Should I use a robo advisor?
Robo advisors are digital platforms that provide financial planning and investment services via algorithm-driven automations. A typical robo-advisor asks questions about your financial situation and future goals through an online survey then formulates advice, but they’re rarely tailored to fit your goals.
The Jetsons predicted the invention of the Smart Watch back in 1962 and Star Trek envisioned the rise of the flip phone only a few years later. At the dawn of the 20th Century, Aldous Huxley foresaw that human beings would be able to ingest mood-altering pills. The Simpsons’ writers have predicted damn near everything else since their first episode aired in 1989. Tech has become such a prominent part of our daily lives that it’s become difficult to imagine doing much of anything without it. But how about robots handling your money? Someone should’ve seen that coming.
We’ve already given technology control over most of the things in our lives, should we let the robots take a stab at handling our money?
It’s a valid question. And the answer to that question, like most answers, is… “it depends.” Before we delve into the pros and cons of robo advisors, let’s do a quick overview of the services they provide:
What is a Robo Advisor?
In a world where everyone owns a smartphone, everyone has the ability to invest their money. Apps such as Robinhood and WeBull give everyday people access to the stock market like never before, but you’ve probably heard the horror stories of what happens when those “everyday people” start picking stocks based on what they read on Reddit. Robo advisors are an alternative way to begin working towards your financial goals.
They are digital platforms that provide financial planning and investment services via algorithm-driven automations. A typical robo-advisor asks questions about your financial situation and future goals through an online survey then formulates advice with little to no human supervision. Now that you have a better understanding about what robo advisors are and how they can help you reach your financial goals, let’s discuss whether they’re right for you.
Are Robo Advisors Worth It?
The short answer is, yes. Robo advisors are worth it. And here’s why…
Robo Advisors are inexpensive
With an incredibly low barrier to entry, nearly everyone can start investing their money at little to no up-front cost. Most robo advisors will invest your money in funds that charge different types of fees, depending upon your assets. These fees vary, but across a portfolio they typically range from 0.05 percent to 0.25 percent, costing $5 to $25 annually for every $10,000 invested. Not a bad deal.
Robo Advisors put your money on autopilot
If you’re already familiar with us and how we work, you know we’re all about automation. Putting your money on autopilot is like owning a Tesla, minus all the scary stories of self-driving cars making a wrong turn off a cliff. Fortunately for you, automated investing is a lot more fleshed out (and less likely to end you up in the hospital) than automated driving. You let the metaphorical car do the work navigating the road so that you can spend your time doing the things you actually want to do.
The Reverse Budget works
The point of this stupid metaphor is simply to illustrate the power of the Reverse Budget. In our not-so-humble opinion, it’s one of the best ways to reach your financial goals…and you can learn more about it here: Stop Trying to Budget. Automating is the penultimate step in a four-step process that concludes with “Blow the Rest.” But before you do that, you’ve got to put your money on autopilot, and the robo advisors are perfect for that.
Robo Advisors vs. Financial Advisors
Robo advisors are a great way for new investors to dip their toes in the metaphorical water of the markets. Believe it or not though, dipping your toes in the water isn’t the same as swimming. And some people…well, they’re ready to swim. Remember what we said earlier when faced with the question, “should I use a robo advisor?” We said it depends…and here’s why: it depends upon where you are on your financial journey. If you’re at the early stages of getting your financial sh*t together, robo advisors provide answers to most of the questions that you’d have. But if you’re a bit older, a bit further along in your financial journey, and are beginning to fully “adult”, robo advisors are unlikely to provide you with enough support.
No one wants to hold a robot’s hand
If you want to buy your first home, start planning for children, or join a boujee gym, you’ll likely need more personalized advice. A financial advisor who understands your goals, your wants, your needs, and everything in between will be able to hold your hand while you prepare to make big purchases....or when the market dips. When those things happen, a robot can’t hold your hand, and unless you’re Joaquin Phoenix in the movie Her, you shouldn’t want one to.
Are you your own worst enemy?
Despite the thematic elements of that Academy Award winning movie, a robot has neither the physical ability nor the empathetic disposition to wipe your tears away after a significant market drop. And more importantly, a robot can’t prevent you from being your own worst enemy. Contrary to popular belief or what the good folks over at Wall Street Bets will tell you, the “money printer” does not always go “brrrr” nor do “stonks” always go up. Sometimes they go down, and when they do, a financial advisor will talk you out of abandoning ship and selling off all your assets. As long as you hold the line, love might not always be on time, but profits will be.
Want white glove service? Don’t look at the robot.
While some robo advisor platforms offer access to human assistance, “access to human assistance” isn’t white-glove service. And if anybody is going to hold your hand, you want that hand to be wearing a white glove. This is the part where we shamelessly plug ourselves. As you now know, robo advisors usually begin by asking questions about your financial situation and future goals. Then they will use the information you give it to pick your portfolio. The only problem?
Robo advisors don’t give a f*ck about your goals
The selected portfolio has little to no relation or impact on your goals. Like most traditional advisory firms that are run by old white men in poorly tailored suits, robo advisors tend to operate on the basis of a risk-tolerance. They’ll use the answers you provide at the beginning of the process to select your portfolio but, for the most part, that same strategy has been used for thousands of other clients. It’s not individually driven, and it won’t do anything to help you reach the goals that are personal to you.
A hand with a white glove
A good financial advisor, on the other hand, will help you establish a goals-based investment strategy. And that’s where we come in.If you’re ready to understand how to make your money work harder for you, a financial advisor who “gets you” is second to none. Robo advisors are perfect for those who are “dipping their toes in the water”, but if you want a fully personalized, fully functional, full-service plan for financial freedom, give us a call. The Stash Plan is your one-stop shop to have all your questions answered, even the ones you don’t think to ask. We’ll hold your hand, walk with you throughout the entire process, and when you want to swim…we’ll do a cannonball and join you in the deep end.
Stash Wealth provides financial plans designed to assist high earning young professionals build and manage their wealth.
Stash Wealth offers a pragmatic approach to financial planning and wealth management. Whether saving up for Tahiti or a Tesla, we help you achieve your short-term and long-term goals.
Written by Priya Malani
Stash Wealth, Founder & CEO
Priya is a force in the personal finance space. As an industry disruptor, she specializes in bringing the unapproachable world of money to young professionals across the country.
