Use a Robo Advisor

If the world of investment is new to you, or if a financial planner is out of your budget, there is no need to panic. A robo advisor can be an easy-to-use, cheap alternative to traditional financial planners. A robo advisor is a computer generated financial advising system that manages your investments for you. There are different types of advisors to choose from depending on factors like your personal needs, age, and income. Once you select an advisor, you enter your information into the system and watch your finances grow with time.

Steps

Selecting a Robo Advisor

1. Go for a robo advisor for young investors. If you're on the younger side and have just started the process of investing your money, go for a robo advisor designed for younger investors. Look for portfolios that make sense if you're just starting out and have plenty of time to let your money grow.
   • As you may not have a lot of money saved up at a young age, look for a robo advisor with a low minimum fee or no minimum fee. Advisors like Betterment and Wealthfront charge low fees while TradeKing Advisors has no minimum fee for the first year.
   • Look for advisors that emphasize investing your money in stocks. If you're still in your 20's, your finances have plenty of time to grow over time. Therefore, a robo advisor should invest your money in stocks as they will appreciate in value.
2. Pick the right advisor for building wealth later in life. If you're middle aged or older, this affects the kind of robo advisor that works for you. If you have many tax accounts, an IRA, and a 401k, look for a robo advisor to match your needs.
   • Look for robo advisors that work with brokerage firms, such as TigFit, Fidelity, and Schwab. Such advisors analyze your existing investments and make suggestions based on moving money around.
   • You should also look for low-fee advisors to avoid pulling any money from existing investments.
3. Make sure a robo advisor's services match your needs. Robo advisors are not for everyone. Make sure a robo advisor will actually meet your needs. Robo advisors tend to be the best option if you're looking for advice on investing and managing investments. Things like estate planning or managing stock options for a company may require in-person advising.
4. Check the fees. Robo advisor companies should offer a breakdown of what specific services each fee provides. You should not invest in a robo advising company that is not upfront about the reasons for their fees. Ideally, a robo advisor should provide a wide range of services for your money. Look for services like investment advice, financial planning advice, and tax loss harvesting to make sure you're getting your money's worth.
   • Also, be aware of whether an advisor charges commission for the buying and selling of your funds. If a robo advisor does take a cut of commission, check to see how much of your money will go towards the company that sells the robo advisor.
5. Make sure your information is secure. Robo advisors are susceptible to data breaches, so they should offer some kind of safeguard for your money. Make sure the robo advisor you use provides a transparent plan to protect personal data. Ask about data protection and any insurance the company provides in the event of a data breach.
   • Some robo advisors may also give your information to third parties. Make sure to check to see if your information will be shared with a third party. It's usually a good idea to avoid advisors that share client information.
6. Select an advisor that offers support from professionals. Robo advisors can be helpful and affordable alternatives for those who cannot afford a regular financial planner. However, if you're new to investing, the advice you gain from your robo advisor may be difficult to understand. The best robo advisors will provide some degree of professional support from humans. Choose a robo advisor that has a number you can call to discuss any questions you have with an actual financial planner.

Setting Up Your Robo Advisor

1. Fill out a brief questionnaire. To start using your robo advisor, you will be asked to fill out a brief questionnaire online. The advisor should help walk you through the questionnaire and explain any questions to you. You should have details of your financial background, such as your bank information, total assets, and any loans you have before taking the survey. The more accurate information you provide, the better the robo advisor can invest your money.
   • You may not understand all the questions, especially if you're new to investing. If your robo advisor provides professional support, call the number provided to ask questions to make sure you fill out the questionnaire accurately.
2. Put in your minimum deposit. If a minimum deposit is required, you should put in that amount after filling out the survey. This way, the robo advisor can go from giving advice to actually managing your funds. If your robo advisor does not require a minimum deposit, you can choose how much money you're comfortable investing for the time being.
3. Use an automated system for a hands-off approach. If you want your advisor to do all your money management for you, you can choose an automated system. Your robo advisor will make investment decisions based on computer calculations and assessments of factors like risk versus reward.
   • If you're new to investing, it's a good idea to seek out as much advice as possible before investing your money instead of relying entirely on a computer. Automated systems work best for more experienced investors.
4. Use a semi-automated to keep an eye on your money. You can also choose a semi-automated system, where you select which advice and investments you want to follow and which you want to pass on. Semi-automated advisors often provide advice from professional financial planners in addition to computer generated assistance.
   • Not all robo advisors offer non-automated services. If you prefer personal advice in addition to computer generated suggestions, it may be a good move to switch to a different robo advisor.
5. Review the policy regarding fees. After investing your money, give the robo advisor's fee policy a quick read over. While you should do this before selecting an advisor, it's a good idea to review the policy after investing your money. This way, you can plan for fees accordingly and be aware of how much of your investments go towards you and how many are used to pay robo advisor fees.

Using Your Robo Advisor Wisely

1. Do not rely on robo advisors in a crisis. Robo advisors have their drawbacks. As the advice is automated and computer generated, advisors often do not account for the unexpected. During a crisis that could skew your finances, seek out professional help to figure out how to handle your money instead of seeking automated advice.
   • For example, if you suddenly come into money due to the unexpected death of a relative, a robo advisor may not be equipped to handle the resulting income. It's best to talk to a financial planner to figure out what to do with sudden inheritance.
2. Seek professional advice if you encounter confusing information. You may not always understand what's happening with your money, especially if you've never invested before. If you're unsure whether to make an investment or purchase suggested by your robo advisor, or are confused by the automatic investing it's doing, talk to a professional. If your robo advisor offers professional assistance, seek out advice there. If it does not, make a meeting with a financial advisor to clear up any confusion.
3. Pay attention to messages you receive from your advisor. Even if you're using an entirely automated system, do not be passive when using a robo advisor. Robo advisors will regularly buy and sell funds for you and and rebalance your portfolio based on which holdings are rising and falling in value. Check in on your advisors regularly and read any updates you're receiving to make sure the advisor is actually making you money.
   • Remember, if any process of the robo advising system confuses you, you can seek out professional assistance.
4. Make manual adjustments as needed. You may need to manually make adjustments if you're not comfortable with any of the investments your robo advisor makes. If you find yourself losing money, investigate the purchases and trades your robo advisor has made. If certain stocks or funds are consistently losing money, you may want to pull your money out of those arenas.
   • It's always a good idea to consult a financial planner, however. Just because a stock or fund is temporarily losing money does not mean that it is a bad longterm investment.

Sources and Citations

See also

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• Deal With Winning the Lottery
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