Article updated June 27, 2024
Who should consider investing with a Roboadvisor? It might be right for someone who isn’t quite confident enough to start Do-It-Yourself investing but still understands the importance of beginning their investing journey. How do most people start investing? A visit to your local bank branch will likely result in opening an investment account that is invested in high-fee products. They may also talk down to you, making investing seem too hard for you to understand. Or… perhaps you can try the easy and better alternative. Open an account with a Robo Advisor in Canada.
What is a Roboadvisor?
A Robo advisor is an investing service that relies on algorithms to build a portfolio based on your risk tolerance and investment time horizon. No individual humans are picking the funds for you, so there is a lower cost, and its very easy to use for beginner investors. The service will create a portfolio of ETF’s for you, so you don’t need to pick individual stocks, just contribute to the fund and invest regularly.
What does a Roboadvisor in Canada offer?
You can invest in an RRSP, TFSA, RESP, or taxable investment account with a robo advisor. The choice is yours.
Canadian Robo Advisors are often provided by companies that offer multiple types of services. For instance Wealthsimple offers Cash accounts, savings accounts, RRSP, TFSA, RESP, a fee-free self-directed investing platform, and they also have a crypto trading platform. Their Robo advisor service is called Wealthsimple Managed Investing , the self directed investing service is called Wealthsimple Trade. You can get $25 to invest by using our links! Check out our related article which provides an overview of what you can invest in as a Canadian.
Another well-known company offering both Canadian Robo Advisor services and self-directed options is Questrade. Their Robo Advisor service is called Questwealth Portfolios. These are not the only two options for sure, there are other robo advisors available. However, they are probably the best known.
What does it cost to use a Robo Advisor?
Most Canadian Robo Advisors charge you based on a percentage of the amount you have invested. The average fees for a Robo advisor in Canada are between 0.2% to 0.7%. That means if you had $100,000 invested, you would pay $200-700 per year for the service depending on your providers fees.
Contrast this with investing in a portfolio of mutual funds through your bank which may charge you 2% at a cost of $2,000 in fees a year.
Save on investment fees with Robo Advisors
Canadian Robo Advisor options are becoming more popular these days for people who prefer to not have actively managed investments and pay the subsequent fees that come along with humans closely managing their money. These services rely more on algorithms to direct your investing. The fees are relatively low cost, compared to mutual funds, and that can mean a whole lot more money in your account at the end of the day.
I have been using Wealthsimple almost since they started due to their good rates on their High-Interest Savings Account, and began investing with Wealthsimple Managed Investing for my RRSP, and when Trade launched, I began to build a stock portfolio under a self directed account.
I have since taken over my RRSP as a self directed account after learning more about how to invest as a beginner.Â
When we had our baby, I opened our RESP with Wealthsimple Managed Investing as well. As new parents with so much other stress on our minds, it was so simple to set it up and automate it.Â
Downsides to Canadian Robo Advisors
As with any service you are paying a fee. The fee is much less than traditional methods of investing with assistance through financial advisors or your bank, but there is still a fee.Â
Asset allocation has recently been a topic of some conversation among investors as well, since All Robo Advisors tend to have a portion of their portfolios in Bonds, and the past few years in the market have been terrible for Bond performance. Those who are concerned with asset allocation are probably more likely to manage their own portfolios so they can control the allocation better, and minimize costs.Â
Benefits of Using Robo Advisors
Many people avoid starting to invest because they think they don’t have enough money, or know enough about the stock market. Robo advisors allow Canadians, who otherwise would be too intimidated or unaware of how to invest, to get started building an investment portfolio. Some robo advisors have zero minimum investment required, while some require $1000 minimum to start. This helps in lowering the barrier to investing. Investors also do not need a high level of financial education to get started, since the portfolios are created for them. All you have to do now is get started!Â
Humans work at Robo Advisors
Surprisingly, I received an email from an investment specialist at Wealthsimple. Surprise…humans actually work at Canadian Robo Advisors! I scheduled a call with her to see what it was all about.
#1Â She didn’t try to sell me anything. WIN!
#2 She helped me think about the risk level of my various investments vs what the goal for those investments was. Thinking about long-term vs short-term investments and risks. Likely will readjust the long-term to slightly higher risk exposure due to my time horizon till use (retirement).
#3 We discussed what should be in a HISA vs investment (TFSA or RRSP) depending on our savings goals. Where things like an emergency fund should be placed.
All in all it was a win and further reinforced my appreciation for Wealthsimple.
The bottomline
With the growing awareness of Roboadvisors, there is really no reason for anyone to not be investing.
Some Robo Advisors offer great options like fractional shares, and no minimum investments to get started. This reduces the barrier to entry to Canadians who want to get started but fear they don’t have enough Money to start investing.Â
Robo advisors also take away the need for a high level of financial understanding that used to be a necessity. Robo advisor can be a low cost, low barrier to entry way for you to begin investing.Â
So, what’s holding you back? Check out our list of the best Canadian Investment platforms for beginners to get started investing with a robo advisor today.Â
Have you used a Robo Advisor in Canada? What has your experience been like so far? Share your thoughts below!
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