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Investing strategies

Understanding robo-advisor performance

Robo-advisor performance is one way to understand the value of digital advice. Learn how fees, enhanced features, and investment options can also be key considerations.
3 minute read   •   October 06, 2023
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Investing strategies
Choosing advice
Financial management
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Robo-advisors

Five-year returns from most robo-advisors range from 2%–5% per year.1 And the performance of these automated investment services can vary based on asset allocation, market conditions, and other factors. With so many options available, how do you decide which robo-advisor offers the most value?

Start by looking beyond performance and focusing on the parts of the service you can control. Here's what to look for when assessing a robo-advisor's value.

Low costs

One of the perks of using a robo-advisor is access to convenient, personalized advice at a low cost, especially when compared with traditional financial advice. Among 20 leading robo-advisors Morningstar reviewed, the median advisory fee was 0.25% of assets per year.2 And while that's cheaper than most human advisors, management fees and commissions can eat into your total returns and decrease the value you're getting from the service. High minimums can also make some robo-advisors inaccessible, so it's important to pay attention to the required initial investment.

Personalization

A key component of advice is personalization. Does the service understand your current financial situation and your financial goals? Generally, robo-advisors begin by asking about your financial profile (like income and spending), what you're looking to achieve, and how much risk you're willing to take. Your answers to these questions allow the service to personalize its portfolio management and help you uncover and refine your financial goals and objectives.

The robo-advisor's investment options and tools can affect the level of personalization and value it's able to offer. For instance, your financial goals and attitudes toward risk may change as you move through your financial journey. Does the robo-advisor offer diversified investment portfolios catered toward different risk tolerances, investment preferences, and tax brackets? Does it have tools that can further personalize and add value to your portfolio? For example, outside investing account aggregators can paint a more complete picture of your finances, and an emergency savings tool can help you calculate how much money you should save for rainy days. 

Underlying philosophy and values

Robo-advisors provide financial advice using an algorithm—or a computer program—which includes the investment philosophy of the platform's provider. So when you're evaluating a robo-advisor, you're also considering the company's investing philosophy and commitment to clients—and how that's reflected in the service it provides.

While the number of robo-advisors available can be overwhelming, remember you're in the driver's seat when it comes to choosing one. By considering costs, personalization, and underlying philosophies, you're looking at the value robo-advisors add beyond performance to find the service that's best for you.

Learn about the value Vanguard Digital Advisor® offers.

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1Condor Capital Wealth Management, 2023. The Robo Report.

2Morningstar, 2023. Robo-Advisor Landscape report. 

All investing is subject to risk, including the possible loss of the money you invest.

Diversification does not ensure a profit or protect against a loss.

Vanguard Digital Advisor's services are provided by Vanguard Advisers, Inc. ("VAI"), a federally registered investment advisor. VAI is a subsidiary of The Vanguard Group, Inc. ("VGI"), and an affiliate of Vanguard Marketing Corporation ("VMC"). Neither VGI, VAI, nor its affiliates guarantee profits or protection from losses.

Enrollments in Vanguard Digital Advisor require at least $100 in each Vanguard Brokerage Account. For each account you wish to enroll, the entire balance must be in certain allowable investment types (based on eligibility screening by Digital Advisor at the time of enrollment) and/or the brokerage account's settlement fund. Depending on your investment option, we may typically invest your assets in a portfolio of Vanguard ETFs®, all of which are commission-free through a Vanguard Brokerage Account. Vanguard Brokerage Accounts are offered through and maintained by Vanguard Marketing Corporation ("VMC"), a registered broker-dealer and member FINRA and SIPC. If you decide to manage your investments on your own, you can buy and sell Vanguard ETF Shares through Vanguard Brokerage Services® or another broker (which may charge commissions). 

Vanguard Digital Advisor is an all-digital service. Digital Advisor charges Vanguard Brokerage Accounts an annual gross advisory fee of 0.20% for its all-index investment options and 0.25% for an active/index mix. The gross advisory fee is reduced by a credit of the actual revenue VGI or its affiliates retain from investments in each managed account, resulting in a net advisory fee that will be the actual fee collected from your account. The actual net fee amount will vary based on your unique asset mix, investment setting, account types, and specific investments in each managed account. Note that this fee doesn't include investment expense ratios—such as fees paid to the funds' third-party managers, which aren't credited. While we generally recommend using low-cost Vanguard funds to build your portfolio, it's important to be aware that actively managed funds will have higher expense ratios than index funds. You should consult your plan fee disclosure notice for the applicable annual gross advisory fees that apply to your 401(k) account. For more information, please review VAI's Form CRS and the Vanguard Digital Advisor Brochure (PDF).