If you’re wondering what the heck a robo-advisor is, keep reading. No, it’s not a robot that tells you what to do with the piggybank you’ve stashed in your closet. Well, not quite.
What is a robo-advisor?
A robo-advisor is a sort of digital financial advisor that uses algorithms to invest your money. It takes information about your financial situation and future goals, and then offers you financial advice and investment opportunities.
It might seem like a great option if you’re new to investing, especially because robo-advisors can work with even the most minimal of investments. But before you hand over your hard-earned cash, here’s what you should know.
Robo-advisors can’t offer personalized advice
Like any other service that has gone digital, robo-advisors are pretty good at what they do—but they can’t offer the intuitive, personalized advice of a human being.
Obviously, you might think, because they’re not human. But they can still make financial investments and not pocket as much of a profit as a real, live financial advisor (which is maybe 1% of assets managed to a robo-advisor’s typical .5%).
Fair enough.
Using a reputable robo-advisor is undoubtedly better than the piggybank savings tactic. If it grows your money over time, it’s a benefit to you.
But what else can a robo-advisor do? Can it help you figure out how to manage a down payment for a new house, quit your job to start a new business, or get through a financial crisis?
Likely not.
For the money you’re saving by hiring a robo-advisor, you’re losing out on the sound advice that can help you actually stretch your money further.
What to know if you decide to try a robo-advisor
If you decide to try out a robo-advisor, you’re in good company. A U.S. study found that 8% of households report having money in robos.
It’s a worthwhile tool for a new investor, provided you use a reputable company. As your financial needs change or your portfolio grows, however, you may benefit more from having a skilled and trained person offer financial advice tailored to your situation.
When to call a financial advisor
Finances tend to get more, not less, complicated as we age. We take on more responsibilities and more bills. We have bigger, loftier goals, like paying off our mortgage or buying a vacation property or travelling.
As far as technology has come, it hasn’t yet replaced the whole-picture approach that you get with an actual financial advisor.
Before you invest with a robo-advisor, be sure to read the fine print that will tell you what you need to know to transfer your investments to a financial advisor in the future, should you choose to do so. Or, book an appointment with a financial advisor to fully explore your options before you invest at all.
How you invest can make a huge difference in how you live, so doing the research and asking the questions can help you make a decision current-you and future-you will appreciate.
