It seems like new robo-advisors are appearing left and right. All the ones that I see tend to invest in a group of ETFs, which are automatically selected based on your risk tolerance. Also, unless a broker specifically offers partial shares, the ETFs must be bought in integer share amounts.
So how do robo-advisors handle small account balances with regular deposits that are much less than the ETF share prices?
Say for example I have the following asset allocation:
ETF1 price = $300, percent of account = 50%
ETF2 price = $100, percent of account = 30%
ETF3 price = $40, percent of account = 20%
Now say that I start with a $0 balance. I deposit $100 to start and then $50 every month. How is the money used to buy the ETFs? Does it:
- buy ETFs starting with the lowest priced one until I match the asset allocation?
- keep everything in cash until I have enough to buy exactly the amount necessary to match my asset allocation? If so, how do I determine what that amount is?
In either case, it seems foolish to even consider ETF robo-advisors unless you have an initial investment to at least buy enough to match your asset allocation to start. And any recurring deposits into the account must be at least close to the price of the most expensive ETF.