Benefits of Using Robo-Advisors for Retirement Savings

Robo-advisors are online platforms that employ algorithms and advanced software to manage investment portfolios. By providing information about your investment horizon, risk tolerance, and financial objectives, the platforms create and keep a diversified portfolio of investments according to your needs. The advent of robo-advisors has democratized investment management, allowing individuals with varying amounts of money and financial acumen to participate in the market.

Lower Fees & Cost Savings

Ordinary financial advisors are going to charge annual fees of 1%-2% of assets under management. Robo-advisors can generally charge 0.25%-0.50%, significantly lowering investment management costs. The overall reduction in fees allows the bulk of your money to compound over time, leading to bigger retirement savings.

For an overview of how robo-advisors compare to traditional financial advisors, check out our guide on robo-advisors vs. traditional advisors: which is better?

Automated & Passive Investing

Robo-advisors use algorithmic methods, which are based on Modern Portfolio Theory (MPT), to build investment portfolios based on your risk profile and financial goals. Robo-advisors promote the use of passive investment strategies with a focus on long-term growth and limit activity that involves active trading, which can incur additional expenses, fees, and possible tax implications. For step-by-step guidance on how to implement this in your retirement plan, see how to automate your retirement savings in Canada.

Diversification & Risk Spread

Robo-advisors diversify assets across multiple asset classes such as stocks, bonds, and real estate to minimize and manage risk. The goal of diversification is to protect your retirement savings against volatility in the market and align your portfolio with your acceptable risk tolerance as well as your specific investment goals.

Tax Optimisation & Tax-Loss Harvesting

A tax-smart structure is a major benefit provided by Robo-advisors. Some planning functions will provide tax-loss harvesting strategies that allow you to sell certain capital securities with a loss to offset other taxable gains that could exist elsewhere in your portfolio. The technique leads to decreased total tax obligations, enabling increased investment returns and contributions to your retirement savings. ​

Making Investment Easy and Accessible

Robo-advisors take a simple approach to investing and investment management. Users set up and manage their investment accounts through a simple interface, which means anyone can manage their portfolio through online investment accounts. Many platforms have low or no minimum investment, giving investors with limited cash an opportunity to save for retirement without a large initial financial capital. If you’re new to this space, our article on how to pick the best robo-advisor in Canada walks you through key factors to consider.

Offering Plan Features

Today’s robo-advisor platforms also provide plan features beyond just investing, like goal-based investing, retirement calculators, and educational content. Some platforms also have human financial advisors for more complicated financial planning needs and a hybrid approach to investing that engages the human advising component of investing along with the automation of robo-advisors.

24/7 Portfolio Tracking and Continuous Improvement

Robo-advising platforms continuously track portfolios and make adjustments in order to stay within the asset allocation defined by the investor. Advancements in artificial intelligence (AI) enhance each platform’s risks, distinguishing abilities to analyze market conditions, and optimize portfolios in real time to meet investment goals for retirement. 

Selecting the Right Robo-advisor for Retirement

Selecting the right robo-advisor is essential to accumulating your retirement savings effectively. Focus on the following areas:

• Fees

Fees are low with robo-advisors – typically about 0.25%–0.50%. Like every comparison, you need to compare platforms and fees carefully, especially the hidden fees such as costs within funds or charges for premium services. Whatever the case may be small differences in cost can make big differences in your overall wealth. The best robo-advisors in Canada article breaks down who offers what.

• Investment Strategy

Many robo-advisors have different strategies when it comes to investing, or may offer a combination, for example, passive index investing or active management. Choose a robo-advisor that is aligned to your risk tolerance levels, long-term retirement goals and level of customization with how much of your investment strategy you want to manage or have managed for you.

• Tax Features

Some robo-advisors have extremely effective tax features that may include tax-loss harvesting, or tax-efficient asset placement. These features could easily improve your returns after tax and maximize the growth of both taxable accounts and tax-advantaged retirement accounts. Explore tax-efficient strategies in this automation guide.

• Customer Support and Access to Human Advisors

Many platforms now give you access to human advisors for personalized advice. Look for platforms that provide strong customer service and optional financial planning help as your retirement needs expand and become more complex. See robo-advisors vs. traditional advisors for a breakdown.

Conclusion & Call to Action

Robo advisors provide a great option to save for retirement. By offering low-cost automated and personalized investment management options, robo-advisors provide a better solution for personalized investment operations. Newer robo-advisor platforms have developed ways to balance lower fees with better automated investment options than ever before by utilizing sophisticated algorithms to AI platform integration to ensure your portfolio remains consistent with your financial goals, risk tolerance, and time horizon. When planning for retirement, it is worth exploring and consider using a robo-advisor to optimize your investment strategy and financial well-being.

Comparison Table: Best Robo-Advisors for Retirement Savings

Robo-advisor	Provider	Account Minimum	Portfolio Management Fees
BMO Smartfolio	BMO	$1,000	0.4% to 0.7% a year
CI Direct	CI Direct	$100	0.35% to 0.6% a year
Justwealth	Just Wealth	$5,000	0.4% to 0.50% a year; $4.99 a month for accounts <$12,000
Modern Advisor	Modern Advisor	$1,000	0.35% to 0.5% a year
Nest Wealth	Nest Wealth	$0	$10 to $150 a month
Qtrade Guided Portfolios	Qtrade	$0	0.35% to 0.6% a year
Questwealth	Questrade	$0	0.2% to 0.25% a year
RBC InvestEase	RBC	$0	0.5% a year
Wealthsimple	Wealthsimple	$0	0.2% to 0.5% a year

Information provided was accurate as at the date of this publication.