Also known as an automated investing service, Robo-advisors are machine-powered investment advisors that rely on algorithms and other advanced software to manage and grow your investment portfolio. The same services that these advisors provide depend upon the broker in question and range from tax optimization to automatic rebalancing and investment recommendations. This is particularly useful to beginner investors without a wealth of experience or knowledge to inform their investing choices.
As with anything, picking the right service is critical for a positive experience. Don’t worry if you are not sure where to begin. You can compare Robo-advisors with trusted broker reviewer AskTraders. The company’s expert team does extensive research to help you find the perfect broker and keep you abreast of the latest news from the financial world.
What Robo-advisors do
We know what Robo-advisors are, but what exactly do they do, and are they the right choice? Here are some of the most popular features of Robo-advisors to help you decide if they are the right choice for you.
Affordable service
One of the main draws of Robo-advisors is the low cost associated with using them. While we will touch upon this topic in more detail below, human advisors can be fairly expensive. This is less than ideal for many, with amateurs and professionals chafing at the cost. For many people, Robo-advisors are far more affordable. This expands access to the market and makes it easier for people to make their own investments without facing the sometimes prohibitive fees associated with more personalized care.
Automated investing process
Another benefit that Robo-advisors offer is the ease of making investments. When you use a machine-powered advisor, you can often allow it to make decisions on your behalf without the cost of a personal financial advisor. Robo-advisors do this by making clients complete a survey that explores their investment styles and goals. The answers are subject to an algorithm that connects you to a portfolio that seems to best meet your goals.
What Robo-advisors don’t do
Robo-advisors have plenty of pros, but they are not the right choice for everyone. There are a few limitations to keep in mind when making your decision.
Financial guidance
One big thing that Robo-advisors can’t do is offer financial planning. Remember that these tools are designed to automate the trading process, not help people plan for the future. This human element is an important part of managing your money. Robo-advisors can help you trade, but they can’t remind you to contribute to certain investments or calm you down when you panic. The latter is something that many traders are surprised to experience, and panicking can lead to irrational decisions and selling low rather than holding onto the investment.
Personalized service
New investors often assume that human, financial advisors are ‘too expensive. This is why many people turn to Robo-advisors, in fact, as they assume that machine-powered advisors must be much cheaper. While this can certainly be true, it is not always accurate, especially when the need for personal advice is considered.
As mentioned above, human advisors offer traders human interaction and customized care. This means that for the price of the professional’s time, traders can receive personalized information that is designed for their specific needs and goals. It is important to note that today’s traders have a wealth of options at their fingertips, including ‘web-based’ financial advisors who offer affordable help by cutting the fancy office and everything that comes with it out of the equation. In fact, some of them offer prices on par with Robo-advisors, but they offer far more value for money thanks to their ability to provide advice tailored to their clients’ needs.
Non-expert care
Something else to note about Robo-advisors is that they typically use solutions you could access on your own and charge a premium for simplifying the process. Many of them use ETFs and Vanguard funds, both of which are available to the public. When you opt for a Robo-advisor, you really are paying for the ease of use rather than expert advice. Some people will find this completely worth it, which is absolutely fine. However, others might balk at the idea of spending money on something they could do on their own more affordably.
Would you like to learn more about how to keep your finances on track? Keep an eye on our website for information about building and maintaining a budget.
Featured Image by rawpixel.com
