Often, consumers hire financial consultants to create a strategy for retirement investment. With the advent of digital advisors, anyone can invest on their own. Using a simple algorithm, robo-advisors create portfolio investments and recommendations for clients.
When you register with a robo-advisor, you are asked about your risk tolerance, desired retirement age, current savings for retirement and other information. This information determines what you need to invest and how much you ought to be saving every month. It may cost you hundreds of dollars to hire a consultant to do the same thing. For far less, your robo-advisor can do the same job.
Those who have an Individual Retirement Account (IRA) can use robo-advisors. If you have a 401(k) through your employer, your company will usually send you a list of funds you can select from.
The following are some of the benefits of robo-advisors:
- Annual fees are much lower with robo-advisors. While a traditional financial planner may require 1 to 2 percent of your account balance, a robo-advisor will typically charge just .2 to .5 percent.
- Robo-advisors are available 24/7 as long as you are connected to the internet. A traditional financial advisor will not always be available.
- You do not need to have a minimum amount of money to get started. Traditional financial planners may require you to have $100,000 that you can invest. By contrast, some robo-advisors, such as Betterment, do not require you to have a minimum of investible money.
- Robo-advisors are efficient. If you want to invest with a traditional advisor, you will have to contact them, have a conversation and sign papers. With a robo-advisor, you will just have to press a few buttons.