Atanas Stoyanov
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Robo Or Human?

Investors have more choices than ever now that robo is reality. Robo-advisors, essentially algorithm-driven investing platforms, have entered the mainstream and join going it alone and hiring an adviser as the three main ways people can invest.

There are reasons supporting each of the three types of approaches. Going it alone, provided you know what you are doing can be the least expensive way to invest. Hiring an adviser tends to be the most expensive based on the notion that you are paying someone to make investing decisions for you. Robo-advising is a third way that uses technology to make investing decisions for you.


Where The Money Is

Right now, robo has only a tiny piece of the pie. Consumers have about $20 trillion invested. Only $53 billion lies with digital platforms. The amount going to robo, however, is growing as more and more investors become comfortable with the notion of letting a computer handle their investments.

These algorithm and rules-based digital investing platforms give you access to low-cost exchange-traded funds (ETFs) with allocation tied to your time horizon, goals and your risk profile. Moreover, your allocation is rebalanced automatically. What’s not to like?

The Cost Factor

Robo platforms charge between 0.15% and 0.4% per year, which typically includes all trading costs. The ETFs have their own costs, ranging between 0.08% and 0.25%. Human advisors charge between 1% and 2% of assets under management (AUM), not including the cost of mutual funds and trading which could bring the total to 2.25% or more per year.

The do-it-yourself option involves charges for trading and fees related to ETFs, mutual funds, stocks and other securities you own. Of course, as your own adviser, you get no outside advice. On the other hand, you may get no advice from an adviser either, depending on how much (or how little) is in your account.

Choosing An Approach

Clearly there are advantages to all 3 approaches. A paid financial adviser can give you security and peace of mind that you are getting expert advice. That advice comes at a cost so unless your return justifies the cost, you may feel it is not worth it. Going it alone may end up costing more in the long run if you make too many mistakes or don’t have time to stay up on your investments.

While robo doesn’t provide advice, it does follow a system based on rules that may provide a better return than your hit and miss do it yourself system will and at far lower cost than professional advice can offer.


Mix And Match

Some experts are suggesting a combination human-digital model that involves using a robo-adviser for most of the investing part and hiring a financial planner to deal with taxes, elder care and other areas not covered by a robo platform.

Since most robo platforms don’t offer individual stocks or bonds, you may need human help (or your own skill) for that part of your portfolio. Human advisors offer emotional help as well – something no robo adviser offers, no matter how complex its algorithms are.