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How to Start Automated Investing with a Robo-Advisor
Starting planning your financial goals and grabbing investment opportunities is much easier today than it's ever been. Forget about the typically high cost and account minimums you have to pay a financial advisor. You won't have to drown in advisor fees if you have a Robo advisor investing for you instead.
This online service makes it more convenient and simple to start your financial planning. While it doesn't replace the one-on-one services you get from a personal financial advisor, the Robo-advisor revolution has meaningful advantages.
If you want to automate investing, here’s everything you need to know about a socially responsible investing Robo-advisor.
What Is a Robo-Advisor and Should You Get One?
Robo-advisor is an online investment management service that uses mathematical algorithms to offer you financial advice with little to no human intervention. Think about having a personal financial advisor, but everything is automated, and that is essentially what a Robo-advisor does for you.
With Robo-advisors' popularity, you can find many of them that offer various services for different investing needs. Here are a few Robo-advisors types to give you an idea of what service you can pay for.
- Robo-Advisory Service from Banks or Brokerages
- Some banks and brokerages offer a Robo-advisory service to their clients for an easy and convenient investment solution. It's a quick way for their existing and new clients to set up automatic investing.
- Robo-Advisors with Step-Up Service
- If it's your first time investing, but you don't want to pay a hefty financial advisor fee, a Robo-advisor with a step-up service can offer a complex and full service to manage and grow your assets.
- Robo-Advisors with Complex Portfolios
- While most-Robo advisors will only set up your portfolio with ETFs, some other firms offer a complex portfolio. It’s an excellent option to diversify your investment portfolio with different asset classes.
- Socially-Responsible Robo-Advisors
- You can find Robo-advisors that lets you choose socially-responsible assets to add to your portfolio.
- Cash Management Robo-Advisors
- This type of robot-advisor handles packages of financial services, including your cash management.
How Does Robo-Advisors Work?
A Robo-advisor collects your data like your current financial situation and future goals through an online survey to offer you investment advice and automatically invest your assets. Like a traditional wealth advisor, a Robo-advisor also manages your investment portfolio for you. It automates everything about your investments and is typically less expensive than what you pay a real financial advisor.
Signing up for this automated service is a simple process that involves answering the questionnaires. Some platforms will only ask basic financial questions, while others have a more detailed approach to identify specific financial needs and offering more regulated investment advice.
How Much Does Robo-Advisors Cost?
Robo-advisor service prices vary from one to another and will also depend on what services they offer, or you're availing to. Typically, this automated platform's management fee and its services are less than 0.50% of your managed assets per year.
The charges will also vary depending on the size of your investment portfolio. Besides the management fee, some services also charge a trading or expense fee for every transaction made in your account. Still, you can expect that the overall cost of getting a Robo advisor investing for you won’t go over 1% of your assets under management.
Is a Robo-Advisor Right for You?
An automated money management service comes with several strong points and downsides. Check out if signing up for a Robo-advisor is the right decision for you.
- Inexpensive than traditional financial advisors
- The most benefit you can get from a Robo-advisor is the relatively inexpensive fees.
- Accepts and manage smaller portfolios
- Another advantage of a Robo-advisor is you can utilize it even if you have a small portfolio. The service has a much lower account requirement than traditional wealth managers.
- Don't require a lot of research before investing.
- Taking advantage of a Robo-advisor doesn’t require much on your part except answering the survey the service gives you. You don’t need to study and understand stock markets, balance sheets, and P/E ratios.
- No personalized investment portfolio
- In most cases, even the best solo Robo advisor investing for you means using pre-existing portfolio models. While other services have more thorough questionnaires you can answer, it can only go so far.
- Not much investment control or choice
- Another drawback is you don’t have much control or choice in your portfolio. While other Robo-advisors have access to multiple assets, most of them primarily invest in index mutual funds and ETFs.
- No human advisor to talk to
- If you need more financial advice, you won’t likely get that from an online service like a Robo-advisor. While you can access some of its general financial planning tools, you can't get one-on-one counsel unless you pay extra to get hooked with a human wealth manager, which other services offer.
Robo-advisors work well if you want to automate your investment strategy without deviating from your financial goals. They are also an excellent option to offset wealth advisor or manager fees. An investing Robo-advisor is well-suited for beginner and hands-off investors.
Typical Robo-Advisor Services
The primary idea behind Robo-advisors is to provide services that could automate investment management, so it's less expensive and more convenient for you. Most robot-services you can take advantage of through the platform include:
- Access to financial planning tools like a retirement calculator
- Automatic portfolio management based on your preferences and goals
- Regular rebalancing of your investment portfolio, whether automatically or in intervals like quarterly.
- Tax-strategy offering like tax-loss harvesting
What Are Online Planning Services?
Typical advisors are expensive and have a high investment requirement, but they provide more thorough and personalized financial advice. Meanwhile, a Robo-advisor won't give you a 100% customized approach, but it's relatively cheaper and hassle-free to use.
Traditional financial advisors and Robo-advisors each have their advantages and drawbacks, and that’s where online planning services come in. It’s a hybrid of a traditional advisor and a Robo-advisor, which automates your investment but still gives you access to financial planners.
How to Evaluate a Robo-Advisor
When choosing a Robo-advisor, consider the following:
- Account type offered
- Robo advisors vary on the services or accounts they offer. Some manage taxable accounts, while others offer individual retirement accounts. You can also find Robo-advisors that manage both, including trusts and even 401(k).
- Minimum account requirements
- Investment account requirements vary from one service to another, but you can usually find a Robo-advisor with a minimum requirement of a couple of hundreds of dollars.
- Investment Selection
- Most Robo-advisors invest in low-cost assets like index funds and ETFs, but other services have more varied asset classes on offer.
Get ready to automate your investments today. With a Robo advisor investing on your behalf, reaching your financial goals is as easy as invest-it-and-forget-it.