If you’re looking for an easy-to-use, affordable program to automatically manage your investments, SigFig could be a good match for you. With friendly explanations and straightforward analysis, this program can manage your accounts, analyze your advisor’s performance and provide helpful portfolio suggestions, all at a reasonable price.
What is SigFig?
SigFig, which started as Wikinvest in 2006, is an online portfolio manager with a focus on transparency and accessibility. Using patent-pending algorithms, this application assesses your holdings according to diversification, performance and cost, and determines what potential gains you could make by trading. Users can also pay to have their account managed online for $10 per month. With bank-level security and a history of strong returns, managed accounts automatically diversify and optimize portfolios for consumers who don’t have the time to manage their portfolios themselves or the assets to hire an in-person investment advisor.
By offering easy access to information about how recommendations are calculated, SigFig keeps consumers informed about where their money is going and why. Much of its analysis also focuses on finding and eliminating hidden fees, which further empowers investors by making information more accessible.
Instead of simply chasing returns, SigFig is more interested in methodology and consumer education, which makes it different from other portfolio managers. The intuitive interface invites clients to learn more about investing on their own terms by tracking their own accounts and reading the site’s news and strategy articles.
How SigFig Helps Consumers Increase Their Earnings
Letting a computer manage their portfolios may seem scary to some investors, but it also has major benefits. Unlike some in-person brokers, SigFig isn’t interested in taking a percentage of your managed assets. Although part of its revenue comes from referrals to brokerages and advisors, its recommendations are based on algorithms and remain bias-free.
To boot, SigFig’s managed accounts consistently improved investment performance in past years by an average of 4.5%, making it an easy way for investors with modest portfolios to get quality investment advisor services for a reasonable price.
Even without a managed account, you can still get a lot of information from SigFig’s free-to-use dashboard, which allows you to import or manually add your portfolios and rate your own risk-tolerance. After adding your information, this program calculates the optimal allocation of your holdings in a matter of seconds. With free, live-streaming data, you can get a bird’s-eye view of your portfolio and compare your earnings with different indexes, such as the Dow Jones and S&P 500.
Through its advisor analysis, also available on the dashboard, SigFig also allows investors to compare the fees their advisor is charging with the performance of their portfolios. If your portfolio is underperforming, this feature offers recommendations for better in-person advisors near you. All financial advisors who are recommended have been vetted by SigFig and meet certain performance requirements.
Although SigFig has a broad range of clients, its focus on education and transparency is especially useful for investors who are just starting out and don’t have a lot of time to dig through information and rebalance their investments on their own. The broad range of information available on the dashboard, easy-to-use features and the low monthly management fees make managed accounts a simple, low-cost introduction to investing.
How SigFig’s Portfolio Manager Works
To optimize your portfolio, SigFig performs a quantitative analysis of your portfolio using SigFig Scores, which take into consideration the risk, fees, Sharpe ratio, asset class, third-party ratings and trading cost of your funds. By analyzing the three-year historical risk-adjusted returns on each fund, it gives you an idea of how much your funds’ performance may fluctuate and recommends certain low-fee, high-yield funds that match your risk tolerance. Managed accounts invest solely in commission-free exchange-traded funds from Vanguard, iShares and Schwab; ETFs have lower fees and incur fewer capital gains, leading to more tax advantages.
SigFig offers free portfolio analysis and charges $120 per year ($10 a month) to automatically manage accounts. Compared with hiring a financial advisor, this method of investment management is much more affordable. Additionally, a managed account provides information about your accounts in real time, whereas other wealth management firms may only provide reports of your portfolio’s performance quarterly. For all military personnel and veterans, SigFig also offers a year of free account management.
SigFig vs. Morningstar vs. Jemstep
SigFig’s automatically managed accounts immediately set them apart from competitors, such as Jemstep and Morningstar. Here are some ways these applications vary:
In determining risk, Morningstar uses up to 10 years of historical risk-adjusted returns. SigFig, in contrast, uses three years of risk-adjusted returns, and if you email their support team, they can back test funds up to a year and give you the performance results. Although some investors complain that SigFig’s analysis doesn’t go back far enough, this limitation hasn’t seemed to affect its performance significantly yet, and its algorithm-based portfolios have consistently performed well. It’s also worth noting that while all of these programs rate risk based on historical data, that information doesn’t necessarily indicate future performance.
Like SigFig, Jemstep allows users to personally tailor the preferred level of risk for their portfolios. Morningstar, however, doesn’t prompt you to indicate your risk tolerance; instead, it ranks the risk of each fund, compared to other funds in the same asset class, and allows you to evaluate the results independently. This could be a downside for investors who are looking for more guidance.
While some investors may be concerned about the relative lack of freedom in a SigFig-managed account, SigFig still allows users to make changes to their portfolios while they are being managed. Users can alter their risk profiles, make withdrawals or opt to manage certain securities themselves at any time.
Identifying Hidden Fees
Morningstar makes it much more difficult for consumers to identify ways to lower fees than Jemstep or SigFig. In its Fund Compare tool, you can find the expense ratio and the front-end and back-end load fees for each ticker, but it doesn’t offer more cost-effective alternatives or tell you exactly how much more you’re spending for a certain fund. Jemstep, on the other hand, offers advice about exactly which funds are overcharging and by how much with its Action Plan tool. After suggesting which securities to buy or sell, it also offers a detailed explanation of why, discussing differences in risk, returns, and fees.
When SigFig started, its advice portal was also the centerpiece of its dashboard, identifying several types of hidden costs, ranging from brokerage fees to overcharging investors. With its redesigned site, the advice portal has been replaced by managed accounts, but the company looks forward to reintroducing the advice feature soon. In the meantime, managed accounts invest solely in commission-free ETFs, which immediately minimize fees for investors.
SigFig’s dashboard offers a range of helpful “no-finance-degree-needed” analytical tools, including a performance chart, where you can compare your portfolio’s performance to the performance of a range of U.S. markets, fixed income indexes, commodities and international markets. From the dashboard, investors can also track live streaming data of their fee breakdown, geographic allocation, risk level and quarterly dividends and yields. The well-designed interface makes this data easy to navigate and doesn’t leave busy clients struggling to find the numbers they’re looking for.
Jemstep’s dashboard is slightly more limited, with a small thumbnail graph of your portfolio’s performance, pie charts contrasting your current portfolio allocation with your optimal allocation to reach your retirement savings goal and a breakdown of how many securities you have in each category. Unlike SigFig, it doesn’t offer live streaming data; however, users have the option of refreshing the data whenever they want to, and the performance chart lists when the data was last refreshed.
For free accounts, Morningstar has a customizable dashboard that allows users to view an exhaustive range of data points for their accounts, including the past 15 years of returns on a certain holding, dividend growth over a certain period of time and cost per share, to name just a few. While financial advisors may find all this information very useful, people who are new to investing or don’t have a lot of time to go through all these comparisons may find the information overwhelming. To get more actionable advice from Morningstar, users must get their premier membership. Morningstar’s X-Ray Overview, for instance, offers a similar portfolio analysis as SigFig, while also breaking down each stock into specific sectors. This offers a clearer snapshot of how diversified your holdings really are. The subscription fee for the membership that offers this service and others is $199 a year; in contrast, SigFig’s dashboard is free, and Jemstep’s dashboard is free for people with portfolios under $25,000.
Is It Worth It?
SigFig’s easy-to-use managed accounts and democratized investment information help level the playing field for people who want to invest wisely and stay well-informed about their accounts but are starting small. In December 2013, SigFig reported that their users were tracking more than $135 billion in assets. If the company keeps listening to consumer feedback as it has in the past few years, SigFig is sure to continue growing and adapting to investors’ needs.
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