Should you trust robo-advisors with your money?Hampton Wealth
Are you looking for a way to invest your money but don’t know where to start? If so, you may want to consider using a robo-advisor. A robo-advisor is a computer program that can help you manage your investments and make smart choices about where to put your money.
They’re designed to make investing easier for those who don’t have a lot of experience and they’re growing in popularity.
But is investing with a robo-advisor right for you?
Are they really worth your trust?
Let’s take a look at the pros and cons of investing with a robo-advisor.
What is a robo-advisor?
Robo-advisors are a relatively new investment option, popular with beginner investors. They are an automated investing service that uses artificial intelligence (AI) to provide portfolio management advice and low-cost investing options.
Robo-advisors use computer algorithms to create and manage investment portfolios, and typically charge lower fees than traditional investment advisors.
Many robo-advisors offer a wide variety of investment options, including stocks, bonds, and ETFs. They also offer features like automatic rebalancing and tax harvesting, which can help investors save money on taxes.
Some examples of robo-advisors are Wealthfront, Betterment, and Ellevest.
What are the pros of using a robo-advisor?
One of the main pros of using a robo-advisor is that they are typically much cheaper than traditional human financial advisors. This is because robo-advisors use automated software to provide investment advice, rather than relying on human advisors.
Robo-advisors are generally more transparent than traditional human advisors when it comes to fees and investment strategies. This can give you a better idea of exactly how your money is being managed and what you are paying for and can save you a lot of money in fees over the long run.
Robo-advisors also require far less time and effort to use, making them an ideal option for those who want to invest but don’t have the time or knowledge to do so on their own.
Since robo-advisors uses Artificial Intelligence (AI), they are also constantly improving and getting smarter over time. By answering a few simple questions, robo-advisors can create an investment portfolio that is customized to your individual needs. They will then automatically rebalance and manage your investments on an ongoing basis.
Another advantage of robo-advisors is that they provide access to a wide range of investments that might not be available to individual investors. This is because robo-advisors can invest in a variety of assets, including low-cost index funds and exchange-traded funds (ETFs). This can give you a well-rounded investment portfolio that is diversified across different asset classes.
Robo-advisors are also more objective than humans when it comes to making investment decisions. This is because they are not influenced by emotions, which can often lead to bad decision-making in investing. You do not have to worry about your robo-advisor becoming attached to a certain stock or becoming biased in their advice.
Robo-advisors are constantly tapped into the market so that they can provide you with the most up-to-date information. Since they are able to keep up with the latest market trends, your investments are ensured to be as safe and profitable as possible.
Robo-advisors are also available 24/7, so you can access them whenever you need to. This is unlike human advisors who typically have more limited hours.
What are the cons of using a robo-advisor?
While there are many pros to using a robo-advisor, there are also some cons to consider before making a decision.
One disadvantage of robo-advisors is that they may not be suitable for everyone. They are best suited for beginner investors who want to get started in the market but don’t have the time or knowledge to do so on their own. If you are an experienced investor or have a complex financial situation, you may be better off working with a human financial advisor who can provide more personalized service.
Robo-advisors also typically have lower minimum investment requirements than human financial advisors. This can be a good thing or a bad thing, depending on your situation. If you have a small amount of money to invest, a robo-advisor may be a good option. But if you have a large amount of money to invest, you may be better off working with a human advisor who can manage a larger portfolio.
Robo-advisors mostly invest in low-risk investments, such as index funds and ETFs. If you are looking for higher returns, you may want to consider investing on your own or working with a human advisor who can take on more risk.
On the same note, while robo-advisors can provide access to a wide range of investments, they may not be able to meet your specific needs or goals. For example, if you are looking for an investment that is socially responsible or that focuses on environmental, social, and governance (ESG) criteria, you may not be able to find what you are looking for with a robo-advisor.
Another disadvantage of robo-advisors is that they can only provide investment advice. They cannot provide other types of financial advice, such as tax or estate planning. If you need help with these types of things, you will need to consult with a human financial advisor.
Finally, while robo-advisors have many features and benefits, they do not provide the same personal touch as working with a human financial advisor. A robo-advisor will never be able to buy you coffee or meet you for lunch to get to know you and your family on a personal level.
If that is something that is important to you, then you may want to consider working with a human advisor.
How to decide if a robo-advisor is right for you
When deciding whether or not to use a robo-advisor, there are a few things to consider.
Are you comfortable making investment decisions?
Ask yourself if you are comfortable making your own investment decisions. If you are not comfortable doing so, or if you don’t have the time to manage your own investments, a robo-advisor may be a good option for you.
A human financial advisor can provide guidance and advice, but ultimately, the decision of what to invest in is up to you.
Do you have a complex financial situation?
If you have a complex financial situation, such as owning a business or multiple properties, you may want to consider working with a human financial advisor who can provide more personalized service.
A robo-advisor can only provide investment advice and may not be able to meet your specific needs.
What are your investment goals?
Think about what you want to achieve with your investments. If you are looking for long-term growth, a robo-advisor may be a good option. However, if you are looking for higher returns or are willing to take on more risk, you may want to consider investing on your own or working with a human advisor who can take on more risk.
What is your time horizon?
Your time horizon is the amount of time you have to reach your investment goal. For example, if you are saving for retirement, you likely have a long time horizon. If you are saving for a down payment on a house, you likely have a shorter time horizon.
If you have a long time horizon, you can afford to take on more risk because you have time to recover from any losses.
If you have a shorter time horizon, you may want to consider a robo-advisor because they mostly invest in low-risk investments.
What are the fees?
Be sure to compare the fees charged by different robo-advisors and human advisors before making a decision.
Robo-advisors typically charge lower fees than human advisors. However, human advisors may be able to negotiate lower fees based on the size of your investment portfolio.
Bear in mind that while a human financial advisor’s fees are negotiable, most robo-advisors charge a fixed fee.
What type of customer service do you need?
Robo-advisors generally offer 24/7 customer service via phone or email. If you prefer to work with someone one-on-one, then a robo-advisor may not be the right choice for you.
A human financial advisor can provide more personalized service but may not be available 24/7. You may have to schedule an appointment to meet with a human advisor during regular business hours.
How much money do you have to invest?
Robo-advisors typically have lower minimum investment requirements than human advisors. If you have a small amount of money to invest, a robo-advisor may be a good option.
For example, Wealthfront has a $500 minimum investment requirement, while Vanguard requires a $50,000 minimum investment.
So, should you trust a robo-advisor with your money? It depends on what you’re looking for.
If you want low fees and personalized investment advice without the human interaction, they can be a great option. But if you value face-to-face meetings or need more handholding when it comes to your finances, then a robo-advisor might not be right for you.
Ultimately, it’s important to do your research and ask lots of questions before investing with any company – human or robot!
At Hampton Wealth, we are always here to answer your questions and help you make the best decision for your financial future. Contact us today to get started.