Should You Use A Robo-Advisor For Investing?
There are new robo-advisors for finances and investments which are AIs that operate at a much lower cost than their human counterparts.
If you feel like robots and artificial intelligence are gaining inroads into all walks of life, you’d be right. You can find them working at restaurants, parking cars, available for home use, and regularly featured in news articles. And now, you can hire your very own robo-advisor to help you with your finances.
A number of online services that allow individuals to hire a financial robo-advisor are popping up lately. And they offer an intriguing way to manage your investments. These AI assistants have been around for a few years but have recently started growing in popularity.
One of the reasons for this uptick is that they are a lower-cost option for investment management and are relatively hands-off. Like with human financial advisors, their fee structures vary by company and typically charge a percentage of total assets managed. But the robo-advisors cost far less than their human counterparts.
CNBC dove into what those fee structures look like to offer a quick glimpse at the options. Of their top recommendations, the fees range from .05% to .40% of the individual account balances. These percentages stand in stark contrast to what humans charge, which is often about 1% of your assets.
And while the difference in fees appears quite stark on the surface, there is a reason for the gap. When you hire a robo-advisor, it is for a specific purpose. They will create an investment portfolio and manage it over time on your behalf.
A robo-advisor will start with a few questions, such as your risk tolerance, investment goals and time horizon, and age. Then it will use your answers to allocate your assets into a well-balanced portfolio. But that’s not all.
Your robo-advisor will also rebalance your account automatically when you add more money or as the market conditions shift. So, just spend a little time with the software program on the front end and then sit back, which will be welcome news to many investors! As always, monitor your accounts and keep a close eye on the progress so you can make adjustments as needed.
And while this hands-off investment help sounds amazing, it does have some drawbacks. Chief among them is the limited scope. Most robo-advisors will not have access to any debts, other investments, or additional assets.
So most programs cannot offer a comprehensive financial strategy or adjust strategies to help you reach your goals sooner. For that, you will want a financial advisor. They can take a deeper look at your unique financial situation and offer personalized investment options.
Ultimately, the choice will depend greatly upon your financial situation and goals. And the great news is, you are never stuck on a single path. Feel free to switch between a robo-advisor and a financial advisor as your outlook and goals change.
Each provides a valuable service, so you cannot go wrong. But before signing up for either, make sure you glance at the fee structure, minimum deposit, and balance information. That way, you can select the best possible fit.
