Have You Been Thinking About Getting Investing Help From a Robo-Advisor?
In today’s technologically-driven society, it should come as no surprise that robo-advisors are now “a thing.” After all, we like automating everything – why not our investing advice? If you’ve been thinking about whether you should use a robo-advisor, this article will help you answer the question, ‘Should I use a robo-advisor?’
Robo-advisors work by using algorithms to help clients make the best investing decisions, weighing the client’s tolerance for risk and desired length of investment into the equation. Some robo-advisors are strictly automated, while others also use humans to complement their services.
There is a lot to consider before deciding whether or not a robo-advisor would work for you. They do come with some benefits that don’t exist with physical financial advisors – you wouldn’t have a personality clash with a robo-advisor! – but there are some potential downsides as well, depending on your own unique needs.
Of course every robo-advisor is different and offers a variety of services, so make sure to do your research before deciding which company to use.
Should I use a robo-advisor if I don’t have a lot of money to spend?
Most (although not all) robo-advisors cost less than their physical counterparts. This makes robo-advisors great options for millennials, who may not have as much money to spend on financial planning but could still benefit from financial advice. You should absolutely use a robo-advisor if you would like a low-cost alternative to a regular financial advisor. Even though we typically need to spend money to make money, by spending less you might end up having more to invest.
On the flip side, there are some physical financial advisors who cost less than robo-advisors. You also get what you pay for in some cases: financial advisors don’t only make investments. They also provide a personal touch and relationship building, which are essential to some investors.
Should I use a robo-advisor if I like lunchtime business meetings with my financial advisor?
Probably not. Your robo-advisor won’t be meeting you over coffee to discuss the latest stock market trends. If you love the personal touch dealing with an individual face-to-face brings, then a robo-advisor might not be for you. Although many robo-advisors offer access to financial advisors such as Vanguard Personal Advisor Services, Schwab Intelligent Portfolios, SigFig and Empower, the meetings will be over video and not in person.
That being said, people with busy lifestyles may benefit from the convenience an online advisor brings. You will be able to work with your robo-advisor outside of normal business hours, thus removing the need to put anything extra in your already busy schedule.
Should I use a robo-advisor if I want a personalized experience?
Unfortunately, robo-advisors can only personalize so far – they do take your personal risk tolerance into consideration, but they cannot offer the same personalization that a human financial advisor can – in most cases. This might be a problem for individuals looking for extremely complicated, unique investments, but it should not scare off everyone: robo-advisors’ investment algorithms are just fine for most basic investments. And many robo-advisors, such as Zacks Advantage offer access to multiple asset classes and funds.
Whereas Empower has a specialized approach as well as access to advisors for higher net worth investors. And at hybrid Vanguard Personal Advisors the financial advisor drives the investment management process.
Should I use a robo-advisor if I want basic customization?
Definitely! The algorithms of most robo-advisors offer some customization. They may not be able to do everything a personal financial advisor can do, but they can change to work with people of varying incomes, risk tolerance levels, and investment desires.
Wealthfront recently added over 200 ETFs that users can add to their existing portfolio or use to create a new one. Either way, Wealthfront will manage the portfolio for you
And for access to thousands of investments M1 Finance stands out as a superior robo-advisor plus DIY investment service.
Should I use a robo-advisor if I will have a small balance in my investments?
You sure should! Some robo advisors allow you to start investing without minimums, while others require somewhere between $500 and $5,000 (SigFig, Wealthfront, Schwab Intelligent Portfolios)– still, you don’t need to drop a quick 50 grand to get started. And SoFi Invest allows you to get started with a buck and also offers free financial advisors!
Check out: Low Investment Minimum Robo-Advisors
|0.25% of AUM ($5,000 managed for free)
|$5-$9 per month
|Basic-$0.00 Premium-$30/month ($300 set up fee)
|0.25% of AUM for accounts worth more than $20,000 | $4.00 for accounts worth less than $20,000
|None - $10 to begin investing
Should I use a robo-advisor if I need to be consoled when I lose money?
Maybe. Many robo-advisors can’t offer the personal touch a physical advisor can, or make you feel better or remind you that the market fluctuates. You’ll need to reach out to someone else – a friend, financial planner, or family member – if you need someone to talk you through a financial loss. Yet, more and more robo-advisors are also adding access to human financial advisors. The list of hybrid financial advisors continues to grow, further blurring the lines between traditional and robo-advice.
Robo-Advisors with Human Financial Planner Access
|Digital: 0.25% of AUM for accounts worth more than $20,000 | $4.00 for accounts worth less than $20,000 | Premiun: 0.40% AUM
|Digital None - $10 to start investing | Premium: $100,000
|zero for free tools - 0.89% - 0.49% AUM
|zero for free tools - $100,000 for asset management
|0.25% of AUM ($10,000 managed for free)
|Basic-None Premium-$30/month ($300 set up fee)
|$5-$9 per month
The final verdict: I would use a robo-advisor!
I would use a robo-advisor if I was just starting out for five reasons:
- I like low-cost options. I don’t want to pay someone for his or her time if I can work with a cheaper alternative and potentially get the same results.
- I need flexibility. Robo-advisors offer you a chance to invest outside normal business hours. No more waiting for appointments!
- Efficiency is key for me. I don’t need small talk – I just want to make my investments.
- I don’t have a lot to invest up front. Robo-advisors eliminate the need to have thousands on hand.
- My needs are relatively simple. I don’t require extensive customization in order to build the portfolio I want.
Of course my investing needs and decisions may be very different than your own. As with all investment decisions, you need to carefully weigh the pros and cons for yourself. Since making money through your investments isn’t guaranteed, it’s always good to decide what risks you are willing and able to take, and what options give you the best chance at success. If you’re thinking about using a robo-advisor, you may want to sign up for fee-free SoFi, with access to half hour financial planning appointments for all.
*Disclosures: Please note that this article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link. That said, I never recommend anything I don’t believe is valuable.