Ally Invest Managed Portfolios at a glance
Pros: Where Ally Invest Managed Portfolios stands out
Ally’s robo-advisor lets you take it for a spin even before you create an account, so you can see how it might design a portfolio based on your risk tolerance and time horizon. You can pick a goal you’re saving for and how long you want to be invested. Even before you log in, it will provide you with an expected annual return based on your choices. You’ll have a chance to alter your choices if the portfolio doesn’t feel right.
Ally’s portfolios are constructed with more than a dozen low-cost ETFs (more below), and they’re a mixture of mostly the same funds with greater or lesser proportions of each depending on your risk tolerance and time horizon. From these funds Ally creates four major kinds of portfolios, and each can be adjusted to be more conservative or more aggressive:
- Core portfolio – This portfolio has a mixture of stocks and bonds and can form the basis for any long-term portfolio.
- Income portfolio – This portfolio is focused more on generating income and uses more bonds and more income-producing stock funds.
- Tax-optimized portfolio – This portfolio adds a municipal bond fund to help minimize the tax hit on taxable portfolios.
- Socially responsible portfolio – In place of the typical stock allocations, this portfolio uses socially responsible funds. Bond funds are similar to those of other portfolios.
Portfolios will often have six to nine funds in them, a mixture of stock and bond funds, depending on risk and time horizon. Perplexingly, though, even a long-term core portfolio with a high risk tolerance will still have a minimal allocation to bonds. While this allocation may be just a few percent, it’s hard to believe that it does much to offset the performance of the stock funds.
Here it’s also worth pointing out Ally’s “cash-enhanced” portfolio option, which is its standard way of constructing a portfolio. This review explains the pros and cons of this plan below.
No-fee “cash-enhanced” portfolio
If you want to avoid any out-of-pocket advisory fees, then you could opt for Ally’s robo-advisor. But there’s a caveat – you’ll be placed in its “cash-enhanced portfolio,” which means that about 30 percent of your assets will be held in cash at any point in time, with the remainder invested. That cash does earn a competitive interest rate, which would mean more if rates were higher.
This option gets you a managed portfolio at no additional expense, though you’ll still have to pay for the expense ratios of any funds you have in the portfolio, as you would at any robo-advisor.
But this option presents substantial long-term costs, which are covered in the next section. If reducing the management fee to zero is your primary motivation, then you might also look at SoFi Automated Investing or Schwab Intelligent Portfolios, both of which charge nothing.
Ally’s managed portfolios use some of the cheapest ETFs on the market, including from low-cost leaders such as Vanguard and iShares. In this core group of funds, annual expenses range from 0.03 to 0.15 of assets, with many well below 0.10 percent. In real terms, that means you’d expect to pay $3 to $15 per $10,000 invested in each fund. But a weighted average will fall somewhere between these two extremes. So an Ally customer could expect to pay less than 0.10 percent of assets annually, or less than $10 for every $10,000 invested.
That said, if you want to choose the socially responsible portfolio option, your costs will jump. The funds used there range from 0.15 to 0.25 percent, or about $15 to $25 annually for every $10,000 invested. That’s still reasonably cheap in the grand scheme, just not at the rock bottom.
So Ally offers a solid selection of low-cost funds that is competitive with anyone.
Integration with Ally
One of the benefits of going with a more integrated financial company such as Ally is that you can do so much under one roof. You can open a bank account, a self-directed investment account, a managed portfolio and more. That integration also allows you to transfer money quickly and generally keep your eye on all your finances in one comprehensive dashboard.
So current customers of Ally may find its managed portfolios option a bit more interesting.
Low account minimums
Ally has a low account minimum to open your account – zero – and it takes just $100 to actually begin investing with the managed portfolio. So new investors can get started quickly and then add a modest amount of funds to actually begin investing.
Ally Invest Managed Portfolios is a good option for existing Ally customers since they can take advantage of the “one-stop” nature of having their accounts with Ally. While Ally advertises an account with no advisory fees, investors focused on long-term investing will likely do much better with their paid option even if it costs more money each year.
If keeping costs low is your primary objective, both Schwab Intelligent Portfolios and SoFi Automated Investing may be good choices. But robo-advisors with robust tax-loss harvesting plans such as Wealthfront and Betterment may earn you the management fee back and more.
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