I’m a Financial Expert: Why You Should Entrust Your Investments to a Robo-Advisor
More Americans own stocks than ever before, according to a Federal Reserve survey. With almost 60% of Americans owning stocks, you’ve likely considered investing your money into the stock market to earn some decent returns. However, investing your money can feel intimidating, and you may want to outsource this process to a financial expert.
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While financial advisors have been around for as long as most of us can remember, many investors are now turning to robo-advisors as a simpler and cheaper alternative. If you’ve saved up some money and are ready to start investing it, you may want to consider entrusting your funds to a robo-advisor.
Lower Fees With a Robo-Advisor
“You can work with a traditional financial advisor, who might charge 2% or more to manage your money,” said Dave Fortin, CFA, co-founder of FutureMoney. “If your financial situation is fairly typical, and you’re looking for something that gets you the benefits of investing without significant cost, robo-advisors are a great option. Their fees can be lower because they set up simple model portfolios that are managed using technology, so human involvement is minimized.”
When using a robo-advisor for your investments, you don’t have to spend as much on fees since there’s no human involvement. When you invest with a financial advisor, you have to spend more on management fees, which could eat into your profits and make a dent in your bottom line. While the fees will vary, you can pay around 0.25% of total assets being managed with a robo-advisor, which is likely much less than the cost of a traditional financial advisor.
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Hands-Off Investing
If you’ve ever tried to pick out individual stocks, you’ve likely noticed how confusing it can be. You also may have noticed how much your emotions influence your investment decisions because it’s tempting to sell off your investments when you read the news. With a robo-advisor, you don’t have to worry about tracking the news or making any changes to your portfolio, as it’s completely hands-off.
With a robo-advisor, once you complete the initial questionnaire about your risk tolerance and financial goals, you won’t be involved in deciding what to invest in. The robo-advisor will give control of your portfolio to an algorithm that will invest according to its recommendation.
By entrusting a robo-advisor, you don’t have to worry about dealing with a financial advisor and don’t have to stress about tracking market movements on your own. You can set the preferences to make changes to your portfolio based on your risk tolerance and goals.
Easier To Use
“Robo-advisors tend to be quick to set up, easy to use, and have a great user interface on websites and/or mobile apps,” Fortin said. “While some investors might be used to getting paper statements in the mail quarterly as their only way to view their investments, there are much better modern solutions that allow you to track your financial situation more closely and stay informed.”
When you work with a financial advisor, you’ll have to set up meetings and find time in your schedule to meet with them. With a robo-advisor, you don’t have to meet with anyone and can easily track your investments online. Whenever you want to track your investments, you can log in to the mobile app to see how things are going.
Automated Portfolio Rebalancing
Your portfolio will automatically be rebalanced based on market changes and economic shifts. You can also use a robo-advisor to automatically rebalance your portfolio if your risk tolerance and goals change over time.
You don’t have to worry about a human trying to adjust your asset allocations manually. This will be helpful if your situation changes or if there are drastic market changes.
You Can Avoid Human Error
“Doing it yourself takes time and effort to learn, and you might make costly mistakes,” Fortin said.
Since robo-advisors rely on an algorithm, you don’t have to worry about a human being manually making changes. The automatic portfolio rebalancing will adjust a percentage of your investments based on market fluctuations and your specific financial goals.
The algorithm won’t use emotions to manage your money, as it has been trained to make changes based on market sentiment. You don’t have to worry about a human being making an emotional decision on your behalf. The robo-advisor will take human bias out of the equation. These algorithms are trained to follow the numbers and not the name of a stock.
Less Money Required To Start
Another major benefit of entrusting a robo-advisor is that you need less money to start. While you may be required to invest a specific amount before working with a human financial advisor, you can invest in an account managed by a robo-advisor at any level, so you don’t have to wait for your money to start working for you.
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This article originally appeared on GOBankingRates.com: I’m a Financial Expert: Why You Should Entrust Your Investments to a Robo-Advisor
