Robo-advisors - those automated, low-cost, investment advisory services that provide financial advice through web-based and/or mobile platforms - are really heating up.
Investors are heading to robo-advisors in droves, lured by low fees of between 0.25% to 0.35% of total assets, compared to 1% or more for traditional financial advisory services.
Consumers also apparently happy about the advice they're getting. A January 2017 report from Spectrem Group study states that less than a decade after the first introduction of robo-advisors, "certain investors now believe these technology-based advisory solutions may actually be better than human advisors at certain tasks."
"Our research consistently shows that robo-advisors are becoming increasingly accepted by investors," says Spectrem President George H. Walper, Jr.
If you're attracted to the idea of robo-investing, by all means, start doing your research and find the right company or service to manage your money. But don't dive in without arming yourself with a healthy dose of reality on what you'll get from robo-advisory programs, and what issues you'll need to address.
Start with these five items that every robo-investor should know:
Be especially curious - "You've got to ask the right questions," says Dan McElwee, executive vice president of Ventura Wealth Management in Ewing, N.J. "For example, investment risk profiles change over time. Does your robo-advisor account for changes in your career, marital status, and children?" Many robo advisors also abide by the "set it and forget it, investment model" similar to index investing. "What, if any, defense do these portfolios play in adverse market conditions?" McElwee asks.
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