • edited August 2022
    @BaluBalu, there is a performance table in Barron's for typical 60-40 robo-advisor portfolios. As expected, due to higher cash %, Schwab lost less (but not the least) for YTD and 1-yr, but lagged for 3-yr and 5-yr.

    Real reason for Schwab to have high cash % (12% from @MikeM was just an example) was to keep its fee literally "zero", but Schwab shifted that money to Schwab Bank, made money on it and split some of that with the brokerage. So, in a round about way, Schwab robo holders paid for the accounts. After the SEC settlement, the new ad disclosures just make this more visible and clear (previously, it was a small print in footnotes). And Schwab has also introduced a new version (SIP Premium) with more services and flat fees.
  • Hey @hank. I'm not against alternative funds perse. Hell, I have (TMSRX) held them and do own them now, BAMBX and commodity ETFs DBC, DBA, COM, IAU. But when do these winning alternative funds get mentioned? When do they come into MFO attention? - when they have already made their money or when we have intuition that we can guess the future for specific sectors. That's my point. Because of this point, I have much of my $ in the robo. Could be a target fund, a group of balanced funds or a nice assortment of diversified mutual funds and ETFs. Same outcome.

    I'm sure there are some here that are good at adding value to their returns with their buys and sells. I dare say, I've looked at past data and I am not one of them. But I keep trying.
  • edited August 2022
    @yogibearbull,12% or higher permanent cash is expensive. Barron's info is behind a paywall for me.

    5 yr performance for PRWCX, FBAKX, and VWELX is 11.5%, 10%, and 8%, respectively, per M* performance tab. Mine is 11%. (I would not have guessed VWELX would be so much lower.) I would consider 9.5% (inclusive of cash) for Schwab Robo acceptable for me. Is it?
  • @BaluBalu, NONE were in the ball park of what you mentioned.

    Barron's data was to 6/30/22 and all 5-yr performances were in the range 4.34-6.43%. A fair comparison may be with a simple 60-40 index-based target-risk fund such as VSMGX that had 4.95%.
  • edited August 2022
    MikeM said:

    - “I’m not against alternative funds perse … But when do these winning alternative funds get mentioned? When do they come into MFO attention? - when they have already made their money. That's my point.”

    - “I'm sure there are some here that are good at adding value to their returns with their buys and sells. I dare say, I've looked at past data and I am not one of them. But I keep trying.”

    @MikeM - Be careful with the term “alternative fund”. Almost by definition it’s not classifiable. That’s because the word “alternative” essentially means “not something else”. However, as commonly referenced in investing “alternatives” are investments other than conventional stocks, cash or bonds. For instance, precious metals are sometimes cited as an alternative investment. So are things like art, comic books, stamps, real estate. The fund industry has jumped on the “alternative” bandwagon and concocted hundreds of variations to stock or bond funds under the banner of “alternative.” I have no problem with them applying the name alternative to whatever exotic high cost product they wish to market. I’m just saying - be careful with that term. To your point … we both lived through the madness here 10-15 years ago with MFLDX, an early alternative fund that soared as its fame and popularity rose and than nose-dived as investors fled overnight it seemed.

    I like the concept of alternatives as part of a portfolio - but apply the term loosely to fit my needs. In my 45% alternative sleeve, I have: a conservative allocation fund that overweights commodities a bit (ABRZX); a style permea fund that spreads risk around among stocks, precious, metals, natural resources, bonds (PRPFX); a multi-strategy fund (BAMBX); and a long-short fund (NLSAX). The other components consist of 3 individual stocks representing distinctly different market sectors. As stocks carry no fees, their inclusion helps offset the higher fees of the alternative funds. As you can see, I define the term “alternative” very loosely to fit my own needs.

    As far as ‘high” expenses go, I hold virtually none of the most expensive asset of all - cash. With inflation at 8-10% annually, cash is a guaranteed looser. Total allocation to all types of income oriented investments is 20% at present. Most is in DODLX and PRIHX. A smaller sum in GNMA etf. Only a trace resides in money market funds or bank accounts. So my use of alternatives is a way of maintaining some level of portfolio stability as needed at my age without carrying much cash.

    I dunno about why folks buy and sell a lot. But I’d guess the results vary depending on what gets bought or sold and when. Markets have been ugly. If you can grab off a quick 1K or so playing Cathie’s musical chairs or taking some other gambit and than reinvest that $$ back into your regular portfolio, why not so indulge?:) Especially beneficial if the winnings are inside a Roth.

    With me the spec money ranges between 5-10% … play money really. Right now it’s committed to a couple inverse funds as a hedge against some really nasty rainy day - an insurance policy. And there’s a bit in GLTR - for mostly the same reason. Than, there’s my predilection to lay more money on the table when stocks appear cheaper and than pull it back off after they rebound. Might be what you’re seeing in other individuals as well.

    Glad you like your Schwab Robo Advisor Mike! Has to be far better than many of the “low risk” conservative funds nowadays. (Check out AOK)
  • This may seem too simplistic, but my goal is to achieve a 3% annual return with my alternative funds. Since I own a number of Brokered CD's paying 3 to 3.4% yearly, I currently own no alternative funds, except a tiny sliver of MERFX . Of course, expecting 3% yearly from an alternative fund may be too modest an expectation!
  • edited August 2022
    ISTM Alternative funds occupy a bizarro corner of the investing universe. For lack of a better source, U.S. News does offer up a mixed platter of such funds. For those interested in return, checking the 5 year + return of some of these might give a clue as to what to expect over the next several years. (Better to look after a prolonged downdraft than when equity / bond markets are sky high)

    I don’t dwell on what any pocket of my allocation model will return. Total return over 3-5 years is the goal. At any specific time some assets giveth and others taketh away.

    One way to look at it … If inflation over the next 5 years averages 3% than a total (annual) return of 5% over that time might be good enough. But if inflation averages 10% over those 5 years, a 5% annual return would leave you standing in the dust. What will inflation be? Only The Shadow knows!
  • @TheShadow- is that true? :)
  • edited August 2022
    Thanks, @yogibearbull.
  • @Old_Joe

    I am in the dark with most things!
  • edited August 2022
    Thanks guys. This thread really needed some humor!
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