Starting yours investing the journey can be daunting. How do you invest in stocks? What about cryptocurrency? Do you need a lot of money to get started? There are mountains of financial literature answering these and other questions, but it can still be difficult to figure out where to start and in which stocks and securities it is worth investing. There is one convenient option for beginners that will do the hard work for you: a robo-wizard.

These automated financial advisors are managed by AI and are programmed to make your money work. The best part is that you don’t need large sums of money, investing know-how or a lot of time. All you need to register is to answer some questions about your investment goals and fulfill the minimum account (if any) and boom you will be about to invest.

Here’s everything you need to know about these automated investment services and what to keep in mind when choosing one.

What is a robo-wizard?

Robo-Advisor is an automated financial advisor and investment platform. The system uses a software algorithm to build and manage your portfolio so you don’t have to do it. When you sign up for a robo-wizard, you’ll answer a few questions, such as:

  • How old are you?
  • When do you plan to retire?
  • What type of investor are you (conservative versus aggressive)?
  • What are your investment goals?
  • Do you want to invest to retire, generate income, create wealth or save on a big purchase?

Robo Advisors use automation and software to design and manage your portfolio instead of a financial expert.

Although some Robo Advisors have minimum account requirements to get started, this is usually a low barrier that needs to be met. For example, you may only need $ 500 to get started. Others do not have a minimum account, which means you can start investing with just a few extra dollars in your bank account.

Read more: Investing for Beginners: Everything Experts Want to Know About 2022

What is the difference between a robo-advisor and traditional brokerage?

A brokerage account is a place where you can manage your investments yourself. Robo wizards allow a computer to run it for you based on your style and preferences. Most robo-advisors typically charge a low, fixed fee, about 0.25% per annum, on your total investment. Online brokers tend to charge more or higher fees.

Robo-advisors are great for investing without hands. They use your personal choice and approach to investing – including your risk tolerance – to choose how to invest your money and then manage it for you.

These services also offer automatic rebalancing, which means that the robo-advisor buys or sells assets in your portfolio to maintain the desired level of asset allocation or risk. Some robo-advisors also collect tax losses. This means that they will give up securities that do not work hardest for you, reducing tax liabilities, and the money withheld from paying less taxes will go to your investments.

Read more: 5 investment accounts that everyone should have

What do robot advisors invest in?

Robo advisors tend to invest in index funds and exchange traded funds (ETFs) to keep costs low.

Index funds are investment funds that track the performance of a particular market benchmark (eg an index), such as Standard & Poor’s 500 Index. In essence, this is a form of passive investing, as your funds follow a predetermined investment formula. Index funds are offered in the form of mutual funds and ETFs, the latter being a basket of securities – including stocks, commodities, bonds or a mixture of them – that follow an index, sector, commodity or other asset. ETFs are the most common investment tool for robo-advisors.

Brokers allow you to actively choose between different types of securities, but you will have to pay a little more for the privilege. You will also need to be more practical with your assets, including identifying and managing the securities you want to invest in.

Read more: What does it mean to build wealth in 2022?

Pros and cons of robo-advisors

If you know that managing your money is important, but you’re not sure where to start, a robo-advisor is a good introduction to investing. But they are not always the best choice for everyone.

Professionals:

  • Save time. Robo-advisors put your money at the wheel without your hands. These services save you the need to review online investment tips and ultimately save you time by managing your investments for you.
  • Immediate diversification. While brokerage accounts allow you to choose your own stocks and other securities, there is a chance you will get too much good – which means you could face a huge loss. Robo advisors diversify your portfolio through index funds and ETFs, so in case you have a loss, it is not significant. Thanks to rebalancing and collecting tax losses, you will also refuse investments that do not work well.
  • Minimum investment requirements. Depending on the Robo Advisor you choose, you may not have a minimum account to get started. If you need something to get started, it’s usually around $ 500 (although it varies).
  • Low fees. Because robo-advisors use fewer people than brokerage firms, they may charge lower fees.
  • Easy to use. Most robo-wizards have simple interfaces and applications to view your investments and add funds.
  • Socially responsible investing. Some robo-advisors allow you to choose investments that are in line with your values ​​without charging a premium.

cons:

  • Limited human interaction. While Robo Advisors have solid customer service, you are limited in the help you receive. You don’t always have a chance for expert advice. If the robo-advisor offers the opportunity to talk to a financial professional, this usually comes at an additional cost. Most Robo Advisors are only online, which means you don’t have the opportunity to visit a branch if you need to talk to someone about your account.
  • A few securities. If you want to expand your investment choices, you may not have one with a robo-advisor. Most of them invest your money in ETFs, which is great for diversification. But if you want to get into different types of securities, you may want to look elsewhere. In addition, some robot advisors have a limited number of ETFs in which to invest. For example, Vanguard Digital Advisor invests in only four Vanguard ETFs.
  • Not great for everyone. Robo-advisors are a good choice for most people, but not always the right choice for everyone. Depending on your investment strategy, your risk tolerance, retirement plan, assets and where you want your money to go, this may not work for you.

Where to start

As you review Robo Advisors to get started investing, ask yourself a few questions before making a decision.

  • What are the minimum requirements? Do you have to make a big contribution to start or maintain a minimum account balance? The lower the ranking threshold, the easier it will be to get started.
  • What are the fees? Some companies have a fixed annual fee, but keep in mind: the 0.25% fee looks very different for an investment of $ 10,000 compared to $ 100,000. Make sure you’re good with what you’re transferring.
  • What features are included? Although many Robo wizards include automatic rebalancing, not all do, and this is certainly a feature worth having. In addition, not all robot advisors involve collecting tax losses, a great advantage for any robot advisor. Collecting tax losses would not only save you money, but it could only cover the fees associated with some robot advisors. For example, Wealthfront states that 96% of their customers more than delete the 0.25% fee with the money earned from collecting tax losses.
  • Are other benefits included? Some robo-advisors include additional benefits as part of their service. For example, SoFi offers career training to all its members at no extra cost. Ellevest also offers career training and online seminars for an additional fee, but members of the most basic plan will receive a 20% discount on individual training
  • Do you have the opportunity to talk to a person? Many advisors choose portfolios based on questionnaire responses, but other circumstances may affect how you invest your money. If you need to talk to someone about your unique situation, does your potential robot counselor offer personal financial advice?

There is some leading robo-advisors in the game, but not all have the same requirements and offers. Here are a few.

  • Ellevest: No minimum account. Monthly membership fees range from $ 1 to $ 9. Specially designed for women.
  • Wealth front: At least $ 500 account. 0.25% annual fee. Great for most investors.
  • Improvement: No minimum account. 0.25% annual fee. Opportunity for professional financial advice for an additional fee.
  • Ali: At least $ 100 account. Tax free. Suitable for current Ally customers, combining your banking and investing under one roof.
  • Acorns: No minimum account. $ 1- $ 3 per month for use. Invest your spare resto.

Whichever robot advisor you choose, it should be easy to start and maintain an investment portfolio. Just be sure to write your homework first to determine the fees you will pay and find the best robot advisor to help you achieve your investment goals.

Disclaimer: The information contained in this article, including program features, program fees and credits available through credit cards applied to such programs, is subject to change from time to time and is provided without warranty. When evaluating offers, please check the credit card provider’s website and review its terms and conditions for the latest offers and information.

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