Robo-advisors are completely automated systems online that help you to invest your money. Robots, if you will. They are becoming increasingly popular with the younger generations, specifically those with less investment experience. Younger individuals getting their feet wet in the investment industry are turning to robo-advisors for all their financial advice.
You tell the robo-advisors what is important to you, and they do all the tough calculations. (Don’t worry, they’re using solid logarithms and criteria.) Many give general investment advice, and others help you plan for your retirement and reach other specific financial goals.
Although at first I was very skeptical of roboadvisors, I have tried one, Betterment, and found it to be extremely beneficial for me- a girl who initially had very little financial knowledge. They have minimal fees, and give you the flexibility that many investors need. You don’t have to be investment-savvy, and are still able to profit greatly from your investments. It is fairly safe and fool-proof.
However, due to the automation of them, roboadvisors are less unique and personalized. Every single individual is unique, with specific goals and situational differences. It is hard to explain all of that to a computer. Life is complicated; not everything is cut and dry… So, are roboadvisors better than humans who give investment advice?
That answer depends majorly on your individual situation. If the automation’s cookie-cutter approach is not ideal for you, a human interaction may be more beneficial. Humans are able to give you one on one advice, and sit down and listen to your concerns.
However, robo-advisors arguably can save you significant sums of money. Let’s discuss some specific situations, and which advisement technique would be best to use.
When to Use a Robo-Advisor:
- When you don’t need direct contact and one-on-one interaction. If you’re comfortable with the computer screen, this is a perfect fit for you.
- When you want to save money. Fees are generally much lower with roboadvisors than with human advisors.
- When traditional investment advisors have high requirements. If you cannot find a human advisor who does not require steep minimum requirements, try a robo-advisor.
- When you want to be less in control, and have someone else take care of things for you. If you are looking for a hands-off approach, here it is.
When to Use a Traditional Advisor:
- If you prefer face-to-face interactions and one on one contact, robo-advisors are not the way to go.
- If you prefer to not do everything online, including money transactions, then you need to sit down with a traditional advisor. For older generations who are not familiar with technology, robo-advisors may be much more difficult to operate.
- When you disagree with your robo-advisor, or find that it is not fully benefiting your unique financial situation, switch to a traditional advisor.
- Lastly, use a human advisor when you want to be more hands-on with your investments. You can be the one in control.
Decide which option is the best fit for you. If you cannot decide, give robo-advisors a chance. You can always go back to the traditional route. Regardless, keep investing. Your future will be brighter.