Robo-Advisors: Letting Anyone Invest in the Digital Age

guest post: fromfrugaltofree.com

Another guest post? Heck yes! Today’s post comes from the adorable Desirae from Half Banked. She is a funny and intelligent writer, and today she sheds some light on robo-advisors and that whole investing thing.

I’ll be the first to admit, investing is not my personal finance topic of choice. I’m all about the debt payoff! But investing is key to building wealth and achieving FIRE, which are two big goals of mine. So this post is awesome for helping me break down walls between me and investing. I hope you knock a few down too!

Investing is one of the most intimidating aspects of personal finance if you’re not already rocking the stock market. But fintech – and specifically, robo-advisors – are out to make it accessible to everyone. Yes, even if you would rather give up lattes forever than sit through a finance class.

FIN101: A Brief History of Beginner-Friendly Investing

Before we can get into how great robo-advisors are, we need to look back at the list of options that were available to newbie investors before fintech came around. Don’t worry, it’s not a particularly long list.

If you wanted to put your money into the stock market (so that it could make money for you while you literally slept through class) you only had three real options.

  • You could go to the bank and blindly trust that your customer service rep was buying the right mutual funds for you.
  • You could pay a financial advisor directly to manage your investments.
  • You could learn how to invest your money by yourself.

The first two options – buying bank mutual funds and paying an advisor – come with some pretty hefty fees, but otherwise they’re fairly beginner friendly. DIY-ing your investments has always been a stressful, time-consuming proposition, but on the other hand, it’s usually much cheaper.

So unless you were a finance major with stock-picking in your blood, those were your options. Expensive, expensive or difficult.

The thing is, even with those iffy choices, investing was still worth it.

FIN102: What Makes Investing So Great, Anyways?

Over any long period of time, the stock market has posted some pretty amazing returns. You know how everyone gets really hyped up about high-interest savings accounts? Well, those tend to cap out at about 1% these days, with a few exceptions.

The only time the stock market has averaged less than a 1% return over a decade was in the 1930s. I think we can all agree that was a pretty major exception, and in almost every other decade (side-eye to the 2000s) it’s been over 4% per year – way over.

Those are the kind of returns that have a real impact on your long-term savings and will grow your money to I-can-retire-and-buy-a-boat money.

FIN103: Robo-Advisors Give You The Best of Both Worlds

These days, you can have all the benefits of having your money in the stock market, without the traditional hassles that come with being a beginner investor – think high fees or time-consuming, stressful stock picking. It’s all thanks to robo-advisors.

At the highest level, a robo-advisor is a company that uses technology and an algorithm to set you up with a fully-diversified stock portfolio that matches your risk tolerance and goals. They do that by filling your portfolio with index funds and ETFs – which are basically like low-cost mutual funds that aim to track the market, not beat it, by holding a huge variety of different stocks. Since they only charge you a fraction of a percent on top of the ETF and index fund fees, you get a full portfolio for well under 1% of the money you have invested.

Bank mutual funds, on the other hand? 2.5% is not unheard of, and some financial advisors will charge you even more.

As if that wasn’t good enough, almost all robo-advisors let you sign up online, from the comfort of your couch and your Netflix-best sweatpants, and many of them will even set up an intro call between you and a real life financial advisor to make sure your portfolio is going to be the right fit for you.

Once you’re set up, they take care of everything and you can go on vacation knowing that you’re investing exactly the way Warren Buffett recommends for the average investor: low-cost index funds and ETFs that you contribute to regularly over time.

I mean, if there was anyone you were going to take investment advice from, amirite?

Stay tuned as we take a look at the best robo-advisors on the market today, and figure out which one is right for you – because yes, there is way more than one, and they all come with slightly different perks.

For more on investing and FIRE check out these articles.

FIRE for Noobs: The Happy Philosopher
Stock Market Tips for New Investors
FIRE Advice for Noobs: The Resume Gap

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3 Replies to “Robo-Advisors: Letting Anyone Invest in the Digital Age”

  1. I have been using Vanguard for all my investments (rollover 401k, Roth and taxable) I love keeping all in one place. I enjoy super low fees as compared to my work’s 401k where I was charged more than what my increase was ????
    I am sticking with Vanguard for many years to come.

    1. I keep all my investments in Vanguard too!

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