What are the pros and cons of investing through robo-advisors?
Robo advisors
Posted by MoneyController on 06.07.2021
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As stock markets report decent gains, you might consider making your first investment. Many investors look to robo-advisors as an automatic way to invest. Several providers are starting to offer them, like Wealthify, Nutmeg, and Moneyfarm.
Robo-advisors are investment platforms that do the investing for you based on your risk profile. When you sign up, you’re asked a few questions that determine your risk aversion.
If you aren’t a risk-taker, the robo-advisor will invest mostly in government bonds. Government bonds are relatively less risky than volatile stocks. If you’re a risk-taker, the robo-advisor will invest heavily in stocks. Stocks offer higher short-term returns at a higher risk. Robo-advisors automatically rebalance your portfolio to keep your risk allocations stable.
For every good tool, there are setbacks. Here are 3 pros and cons of robo-advisers.
Pros
1. Good for novice investors
It’s a simple way to start investing. Simply answer a questionnaire, sign up, and you’re invested. The robo-advisor does all the work for you. You don’t have to worry about making investment decisions or the risks.
2. Clearly listed fees
Usually, robo-advisors charge a percentage of the amount you invest. It’s pretty straightforward compared to calculating management fees or trading and platform costs.
3. Tax-free investing
Through the robo-advisor you can put your investments in stock and share ISAs. You can access your returns tax-free.
Cons
1. Chance to lose money
Like any investment, you have to be ready to lose your money. Stocks are volatile, so you can be on a gaining streak and suddenly lose it all. Even less risky bonds can depreciate.
2. Higher fees
Although fees are transparent, there are cheaper options. A multi-asset fund, for one, charges the lowest fees possible. It also offers automatic investing.
3. Less control
Auto investment doesn’t give you a choice of individual holdings in your portfolio.
Financial advisory is important when making investing decisions. So get in touch with your financial advisor to start.