Ally Invest Robo Portfolios review 2023
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Ally Invest Managed Portfolios: Best for
- Existing Ally customers
- Cost-conscious investors
- Beginning investors
Cost-conscious and beginner investors will appreciate what Ally Invest Robo Portfolios has to offer, while customers who already bank with Ally Bank may appreciate having their finances all in one place.
Ally offers four robo portfolio options that are built using low-cost funds and the annual management fee can be waived if you opt to keep 30 percent of your portfolio in cash. If you choose the more fully invested option, the fee is 0.30 percent annually, just above the industry average. With low account minimums, you can start building a diversified portfolio even if you don’t have much to invest right away. You also shouldn’t have any issues getting help when you need it because Ally representatives are available 24/7 via phone.
Unfortunately, Ally doesn’t offer certain features that have become industry standards such as tax-loss harvesting and a dedicated cash management account. If you’re looking for a more complete robo-advisor offering Wealthfront and Betterment are solid choices. If costs are your most important variable, consider SoFi Automated Investing, which has no fee and comes with the option of speaking with a human advisor.
Ally Invest Robo Portfolios: In the details
Pros: Where Ally Invest Robo 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. You’ll have a chance to alter your choices if the portfolio doesn’t feel right.
Ally’s portfolios are constructed from 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 typically 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 small 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 has risen over the past year.
This option gets you a robo 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, which charges nothing, or Schwab Intelligent Portfolios, which has a no-fee option.
Ally’s robo 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 rock bottom.
So Ally offers a solid selection of low-cost funds that is competitive with anyone.
Ally has significantly upgraded its educational resources over the past year and now offers a number of different articles that can be helpful to both new and experienced investors alike. The articles are organized by topic so it’s easy to find what you’re looking to learn more about, whether it’s stocks, bonds, mutual funds or even options.
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 robo 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 robo portfolios option a bit more appealing.
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 robo portfolio. So new investors can get started quickly and then add a modest amount of funds to actually begin investing.
Cons: Where Ally Invest Robo Portfolios could improve
Portfolio construction and fees
While Ally advertises a “no-fee” robo portfolio, the situation is more complicated than that. The no-fee rate applies to what Ally calls its “cash-enhanced portfolios.” Here’s what that means in practical terms: Any cash-enhanced portfolio will have about 30 percent of its assets in cash at any point in time. That has a huge negative effect on your long-term returns, even if you are receiving some interest on that cash.
If you want to have all your cash invested – that is the point of holding it in an investment account – then you’ll need to opt for what Ally calls its “market-focused portfolio.” It invests about 98 percent of your funds and leaves the remainder as a cushion. For this option, you’ll pay 0.3 percent of your assets annually, or about $30 for every $10,000 invested.
Cash is ok to have on hand in an investment portfolio if you have pressing needs, especially in the next year. It’s not appropriate for anyone investing for the long term. By having that enormous cash balance, you’ll likely lose tons of gains that you could otherwise have made. And that’s all to save an advisory fee of 0.30 percent, which is only slightly above average.
So it seems to make little financial sense to go with the cash-enhanced option, which is not an “enhancement” at all.
No tax-loss harvesting
Compared to some other top robo-advisors, Ally’s robo-offering is missing some key features that would put it near the top of the field, in particular automated tax-loss harvesting, a feature that can add some extra juice to your portfolio.
With automated tax-loss harvesting, a robo-advisor will sell money-losing investments and “harvest” those losses, which can be used to offset gains elsewhere. It’s a useful feature that minimizes your tax bill today and can even save you on future taxes, too.
To be sure, Ally does offer a tax-optimized portfolio option that minimizes taxes in taxable accounts by using municipal bond funds. Municipal bonds are typically exempt from federal income tax.
No access to human advisors
Ally does not offer access to human financial advisors for any of their portfolio options. This is disappointing for a provider like Ally that prides itself on customer experience. Though it was once rare for robo-advisors to provide human advisor access, it is becoming more common, particularly at premium tiers of service. SoFi Automated Investing, Schwab Intelligent Portfolios and Wells Fargo Intuitive Investor all provide clients with the opportunity to speak with financial advisors.
Lacks a dedicated cash management account
Ally does not offer a dedicated cash management account, unlike many other robo-advisors.
A dedicated cash management account is a core feature at top robos Wealthfront and Betterment and even middle-tier offerings from Stash and Acorns. In fact, the top players offer their accounts at no cost, meaning you get a ton of great features (interest-bearing account, debit card, no-fee ATMs and more) and you don’t even need to use the investing account.
Ally receives demerits for this missing feature, though perhaps it’s not as drastic as it would be at another robo-advisor. That’s because you can easily open a bank account through Ally Bank, and take advantage of many of the same features (interest on your account, fee-free ATMs, debit cards and no monthly fee) as you would at another robo’s cash account.