3 things to know about robo-advisors
Robo-advisors, also known as digital advisors, use technology to help simplify the investment decision-making process. By providing investment advice on the assets in your account, robo-advisors can take some the guesswork out of figuring out what to invest in by selecting a portfolio for you.
If asset allocation isn’t your thing and you aren’t already working with an advisor who can help with these decisions, here are 3 reasons you might want to consider using a robo-advisor.
1. Robo-advisors are easy to use
In simplest terms, robo-advisors, which are sometimes called robo-investments, are online investment platforms that use sophisticated algorithms to create and manage portfolios based on your personal preferences.
You typically provide some information about yourself like your age, risk tolerance, financial goals, and timeline—and the algorithm goes to work creating an investment portfolio that is designed to help you with your investment goals and, in some cases, is personalized to you.
How a robo-advisor works:
2. Robo-advisors help take emotions out of investing
When markets experience significant change, it’s easy to get emotional and want to buy or sell investments depending on the situation. It’s what makes us human—the desire to capitalize on market gains or protect ourselves from losses when things go the other way. It can be hard to maintain perspective with your investment decisions and stay focused on your long-term goals.
Digital advisors can help take the emotion out of investing. They’re typically programmed to automatically rebalance your portfolio based on your risk tolerance and current market conditions to stay aligned with your goals.
By removing emotions from the equation, you can focus on saving more for retirement and less on financial headlines and market movements.
3. Automating your portfolio is convenient
With robo-advisors, you have the option to interact completely digitally. Whether you’re on the couch or on-the-go, your investments are just one click away. This allows you to view and adjust your goals, risk tolerance, and time horizon no matter the time of day.
So, if you’re someone who’s interested in investing but not sure where to start, let the algorithm do the heavy lifting for you and consider a robo-advisor. You can always see what’s going on in your account 24/7. You can make contributions or check your balance on your schedule.
If you have questions about your investments, some digital investing platforms offer access to financial professionals. This hybrid approach pairs the robo-advisor with a team of human financial professional available to help with other financial needs, which allows you to access technology and people.
Providers offer different levels of service, so do your research to determine which approach and relationship type is best suited for you. If you really value having someone you can meet with in person, then the convenience of a robo-advisor might not be enough to get you where you want to go.
- Think you want to invest online with a robo-advisor? Learn what we have to offer with Principal ® SimpleInvest.
- See if building a relationship with a financial professional in your local area is a better fit for your situation.
- Not sure if you are ready to start investing? Read our article: 4 signs you and your budget are ready to invest.
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