A recent trend in financial advising is the growth of Robo advisors. As people see the benefits of having a computer algorithm manage their money instead of a financial advisor, they’re warming to the idea. Many investors are young, which is not surprising, and young investors tend to be computer savvy and love technology. As a result, brokerage firms and financial firms target Millennials, Generation X, and Generation Y.
What Is a Robo Advisor?
Considering that bots are brand new to the investing world, you might still wonder what a Robo advisor is. A Robo advisor provides you with investment management by using computer algorithms to create your portfolio according to your objectives and risk tolerance. In addition, since Robo advisors handle portfolio management via software rather than by a financial advisor, the fees are lower, which translates into higher long-term returns. Robo advisors typically require clients to take a test to determine their risk tolerance and financial goals before joining. Then, the computer will choose how to manage your money depending on your age, income, and savings.
Robo Advisors: How Do They Help Beginner Investors?
Robo advisors can provide beginners with a streamlined, cost-effective way to build and manage their investment portfolios. They automatically created, operated, and maintained their portfolio by automated investment services based on parameters that investors set. Getting registered takes just a few minutes and requires only personal information such as name, birth date, current address, and social security number. Any financial information is not required. There is no pressure on you if you do not feel comfortable with that part of the process.
Upon enrollment, you can access other devices such as discussion boards and chat rooms. Other investors can ask questions about their investments, and advisors will immediately respond to their questions. This community aspect allows you to stay on track towards meeting your goals while having peer support.
Your Goals Are Taken Into Account By Robot Advisors
Robo advisors gather data from their clients about their financial status and future goals using an online questionnaire and use that information to make investment decisions on behalf of their clients. In general, robot advisors are very efficient since they can manage investments much cheaper than traditional investment professionals, who usually charge based on the number of assets they manage. Robot advisors provide the following services:
- Creating an account is simple
- Developing strong goals
- Management of portfolios
- Features that help protect your data
- Customer service that pays attention
There is no shortage of Robo advisors available today, most of which offer low to moderate fees and diversified portfolios based on index funds or exchange-traded funds (ETFs). For those looking for simple financial planning, some services also provide account rebalancing, tax-loss harvesting, and goal setting for their clients, making them a good choice for those seeking tax-loss harvesting.
It may be worthwhile to consider a Robo advisor if you are interested in investing but want to avoid managing your portfolio. The use of these products is straightforward, and no ongoing management is needed. Robo advisors have a free investment calculator online that they can help you use if this sounds like something that might interest you. After a few minutes of work, you will receive a recommendation about which type of account is best for your needs and how much risk the Robo advisor should take when investing money on your behalf.