Which RRSP Robo-Advisor Could be Right for You?

Young woman working on laptop doing financial calculations

What is a robo-advisor and how can they help you build your financial future and your RRSP? Robo-advisors are computer-driven investing platforms that will invest your money on your behalf. You decide in advance what your investing goals and risk tolerance are.

Robo-advisors operate in the role of a traditional financial advisor for a fraction of the cost and allow you to invest in a multitude of ways, from cash accounts to registered plans like TFSA and RSP’s. Investments into your RRSP are not the only way to use a robo-advisor, however, for some it may be part of an effective RRSP investment strategy.

What Are Some Benefits of Robo-advisors?

Robo-advisors have lower investment entry points and often lower fees than conventional brokerages. If you’re just starting out with investments, robo-advisors can be a good place to start. They offer low-cost financial advice and can often provide intuitive and easy-to-understand dashboards that can track your investments over time. Fees for robo-advisors typically range from $4.99 a month or 0.2% to 0.7% of your portfolio.

Using a robo-advisor is relatively easy. You connect your bank account or make a deposit to the robo-advisor investment account and authorize it to invest your money on your behalf. Robo-advisor fees tend to be less than comparable investment brokers. Especially if you’re investing for retirement, high brokerage and per-trade fees can eat into your investment earnings over time. Several robo-advisors also offer a combination of robo-investing and human advice.

Is There a Minimum Contribution Level for Robo-advisors?

Some robo-advisors do have a minimum starting investment amount, ranging from $1,000 to $5,000.  A few Canadian robo-advisors have no minimum investment. You can allocate the funds you choose to invest in your robo-advisor RRSP account and can access those funds at any time, regardless of the robo-advisor you select. One thing to remember is that while robo-advisors are low-cost investment options, often their fees are based on the size of the deposit they are overseeing.

How Do Robo-advisors Invest the Money?

Most robo-advisors use portfolios made up of ETFs or exchange-traded funds. The reason for this is ETFs offer a low-cost way to diversify investments. ETFs represent a basket of assets and are indexed to financial markets such as the TSX and S&P 500, or more specialized markets like healthcare or natural resources. In this way, ETFs can index virtually anything, like the way a mutual fund might. Because ETFs are indexed to a market, they are set up to adjust to any changes to said index and rebalance exposure accordingly. Like many investment options, ETF’s are traded all day long and consist of securities that are designed to match different investment objectives and levels of risk.

How Should You Choose the Robo-advisor for Your RRSP?

Individuals will have different approaches to RRSPs based on different timelines, investment objectives, contribution amounts and risk profiles, however, in most cases a balanced and diversified RRSP portfolio is a well-advised strategy. This diversification can be easily and relatively cheaply accomplished by a robo-advisor (compared to a mutual fund from your bank) which makes robo-advisors an attractive option.

When choosing which robo-advisor to use, affordable fees, tools, and perks from the provider are usually the top qualifying factors. Returns on your investment are important as well, but these are usually more closely tied to the markets that you direct the robo-advisor to focus on. So, in many cases it can be difficult to evaluate robo-advisors on this basis.

Some robo-advisors have no fees on accounts opened at minimum levels; for example — $10,000. Don’t forget that if you have investment losses in your RRSP, they are not tax-deductible according to the CRA. Some robo-advisors offer access to human financial advisors who can offer advice about how to plan for major life events. Depending on your individual preferences and needs each robo-advisor in Canada has different advantages.

Profits and growth of robo-invested funds are not guaranteed. It is possible for you to have investment losses, just as if you were investing with a human-advised investment firm. If you’re tech-savvy and like to monitor your investments and progress toward retirement or toward major purchases like a home, and would like to save money on trading fees, a robo-advisor for your RRSP can be an excellent choice.

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