Robo-advisors are quickly becoming a staple in the investment industry. Many beginner investors are relying on the help of a robo-advisor to guide their early endeavors in the stock market or within other investment opportunities. Financial advisors have always lent their expertise and know-how to the financial goals of their clients, but with the advancements in AI and algorithms designed to interpret price changes and real-world stressors on the financial markets, robo-advisors are becoming a great alternative to human advisors, eliminating much of the expanded costs of investing in the process.
The truth is that all advice will cost you, from robo-advisors to other financial advisors and index fund maintenance fees. Yet a robo-advisor is perhaps the most affordable way to gain the professional insights that drive profits within an investing account. Robo-advisors like Betterment, Wealthfront, or even a Vanguard option have simply taken the market by storm, and for great reason. If you’re looking to incorporate the algorithms offered with these investing strategies, starting here is a great way to identify the perfect robo option for your needs in 2021.
Consider the fees that you’ll be charged.
It’s often a great idea to start this journey by thinking about the fees associated with any of the best robo advisors out there. Robo-advisors will require a capital input of some sort, and comparing the rates head-to-head can give you an early look at which robo-advisor options might work best for you and your investing account. Robo-advisors offer a slightly heightened fee structure over some of the less expensive alternatives, yet the benefits can quickly come to outweigh the additional expense. Fees are simply one aspect of the overall picture when it comes to incorporating a trading strategy into your routine.
To put this into context, an index fund might charge a nominal fee of around 0.2 percent on your total holdings in the fund while an actively managed fund (that is, an index-type fund that is manipulated by a human advisor rather than governed by an algorithm) may take off a 1 percent fee from the top. While index funds are passive, you might like the blend of holdings that one particular fund offers and select this as your primary investment going forward.
Robo-advisors can offer a minimized fee structure while behaving like an active, human-managed option. This blends the best of both worlds while paying you with the earnings.
Evaluate additional features of any good robo-advisor.
Investing strategies differ widely amongst traders. Some people are looking for strictly growth assets while others might be obsessed with chasing after the best-performing dividend holdings. Whatever your approach, investigating the additional plugins that a robo-advisor offers is a great way to understand if that particular option matches up with your priorities. For instance, those who are seeking out monthly dividend income might benefit best from an advisor that can synthesize gains and tax-loss harvesting methods in order to act as a financial planner as well as an investment advisor.
Capital gains can be a tricky thing, but with a robo-advisor that has built-in sensitivities to this aspect of the investment cycle, day trading while keeping a close eye on the tax burden that you are building up in the process can be managed admirably with minimal hands-on requirements.
Another aspect of this equation is risk tolerance. Many robo-advisors provide clients with a sliding scale of risk tolerance in order to maximize returns based on individualized needs. As a general rule of thumb, younger investors should be chasing after slightly higher-risk investment assets while older traders might consider dialing risk back in order to focus on principal protection.
Whatever your strategy and needs, there’s a robo-advisor out there that can help you achieve your goals with greater ease.