Interactive Advisors at a glance
Pros: Where Interactive Advisors stands out
No management fee
With so many other positives on offer at Interactive Advisors, it’s a bit hard to believe that the robo-advisor charges no management fees. But there really is no cover charge. Yes, you’ll still have to pay the expense ratios on any investment funds that you select, as you would with any robo-advisor, of course.
This structure means that for all-in costs (management fee plus fund fees) Interactive Advisors is about as competitive on price as any robo-advisor can be. That puts it in stiff competition with Schwab Intelligent Portfolios and SoFi Automated Investing for lowest-cost robo-advisor. That said, Interactive Advisors does not offer the same level of features as other robos (more below).
As alluded to above, Interactive Advisors offers some very low-cost portfolios, with expense ratios starting at just 0.08 percent, or a cost of about $8 a year for every $10,000 invested. That low fee gets you access to Interactive Advisor’s home-grown thematic funds, though you can add other funds at slightly higher costs. In fact, you can get nearly half of the funds on offer here at a fee of 0.11 percent or less – solid value. If you don’t mind paying a bit more, you’ll be able to snag about two-thirds of the funds here for an expense ratio of 0.20 percent or less.
Then if you’re looking for something a little more custom, you could go as high as 1.5 percent, but you absolutely needn’t do that to enjoy a highly individualized portfolio.
Factor in the total costs of your funds (plus the lack of management fee), and you’re looking at an all-in cost that could easily be half – maybe even a third – of what you’d pay elsewhere.
Interactive Advisors also excels at the range of portfolios on offer. You’ll get more than 75 investible funds fitting almost any major portfolio style, and as noted, most of them are low cost.
Here are some of the highlights:
- A mix of passive and active strategies. Investors can select funds that are only trying to replicate an index or those that are trying to beat the market, or they can mix the two.
- Low-cost smart beta funds. Some of the robo’s in-house funds use a “smart beta” strategy that tries to achieve higher risk-adjusted returns than the market as a whole. That is, they’re looking for a higher return for every unit of risk assumed. These funds are available in several themes, including quality, growth and dividend stocks.
- Industry funds. Want exposure to a specific industry? You can get targeted exposure to the major economic sectors.
- Custom strategies. Funds with higher expense ratios offer more active or advanced strategies, allowing you further choices.
- Clear performance and risk management. Interactive Advisors provides details on how each fund has performed over the last five years and also offers a measure of the risk-adjusted return, showing you how much risk you’re taking for your return.
- ESG funds. A strong offering here, but more on this in the next section.
The wide portfolio selection is arguably this robo-advisor’s strongest feature. In fact, probably only Wealthfront offers a wider selection of funds at a robo-advisor.
Interactive Advisors’ investment selections are so strong that it’s worth calling out one of the strongest in its own section: ESG investing. ESG investing – which stands for environmental, social and governance – offers the promise of investing in companies that are making the world a better place, and it’s become tremendously popular in the last few years.
This robo-advisor’s offering might be at the top of the heap, however. You can find ESG funds with investing themes (growth, value, dividends, etc.), or you can fine-tune your selection to specific ESG themes. For example, if you want to emphasize companies that focus on ocean sustainability, you could buy the Ocean Life fund, which invests in firms that have waste management and recycling processes in place to avoid disasters impacting sea life.
Similarly, “mindful business models,” “land health,” “clean air,” “racial equality” and others promise stock exposure reflecting their namesakes. It’s worth noting that these portfolios are all among the cheapest on offer here, too.
You can get started at Interactive Advisors with as little as $100, so it only takes a minimal investment to get going. All the low-cost portfolios – those costing 0.20 percent or less – have this $100 minimum. That’s a boon for beginning investors, though if you want to add a few different funds to your portfolio, you’ll need to meet the $100 minimum on each, which is hardly onerous.
If you want to add some of the pricier funds to your account, you’ll need to cough up $10,000 or more to get started there, though even a few of these allow you to begin with $500.
Don’t let the high account minimums on a few funds deter you from the much wider range of funds offering just that $100 minimum, though. You’ll find plenty to like at the lower price points.
Interactive Advisors also allows you to get going with fractional shares, meaning you can deposit, say, $125, and have it all invested in the portfolio of your choice. That’s useful for investors who just want to deposit small amounts to get started here, and it’s a feature that’s not always available at other robo-advisors, even some highly regarded ones.
Interactive Advisors also reinvests any dividends or other distributions back into the portfolio using fractional shares, so you won’t have cash sitting in your account unless you want it there.
Linked to Interactive Brokers account
If you have an Interactive Brokers account, you can quickly link your Interactive Advisors account with it. Why is this useful? Among other reasons, it can actually allow you to borrow on margin from your brokerage account to fund your robo-advisor account, if you decide that’s in your interest. Interactive Brokers typically offers the lowest margin rates among online brokers, and margin loans are uncommon among robo-advisors, though Wealthfront offers one, too.
This connection is also valuable because it allows you to use Interactive Brokers as your cash management account. The broker routinely offers the best interest rates on cash balances (though only when rates were at “normal” levels) and offers a debit card, allowing you to spend straight from the account. You’ll also be able to pay bills from the brokerage account. This level of functionality might not be quite up to the level of the top robos, but does offer useful services.
Interactive Advisors makes a strong contender for those who can take advantage of its biggest strengths, its wide selection of portfolios:
- The choice of funds here is among the best in the industry, and the all-in cost is also among the cheapest, too.
- The detailed ESG portfolios may also attract those who want a specific investing focus rather than a generic fund.
- However, other investors looking for more features may find something missing, whether that’s tax-loss harvesting, robust tools, a cash management account or something else.
Investors looking to create their own portfolio might want to investigate M1 Finance or even Wealthfront, which offers an enormous selection of funds and the ability to pick what you want. If cost is your only objective, then look at SoFi Automated Investing or even Ellevest.
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