What is a robo advisor? A robo advisor is an online wealth management service that uses algorithms instead of humans to manage an investment portfolio. It's becoming quite popular. According to a Gallup Poll contracted by Wells Fargo, only 37 percent of individuals over 50 said they would prefer a traditional financial advisor over a robo advisor. Robo advisors are a growing presence in the world of personal finance. It's time you consider them. This guide will help you decide if a robo advisor is right for you.
What Does a Robo Advisor Offer That a Human Financial Advisor Doesn't?
A robo advisor offers accurate information at low costs. Fees across different wealth management firms range from 0.15 percent to 0.89 percent of all assets under management. That's extremely low. Many financial advisors charge a 2% flat fee.
Robo advisors can also rebalance funds automatically, take into account all investment vehicles, use a certain tax strategy, and best of all… make no mistakes. The only way a robo advisor makes a mistake is if it gleans misinformation from a database or if the software code is broken. However, there are many safety precautions put in place to keep these things from happening. And if such events occur, you shouldn't have a problem getting the error reversed. Robots are much more precise than human beings!
The Drawbacks of Using Financial Software
Positives attract negatives. It's just how the world works. That being said, there are some downsides to robo investing. As hinted earlier, there is a learning curve to any financial software. You'll have to get login credentials, learn the user interface, and learn how to employ your own decisions where necessary. It may take some getting used to.
Another drawback is time. If you have enough in assets, most financial advisors will be happy do the legwork for you. They will let you walk into their office and tell them what to do. It's easy. It's dictation. It doesn't take much of your time.
Robo advisors won't do the thinking for you like a smart human advisor. There is no office to walk into. But robo advisor firms always have real advisors as well.
Maintenance issues are always a concern. Just like a human who needs a booster shot, software needs updates. With these updates come many noticeable and unnoticeable changes. Though the shifts shouldn't be too large at any given time, you will have to constantly learn new tips and tricks. A human advisor usually takes the brunt of change for you. A good advisor won't let you be burdened.
What about security? With that much information, there are bound to be security scares within the robo advising firms. However, this comes with the territory. If your information were ever to be leaked, it would likely be the end of that robo advising firm. Trust me, they want your information protected just as much as you do.
Online Investing Only
Advisor software is intuitive. Your ability to use an online investment interface shouldn't be a concern. Robo advisors typically offer many different layout options for your choosing. If you can check game scores online, you can check investment information. Think about it this way… people concerned about retirement planning are usually older. Older people aren't as generally as good with computers as younger people. Robo advisors use easy-to-use interfaces.
Paper is the past. Online investing is taking hold in a huge way. Visit our investments page to find reviews on many different types of online investing platforms.
Should You Use a Robo Advisor?
If you're comfortable using the internet - you should be comfortable using the robo advisor software. The information is accurate and the service is cheap. Hiring a human to look after your assets is expensive! Instead, invest the money you'll save. That might be an extra $10,000 per year saved just by getting a lower management fee.
The world is going online. There's no denying. In the future, you may have to go robo. There may be no more human financial advisors.