What is a robo-advisor?
What should people consider when comparing robo-advisor vs traditional advisor?
A robo-advisor is a type of financial advisor that uses algorithms and software to provide automated, personalized advice and investing recommendations to clients.
Robo-advisors first gained popularity after the financial crisis of 2008. In the wake of the crisis, many investors lost faith in traditional financial advisors and the stock market. Robo-advisors offered a new way to invest, one that was heavily automated and required little to no human interaction.
Today, robo-advisors are one of the fastest-growing segments of the financial industry. They are particularly popular with young, tech-savvy investors who are comfortable with new technology and comfortable trusting algorithms to make financial decisions.
When considering a robo-advisor, there are a few key things to keep in mind. First, how much money do you have to invest? Robo-advisors typically require a minimum investment of $500-$5,000. If you don’t have this much to invest, you may be better off sticking with a traditional financial advisor.
Second, what are your investment goals? Robo-advisors invest your money in a portfolio of ETFs (exchange-traded funds) that align with your goals. For example, if you’re saving for retirement, the robo-advisor will build a portfolio of ETFs that are designed to generate returns that outpace inflation over the long term.
Third, how much risk are you comfortable taking on? When you sign up for a robo-advisor, you’ll be asked to complete a risk tolerance questionnaire. This will help the robo-advisor determine how much of your portfolio should be invested in stocks vs. bonds.
Fourth, how hands-on do you want to be? If you want to be heavily involved in your investments and make all of the major decisions yourself, a robo-advisor may not be the right fit. However, if you’re comfortable letting the robo-advisor handle the day-to-day details, a robo-advisor can save you a lot of time and energy.
Finally, how much are you willing to pay in fees? Robo-advisors typically charge lower fees than traditional financial advisors. However, there are still fees associated with investing in a robo-advisor. These fees can range from 0.25% to 0.50% of your assets under management.
When comparing a robo-advisor vs traditional advisor, these are some of the key factors to consider. Ultimately, the right decision comes down to your individual goals, needs, and preferences.