Wither The Robo Advisor

I was appointed the finance correspondent for Senior Life Advisor, an online magazine for investors near or in retirement.  The articles for Senior Life Advisor were designed to offer actionable information as well as items of interest about economics, investing and personal finance.

A robo advisor is a software platform that helps you manage your money similar to the way a real, live wealth manager might.  Since those real live managers require minimum balances of $250,000 or more, a robo advisor can be a good idea for you to consider.  

The pros are low, low costs, the utilization of sophisticated investment models that you would not otherwise access and minimums as low as $1,000 to get started.  The cons are limited personalization and no face-to-face meetings.  

Another downside, rarely discussed, but massively important, is that robo advisors make poor psychologists, which can be a key component of accumulating wealth.  Left to their own devices, individual investors tend to do all the wrong things:  buy at market tops, sell at market lows, chase speculative flyers and take investment advice from their uncle among other sins.  It often takes the gentle prodding of a knowledgeable professional to stay the course of an investment plan.  

In some ways, you don’t hire an advisor to beat the market, but rather to keep you from making the kind of mistakes that can permanently impair your ability to reach your financial goals.  For instance, if you had all your investments in technology during the first Internet bubble, nearly 20 years on, you may not still be fully recovered.  

So, if you have the minimum balance to afford a real wealth advisor, it’s generally not a good idea to hire a robot advisor to save on fees.  If the choice is between managing money yourself or using a robo-advisors, the latter tends to be a better bet.  The largest independent rob-advisor is betterment.com.  Large warehouses such as Charles Schwab, Fidelity and Vanguard, among others, all have robo advisor offerings as well.