In the past, investors had two primary options when it came to managing their portfolios: they could either do it themselves or hire a human investment manager. DIY investors had to stay on top of the latest changes in the market and make decisions about when to buy and sell. Hiring a professional was expensive, and often required a minimum portfolio size. Robo advisors offer a third way that can be the perfect solution for many investors.
What is a Robo Advisor?
A Robo advisor is a type of financial advisor that uses algorithms and automation to provide investing advice and manage portfolios. Robo advisors can provide a number of advantages over traditional human financial advisors, including lower fees, 24/7 access, and the ability to remain objective when making investment decisions. They can also be a good solution for investors who lack the time or knowledge to manage their own portfolio.
Advantages of Robo Advisors
There are several advantages to using a robo advisor, including:
Lower Fees: One of the biggest advantages of robo advisors is that they typically charge lower fees than human financial advisors. This is because they don't have the same overhead costs and can pass those savings on to their clients.
24/7 Access: Another advantage of robo advisors is that they are available 24/7. This can be convenient for busy investors who want to be able to access their account anytime, anywhere.
Objectivity: One of the benefits of automation is that it can help to remove emotions from the equation when it comes to making investment decisions. This can be especially helpful during periods of market volatility when it can be difficult to think clearly about what actions to take.
Access to expert advice: While robo advisors are automated, they still provide you with access to expert advice from financial professionals. This means that you can get help with developing your investment strategy and making decisions about your portfolio without having to pay for full-service human management.
Diversification: One of the biggest advantages of robo advisors is that they can help you achieve diversification more easily than if you were managing your portfolio yourself. This is because they often offer features like tax-loss harvesting and asset allocation tools that make it simpler to spread your investments across different asset classes and reduce your overall risk.
Low minimum requirements: Many robo advisors have very low minimum investment requirements, which makes them accessible to a wider range of investors. This can be especially helpful if you’re just starting out and don’t have a lot of money to put into your investments right away.
Automated portfolio rebalancing: Rebalancing is a critical part of effective portfolio management, but it can be time-consuming and logistically difficult to do yourself. Robo advisors can rebalance your portfolio automatically on a schedule that you determine, ensuring that your assets are always aligned with your investment goals.
Around-the-Clock Customer Service: Robo advisors typically offer around-the-clock customer service, which can be a major advantage if you have questions or concerns outside of normal business hours. This is in contrast to human investment managers, who typically only offer customer service during regular business hours. So if you have a question about your account at 3am, you'll likely be able to get an answer from a robo advisor but not from a human investment manager.
Whether you're a busy professional who doesn't have time to manage your own portfolio or you're simply not interested in doing it yourself, robo advisors can be a great solution. With lower fees and 24/7 access, they offer many advantages over traditional human financial advisors. If you're looking for a hands-off approach to investing, a robo advisor may be right for you.