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In an era when people do everything online—from visiting the doctor to virtually trying on clothes to earning entire college degrees—it’s no surprise that investing has gone digital, too. Robo-advisors provide a low-cost, low-effort approach to starting a wealth-building journey, making investing more accessible than ever.
Robo-advisors employ algorithms that recommend and manage portfolios based on an investor’s risk tolerance, goals, and timeline, often at a fraction of the cost of hiring a human advisor. With quality advice available at such a low cost, the question may not be whether you should invest, but how much you should invest with a robo-advisor. The answer depends on your finances, goals, and the platform’s rules.
Key Takeaways
- Robo-advisors make investing accessible with low minimum investment requirements.
- The amount you should invest depends on your financial goals, platform rules, and budget.
- Start small if you’re new—consistency matters more than size.
- Watch out for fees and minimum balance requirements.
- Automating contributions can help grow your investments over time.
What Is a Robo-Advisor and Why Use One?
A robo-advisor, also known as an automated investment advisor, is a digital platform that uses algorithms to automate financial planning and investing. Instead of using a traditional human advisor, picking stocks or managing a portfolio yourself, you answer a few quick questions about your financial goals, timeline, and risk tolerance. The algorithm takes this information to recommend a diversified portfolio, invest on your behalf, and rebalance as necessary to keep you aligned with your goals.
Robo-advisors are often a great on-ramp for those new to investing. They offer a low-pressure, low-maintenance, and lower-cost way to start investing—no in-depth financial knowledge required. As investors gain more knowledge and their savings grow, robo-advisors continue to manage and rebalance their portfolios behind the scenes, helping them stay on track with their long-term goals. Additionally, these platforms typically charge significantly lower fees than traditional financial advisors, meaning more of your money stays invested and working for you.
How Much Do You Need to Start? Minimums and Platform Rules
Robo-advisors vary widely when considering how much money you need to start investing. Each platform has its own rules governing the minimum investment amount to use the service (along with further minimums for added services or features). Many robo-advisors have very low minimums, making it easy for investors to start saving.
One of the first and largest robo-advisors, Betterment, allows investors to start with as little as $0. Betterment’s core portfolio has had over 9% in annual return after fees since its launch. Investors seeking more control and support may want to consider a premium plan. However, this plan comes with a mandatory investment balance of $100,000.
Wealthfront, another popular robo-advisor, offers investors optimized allocation across several asset classes for a minimum investment of $500. The platform also provides automatic tax harvesting for investors with a minimum account value of $100,000.
SoFi Automated Investing and Fidelity Go are two additional robo-advisors with small minimum investments to help investors begin saving for their financial futures. SoFi Automated Investing’s minimum is $50, while Fidelity Go requires just $10 to start investing. Fidelity Go offers investors their choice of many Fidelity Flex funds and charges no account fee for accounts under $25,000, making it a flexible and low-cost option for all investors. SoFi Automated Investing’s modest $50 minimum comes with a free 30-minute video meeting with a financial advisor to clear up any questions about assets or strategy.
Tip
While many robo-advisors have low minimum investment balances, some may require recurring deposits to keep the account active.
How to Decide What’s Right for You
The robo-advisor platform can help you work backward from your goals to set the amount you’ll set aside periodically to reach your objective. However, just because that’s the recommended amount doesn’t mean it’s what’s best for you or your current situation. Before investing with a robo-advisor, consider your financial foundation to determine the right amount for you.
- What’s your monthly budget? Is there money left at the end of the month to invest? If so, will it squeeze your budget too tightly? Starting with a sustainable amount will help you invest consistently over time.
- Do you have an emergency fund? Before committing all of your discretionary income to future savings, set aside three to six months of expenses.
- Are you paying off high-interest debt? Focus on paying down high-interest debt (generally, anything with 6% interest or above) before going all-in with your robo-advisor.
- How long do you have before you need your money? Short-term goals, such as a down payment for a house or saving for a special vacation, may require a larger investment in more conservative investments. Savings for long-term goals, such as retirement or education, can grow with smaller amounts invested and more aggressive portfolio allocations.
- Are you comfortable with your account value going down, even temporarily? Consider your risk tolerance before allocating funds to your robo-advisor. If you’re not comfortable with the amount of money affected by market movements, then you’re less likely to stay in the market when the going gets tough.
Investing involves building a habit. It’s better to begin with $25 or $50 a month than to wait for the “perfect” time or amount. Incremental progress is still progress.
The Power of Starting Small and Being Consistent
Financial advisors and other investing experts often talk about how “time in the market beats timing the market.” That’s not just a catchy quip—it’s a data-backed truth that missing just 10 key days in 20 years can cut returns in half.
Fortunately, one of the most powerful investing tools, dollar-cost averaging, eliminates the stress of trying to “time the market” and provides investors with an automated method to mitigate the impact of market volatility. Dollar-cost averaging involves investing a fixed amount on a regular schedule, regardless of market conditions—it’s what people are doing when they set aside money for their 401(k) from each paycheck.
By consistently investing over time, you may sometimes buy when prices are high and sometimes when prices are low. Over time, that smooths out the cost of your investments to the average, and you won’t run the risk of making a poorly timed lump-sum investment.
Common Mistakes To Avoid
Robo-advisor investing is low-cost, accessible, and easy, but not foolproof. To avoid common mistakes, it’s essential to understand a few key considerations.
- Overextending finances: Skipping past saving for your emergency fund or failing to pay down high-interest debt can backfire. It’s also crucial that you can comfortably afford the set amount you’re investing in your monthly budget.
- Ignoring fees or tax implications: Before investing, ensure you’re clear on the platform’s fees and how they affect the value of your portfolio. Additionally, gains, losses, and distributions inside your portfolio’s holdings can create taxable events. You should understand how your platform handles these potential taxable events to avoid an unexpected tax surprise when it’s time to file.
- Expecting quick returns: Robo-advisors aren’t typically going to net you the biggest gains right away—they’re a vehicle designed for long-term growth. Managing expectations about returns and the time it takes to see marked growth can help you stay invested for the long haul.
When To Invest More (and When Not To)
One of the best features of investing with a robo-advisor is that you can put automation to work, only having to look in periodically. However, there are a few events that should prompt you to revisit your contributions so they still align with your present finances and goals.
Here are times when you might increase your monthly investment amount:
- You’ve saved three to six months of living expenses in an emergency account.
- You’ve paid off high-interest debt.
- You’ve gotten a pay raise or had another financial windfall.
- Your goals have grown (i.e., saving for retirement and education)
You may need to hold steady, decrease, or pause your contributions for the following:
- Your emergency fund doesn’t have three to six months of living expenses.
- You’ve recently taken on new debt, such as medical bills.
- You’ve lost a job or hours at work.
Is There a Minimum Amount Required to Start Investing With a Robo-Advisor?
The minimum amount required to start investing with a robo-advisor depends on the platform that you choose. Some robo-advisors allow investors to begin with as little as $0, while others require a minimum investment of $500. Some robo-advisors also require monthly deposits to keep accounts active, and others do not unlock full features and benefits until the account balance reaches a minimum amount.
How Do I Decide How Much Money to Invest in a Robo-Advisor Account?
The amount you invest is as personal as your fingerprint. To determine how much to invest, consider your budget, debt, goals, timeline, and risk tolerance. The key to successful investing is consistency. Choosing an amount to invest that will not cause stress and is manageable, that encourages rather than discourages you to stay the course, is the right amount for you.
Can I Add or Withdraw Money from My Robo-Advisor Account at Any Time?
Robo-advisors generally allow flexible deposits and withdrawals, but investment trades typically take a day to settle. Before making withdrawals, it’s necessary to understand the tax consequences associated with any trades—especially tax consequences from withdrawals in a tax-advantaged retirement account.
How Does the Amount I Invest Affect My Portfolio’s Diversification and Returns?
Investing is like rolling a snowball down a hill. The larger the snowball (investment) you start with, the more snow (money) you gather as it rolls. Large investments may lead to greater returns, but modest initial amounts can also grow over time through strategies like dollar cost averaging and compounding interest. The amount of money invested matters far less than consistency and time in the market.
The Bottom Line
Robo-advisors make investing accessible, simple, and affordable, especially for investors just starting or seeking a more sophisticated and automated do-it-yourself product. Individual circumstances, timelines, goals, risk tolerance, and budget are just some of the factors behind how much you should invest with a robot advisor.
Each investor will have a different amount to invest, but starting small and growing steadily is generally a prudent approach. Choosing the right platform, honestly assessing your circumstances, setting clear goals, and automating your contributions are essential steps to stay on the right path and reach your financial goals.
