It’s no secret that investing has changed over the last couple of decades. A generation ago, if you wanted to invest, your options were limited to either hiring a professional investment advisor or do it yourself.
Neither option was 100% ideal for the average person. Going it alone was risky and sometimes involved lots of research and learning, which takes time some people simply don’t have. Thus they may have decided not to invest at all. But hiring a professional wasn’t always feasible because some would not work with you unless you had thousands of dollars to invest. Plus, the costs of hiring a professional investment advisor could quickly eat away at the money they’d saved up to start investing.
Thankfully with the advancement of technology, investing has changed. These days, there are more options are available, and you can start investing with the click of a few buttons even if you only have a few hundred dollars to start with. How? The answer is with the help of a robo-advisor. But should you really use a robo-advisor to help you invest? Here are some things to consider before you make up your mind.
Use A Robo-Advisor To Help You Invest? 4 Things To Consider
If you want to invest but really don’t know where to begin, a robo-advisor can help. Robo-advisors use computer algorithms, and sometimes some input from investment advisors, to automate asset allocation of your investments. In other words, they remove the guess work for the investor.
However, this type of investing has its advantages as well as disadvantages. For example, a beginning investor who has no idea where to start would see automation of investments as an advantage, helping them with decisions on what funds to invest in. But for the experienced investor who has a little more knowledge, some robo-advisors are too rigid.
These more experienced investors may want to be somewhat automated so they can still save time, but the choice of funds at many robo-advisors is limited. Luckily, some companies offer you the choice between automation through pre-made groups of funds, as well as some funds you can choose to make your own investment mix.
#2. Time savings
Automation through the use of a robo-advisor can save time for the investor as well as assisting with investment choices. Because you don’t have to take the time to do the research on every single fund yourself, you get the advantage of time saved from experts doing it for you. If you still want to do your own research, you’ll only have to look at information for the ETF’s that the robo-advisor offers, which narrows down the list quite a bit.
In addition, some robo-advisors will automatically rebalance your portfolio for you on a regular basis, saving you additional time. Portfolio rebalancing ensures that the percentages you’ve selected for your funds won’t be thrown too far off balance as the markets move up and down. It’s a way to ensure your investments stay diversified over the long-term.
Another time-savings benefit to you is not having to meet face to face with an investment advisor. Although some robo-advisors offer a hybrid option so you can have an investment advisor to turn to with questions, you can usually communicate with them electronically with more convenience than a traditional advisor.
#3. Low Deposits
While some robo-advisors do require a few thousand dollars minimum deposit to get started investing, there are others that do not. That is good news for the average, hard-working person who wishes to start investing but has little capital to get started.
This also makes robo-advisors an attractive choice for millennials who may be just getting started with investing, or for those who’ve recently paid off their debt and are ready to start building wealth. These individuals will be able to put their money into an investment sooner since they don’t have to save up as much cash to start investing.
Some robo-advisors require only a few hundred dollars to get started investing and you can add to your account over time as you earn more money that you wish to invest. This sure beats having to save up to accumulate thousands before you can start investing, even if you used a high-yield savings account to gather your money before investing it.
#4. Low Fees
Another enticement of robo-advisors is low trading fees. Fees differ depending on what company you invest with of course, but in general, robo-advisors offer fairly low investing fees, at least compared to what you’d be paying with a traditional investment advisor.
The reason robo-advisors are able to offer lower fees than traditional investment advisors is because the overhead cost for the company is much lower when they use a computer algorithm, instead of a person, to help their customers make investment decisions.
If you are considering using a robo-advisor to help you invest, find out how much they charge for any and all fees to make sure you don’t end up surprised later with a high dollar charge you weren’t expecting. You can also compare robo-advisors quickly and easily online as all of their information is available on their respective websites, which makes the “foot work” of comparing companies that much easier.
Robo-advisors do not have the personal aspect of meeting face-to-face with an investment advisor. This can be a good or a bad thing depending on your personal situation and opinion. Working with an investment advisor can help you fine-tune your investment plan unlike when you work with a robo-advisor, but you might find your fees to be higher. Plus, some investment advisors may also try to sell you products and services that you don’t necessarily need.
The idea of robo-advisors is a good one. They make investing simple to understand, easy to get started with little money, and cheap to maintain your portfolio. If you’re wondering if you should use a robo-advisor to help you invest, these advantages might just win you over.
Author Bio: Kayla is a freelance personal finance writer who enjoys sharing her story around the internet. You can find more of her money tips on Frugal Rules.
[Photo Credit: FirmBee]