Investing in and of itself can be a bit intimidating for many. Add technology to that and now you don't know what to do! Technology mixed with investments can make for an intimidating and confusing concept, but it doesn't have to be that way. In fact, technology has allowed investing to be made even easier than before.
With the introduction to user friendly investing apps and modern robo advisors, investing has been made quicker, easier, and based on logic rather than a sales professionals commission on the product they sell you. With the help of top investment robo advisors, investing can be done with as little as $5, and done with professional help at little to no cost!
But wait, what is a robo advisor? This is a common question and often misunderstood to be a robot that buys and sells your investments for you (which is NOT the case). Here's a detailed and easy to understand explanation of what a robo advisor is and how they work.
What Is A Robo-Advisor And How Do They Work?
A robo advisor is an investment company that uses technology and algorithms to recommend a particular investment portfolio to you based on your response to a few investment questions. In essence, a robo advisor does the work that a professional financial adviser does, but uses algorithms put together by financial professionals to automate the process.
This makes it easier for anyone to get a professionally recommended investment portfolio that is customized to their goals, but without the high cost of a financial adviser.
Upon setting up an investment account with a robo advisor, you will be asked a few questions about your investment goals with your money. Based upon your responses to those questions, they will select a diversified investment portfolio for you and automatically invest your money.
The investment portfolios are put together by professional investment advisers before hand, and based on your response to your investment goals, you will be recommended the portfolio that most accurately aligns with your goals.
The investment portfolios have investment objectives based on risk tolerance, ranging from conservative, moderate, aggressive and very aggressive (for example). Some companies may have more or less portfolio options in terms of risk tolerance, but for the most part will be similar to these options.
What a robo advisor is NOT
The term “Robo” often confuses people into thinking its a robot that buys and sells your stock shares based on the market fluctuations.
However, that couldn't be farther from the truth. Robo advisors do not buy and sell your investments for you based on market changes, but rather simply recommend a set of investments based on your response to a few questions.
The only buying and selling within your portfolio that a robo advisor would be capable of doing is re-balancing your investments to keep your money allocated properly according to your chosen portfolio.
Why invest using a robo advisor?
The problem people have getting started investing is they do so without the proper education or expert help, resulting in rookie investment mistakes and lost money, or they don't have the time or desire to manage their investments themselves.
That's where the white collar highly paid investment expert steps in and helps advise on an individuals investments based on their investment objectives.
Keep in mind that your financial adviser mainly works with high net worth individuals, and most often has a high price tag for their advice. How is one to invest in the stock market, and avoid rookie mistakes while also getting the help and advice of a professional investment expert?
By using a robo advisor, you are able to invest in the stock market with a diversified portfolio, expert investment advice, at a fraction of the cost or, with some companies, completely free.
Recommended Reading: The Ultimate Guide To Investing In The Stock Market
Along with the ease of access to invest and the low cost, robo advisors also allow you to begin investing with as little as $5. This allows for more people to take advantage of investing in the stock market with little cash, where before you needed often hundreds or even thousands of dollars to even get started!
How much does it cost to invest with a robo advisor?
Before robo advisors came about, most companies would charge you a commission from each trade. So if you wanted to invest in a an ETF (Exchange Traded Fund) or in stock of a favorite company, you could do so by purchasing your chosen amount of shares plus a commission for the trade.
Companies would charge anywhere from $5 – $10 per trade. This can get pretty costly if you plan on making regular recurring investments.
With a robo advisor, you only pay a very small monthly fee of usually of $1, and for larger accounts (usually accounts over $5,000) its a fraction of a percentage per year (usually about 0.25% per year – this varies some depending on the company you invest with).
So if your account value is $5,000 and the yearly fee is 0.25%, you would pay just $12.50 per year. These are just examples, and the fees may vary per company but these are pretty standard amounts for the majority of robo advisors.
What Are Some Good Robo Advisors To Invest With?
When choosing a robo advisor, you want to make sure its with a reputable company who has a good track record and transparent organization. Among the top robo advisors to invest with, we recommend and highly trust the following companies.
Acorns – Invest Your Spare Change
Acorns is a unique robo advisor that allows anyone to invest their spare change from everyday purchases. By linking to your checking account, they simply take your daily purchases and round them up to the next nearest dollar and invest the spare change for you.
They invest in a customized investment portfolio based upon your response to their simple questions to determine the appropriate portfolio for you.
They have another unique feature called “Found Money” that allows you to shop at major retailers, and then those retailers will deposit a percent of your purchase into your investment account for you.
Read our detailed review of Acorns:
Ready to open your Acorns account? Follow the link below and you'll be taken to Acorns for more information
Betterment – An Online Financial Advisor
Betterment is good for those who want direct access to financial professionals for any questions about investing. Their platform allows you to invest smaller amounts of money into a diversified portfolio recommended to you based on your responses to their questions.
Their competitive advantage is the ability to ask any question to their financial professionals as often as you want. Their professionals will respond within 24 hours and give you professional advice customized to your risk tolerance and investment goals.
Read our detailed review of Betterment:
Ready to open your Betterment Investing account? Follow the link below to be taken to Betterment for more information.
How has your experience been when investing with a robo advisor? Or, if you haven't yet used a robo advisor, what are your hesitations? Post your responses, questions and comments below and ill respond personally asap!