What is a Robo-Advisor?
If you’re investing for retirement, you’ll likely find yourself contemplating between robo-advisor and traditional investment services. Below is a comprehensive guide that can help you determine if robot investment is the right option for you.
What Is a Robo-Advisor?
Also known as an automated financial advisor, a robo-advisor is an investment management service that uses computer algorithms to help you build a portfolio and manage your assets according to your goals and risk tolerance. Since it relies on software instead of a human advisor to manage your portfolio, robot investment is more cost-effective and can lead to higher long-term returns.
Robo-advisors use software to handle a wide range of tasks that previously required the costly services of investment experts, from automatic rebalancing to tax optimization. Robo-advisors are a strong option if you want to be hands-off with your investments and don’t have a complicated financial situation that requires you to have a direct relationship with a human investment advisor.
Sometimes, an automated financial advisor may offer access to human advisors who can answer questions about account management and investment planning. However, such services are often more expensive.
How Robo-Advisor Investing Works
After you sign up and fill out a survey with questions about your risk tolerance and retirement goals, the robo-advisor will create the best possible portfolio for achieving your goals. Then, it’ll automatically manage it to ensure you stay on the right track. It results in more objective and cost-effective investment services, making it an appealing option for investors from all backgrounds. A robo-advisor is also great during times of market volatility because it places a layer between you and and the temptation to panic-sell.
Benefits of Robo-Advisor Investment
Investors with a wide array of portfolio sizes and goals are using a robo-advisor to invest and for good reason. Robot investment is one of the best ways to manage your investment funds with low fees and relatively low risk. In comparison to old-school human advisor investment, it’ll eventually enable you to generate more funds because it charges lower fees. A robo-advisor also offers tax-loss harvesting, and it uses proven index-fund tactics to help you to achieve your retirement goals more efficiently.
Should You Use a Robo-Advisor to Invest?
Robo-advisor investing is a suitable option for you if the following applies to you:
- You’re young and have more than 20 years until retirement.
- You have a simple portfolio and no accounts with other financial service providers.
- You’re lacking investment experience and unsure where to start.
A robo-advisor gives you a great starting point. Besides being comparatively cost-effective, it’s capable of creating a decent asset allocation in most cases. As your needs change over time, you can always move your funds to another financial service provider. By then, you may find that some of the same services have become more advanced and automate more tasks that used to require human intervention.
What Are the Best Robo-Advisors in 2020?
Currently, there are numerous robo-advisor investing service providers out there, which can make it difficult for you to choose the right one. The following is a list of the top robot investment services in 2020.
Wealthfront has built trust with its clients by offering free management for the first $5,000. Additionally, the company has a truly attractive stock-level tax-loss harvesting service, which adds up to 2% to annual investment performance for qualifying accounts.
- Free management for first $5,000.
- Daily tax-loss harvesting.
- Low ETF expense ratios.
- Automatic rebalancing.
- No large-balance discounts.
- No fractional shares.
Wealthfront has more than $10 billion worth of assets under management. Most account holders pay a low management fee of 0.25%. ETF fees come with a weighted 0.08% APR, which is one of the lowest rates on the market. The company also scores high marks for using Modern Portfolio Theory to create low-cost ETF portfolios. Additionally, it provides direct indexing for investment accounts with at least $100,000, which imitates ETFs with direct stock investments to maximize tax-loss harvesting benefits. Therefore, it’s also a good option for tax management.
Wealthsimple has $1.5 billion worth of assets under management. However, it stands out with its socially responsible investment options, allowing you to invest in organizations that align with your values. Its accounts feature automatic rebalancing, tax-loss harvesting, dividend reinvestment, and access to human advisors.
- Investment options that are socially responsible.
- Free portfolio analysis.
- Access to human advisors.
- Limited personal finance tools available.
- More expensive account management fees.
All of Human Interest’s 401(k) plans include the option to use their automated investing service. Because financial literacy is an important part of their company mission, they want to make sure that setting up and maintaining a 401(k) isn’t too overwhelming. Because of this, they also offer personalized investment advice for employees at no extra cost.
- Automatic investing with built-in diversification.
- Automatic rebalancing.
- May not be ideal for investors wanting that prefer a hands-on approach to managing their portfolio.
Human Interest’s automated investing service makes investing decisions for you. This helps you by maintaining a rational investing strategy even during major upheavals in the market. And with their automatic rebalancing, they offer an algorithm-based rebalancing tool that you can turn on to help you keep risks in check and even potentially enhance your returns. This tool automates the buying and selling process and can realign your portfolio to a particular target, like how much you want to invest specifically in stocks.
If you want to learn about robot investment or other ways to increase your retirement savings, feel free to get in touch with the helpful team at Human Interest. Call us today at 1-855-622-7824.
Human Interest - The 401(k) provider for small and medium-sized businesses