Should I use multiple robo-advisors?
Some would diversify across multiple platforms to minimise platform-specific risk. It's a good consideration but if you understand how the platform handles your money and can sleep at night knowing that your funds are safe, there's no need to diversify across platforms just for the sake of it.
In addition to creating an automated portfolio, robo-advisors can also offer their customers the following benefits: Lower fees compared with a traditional financial advisor. Lower capital required to start. The ability to avoid human error and bias.
A Lack of Real Diversification
If you were to look at the portfolios offered by any of the major robo-advisors, you'd see that they consist mostly of just two asset classes: Stocks and bonds.
The generic cons of Robo Advisors are that they don't offer many options for investor flexibility. They tend to not follow traditional advisory services, since there is a lack of human interaction.
Digital Advisor Use Dropped in 2022
High-net-worth investors exited robo-advisor arrangements at the highest rates.
Robo-advisor performance is one way to understand the value of digital advice. Learn how fees, enhanced features, and investment options can also be key considerations. Five-year returns from most robo-advisors range from 2%–5% per year.
Limited Flexibility. If you want to sell call options on an existing portfolio or buy individual stocks, most robo-advisors won't be able to help you. There are sound investment strategies that go beyond an investing algorithm.
Do robo-advisors outperform the S&P 500? Robo-advisors can outperform the S&P 500 or they can underperform it. It depends on the timing and what they have you invested in. Many robo-advisors will put a percentage of your portfolio in an index fund or a variety of funds intended to track the S&P 500.
Markets can be unpredictable, and no form of investing is immune to potential losses. Robo-advisors, like human advisors, cannot guarantee profits or protect entirely against losses, especially during market downturns—even with well-diversified portfolios.
This will vary significantly depending on the risk profile of the portfolio, broader market conditions, and the specific robo-advisor used. Some robo-advisor portfolios may outperform the S&P 500 in certain years or under specific conditions, while in others, they underperform.
Should I use a robo-advisor or do it myself?
Some robo-advisors offer tax loss harvesting, options to talk to human advisors, mobile 24/7/365 access via smartphone and other features. Robo-advisors cost less than financial advisors. Robo-advisor annual fees average about 0.50% of assets under management, while human advisors often charge from 1% to 2%.
For core investing and planning advice, a robo-advisor is a great solution because it automates much of the work that a human advisor does. And it charges less for doing so – potential savings for you. Plus, the ease of starting and managing the account can't be overstated.
Suppose you're starting from scratch and have no savings. You'd need to invest around $13,000 per month to save a million dollars in five years, assuming a 7% annual rate of return and 3% inflation rate. For a rate of return of 5%, you'd need to save around $14,700 per month.
Fidelity's robo-advisor, Fidelity Go, frequently makes our list of the best robo-advisor for its low fees — including free management on balances below $25,000 — integration with other Fidelity accounts and its use of Fidelity Flex funds, which have no expense ratios.
Last year, roughly 30 million Americans used robo-advisors to grow their assets. Statista expects another 20 million people in the US to start using their services in the next four years, pushing the total user count to nearly 50 million.
If you require a high level of personalized service and direct management of your investments, a traditional human advisor might be better suited to your needs. Conversely, if cost and simplicity are your primary concerns, a robo-advisor might be the better choice.
The benefits of becoming an advisor include unlimited earning potential, a flexible work schedule, and the ability to tailor one's practice. The drawbacks include high stress, the hard work needed to build a client base, and the ongoing need to meet regulatory requirements.
- Tax advantages. Contributions to a traditional 401(k) are taken directly out of your paycheck before federal income taxes are withheld. ...
- You are in control. ...
- Time is on your side. ...
- You can take it with you. ...
- Easy payroll deductions.
| Pros | Cons |
|---|---|
| Often less expensive than working with a professional financial advisor | More costly than doing it yourself |
| Easy to start and may have a low account minimum | Could take a narrow view of your investments or financial situation |
| Includes ongoing management | Limited personalization |
Advantages of robo-advisors
Online platforms can provide the same services for a low advisory fee by removing or limiting the need for human involvement. Robo-advisors generally charge low portfolio management fees and offer a range of services.
