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What Exactly is a Robo-Advisor?



Robo-advisors have become more and more mainstream this year, necessitating a closer examination of what these services offer to investors. Managing your own finances can be difficult and starting off can be ever harder without any guidance. Often times those who try to invest on their own without any prior knowledge or experience invest haphazardly and lose money, and those who want the help may not be able to afford it or may not meet the minimum account balance that some financial planning firms require. Enter, robo-advisors. 

Now, what exactly is a robo-advisor? A robo-advisor is an online application that provides financial guidance and services through an automated system with little or very limited human supervision. These programs first gather pertinent life and financial information from the user and then use an algorithm to select investments that best fit the user’s investment needs and financial goals. A user’s portfolio is crafted from criteria like the risk the investor is willing to assume, the returns the investor wants to receive, and when the investor needs the money to be liquid. Once the user answers the evaluation questions, the software will take all of the user’s information into consideration and select a diverse portfolio of exchange-traded funds (ETFs) that best fits the user’s investment and financial profile. 

With all the robo-advising options available, which one should you choose? The various platforms boast different strengths and target certain niches, striving to set themselves apart from their competitors in one way or another; hence the need to evaluate each option to ensure you select the optimal service for your hard-earned cash. In this piece, we provide an overview of seven of the top, widely-used robo-advisors to help you decide if leveraging the services of a robo-advisor is the best fit for your financial life, and if so, which application is best suited for your investment needs.

While robo-advising is great in many ways, especially during the early stages of an individual’s financial life, it innately has its shortfalls when compared to in-person, human financial advice. Once you reach a certain stage in your professional life, you may find you have outgrown the services offered through a robo-advising or hybrid-advising space. At such a point, it may be time to seek out a human financial advisor that you can meet with one-on-one and in-person to specifically craft a financial and investment plan that brings you through the home stretch of your working career and into your retirement years.

To learn more about robo-advisors and the differences between some of the most popular platforms, download our robo-advisors whitepaper here

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