After following the Charisse Says series on Modest Money, you are now equipped with the tools you need to start investing. But what if you don’t want to pay the high fees of a financial advisor or broker that typically come with investing? In that case you should be using automated investing or “Robo Advisors”, which have become all the rage in the broader financial services industry as of late. Never heard of computers managing money before? Well then the video below, “Computer Lovin’”, is for you! There has been a lot written over the last few years about letting computers manage our money. I want to simplify the overload of info by focusing on 3 main things:
- What exactly are these computers that manage money?
- How do they work?
- And, should you use one?
What Are Robo Advisors?
The term “robo advisor” means that technology (instead of humans) is being used to assist you in making investment decisions. Most of these robo advisors use exchange traded funds (or ETFs) as the investment vehicle. Check out my previous episode on ETFs if you need a refresher. Now, this technology has been created by humans, but they are one-step removed from you. In the video below, I provide a list of some of the big firms in the space.
The selling points for the automated services are:
- Lower fees (generally) compared to human advisors, which we talked about early in the season;
- Accessibility to the investors who want good portfolios but do not have millions of assets. Some of the robo advisors do have some minimum money requirement, so make sure you check; and
- An easy, long term investing approach
How Do They Work?
In the video, I break down how I set up my own account with a robo advisor. It is very easy and the entire process should take roughly 15 minutes. The platform will send emails when it needs to rebalance your portfolio, invest your dividends, or transfer money to your account.
All of the services will have an investing disclaimer on their site, so do not be alarmed. Basically, they are letting you (and the SEC) know that in the case that you lose money, they warned you of the risk in investing so that you can’t sue them.
Should You Get A Robo Advisor?
Many people say that robo advisors replace the human financial advisor. I believe, as I mentioned in earlier blogs, a human financial advisors acts like your Money COO and can do many things that a computer cannot do as effectively. But, I do see computers and humans as complementary because they can reinforce one another. I want to encourage you to at least explore automated investing services.
In the video below I give you good questions to consider during your robo advisor investigation.
In summary, it is not rocket science what automated investing services are doing. They are pre-selecting a finite set of Exchange Traded Funds based on some info you give them, making basic allocation decisions like in your 401k if you have a Target Date fund, and then allowing their technology platforms to invest on your behalf over a period of time all while monitoring, and managing your portfolio for you. Some of them have human advisors also, and some do not.
Still need a bit of clarification? Watch the short, funny, and informative video below to learn more, and before you know it, you will be growing that wealth.