Robo Advisor VS Index Funds – Who Won?

Robo-Advisor VS Index Fund – Improvements against M1 Finance and Traditional Index Funds

You would almost think that AI, or a robo-advisor, has a much lower margin of error when it comes to investing, and you would be right in most cases. However, index funds have been around for a very, very long time and it contains all the elements of a financial market index in its profile, which makes it very secure, doesn’t it?

If you’re not sure which one to go for and which one is better, we hope we can help you find some answers.

Index funds are basically a complete portfolio that includes stocks and bonds to reflect the financial markets and they track benchmark indicators such as the NASDAQ or S&P 500. We are going to compare the performance of the index fund with the Robo-advisors of Betterment and M1 Finance. We have previously pitted the two platforms against each other but now we are partnering them to go against the index fund.

Betterment and M1 Finance Robo-Advisor VS Index Fund – Head-to-Head

How can the Robo-Advisor vs. Index Fund be measured when the results change every year? Well, we’ll do that by looking at it historically and analyzing its effectiveness.

Robo Advisors VS Vanguard S&P 500

Most brokerage and online investment platforms have included a Robo-Advisor option in their platform. Robo-advisors are automated helpers that benefit regular investors and do not cost as much as personal advisors. In addition to low cost, they also follow algorithms that create optimized investment strategies for decent returns.

Although index funds such as the Vanguard S&P 500 (VOO) are known for stability and long-term returns, Robo-advisors are slowly reaching that standard. Specifically for VOO, the annual return returns compounded by about 14%. This is a static measure with some deviation (13.17%).

It is important to note that in addition to the annual return, Robo-Advisors offers additional benefits. Once you consider this, these additional features may equate to a higher return than VOO. Are we talking about some of these additional benefits?

Robo Advisors vs. Loyalty Zero Large Cap Index

The Fidelity Zero Large Cap Index, or FNILX, has a yearly return of about 8.23%, which is quite average. As of January 2019, the 1-year best total return was 31.79%, which is one of the best in the index.

That return of more than 30% may seem really inviting, but keep in mind that this is a single year, and not an average. It is possible for investors to reach that height with Robo-Advisor, but it depends on your portfolio settings. How risky are you, and have you invested more in a particular industry? These are all questions that can affect your Robo-Advisor return rate.

Robo Advisor VS Shelton NASDAQ-100 Index Direct

Most Robo-advisors follow the investment strategies of large index funds, including the Shelton NASDAQ-100 Index Direct, or NASDX. Let’s take a look at NASDX performance over the last 30 years. The index fund gave its investors a stock market return of 10.72%, which is about 8.29% if you want to consider inflation.

When you look at the earnings of an index fund over a long historical period, you can get a clear picture of its actual potential. A 10% return rate is considered average and is definitely something that a Robo-Advisor can match or even beat depending on your profile settings.

When you consider that Betterment and M1 Finance AI advisors follow these indicator funding strategies, it is safe to say that they try to evaluate their past performance and try to “improve” them. These considerations can be reflected in your Robo-Advisor-managed portfolio to give you an edge over traditional indicator funds. Again, it all depends on your investment portfolio settings.

Final takeaway

Robo-Advisors is the top choice among diversity, automatic balancing and many other features for tax-loss collection. These are accessible, do not cost as much as a human advisor, and can help you make a neutral and unemotional investment decision. Compared to index funds, Robo-Advisors can outperform them with the right settings. Two of the best and most reliable robot-advisors in M1 Finance or Betterment. Click on the links to see what their AI advisors can do for you!

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