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…Robo-advisors are all the rage right now and many passive investors are choosing to invest with them. Who exactly are they? Well…this article explains exactly who they are, and how you can use them.
The original article by Dan Kent has been edited here for length (…) and clarity ([ ]) by munKNEE.com to provide a fast & easy read.
What exactly is a Robo-advisor?
In the simplest terms possible, a Robo-advisor makes all your investments for you. Robo-advisors will automatically detect your risk tolerance and investment philosophies(usually through a quick survey or questionnaire) and create an investment portfolio that works for you. Once your money is in the account, the Robo-advisor will continually monitor your investments and returns and modify your portfolio as it sees fit so it sticks to your goals…
How would you benefit from using a Robo-advisor?
If you are a passive investor, don’t have time to make your own investment decisions or simply don’t know what you are doing, a Robo-advisor can be one of the best avenues to head down if you are looking to start saving and investing your money. A Robo-advisor is simply that, a robot. Robots don’t have brains, they don’t sense stress and they do not make reactionary decisions based on emotion. It can be argued that a lot of new investors lose money simply because they don’t have the skills required to pick profitable stocks either. A Robo-advisor automates this process for you…
What does a Robo-advisor invest in & what are the fees?
Most Robo-advisors focus on ETFs, which is why their fees are typically lower than mutual funds you may own. However, some Robo-advisors can also have holdings in mutual funds as well. Investments are easily monitored inside of a Robo-advisor account and you can typically see where your money is allocated in a few clicks.
Robo-advisors typically have two forms of payment.
- You can either pay a monthly fee (which will vary wildly from broker to broker depending on your account size)
- or you can pay a percentage of your total portfolio (ranging anywhere from .2 to 1 percent of your portfolio amount which is considerably lower than most mutual funds…due to the fact that Robo-advisors are easier to manage, and have a lower MER).
With the ever changing hype of Robo-advisors these days, try to find a promo code or coupon that will give you some sort of payment deal on your first deposit. [For example,] some companies offer you a $50 reward, while others may invest your first $10,000 for free for the first year. I find in this day and age before I ever sign up for anything I typically Google promotion codes or discounts.
Should you use a Robo-advisor?
The answer to this isn’t necessarily cut and dry. Some DIY investors have self-directed accounts along with Robo-advisor accounts. Saying you have to be 100% on either side of the scale isn’t correct. Even if you exclusively make your own investment decisions on your retirement and investment accounts, you may feel obligated to try one out.
- Maybe it provides better returns than you are achieving right now?
- …Maybe you are too busy to manage multiple accounts and instead want to have someone manage one of them.
Instead of paying a big bank or a financial advisor exorbitant fees to manage your money, why not give a low-fee Robo-advisor a chance?