You can think of a Robo Advisor as an online financial advisor. But instead of dealing with a human, your investments are being handled by software. Robo Advisors are automated wealth management tools that you can access from home, using your computer, laptop or smartphone. They can manage your investment accounts with little or no assistance from human advisors.
Here at BestRoboAdvisors.org you will find loads of in-depth information about different automated investing providers and the services that they offer to investors, as well as comprehensive reviews of the best Robo Advisors around.
To put it as simply as possible, Robo Advisors use special algorithms to allocate and manage your investments. These algorithms can determine the best financial strategy for your account, and they allow Robo Advisors to operate more efficiently and at a far lesser cost than human financial planners.
Robo Advisors are generally restricted to the area of portfolio management and retirement planning. However, they don’t handle issues such as cash-flow management or estate planning. Robo Advisors can radically change the distribution channel of your investment accounts. Back in the old days, this type of service can only be attained through a human financial advisor as part of a wider (and more expensive) bundle of services. Thanks to Robo Advisors, portfolio management is more readily available to a larger network of potential investors. And they are cheaper, too.
How do Robo Advisors Work?
The exact workings of Robo Advisors will differ slightly depending on the service that you choose, but they generally operate on the same principles. One thing is for sure: All Robo Advisors are flexible enough to offer an automated or hands-on approach to investing, whether you are starting small or if you have larger amounts to invest.
This is precisely the reason why you need to read our expert Robo Advisor reviews at BestRoboAdvisors.org. We deliver in-depth reports on the best Robo Advisors in the business, so you can easily determine the best Robo Investment service that is an exact match to your preference and budget.
Upon signing up and answering a few key questions, you will be required to deposit or otherwise transfer the required investment amount.
The Robo Advisor will then allocate the investor’s assets across a portfolio of investments based on the same algorithms and software that traditional financial advisors also use themselves.
More often than not, those investments take the form of a collection of different low-cost stock ETFs and bond ETFs, and the individual allocations and selections will differ from one investor to another. However, asset allocation is just the tip of the iceberg for Robo Advisors as they also tend to provide a variety of ongoing account services.
What do They Offer Investors?
Robo Advisors generally provide a wide range of portfolio management services. Alongside the initial asset allocation, most Robo Advisors can handle automatic rebalancing, automatic dividend reinvestment and tax loss harvesting for you – features that used to only come with expensive financial planners.
Automated portfolio rebalancing is a when a Robo Advisor automatically tweaks and changes the allocation of assets within an investor’s portfolio in order to maximize returns.
Dividend reinvestment is when the service recognizes the pay-out of a dividend, assesses the best way to reinvest that money and then goes ahead and does so without any outside interference.
Tax loss harvesting is a slightly more complicated feature which we define and explain in more detail on our What is Tax Loss Harvesting? page. In simple terms, it is the process wherein the Robo Advisor chooses the optimal time to sell a security which has experienced a loss, in order to offset taxes on other gains and profits.
How much do Robo Advisors Cost?
Good question. The answer is not a lot. In fact, the fees that Robo Advisors charge is way less than what a human advisor will cost. The best part is that many Robo Advisors even offer a FREE service, and will only start deducting fees upon reaching a certain investment amount.
Of course, the actual figure will depend on which Robo financial advisor you consider, but we have proven that on average, Robo Advisors cost only between one quarter and one third of what a human advisor would charge for the same service.
Fee can eat away at your bottom line
And that’s just with 1% fees – some financial advisors charge much more! With 0% fee you get more and can invest more!
The cost of an automated investing service normally comes in the form of management fees and these are generally charged as either a specific monthly fee or as a charge based on a percentage of the investor’s account balance. Each of those types of management charge vary from one advisor to another but in general tend to fall between $1 per month and $20 per month or between 0.15% and 0.9%.
According to Bloomberg, traditional brokerage firms such as Morgan Stanley, Bank of America and Wells Fargo are under pressure to justify the premium fees they charge to investors, and are racing ahead in developing tools based on artificial intelligence for their customers. Robo Advisors handled more portfolios in the year 2015 compared to 2012, representing a 210% rise amounting to over $50 billion in investments.
Robo Advisors are the next big thing, and we at BestRoboAdvisors.org are dedicated in providing you with comprehensive and expert reviews on the best Robo Advisors online.