Here’s why one should consider investing in robo-advisory –
- No emotions involved – Unlike humans, robo-advisors don’t hold emotions while making decisions for people, they decide what is best for them. A human, on the other hand, might follow their instinct and end up choosing a risky venture or investment. The investment may or may not pay off. Robo – advisors understand the concept of market volatility and picks the right investments for people.
- Low and predictable management fees – The fee that financial advisors charge is mostly based on the percentage of the assets under management or a one-time fee. When it comes to robo-advisors you pay a lot less. You pay fees from the low cost funds your dollar land in. An average robo advisor charge around 0.25% to 0.35% based on the balance and service you choose, compared to 1% that human advisor charges. So basically, you end up paying human advisor about four times higher in management fees than robo advisor.
- Tailored to your goals and risk profile – When investors follow the traditional route of asking for human advice, they need to make sure of the following
- Need to know what type of asset allocation best suits their needs
- Manually construct the portfolio
- Periodically rebalance the portfolio over time
- Occasionally review the asset allocations if they align with the goal.
Robo – advisors can do that for investors automatically. When they sign for for an account, they’ll typically fill in a questionnaire that will gauge their goals, risk tolerance and investment time period. The robo – advisor will take care of the rest and tailor a portfolio based on their responses.
- Best option for entry-level investors – Robo-advisors are a great option for entry-level investors because of their low fees, low cost threshold and ease of use. If you have $25,000 or less to invest, robo-advisors may be a great option to help you get started. Working with a robo-advisor provides a low-cost solution to investors who are just getting started. Lower costs mean more money to invest. Hence, Robo-advisors provide an excellent starting point to building wealth.