Are Robo-Advisors Worth it?
- Samuel Feldman
- Jul 15, 2021
- 3 min read
Many beginner investors don’t know where to start when it comes to investing. Is it better to find a costly financial advisor or a financially cheaper robo-advisor to help manage your money?

(image credit: TheBalance.com)
With the advancement of technology apparent in 2021, tech has found itself in places once deemed purely humanoid. One of these industries is finance and investment. Currently, consumers have a plethora of online banks and tools to choose from for their finances, one of these options being robo-advisors. Robo-Advisors are automated investing vehicles that can set up and manage your portfolio with no human involvement. This can be a great solution for many investors, especially beginners, looking for an affordable option to build wealth. Many of these services now offer socially responsible investment portfolios, access to human financial advisors, and comprehensive digital financial planning tools. Tools like Sofi, Wealthfront, Vanguard, and Betterment are all available to help jumpstart investment opportunities.
The Downsides to Robo-Advisors
Robo-Advisors are a great option for entry-level investors who are looking for simplicity. These are investors who currently lack the more profound understanding of investing and experience needed to prosper in the market. This is a great option for these investors because of their low fees, low-cost threshold, and ease of use robo-advisors provide. If you have $25,000 or less to invest, robo-advisors may be a great option to help you get started. However, this option is not recommended for more experienced solo investors, as the investment options provided through the robo-advising software and applications are limited, and the management fee could be considered a relatively high price to pay for a more conservative investment option. Investing for the long term and growing your wealth beyond the six-figure mark may require the experience and guidance of a qualified financial and investment advisor, especially if you are not familiar with investing. Financial advisors provide customized, holistic solutions, and they can also offer investment options not available on robo-platforms. A strategic approach that goes beyond index funds is also essential if you want to build your wealth that promotes diversification. Human advisors can also adapt to life's curveballs in a way that even the best artificial intelligence can't manage just yet. A robo-advisor’s reasons for choosing a portfolio can be completely different than an investor's regardless of the goals and plans set by the consumer. Robo-Advisors provide an excellent starting point to building wealth, however, financial advisors provide the options, accountability, experience, and nuance needed to reach your goals.
Questions to ask yourself before pursuing a Robo-Advisor
What are your goals and needs?
“Identifying your financial goals, time horizon, risk tolerance, and liquidity needs are the first items a finance professional will, or should, tackle with you. Being able to define these for yourself is a great place to begin. These are fundamental to whatever investment strategy is developed.” says Greg McBride, CFA, Bankrate chief financial analyst.
In order to find this out, make sure to ask yourself the following questions:
How much investing do you want to do yourself? A little? A lot?
Do you need a comprehensive financial plan? Or just help with an investment portfolio?
Do you need a goal-based financial plan, say, if you’re saving for a down payment?
Do you want to consolidate all your accounts with one provider?
How much do you want to be involved in your investment plan?
Do you need to discuss with a person or want to do it all online?
Does the Robo-Advisor offer extra features that you value?
Robo-Advisors can do alot more than just set up and manage a portfolio. Many features that robo-advisors offer are too expensive or time-intensive for a human advisor to match. For example Automatic rebalancing is a feature that keeps your actual investments close to the target allocation set by the robo-advisor, helping ensure that your return and risk stay aligned.
Another feature, Automatic daily tax-loss harvesting, may sell an investment where you’ve lost some money in order to reap a tax benefit that can offset future gains. One robo-advising tool, Wealthfront, claims that 96% of its clients in taxable accounts have had their advisory fees fully covered by tax-loss harvesting gains. These features are simply impossible to ask for with a human financial advisor.
Some other features different robo-advisors include are:
SoFi offers career coaching and networking events as some of many extras.
Ellevest offers access to career coaches, a cash management account and online workshops.
Wealthfront offers special investment funds for clients with higher account balances.

(image credit: Bankrate.com)
Bottom Line
A Robo-Advisor can be an excellent choice to manage your money, especially as an investing beginner looking for something that is relatively simple and straightforward. As your needs become more complex and your portfolio becomes bigger, it makes a lot of sense to consult a financial advisor who is invested in your own success so that you receive the best advice and the best returns for your personal needs.
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