This article was republished with permission from Modest Money.
Technology has come a long way in the last twenty years, especially with one advancement in particular: Robo-advisors. What exactly are they?
So what exactly is a Robo-advisor?
In the simplest terms possible, a Robo-advisor makes all your investments for you. Robo-advisors will automatically detect your risk tolerance and investment philosophies(usually through a quick survey or questionnaire) and create an investment portfolio that works for you. Once your money is in the account, the Robo-advisor will continually monitor your investments and returns and modify your portfolio as it sees fit so it sticks to your goals.
In my opinion, Wealthsimple is hands down the best Robo-advisor you can find today. For the Canadian audience, they are already well established in the Robo-advisor industry. For the Americans, you’re in luck. Wealthsimple has just begun to enter the American market and I am certain will soon take the market by storm. If you’re looking for an in-depth review, check out this amazing Wealthsimple Review.
So how will I benefit from using a Robo-advisor?
If you are a passive investor, don’t have time to make your own investment decisions or simply don’t know what you are doing, a Robo-advisor can be one of the best avenues to head down if you are looking to start saving and investing your money.
A Robo-advisor is simply that, a robot. Robots don’t have brains, they don’t sense stress and they do not make reactionary decisions based on emotion. It can be argued that a lot of new investors lose money simply because they don’t have the skills required to pick profitable stocks either. A Robo-advisor automates this process for you.
Investors who want to get started immediately may benefit from using a Robo-advisor to grow their funds while they learn the intricacies of the stock market. Once the investor feels they have a solid grasp on what it takes to make market returns, they can transfer the funds from their Robo-advisor into a self-directed account. Or, if they are making solid returns on their Robo account, can simply open a self-directed account and fund it with other capital.
What will I be investing in with a Robo-advisor, and what are the fees?
Most Robo-advisors focus on ETFs, which is why their fees are typically lower than mutual funds you may own. However, some Robo-advisors can also have holdings in mutual funds as well. Investments are easily monitored inside of a Robo-advisor account and you can typically see where your money is allocated in a few clicks.