According to a 2017 survey, Americans are pretty bad at managing their own investments.
Americans are bad at investing for three attributable factors: they psychologically fake themselves out, they don’t have enough money to invest, and/or they must use available money for other purposes.
These three psychological factors can then be further broken down into nine behavioral biases:
- Anchor mentality: Staying focused on past results or desires and ignoring current market reality and volatility
- Herd mentality: Investing based on popular activities
- Non-diversification: Habitually buying one kind or similar kinds of stocks
- Media influencing: Being optimistically influenced by whatever the media and stock market experts say
- Mental justification (Denial): Mentally insulating investment performances from reality to justify failures and successes
- Panic selling: Fear of losing out causing one to sell at the worst moments and buying at high prices
- Regret: Neglecting necessary actions to obsessively dwell on past mistakes
- Tunnel Vision: Making choice about one portion of your portfolio without considering the whole
- Unjustified optimism: Being overly optimistic, and then shocked, when bad decisions meet reality
Scared yet? Well, just avoiding investment activity can be costly.
Getting expert advice and management help is key.
Novice and experienced investors alike use financial advisors, which can be costly.
You can use a robo advisor, at a portion of the cost of a human financial advisor, to help you manage your investments.
The best way to understand how a robo advisor can better manage your portfolio is to better understand what it is.
Robo Advisor 101
A robo advisor is a digital platform that employs algorithms that are programmed to manage your investment portfolio autonomously with little or no human oversight.
A robo advisor is not an actual robot that comes to your house to manage your investments.
Robo advisors are basic A.I. programs that are programmed with intricate investing models, data, and protocols based on award winning research.
Some robo advisor algorithms are programmed with investment data written by Nobel prize winning economists (more on that later).
Sound complicated? Getting a robo advisor is actually a very easy and user-friendly process.
First, you fill out an online application and questionnaire.
The questionnaire is designed to give the robo advisor a profile of your personality, investment preferences, and future goals and strategies relative to your financial ambitions.
After collecting this information, the robo advisor can offer services like:
- Autonomously invest
- Offer basic planning for future investments
- Manage portfolios
- Offer advice and emergency alerts
- Low maintenance fees
- 24/7 access to investment portfolio
There are robo advisors that perform more complicated processes but cost more in fees.
However, robo advisors are always more affordable than human financial advisors.
And, depending on the services you need, they may be able to manage your portfolio more efficiently too.
Robo Advisors Have Affordable Fees
A robo advisor allows you to have financially healthier investments to manage.
Financial advisors could charge a flat rate of $1,500 to $3,000, or more, for one-time portfolio management services.
Hiring a financial advisor for long-term portfolio management services could cost you a 1% to 2% annual commission commensurate to your portfolio’s value.
Most robo advisor algorithms would charge you a quarter or half of a percent to manage your entire financial portfolio.
So, depending on the robo advisor you utilize, a one-time or long-term management commission would only be 0.25% up to 0.89%.
Consider that with a robo advisor, a 0.25% annual commission management fee of a $2 million financial portfolio is $5,000.
Most high-profile human financial advisors require that you have a minimum portfolio balance of $100,000 to $500,000.
Robo advisors don’t have minimum portfolio balance requirements.
Most people who use robo advisors are new to investing and possess modestly sized portfolios.
24/7 Portfolio Management Access
The time and strategies that you utilize managing your money can sometimes be more valuable than the money.
However, a financial advisor ultimately determines your time management access to your own money.
How can such a setup help you manage your money efficiently?
Think about it. You can only confer with a human financial advisor according to the advisor’s work schedule.
Many people completely entrust their financial advisors to independently oversee their investments portfolios (how do you think embezzlement occurs?).
This is not to imply that every financial advisor is out to nickel-and-dime you.
However, what is the sense in paying a financial advisor to limit access to your own money?
Also, why pay a 2% annual commission if you must double-check your own investment performance so as not to bother your financial advisor during off-hours.
With a robo advisor, you have access to your portfolio 24/7.
Based on your personality and preferences questionnaire, your robo advisor will alert you as needed about your investments.
You can’t manage your money unless you’re managing your money.
Robo advisors can help you do that more efficiently on a timetable you alone dictate.
Robo Advisors Use Investment Algorithms Designed by Nobel Prize Winning Economists
Do you know what investment theories, or models, are?
They are investing rules, tenets, and theories based on statistical research and historical data that inform best practices for investors.
Investing is akin to an academic discipline that takes years and/or decades to master.
There are many theories, models, and rules you should learn to manage your investments better.
You should make of point of self-educating to become a better investor.
However, robo advisors autonomously implement expert investment models that are formulated in-house by its developer or influenced by existing research.
Some robo advisors implement investment theories based on research developed by Nobel Prize winning economists.
What Are You Looking For In a Robo Advisor?
There are several robo advisor platforms you could utilize, including:
- Axos Invest
- Betterment
- Bloom
- Charles Schwab Intelligent Portfolios
- Ellevest
- SigFig
- SoFi Invest
- WealthSimple
Check out several robo advisors online and see which one suits your needs.
You shouldn’t just secure a robo advisor and then forget about your finances.
Use the robo advisor as a learning tool to help you better manage your investments as well.
Read More
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PROTECT YOUR CRYPTO INVESTMENTS
How To Retire With ” Million in Savings
Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business.