Like other robo-advisors, SoFi Invest puts your money into a diversified portfolio of ETFs that corresponds to your risk tolerance and investing horizon.
When Forbes Advisor ran a sample account for a 35-year-old investor with a decent risk tolerance who needed the money in five to 10 years, SoFi Invest produced a portfolio made up of 80% stocks and 20% bonds. Unfortunately, it suffers from the same superfluous syndrome as Betterment and Wealthfront, recommending nearly 10 ETFs for our portfolio when only three or four would likely provide sufficient diversification.
Some of the funds SoFi Invest chose were the usual suspects, primarily from Vanguard and Blackrock. That means SoFi Invest uses low expense ratio ETFs that would be the foundation of any respectable investment portfolio. Discerning investors will note unwelcome additions to the portfolio, however: SoFi proprietary ETFs.
Almost half of Forbes Advisor’s assets were put into the SoFi Select 500 ETF (SFY), for instance. This fund’s net expense ratio is 0%, but that’s only because SoFi waives the gross expense ratio of 0.19% until at least June 30, 2022. But you’re investing for the long term, right? Your costs will climb relatively quickly—and that’s a problem: A 0.19% fee is significantly higher than the 0.03% Vanguard charges for its S&P 500 fund (VOO) tracking the same index.
Slightly more than 5% was allocated for SoFi Next 500 (SFYX), which invests in the 501st to 1,000th biggest publicly traded companies. This ETF advertises an expense ratio of 0.02% that could increase to 0.21% when its waiver expires at the same time as SFY’s.
So why do these ETFs charge such high fees, sans waiver? Well, they’ve accumulated precious few assets under management, $285 million compared to VOO’s $245 billion. The Next 500 ETF has less than $40 million in assets. Smaller funds need to charge more to make the investment firm’s economics work.
In addition to charging higher expense ratio fees, smaller funds are at greater risk of shuttering entirely, an event that would greatly disrupt a tax-efficient, buy-and-hold strategy by forcing you to realize taxable gains. You’d then have to reinvest the proceeds into a similar fund that perhaps you could have just started with in the first place.
All of this is to say, not only are you entrusting your savings to SoFi Invest, but you’re also betting that more are likely to do so in the future as well. If you aren’t confident in that bet, you may be better served by a different robo that charges more in fees upfront.