Thanks to tech, you now have the option of choosing between a financial vs Robo advisor for your personal finance and investment advice and management. In the past, you had to rely on an individual financial advisor or a firm providing financial advisory and management services. This was at no small fee, not to mention the high management fees and requirements for a large portfolio. And that left many people with the DIY option.
Unfortunately, the DIY model can be quite an undertaking. It requires you to set aside ample time for your research and handling all the management aspects of portfolio management. Still, it’s a very affordable model that many of us still use.
With Robo advisors, you are able to outsource this taxing task to a software program. Such digital platforms provide customized services and automated investment management at a much more affordable fee.
So, how do you choose between a financial vs Robo advisor?
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What Is A Robo Advisor?
A Robo Advisor is a platform for investment managed through computer algorithms. In other words, it’s an online automated investment service provided according to your preferences.
Your preference refers to what you want to achieve and the amount of risk you are willing to take. Robo Advisors provide an onboarding questionnaire that they use to analyze your investment preferences. It’s this information that such software platforms use to personalize your investment portfolio. A Robo advisor will also rebalance your portfolio as the market shifts to keep you on target with your investment goals.
Robo advisors are suitable for hands-off investors, making them an excellent option if you don’t want to monitor your investments daily. They do not require human involvement, but some providers will have few people available to answer your questions.
When To Use Robo Advisors
So, when is the most appropriate time to use a Robo advisor?
You Are Starting Out and Have a Small Portfolio
Financial advisors mostly require you to have a large portfolio, especially if you are working for a firm. However, with Robo Advisors, you can invest the little you have and grow the balance with time.
You Prefer Hands-Off Investing
With Robo advisors, you don’t need to monitor your investments. Many people choose Robo Advisors because of this autopilot feeling. You can forget your investment for some time, knowing that the platform automatically balances your portfolio.
You Don’t Mind Limited Human Interactions
There’s no need for human involvement because Robo advisors manage your portfolio online.
You Have Limited Time
Sometimes, you may not have enough energy and time to research and manage your portfolio. In that case, you can benefit from a Robo Advisor’s automated services.
Advantages of Robo Advisors
Easy To Start Investing
You start investing with Robo advisors by answering a few questions about your financial goals. This process takes a few minutes because you complete everything online and interact with people.
You don’t need to have a high minimum of assets under management to secure the service of Robo advisors. Again, Robo advisors have less expensive fees compared to financial advisors.
Easy To Manage
Everything is automated. Because of this, you don’t need to log into your portfolio to manage every little bit. Robo advisors manage it on your behalf. Additionally, Robo advisors automatically rebalance your portfolio to match new goals and risk tolerance.
Rational And Impersonal
A Robo advisor will make rational decisions for your portfolio using computer algorithms. Therefore, there’s no risk of making mistakes through emotions.
Disadvantages Of ROBO Advisors
Robo advisors cannot handle the complex and emotional component of wealth building. Think of scenarios like planning for major life changes, estate planning, budgeting, and tax in depth tax planning to save money. Some of these situations require the human component for better implementation, which Robo advisors lack.
About Financial Advisors
A financial advisor is a professor who helps you decide what to do with your money. These advisors help you manage your investments to meet your short-term and long-term financial goals.
Authorities regulate the work of financial advisors, and most of them have a series of related licenses. These advisors are legally obligated to act in your best interest. Financial advisors will help you build wealth, reduce financial risks, manage taxes, and plan for retirement.
When To Use Financial Advisors
If You Prefer a Single Contact
If you are looking for some human contact when making any investment decisions, a financial advisor is what you need. You do not have to deal with algorithms, but you can always call or text your advisor whenever you need advice regarding your investments.
If Your Finances Are Complex
As your wealth grows, you may need more help than what Robo advisors offer. A financial advisor can advise you on the best insurance to protect your wealth and work with your accountant to reduce taxes. Financial advisors provide holistic services required to manage multiple accounts.
If You Require a Tailored Approach
Robo advisors do not allow for customized planning on how much to save and allocate to other savings, investment, and debt accounts. Though financial advisors are expensive, you get a tailored method to your financial needs.
Advantages Of Financial Advisors
Holistic Financial Advice
A financial advisor will help you achieve your financial goals by reviewing your entire financial situation based on your reality today. The advisor will help you budget, set short-term goals like saving for a down payment for a house, and plan for retirement.
You have one person to text, email, or call if you have a question about your investment portfolio. Over the years, your financial advisor gets to know you and understands what’s important to you.
Disadvantages Of Financial Advisors
Conflict Of Interest
If an advisor works on commission, they might not always have your best interest since their revenue increases when they sell you specific products.
Most financial advisors will require you to have high minimum assets under management for their time working with you to be worth it. If you don’t invest a large amount of money, the fees you pay your advisor may impact your revenue.
Financial vs ROBO Advisors
Both a Robo advisor and a financial advisor can help you manage and grow your investment portfolio. Choosing between a Robo advisor and a financial advisor will depend on your financial needs.
If you decide to use a Robo advisor, look for the one that suits your budget, personal assistance needs, and investment amount. If you choose a financial advisor, consider their price, the value they bring, their credentials, and experience.