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A recent study by Harvard Business School showed this Most people trust an algorithm more than the judgment of others. So when it comes to investing, you should be using one automated robo-advisor To preserve your portfolio, or would you rather spend a little more money on a flesh and blood financial advisor? Both make adjustments to your investments based on your financial goals, but there are tradeoffs that set them apart. Here’s how they differ and why you might choose one over the other.

The difference between a robo-advisor and a financial advisor

Robo-advisors are the ultimate strategy for passive investors as they are operated by investment management firms that use computer algorithms to manage and rebalance your portfolio. Except for a few initial questions that will determine yours Risk tolerance and intended Time horizonPortfolios managed by robo-advisors require very little interaction on your part.

Financial advisors also maintain your portfolio, but they can also manage other aspects of your personal finances holistically, including other investments, daily budgeting, and estate planning. They can work for you continuously or temporarily and are available to discuss your finances in regular face-to-face meetings.

Robo-advisors typically charge around 0.25% to 0.50% on the amount managed per year, and some don’t have a minimum account required to set up your account. Financial advisors, on the other hand, cost you roughly 1-2% of your assets under management for ongoing portfolio management, although they can charge a flat fee of $ 1,500 to $ 2,500 for a one-time complete financial plan. per smart asset.

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Reasons to choose a robo-advisor

A robo-advisor is a great option if you are happy and familiar with an all-in-one investment strategy modern portfolio theoryYou don’t have to manage a lot of other assets and want to keep costs as low as possible. The savings aren’t kidding either. As explained in Barrons::

Imagine a 30-year-old with a retirement account of $ 50,000 making an average of 7% (that’s cheap) from a financial advisor whose fees add up to 1.5% per year. Assuming no more investments are made in this account, the investor would have $ 314,500 at the age of 65. Using a robo with a total fee of 0.5% for the same investment and return, the account would be worth $ 448,000. That only 1% per year would reduce the total return by $ 133,500.

The other benefit is that robo-advisors don’t have the same minimum accounts that financial advisors typically need (some minimums can be up to a million dollars). This makes them a great choice for newer, younger investors. In addition, some robo-advisor services offer a hybrid program that allows you to consult financial advisers if necessary, although it usually comes with an additional cost.

Reasons for Choosing a Traditional Financial Advisor

If you prefer to be more active in managing your investments or have assets other than an investment portfolio, you may be better off with the holistic services of a financial advisor. Unlike a robo-advisor, who has very limited insight into your overall financial picture, a financial advisor can provide professional advice based on the entirety of your finances: estate planning, tax strategies, retirement strategies, debt refinancing options and options even make sure you have an adequate emergency fund. The tradeoff for these services is cost, but a good financial advisor could potentially save you enough in the long run to make it worth it, especially if you have no idea what you are doing.