People don’t lack for ways to invest their money these days, and that’s a good thing. However, if you’re new to investing or don’t feel confident making investment decisions, all of those choices can seem overwhelming. Thankfully, robo-advisors provide a sound option for these types of investors with a variety of unique benefits.
A robo-advisor is an investment service that uses specialized software platforms to replace traditional asset managers and financial advisors. By using a robo-advisor, investors can avoid the potential for human error that those traditional solutions can struggle with.
Rather than entrusting your investments in the hands of a single person, robo-advisors automate the process. They begin by assessing your appetite for risk, then using proprietary algorithms to invest your money into a range of investments that suits your goals, time horizon, and risk tolerance.
Given the complexities of modern investing, many novice investors prefer robo-advisors because they simplify the investment process without sacrificing performance. This provides a level of comfort and peace of mind that other investment methods often lack.
For instance, non-savvy investors don’t have to pick any stock positions with a robo-advisor, as the Robo-Advisor will provide a personalized portfolio that suits their financial goals. In fact, some Robo-advisors even provide professional financial advice in conjunction with the automated investment platform.
Diversity in Assets
From an allocation perspective, using ETFs instead of individual stocks or bonds provides a high level of diversification that investors need to reduce volatility.
Rebalancing of Portfolio
If your financial goals or the market itself changes over time, Robo-advisors make ongoing adjustments to ensure your allocation remains appropriate for you and your financial objectives. Similarly, the platforms automatically rebalance your portfolio at no charge, an often expensive and tedious process when investing through professional money managers and financial advisors.
Management fees for Robo-advisor platforms also tend to be lower than those from professional financial advisors and brokers. And because Robo-advisors typically use low cost ETFs in the portfolios, the investment fees are also significantly lower than mutual funds and other investment vehicles.
For investors looking for a highly efficient, effective investment option that doesn’t require immense amounts of investing experience – or any, for that matter – a Robo-advisor can be a very good fit. That said, it’s best to do some research on your own and decide what investment solution suits your personality and needs best.