Is a Robo Advisor Right For Your Investments?

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Building an investment portfolio is an important step toward reaching financial goals. Whether an investor is planning for an extravagant family vacation or decades of retirement, the first step is to choose an investment advisor and begin selecting suitable investments. With the advent of technology, online investment guidance has increased exponentially in popularity.

Investors can increase their education about particular investments, publicly traded companies, strategies, and other general investment information online. They can select their own portfolio holdings or rely on the expertise of an investment advisor. Busy professionals often prefer to have their funds managed by industry professionals who have the time to frequently monitor and review their accounts. Today, there is even an option for investors to choose a robo advisor to build and manage their investments.

What is Robo Advisor?

A Robo Advisor is a fully automated investment tool that builds a portfolio for individual investors based on a number of factors. Risk assessment tools, savings and investment goals, personal preferences, and other affiliations are considered in the investment planning phase. Essentially, these are the same characteristics and considerations that human advisors discuss when working with a client for the first time. They help set the parameters for suitable investment strategies. For example, robo advisors know which companies and investment styles to look for when a particular client indicates that they do not wish to invest in oil production, or genetically modified food production systems. Robo advisors are currently available through many leading financial firms, and online brokerage firms are beginning to implement similar technology into their web based programs as well.

Benefits of a Robo Advisor

There are a great number of benefits to using the robo advisor approach to investing. In most cases, services are available 24/7 and even when investors have gone to sleep, a robo advisor could be scanning various networks and markets looking for potential investment moves. They can simultaneously read and comprehend analysis from several different areas at once and then interpret that data in relation to choosing investment elections for a particular client. Robo advisor is teachable in that selections will require acceptance or feedback from the investor. Depending on the firm, these safeguard settings can be established and altered throughout the relationship period using the robo advisor technology. While some firms may simply suggest the technology work uninterrupted, others prefer the actual investor to have more of a hands on approach to monitor activity afforded by the robo advisor on behalf of the customer. Still other firms allow robo advisor technology to make recommendations but no actual trades on behalf of the investor.

Disadvantages of Robo Advisors

While the technology at work behind robo advisors is admittedly incredible, there are many experienced investment advisors and investors themselves who are not yet convinced that robo advisors are a viable option. It is difficult enough for a skittish investor to trust an advisor to oversee their money. Having an automated advisor that cannot provide verbal feedback or explain their thought pattern behind a decision is simply too much to bear for an investor that is timid or overcoming a period of incurring heavy losses. Other investors that opt out of having the opportunity to experience robo advisor technology cite a different reason altogether. While they may trust automated technology to make decisions and even trade on open markets on their behalf, they miss the personal relationship of having a dedicated financial advisor. The long term relationship between advisor and investor typically results in a professional friendship of sorts and advisors want to know that the person managing their funds truly has their best interests at heart. For this type of investor, a portfolio manager simply must have a beating, human heart.