Should I Use a Robo Advisor? – Robo Advisor vs Human

There are a bunch of mystery key players that work behind the scenes in the investment world and enhance financial portfolios. These mystery key players are not a group of underground finance wizards, they are in fact, robo advisors. Robo advisors are automated financial management platforms that are supposed to perform the tasks of traditional human financial advisors faster, more efficiently and economically.

Back in time, reviewing a financial situation and building a portfolio based on that was not possible without the help of a real life financial advisor. However, with the help of the advanced software of a robo-advisor, you can have a portfolio that suits your needs. What’s more, the robo advisor will do all the work for you. So you can be busy with your work and indulge in your hobbies while the robo advisor works in the background.

Robo-advisors choose investment opportunities for you based on computer algorithms programmed with your specific financial portfolio preferences, such as risk tolerance and capability, along with your goals and timeline.

Although the concept of allowing a “robot” to manage your finances might sound a little Orwellian, robo advisors can benefit many types of consumers. Robo-advisors can manage basic portfolios at a lot lower costs than human financial advisers — and may even pick up on investment trends faster, thanks to specialized technology that works for you.

Robo Advisor vs Human :Things to Know Before Using One

Who are robo-advisors best for?

Robo advisors work best for the portfolios which are more basic rather than complex. Since they cost much less than traditional financial advisors, they are also extremely helpful if you have budget constraints. However, if your portfolio is made up of many different parts or you have a significantly large investment corpus or you are looking for extremely customized and individualized options, going with a traditional human financial advisor is better suited for you.

What are the pros and cons of a robo-advisor?

Pros of a robo-advisor:

Many people value the ease of a robo-advisor’s automation when it comes to managing and growing their investments, among other benefits that include:

  • Minimal human error. Initially, you might be a little uncomfortable with the idea of letting a “robot” handle all your money. However, since a robo-advisor is a software, it can avoid all types of unintended human errors. It eliminates the possibility of emotional buying and selling which can hamper your long term financial growth.
  • Lower fees. A robo advisor costs a lot less than a human financial advisor.
  • No awkwardness. If you’ve ever been in the uncomfortable situation of not getting along with your financial adviser, you’ll appreciate this benefit. Turns out, robots don’t get their feelings hurt if they are fired when it’s not a suitable match.

Cons of a robo-advisor?

Because there are two sides to every story, there are also potential drawbacks to consider to using a robo-advisor. For example:

  • Automated advisors can’t get to know you. Even the most sophisticated computer algorithm is still an algorithm. It can’t sit down with you, it can’t explain things to you and it certainly can’t listen to your dreams about the future.
  • Robo-advisors can’t handle complex portfolios. These advisers aren’t best for overly complicated portfolios. The rule of thumb is that assets of six figures or more need the human touch.
  • Questions may cost you. While working with human financial advisors, asking a few extra questions to satisfy your curiosity won’t cost you extra. However, if you have a basic robo-advisor handling your portfolio, you will need to pay extra to converse with a real person.
  • You might find it difficult to lose control. Technically, you are always in control of your finances, but you might find it a little bit unsettling to hand over the keys to your wealth to a “robot”. If you want a more hands-on approach, you should consider skipping on the robo advisor.
  • You can’t auto manage employer retirement plans. This software can’t do much with retirement plans like 401(k)s, so putting any money in a robo-advisor for a plan like that won’t do you much good.

Who offers lower fees?

The fees for both robo advisors and traditional human financial advisors tend to vary based on the company that you choose. Top-level private advisors, for example, tend to charge a lot more than beginner or standard firm advisors. Some companies charge a fee that reflects a percentage of your assets, while others may impose an annual or initial investment fee.

However, in most cases, robo advisors tend to be significantly more affordable than traditional human financial advisors.

Robo-advisors: Conclusion

If your goal is to manage a simple and basic financial portfolio, a robo advisor can do that by providing automated management at a much lower fee. Robo advisors are also great at eliminating the chances of human errors which can hamper long term financial gains.

However, if having customized and individualized options is your main goal, you are better off with a traditional human financial advisor. Only another human being can truly get to know you, pay heed to your gut feelings associated with investments and properly understand your island retirement dreams.

A lot of the world’s most popular robo-advisor platforms offer the option to combine human and robo advisors to give customers the best of both worlds. However, when it comes to it, choosing one over another completely depends on your goals, investment corpus and personal preferences.

You can also use this approach towards robo advisors, if you are just starting out with your investments, you can enjoy the economical portfolio management of robo advisors. The low fees will ensure that you get to keep a larger chunk of your profit. You can see this as an opportunity to learn and understand how the investment world works. However, if you are closer to retirement and you have a large sum to invest, you are better off with a traditional human financial advisor.

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