What are the factors to consider when choosing a robo-advisor?

What are the factors to consider when choosing a robo-advisor?

Tips for Choosing a Robo-Advisor

If thinking about finances and investments makes you wish you could just hand it all over to a machine that would do it for you, you’re in luck. Robo-advisors are increasingly common in asset management, and their ability to process large amounts of data means that they are both efficient and insightful. However, you still may wonder how to choose a good one, and the tips below can help you.

Consider the Human Factor

Robo-advisors don’t just spring fully grown from the depths of computers. There’s a human programming them behind the scenes. And you want to make sure that your ideas about risk and investment strategies line up with theirs. In addition, while robots can be great when it comes to investments, you probably want to be able to communicate with a human if anything goes wrong. Some people feel that AI is a threat to humanity while others regard it as the way of the future. Decide where you land and consider the company’s overall responsiveness and the quality of their customer service.

Consider Cost

There are two things to think about when it comes to cost. First, there will be fees associated with the service. At minimum, there will be a small percentage charge based on the value of the assets. There may be a set-up fee as well as other fees. Make sure that the company is transparent about costs, and keep in mind that the cheapest option is not necessarily the one best suited for your purposes. 

The other aspect of cost is how much you need to have for your initial investment. Don’t assume that because you don’t have a huge sum of money that you can’t get started, but you might need to tighten your budget and find ways to save on expenses for a few months so that you have some cash to invest. If you have student loans, you might be able to lower your monthly payments and free up some cash by refinancing them into a new loan. In addition, reducing going out to eat, cutting the cable cord. And cancelling the gym membership now that the weather is finally starting to turn. Moreover, could free up additional funds to invest.

Check Track Records

When it comes to choosing companies to invest in, some have been around for a very long time, and you can get a solid sense of their financial health. Robo-advisors themselves have only been around for a few years, but you can still look at their historical performance. Be sure to look beyond their own assessment of that performance, which is likely to be favorable.

Consider Services

Another thing to look at is what services they offer. This varies a great deal, with some offering such things as help with financial planning and budgeting and even access to a human who can assist you with these areas. Some work with you on setting goals and timelines while others have put together standard portfolios that you can simply click on to purchase. Some offer tax loss harvesting and other tax optimization strategies. Lastly, some have particular specialties, such as cryptocurrency, or focus on a particular demographic, such as upmarket investors. None of these are necessarily better or worse but some will suit your individual situation better than others.

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What are the factors to consider when choosing a robo-advisor?