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OP here. Just to clarify, by "robo advisor" I am referring NOT to traders' program-trading software, but the current trend of replacing human financial advisors with a robot (hence the name "robo advisor"). Based on the role robo advisor is supposed to replace, I would think its job is to come up with long term portfolio allocation recommendations.
I am doubtful about this robo advisor concept on two fronts:
1. Basic investing principles are extremely simple, to a point no software is needed.
2. A big part of the role is really emotional hand-holding, which maybe too complex for a robot.
I was also thinking of the financial advisor and in the original post you said to invest.
I agree with point 1 and I think the software can do a better job than someone who is on vacation, gets sick etc when an event happens that needs attention. I also assume the software is told some information about you and less likely to forget than a human.
For point 2 you are correct. The Robo can not hold you hand and for a lot of people this is really the service that the advisor provides. Helping you with the various financial decisions you have to make during your lifetime is also something a human will do better.
My assumption is you were thinking of balancing portfolios, buying investments, selling investments etc. I think what you will see is a Robo investor for these functions and a human for the hand holding and your total cost will be less.
A lot of people aren't worth the paperwork for the advisor. Therefore, advisor isn't going to give their account much thought.
A lot of advisors are terrible advisors. They're just plugging a clients info into the same things these roboadvisors are basically basing their programming off of.
People with more complex finances are better off with a competent advisor.
1. Don't know how or don't want to learn which funds to purchase
2. Don't want to have to think about allocation
3. Want monies to be invested automatically and allocated appropriately based on their goal(s).
They are easy peasy to set up. I tried Betterment for a year as I had a deal where I didn't pay any extra fees for trying it out. You can do auto deposits and they will then invest the monies in your portfolio, staying in the ratios (% of each fund type) automatically. The fees for using a robo-investing service (Betterment, Wealthfront, etc) is lower than advisor services.
The investor doesn't have to think about it. Not at all. They will even tax loss harvest when appropriate. It keeps the investor from shooting themselves in the foot. Low-cost index funds are used by the robo investing services. Yes, an investor could do it all themselves, but for those who have neither the knowledge nor the interest, nor the discipline to stay in the market, it's a nice alternative.
And, something to consider: "managed" portfolios like what Fidelity offers are just a more expensive version of a robo investing service. In fact it really is a robo-investing service, except they take 1% of your total for their fee and put the investor in more costly managed advisor funds where your expense ratios are also higher, on top of the 1% you're paying to have them "manage" your portfolio. I didn't find Fidelity's managed portfolio to be worthwhile for *me*, since I wasn't willing to keep paying the 1% fee, but YMMV.
I've used Wealthfront since middle of last year. After you set your number or degree of tolerance they rebalance your portfolio, take your dividends, etc. and reinvest it per your desired ratios. Any money you put in it, they invest it per your desired ratio. I was very hesitant about the stock market before using WF but now I'm more knowledgeable about it than ever. Now I know about the yield spreads, commissions, 52 week low-high, market turns, etc. I'm definitely glad I did it but I would be happier if I did sooner.
Roboadvisors are pretty cool, although it can be argued if it's worth the fee since it basically just buys Vanguard funds but many people are either intimidated by investing or don't want to bother learning. This gives both of them a way to enter the market. Many people also feel "human" advisors are not that smart and many are nothing more than sales man which is very true. A robo advisor gets you into a balanced diversified portfolio without any thinking, it also typically automates your investments so without having to think I need to send money over to Vanguard to buy this it automatically gets done for you. Not sure what there isn't to like. As far as do we need machines to do it. You don't need a machine to wash your dishes or do alot of other things for you but you have them for the convenience right
Human advisers look for trends trying to find patterns that predict the future. Robo advisers do the same. Robo advisers can do it more efficiently and quickly.
I trust robots more than I trust humans. Most financial advisers on tv or in the media are full of crap if you ask me, they are there to get people to watch their program or subscribe to their blog. If they really knew what they were doing, they would be home trading becoming billionaires. But they are not, and they rarely even beat the market as was proven by Buffets bet with hedge fund managers.
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