If you are new to the world of investing, stocks and ventures or are looking for a time and cost-efficient way to manage your investments, then using an Automated Investment Platform may have crossed your mind. In the article below, we will look at all aspects of Automated Investing including how the process works, what the main benefits are, and if there are any potential drawbacks.
If you are feeling uncertain about whether Robo Investment Advisors are the right investment choice for you, read on below.
What is Automated Investing?
You can use Automated Investing platforms to manage your investments, making your investment decisions for you based upon an algorithm, without any research or input required from you at all.
The investing stocks algorithm will make investing portfolio decisions based upon your preferred risk factor, financial goals, income level, and age. All you need to do is set up an account, establish your set investment level, answer a few questions about your financial aims, and then sit back and let the app take care of your investments for you.
How much commission do Automated Investing Platforms Charge?
Automated Investing Applications usually charge around a 0.5% commission. This is half the average of the commission traditional human advisors generally charge, which tends to hover at around a 1% commission rate.
What are the benefits of Automated Investing?
Automated Investing allows the general public to invest with much less time, knowledge, and threshold investment requirements. Read below to discover the main benefits of using one of these platforms to manage your investment funds.
A Hands-Off Investing Approach
Automatic Investment (or Robo Advisors) can take away the research, time investment, and stock tracking which are usually required for successful investments. Because of this, they are a great introduction to investing for beginners, or those who simply do not have the time or inclination to devote their hours to studying the stock market.
Lower Commission Rates
One of the main advantages a Robo Advisor has over their human Investment Advisor equivalent is a much lower commission rate. Automatic Investing platforms are designed for an enormous number of customers with lower investment funds. This means that you will not be getting the personalized and tailored approach that you would receive from an Investment Advisor, but you are also not incurring their more substantial commission rate!
Much Lower Investment Minimums
The world of investing made have seemed unapproachable and unattainable to many before the emergence of Robo Advisors. Traditional Investment firms can have investment thresholds ranging in the thousands and take a larger slice of commission. This made investing a difficult and intimidating prospect for the general public. Automated Investment apps allow you to invest at a lower rate and will charge you less commission on your profits.
Automatic Rebalancing of your Investing Portfolio
The volatile nature of the investment market means that no matter how careful you are with your choices, at some point your portfolio will need to be rebalanced. This process can be extremely complicated and stressful if you are investing on your own or paying an advisor to do this for you. Automatic Investment algorithms will achieve this rebalance without any extra effort required on your part.
Automated Investment Apps can potentially help to lower your Capital Gains Tax. The automatic nature of the Robo Advisor process means that you will not need to be constantly removing profits from one investment (and paying tax on the profit) to move it into a different investment fund.
The application handles this for you, without any investment profit needing to make its way into your account before you want it to. This will lower the amount of tax you need to pay on your investment profits overall.
Decisions about Investing Stocks are taken out of your hands.
If you are the type of person to obsess over investing stocks, and sell as soon as you spot an upturn, or a dip, these applications can be a lifesaver. The algorithm will make your decisions for you and make informed choices based upon the market and overall financial aims of your investments.
Although you can check in to see how your investments are doing, specific investment choices are taken out of your hands and off your shoulders. This can be a particular helpful way of handling investing for beginners.
Citi Custom Cash
Best for Cash Back
What are the risks of Automated Investing?
As with all investments, success and profit are not guaranteed. When you invest your funds with one of these applications, you are running the risk of a potential loss on your investment. The risk can be lessened by a diversified investing portfolio in which investment losses with one venture may be mitigated or neutralized by profits from another.
You will also not be benefiting from the personalized, human approach you would receive from a normal investment firm. The process is all largely anonymous, with the algorithm treating you as just another formula to be solved. You will not be able to call your Robo Advisor for advice about your overall financial and retirement plan or take advantage of their years of experience in the industry. Whether you are willing to give this up in exchange for a lower commission and investment threshold rate will depend upon your priorities and financial situation.
What are the main automated investing apps?
There are many different Automated Investment Apps on the market today. Here is a list of some of the most prominent:
- Betterment (Our Choice)
- SoFi Automated Investing
- M1 Finance
- Schwab Intelligent Portfolios
- Robin Hood
- E*TRADE Core Portfolios
How much money can you make with Automated Investing?
Low investment thresholds and commission rates are all very well, but can Automated Investments Apps actually make you any money? Profits are never guaranteed with investments, but Betterment Finance claims to have outperformed human advisors 88% of the time over the past decade.
Obviously, there are many variables as to the levels of profit you will make; depending upon your rate of investment, the style of investing you have selected (er. conservative, adventurous), and how long you are willing to wait before making a withdrawal.
Summary - Should I be investing using Automated Investing?
Hopefully, this article has proven helpful to you, and you now have a better grasp on what Automated Investing is and whether it is a good match for you. There are many benefits to this type of investment with the leading qualities being the lower commission rates, lower investment threshold rates, and the much less time and effort you will need to invest in the process.
Where the platforms fall short, however, is in the lack of a personalized approach. You will not be able to create a tailored and informed long-term financial plan with these apps and will have no dedicated advisor to turn to for advice.
Overall, these apps are fantastic time savers and a great entry point to investing for beginners, or those who have lower amounts of money to invest. They are incredibly easy to set up and require truly little time or effort from you once they are up and running. These platforms are convenient and quick, two especially important attributes in today's increasingly busy financial world.
Five Ways to Save For A Down Payment
Saving enough money to buy a house might seem difficult. However, with a sound savings strategy, anybody can save enough for a down payment on the home of their dreams.