Today, finance experts are convinced that robo-advisors are better than human advisors in many ways. They offer a unique investment solution that grows in popularity. They have become very popular lately, they are low cost and are easily accessible online. One doesn’t need to have a financial planning certificate to learn how they operate.
Robo- advisors are known to build a diverse portfolio in line with your needs and risk tolerance. While there are still many that believe human advice takes the edge, robo advisory has delivered many benefits from cost saving to tax saving.
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.
In short, robo advisors are simple investment instruments. They’re meant to let you invest passively in the longer-term, not to make short-term gains by buying and selling frequently.