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Jul 01

The Pros and Cons of Robo-Advisors for Your First Investments

Reading Time: 4 mins

Are you just starting out in stocks and share investment? Robo-advisors are a good place to begin. You’ll be able to seek financial advice from an automated app that has many benefits. They’re low-cost, available to different types of investors and there’s a low to zero minimum balance. Although this is definitely an easy to use option for those just starting out, there are some drawbacks to not speaking to a human advisor face-to-face. It’s important to figure out what type of investment guidance you need to suit your individual style. Here is a guide to robo-advisors and some pros and cons. 

 

What are robo-advisors?

With advances in technology, many people are relying on remotely outsourcing many services. Robo-advisors are an example of this. They’re mostly advertised to first-time investors or people with little experience looking to make money from smaller amounts. Robo-advisors actually cater to a wider audience, however.

Essentially robo-advisors, or robo-investment software, are online apps and packages which help you to manage your personal investments. Some of the top names you may have heard of include Avatrade and Nutmeg. They offer transparency to customers and aim to make managing your investments simple and straightforward.

 

What are the advantages of using a robo-advisor?

Robo-advisors have been increasingly popular in the US and are now taking a foothold in the UK. Robo-advisors and platform technology firms have been included among the world’s most innovative fintech companies in this year’s Wealth Tech 100 List

There are many reasons for their popularity. Robo-advisors offer automated services to ordinary investors and give you easy access to the investment market. They can save you both time and money. There are several benefits to using robo-advisors.

 

Low cost

Robo-advisors are less expensive than a financial advisor and only require low funds to start trading. They offer more investment opportunities to those who previously wouldn’t have been able to afford financial services. Fees can be as low as 0.75% for an annual plan. 

 

Easy access

They offer easy access to share trading novices. You can log in from any device and start managing your investments straightaway. It’s a quick and easy option for people looking to invest money without much experience. Robo-advisors base their analysis on algorithms and logic. All you need to do to start is to answer some questions about your needs and budget. They will take care of the rest, without any emotional complications. 

 

Time-saving

Due to everything being automated, robo-advisors are also time-saving. Compared to managing your own finances, or meeting with an advisor face-to-face, they’re a lot more efficient. The world of investments can be complicated for a beginner, and robo-advisors help you streamline many processes.

 

Robo-investment software through financial advisors

Financial advisors also often rely on robo-investment software to help their clients. If you would prefer to retain contact with a human advisor, this will still save you time and money. The robo-advisors use cutting-edge technology to carry out each investment portfolio research. This allows the financial advisor to spend more time addressing your personal needs.

Available to a wide range of clients

Robo-advisors are available to a wide range of investors. They typically have different plans to suit your investment needs. They work out as low-cost for those starting out, or more experienced investors looking to put in more money. It’s up to you to choose your investment style.

 

Low minimum balance

The minimum investment depends on the company, but it can as low as £100. This is an opportunity for investors without a high net-worth to get on the market. It’s a cheaper alternative for those who are just starting out, or whose portfolio won’t be enough to justify spending more on a financial advisor.  

 

What are the disadvantages of using a robo-advisor?

Finance tips are available from a number of resources. If you’re opting for a robo-advisor you will be losing out on a few things you might gain from seeking advice somewhere else. It’s important to make the decision that’s right for you and your individual situation. Here are some examples of the drawbacks of using a robo-advisor.

 

No human contact

If you would rather have a more personal relationship with your financial advisor, then perhaps robo-investment software isn’t for you. There won’t be any face-to-face meetings and the service will inevitably be less personal. A more traditional in-person approach might suit your needs more. 

 

Cannot offer detailed financial advice

Robo-advisors work based on an investment portfolio. Whereas they do base their findings on advanced algorithms and a plethora of information, it’s still not 100% personalised. Explaining every detail of your investment concerns to a human advisor can be more reassuring, especially if you’re inexperienced. 

Certain investment strategies might also go beyond what can be done using an algorithm. An in-person financial advisor will be able to refer you to other departments and specialists for more advanced cases. It’s important to take into consideration the type of investment you’re looking for and if a robo-advisor’s service will be adequate. 

 

DIY finance is cheaper

If you have a bit of know-how and you’re willing to dedicate more time, sorting out your investments yourself is cheaper. If you are primarily focussed on cost, undertaking your own financial investments will save you paying for either a robo or a human advisor. That being said, it is a tall order and it’s probably not a good idea unless you have the knowledge and experience to manage your own investments. 

 

What’s the takeaway? 

Using robo-advisors is convenient for those who either don’t have much experience in investments or the time to dedicate. It’s a much simpler approach to investing and cost-effective. The main drawbacks are the lack of personalised services that you might get in person. The market is on the rise and many new robo-advisor platforms are coming up with better technology and even more competitive rates. All in all, it’s a useful tool that can save you both time and money in managing your first investments. 

 

WHAT DO YOU THINK?

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Carl
2 months ago

Before I use a robo advisor I would need the following . 1) 10 year track record verified by a third party 2) 6 month free trial. YES 6 months 3) 24/7 customer support The best robo advisors in any niche are based on the following tenets 1) A hypothesis which is expressed in the form of a mathematical model 2) Data going back 10 years which is used to produce historical results for the system (after being fed into the mathematical model) 3) Coding it into a program to produce the output Thats the only type of advisor I… Read more »

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