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What is a roboadvisor?
A roboadvisor is an online service that uses algorithms and technology to manage investments automatically. Roboadvisors are alternatives to traditional financial advisors, offering preset asset allocations, regular portfolio rebalancing, and basic financial planning tools. They typically charge lower fees and have lower investment minimums than personal financial advisors.
Roboadvisor portfolios typically contain a mix of U.S. and non-U.S. stocks, bonds, and cash. Investors can choose from a handful of portfolios designed for different risk profiles, with most portfolios allocating 60% to 70% of investments into stocks. Some roboadvisors also offer the potential for improved after-tax returns using tax-loss harvesting techniques.
Examples of popular roboadvisor platforms include Fidelity Go, Vanguard Digital Advisor, Betterment, and Wealthfront.
Ivy Invest’s endowment-style approach
Like a roboadvisor, Ivy Invest is designed to simplify your investing by providing you a portfolio that you don't have to piece together yourself.
Unlike a roboadvisor, Ivy Invest offers an actively and professionally managed portfolio that follows the investment approach pioneered by large university endowments. Endowment-style investing gives you exposure to a much broader range of investments: stocks and bonds and private equity, venture capital, private credit, special situations, and real estate funds.
Endowment-style portfolios have historically generated significantly higher returns than most roboadvisor portfolios: 11.9%1 vs. 7.1%2. Over a lifetime, this difference in returns could mean over a million dollars more at retirement for the average American3.
Does a customized portfolio matter?
Roboadvisors offer a partially customized portfolio, within the limits of their algorithms. We recognize that customization is important to some investors, particularly those with strong views on certain companies or industries.
Ivy Invest offers a single Fund and does not provide customization. The flip side of customization is scale, and we believe that scale provides far more meaningful benefits for the vast majority of investors.
Ivy Invest combines individual shareholder investment dollars into a single, much larger pool of capital. With this larger pool of capital, Ivy Invest is able to access a wider range of investment asset classes, including private equity, private credit, real estate funds and more. In some of these investments, there are high eligibility requirements, such as $1 million minimums or requirements that investors have over $2 million of investable capital. Ivy Invest's Fund investors benefit from our size and don’t have to worry about individual eligibility requirements. As another benefit of scale, Ivy Invest also invests at lower fees than are typically possible for individual investors.
Our Chief Investment Officer has more than 18 years of experience managing asset allocation, diversification, risk tolerance, and manager selection for large institutional endowments and foundations. Ivy Invest has brought this approach to the Fund, and we believe the resulting portfolio can provide an optimal risk and return balance for long-term investors.
What is tax-loss harvesting and is it important?
Tax-loss harvesting is a strategy that can potentially reduce taxable income. It involves selling investments below cost (i.e., taking a capital loss) and using the capital loss to offset capital gains from other investments. This process can help investors lower tax liabilities from capital gains, allowing them to keep more of their investment returns. Many roboadvisors include tax-loss harvesting as part of their service, potentially enhancing after-tax returns.
Our Fund employs tax-loss harvesting in a more sophisticated way. Most roboadvisors are only able to harvest losses at an ETF/index level, limiting the number of harvesting opportunities. Through our subadviser Rhumbline, which manages more than $118B in assets, we employ direct indexing for the Fund's public stock investments. Direct indexing allows us to more granularly harvest capital losses on individual stock investments, which can then offset capital gains across all of the Fund’s investments, resulting in a more tax efficient overall portfolio.
Note that tax-loss harvesting is a strategy that provides benefits for traditional, taxable investment accounts. You don’t pay taxes on gains in an IRA or Roth IRA, so there’s no benefit to loss harvesting in those types of accounts.
Read more about our CIO’s insights on tax-loss harvesting.
When is a roboadvisor a good fit?
A roboadvisor can be a good fit for shorter-term assets. Roboadvisors provide equity exposure (unlike money market funds or savings accounts), while still being fully liquid.
When is Ivy Invest a good fit?
We believe that our endowment-style model is a great fit for your long-term assets – those dollars that you can keep invested for a longer period of time. By investing in less-liquid asset classes like private equity, venture capital, and real estate, endowment-style portfolios have historically outperformed roboadvisor-style portfolios1. While we do offer quarterly redemption windows during which investors can sell shares, we’ve designed our portfolio to maximize benefits for buy-and-hold investors4.
1 Median 5-year annualized return as of 3/31/2024 for portfolio with target allocation: 20% private equity, 15% private credit, 5% real estate, 45% S&P 500, and 15% fixed income. Private equity and real estate data per Cambridge Associates. Private credit data per Cliffwater Direct Lending Index. For illustrative purposes only. This does not represent an actual investment.
2 Median 5-year annualized return for roboadvisors, as of 3/31/2024; data per Condor Capital Robo Report
3 Assumes retirement investing beginning at age 34; data per Federal Reserve Survey of Consumer Finances, 2022
4 Investment in the Fund involves substantial risk. The Fund is not suitable for investors who cannot bear the risk of loss of all or part of their investment. The Fund is appropriate only for investors who can tolerate a high degree of risk and do not require a liquid investment. Shares in the Fund are highly illiquid, and can be sold by shareholders only in the quarterly repurchase program of the Fund, which allows for up to 5% of the Fund’s outstanding shares to be redeemed each quarter at NAV. Due to transfer restrictions and the illiquid nature of the Fund’s investments, you may not be able to sell your shares when, or in the amount that, you desire.
The Institutional Investment Strategy Fund ("IISF" or "Fund") is an investment company registered under the Investment Company Act of 1940. IISF is a closed-end fund operating as an interval fund that makes quarterly repurchase offers and as such provides limited liquidity. The fund commenced operations on March 5, 2024. An investor should consider the investment objectives, risks, charges and expenses of an investment. The Prospectus contains this and other information. Read it carefully before investing.
Ivy Invest is a dba for Buena Capital Advisors, LLC.