Robo advisors are a relatively new type of online financial advisor that automates many aspects of personal finance. They provide automated services, including retirement projections, portfolio management, and tax-loss harvesting for their clients.
What are the benefits of using a robo advisor?
The use of a robo advisor app will typically reduce the fees heavily. The technology makes it very easy for them to offer you their full service at lesser rates. It also reduces the cost of marketing as there are no brokers involved.
Robo advisors have become one of the biggest innovations in the industry. They provide personalized advice with little or no human intervention required. The need for human interaction is minimal, making this an excellent option for many people who don’t have the time or interest to do this themselves.
What is a Robo advisor?
Robo advisors are online investment management services that provide automated investing and asset allocation, typically with minimal human supervision. They allow for diversification between various asset classes such as stocks, bonds, and cash equivalents; most offer tax-loss harvesting opportunities. Investors can also monitor their portfolios through the robo advisors’ platforms at any time without contacting an actual person: all trades and changes in strategy are executed automatically by computer algorithms based on the specific needs of the investor.
Some Robo-advisors even help with tax preparation and filing; however, they shouldn’t be seen as tax consultants – it’s always wise to hire a professional for that.
The growth of online investment management has been extremely rapid over the past few years. In fact, in 2020 alone, Robo advisors grew in market share by 300%. This type of technology continues to make the financial services industry better and more efficient for everyone involved.
As with any new product or service, there will always be people who question it and its impact on the future of personal finance. However, early adopters have realized the benefits quickly and spread this trend throughout the industry very quickly.
These platforms can give individual investors access to quality investments at low fees 24/7 from anywhere globally without an actual human being monitoring them continuously. Most importantly, it does not require you to have a huge amount of money to get started. It is a very accessible service for investors from all walks of life.
The assets under management (AUM) in the automated investment services industry had just shy of $175 billion at the end of 2020. Robo advisors have already shown that they can perform on par with some actively managed funds while charging less and providing better customer service than most financial advisors or traditional online brokers.
How can you best use a Robo advisor?
Investinginbonds.com says, “if you want to get the full benefits from these accounts, it’s best not to deposit too much money initially. This will allow your accounts time to grow and benefit from compounding.” Remember, compound interest is one of the hardest concepts for many investors to understand, but understanding it will help your financial future.
Since these services are automated and require very little human intervention, they can easily manage accounts with less than $1 million using fractional shares. This allows for an even spread of investments into smaller accounts that would typically be too small to make a difference in the overall portfolio without significant fees. Robo advisors may also invest in other types of investment vehicles beyond securities, such as alternative investments or real estate.
Most Robo advisors have no minimum deposit requirements, which means you can get started with them even if you only have a modest amount of cash, to begin with. Of course, you should always remember that it’s never to risk more than you can afford to lose.
What are the cons of using a robo advisor? Mismanaging your money can be extremely expensive, even when you use a professional to help with asset allocation and other financial decisions. Robo advisors are no exception; remember, they are not human beings, so it is possible for them to make mistakes.