How to Use Robo-Advisors to Help you Invest Better
You’ve got a lot on your mind. I can confidently say, “More than ever.” Because with a deadly bat virus out there, taking care of your family has become more complicated. If only we could just go back to hauling the kids to school and football practice. But we can’t right now. And that has a lot of us rethinking not only our safety habits, but also our finances.
Maybe you’re focused on conserving your assets—and that’s a good idea. But today I’m going to talk about increasing them by using the innovative technology known as robo advisors.
Robo what?
A robo advisor is an electronic financial manager that gives you investment advice and easy access to the stock market. Why are robo advisors so innovative? Because they’ve eliminated some of the major obstacles that used to stand between Average Joes (and Janes) and investment income.
Even if you only have a small amount of money to invest, a robo advisor will take you on as a client. Even if you have no experience picking and trading stocks, you can benefit from bona fide investment intelligence—the kind of intelligence that used be available only if you had an investment banker on speed dial.
But with robo advisors, it’s artificial intelligence. The best robo advisors rival human advisors in the skills department. But they’re a lot less expensive and easier to consult because you use electronic devices to reach them. What’s more, they’re made of 100% pure algorithm, unfettered by bias, flights of fancy, and mood swings. Arguably, that makes them more reliable than human advisors, too.
What’s it like to work with a robo advisor?
At the outset of your “relationship,” your robo advisor will ask you many of the same questions a flesh-and-blood advisor would. How much can you comfortably afford to invest? What rate of return on your investment would you like to shoot for—and a corollary question—how much risk can you tolerate? No, robo advisors don’t eliminate the risk involved in stocks and bonds trading—nothing can—but they don’t increase it either.
Using the information you provide, your robo advisor will assemble an investment portfolio for you. Usually, beginning investors are advised to invest in a diversified portfolio wherein your investment dollars are spread out across different investment vehicles like stocks, bonds, and cash, but other models are certainly possible. Once you’ve established your portfolio, your robo advisor will periodically re-allocate your investments to keep you on track to meet your goals.
I just Googled “robo advisor.” There’s a boatload of them!
Yeah. The first robo advisor was born about a dozen years ago, but as we’ve adopted the digital lifestyle, they’ve proliferated. You have a lot of choices so by all means, do some comparison shopping. The fees robo advisors charge for management, withdrawals and transfers, and other transactions vary. Look for your best deal. Find one that offers both PC-based and mobile apps. If you are committed to doing business with environmentally- socially-responsible companies, some robo advisors can help you reach that goal, too.
There’s one other critical characteristic to look for in a robo advisor. Be sure the advisor you choose explicitly states that it will act as your fiduciary. That means it commits to acting exclusively your best financial interests. One would hope that all companies promised that but they don’t. That’s why you have to read the fine print before trusting your hard-earned cash to any investment advisor, whether human or virtual.
What else can a robo advisor do?
You could drive yourself crazy watching the daily fluctuations of the stock market. But research shows that dollar-averaging—investing small amounts over a long period of time regardless of market conditions—does result in financial gains for most people. Because they monitor the market for you, robo advisors help take the daily stress out of investing. Unlike us dads, they don’t have any emotions. And we have enough of those to deal with right now.
Neil
P.S. If you want to invest in yourself as well as your finances, my book A Father’s Mission is a great place to start. Get it here.
