Thursday, July 20, 2017

Robo-advisors: The Future of Investing

Studies show that more people are showing interest in beginning to save for retirement at a younger age. This is great, but many financial advisors refuse to meet with clients under a certain income level. Oftentimes, this income requirement is astronomical for the average worker. Some advisors require that clients have $50,000-$100,000 ready to invest before they will even speak to them.

Early investing is key for higher returns. But without the access to professional advice, many young investors have no idea where to begin. To solve this problem, robo-advisors were introduced in 2008. Robo-advisors are automated, online portfolio management services. They use computer algorithms to manage client investments and are much cheaper than a human financial advisor. Robo-advisors were initially created in response to the financial crisis of 2008 and to keep up with the movement toward online financial platforms. Robo-advisors can translate to higher net returns for beginner investors by automatically balancing portfolios and harvesting tax-loss. 

Some robo-advisors are totally automated, while some are partially managed by human advisors. There is a wide spectrum of human involvement between different investment companies—all at varying price points for the investor.

The first investment companies to roll out robo-advising software were Betterment and Wealthfront. Betterment has a management fee of 0.25% - 0.5% with no account minimum to begin. Wealthfront has lower management fees of 0% - 0.25% but requires a $500 account minimum to open.

In 2010, FutureAdvisor rolled out. FutureAdvisor links client’s investment and retirement accounts wherever they are and provides a free investment plan. This allows investors to use other servicers (where they did not receive complimentary financial advice) and does not require investors to move their assets. The catch? FutureAdvisor has higher end management fee of 0.5% and requires a minimum balance of $10,000 or more.

There are many pros to robo-advisors including low management fees, low balance minimums, nobel price-winning algorithms, and their ability to expand the investment market to those who might not otherwise be consider for financial advice. However, some cons of the technology include the inability to have face-to-face assurance when making financial decisions and less ability to have a more personalized plan.

Overall, robo-advisors can be a great option for those who want to begin investing, but aren’t sure how to begin. It is important to begin investing early and the fees and income requirements of some human advisors make that difficult. Contact Origin to begin your path to financial stability. We can help you lay the foundation to pay off debt, improve your credit, and set up your budget to be able to start down the investment path. Click here to learn more or call 843-735-7802.

No comments:

Post a Comment