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Pros and cons of automated investing

Automated investing services, or Robo advisors, have become ubiquitous in the present times. Many financial service companies now have their own automated investing services. There’s no doubt that the introduction of Robo advisors has made investing an accessible financial option to many. However, automated investing has some disadvantages as well. So, before you decide to opt for the best automated investing service, have a look at its pros and cons.

Pros of using Robo advisors

Low fee

Low management fees are one of the biggest advantages of opting for a Robo advisor. Big names in the finance industry such as Charles Schwab Corp.’s Intelligent Portfolios offer Robo advisors for free, while some financial institutes such as Betterment and Wealthfront charge a low 0.25% as a management fee.

High-quality investment portfolios

Algorithms used in some of the best automated investing services such as the ones provided by Betterment are backed by Nobel prize-winning investment models. These models are created to offer the greatest return on investment for the smallest risks.

Access to a financial advisor

Many traditional financial services companies now use Robo advisors to select assets for their client’s investment portfolios. This allows them to offer their clients financial advisers that can help them with taxes, loans, and any kind of financing or investment.

Easy to use

Robo advisors make the entire investing process extremely quick and easy. With Robo advisors, all you need to do is answer some questions about your financial goal, risk tolerance, and capital, and the algorithm will come up with an investment portfolio that is suitable for your needs.

Low minimum balance

Even individuals with low net worth can enjoy the services of professional advisory via Robo advisors. Several investment companies such as Betterment and Ellevest offer access to the best automated investing services even with zero balance.

Cons of using Robo advisors

They’re not financial planners

Indeed, in terms of purely creating profit-racking portfolios, the best automated investing systems can be better than human financial planners. However, a Robo advisor cannot understand your short- and long-term goals and financial concerns as a human financial advisor. A good financial planner understands your financial aims and helps you create a portfolio that helps you meet your future retirement goals. Financial planners are especially helpful at times when the market is not performing well.

They can be limiting

Robo advisors can’t go beyond their pre-programmed questions when creating an investment portfolio. They can also be limiting if you’re looking for more complex investment strategies, and can’t engage in trading on your terms. Many sophisticated investors demand a larger investment portfolio with different asset classes, which may not be possible even with the best automated investing systems.

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