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What is a robo-advisor?

August 2nd, 2018  |  Personal Finance

In the evolving world of artificial intelligence, robots are doing so much more than we even thought possible.

In this post we’re going to talk about investment portfolios and how you might go about getting industry guidance or expertise, from a robot.

Would you trust the algorithmic advice of a robo-advisor over a human financial advisor? What if it was a fraction of the cost?

What is a robo-advisor?

Robo-advisors are known as automated investing advisors, and they're accessible online. They use computer algorithms to make or suggest actions on your invested funds, or to build or manage your investment portfolio using the most advanced software.

You can get a diverse set of offerings from robo-advisors. They can automatically rebalance your portfolio or optimize your taxes in a few clicks, all without the need of human communication. Often, however, real human advisors are available should you need them.

Why might you want a robo-advisor?

Robo-advisors are good for people looking to invest based on tested calculations and aggregated data concerning the markets of their interest. They may not have all the time needed to discuss things in meetings with human beings, and are willing to manage the slight risk that comes with the automated process.

Automated investing is often a lot cheaper than traditional routes. You skip all the fees that financial advisors charge, including commissions during most transactions. These fees are largely waived during the automated process.

What kind of services do they offer?

The automated finance world has a bevy of offerings for interested investors.

Your robo-advisor can recommend portfolio diversification based on your tolerance for risk and future goals. They can rebalance your existing portfolio automatically or at an interval of your choosing (quarterly, annually). They can provide financial planning tools that help you calculate for your retirement, for example, and advise on stock options for the short or long term. Robo-advisors can even present tax-strategies on taxable accounts that stop you from losing money.

These services rely on computer programs but also offer clients access to financial advisors of the human variety throughout the financial year, depending on the company.

How much do robo-advisors cost?

This is perhaps the best part of a robo-advisor: the price!

The low costs and low minimums allow investors to start in their markets quickly and cheaply.

Most companies that offer robo-advice charge anywhere between 0.25% and 0.89% as an annual fee for management, according to NerdWallet. The percentage is of the assets you have under the robot’s watch.

If you have an account worth $10,000, you might pay as little as $25 per year!

Are you interested in automated investment?

Robo-advisors work for many investors who want aggregated data and advice based on those rolling numbers. If it sounds like something you may be interested in, discuss your portfolio and risk tolerance with your financial institution to see if they offer any automated processes; ones that can easily get your investments started or automatically adjusted.

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