I'm a financial planner, and I can tell you most people need help investing — the only question is whether that help should be algorithm or human


investing apps robo advisers

  • The automated investing platforms known as robo-advisers are a good option for beginners without a complicated financial situation.
  • They make it quick and easy to get started investing, and they don’t require much (if any) oversight from the investor.
  • For most people, the question isn’t whether they need help managing investments — it’s whether the help of an algorithm is enough, or if they need a human to weigh in.
  • See Business Insider’s picks for the best investment apps right now »

Robo-advisers (automated investing platforms that manage your money via algorithm) aim to give you the guidance you need to grow your wealth with none of the downsides that come with hiring an actual human to help you — namely, the costs involved with having a one-on-one relationship with a pro.

These platforms also make it much easier to get started with investing.

Even low-cost brokerages like Vanguard require minimums of $1,000 to $3,000 to open investment accounts. Automated investing platforms like Betterment, however, require exactly $0 to open your first account and other platforms like Wealthfront only require $500 to get started.

But does it make sense to use a robo-adviser, or is there a better way to get professional advice for your investment management?

6 questions to ask yourself to figure out whether you should manage your own investments

Let’s take a step back for a minute and consider why you’d use any kind of adviser, robo or otherwise.

The short answer is because managing a portfolio of investments well over time, minimizing mistakes and maximizing opportunity as you go, is really difficult to do completely on your own.

Here’s a list of yes/no questions to ask yourself to determine if you’re truly prepared to DIY your own investment management:

  • Are you prepared to commit the time, energy, and attention required to manage your investments on an ongoing basis?
  • Do you have the knowledge and desire to properly allocate your portfolio to be diversified and manage risk according to your needs and goals?
  • Do you fully understand the relationship between risk and reward, and do you know how to balance the need to earn a reasonable return without taking on unnecessary risk?
  • Do you know the difference between risk tolerance and risk capacity, and can you allocate your portfolio according to each of these factors as they relate to your own situation?
  • Do you know how to evaluate funds for expense ratios and other fees?
  • Do you have a plan for ongoing contributions to your investment accounts?

If you answered “no” to more than one or two of these questions, it might make sense to get some guidance with your investments.

The real question is: robo or human adviser?

When you’re new to the game, don’t have much to invest, and want to plug into a systematic, passive investment strategy that can help you grow your wealth over time, a robo-adviser can make a lot of sense.

They’re usually cheaper to use than a human adviser. There are lower barriers to entry (via low or no minimums required to open an account), which makes it easier to get started sooner. That’s a huge advantage when it comes to investing, where time is of the essence.

Robo-advisers also streamline the process of setting up an investment account by using algorithms to make decisions rather than going back and forth with a human adviser about the best moves to make.

In theory, this eliminates the room for human error. Algorithms, after all, are supposed to be unemotional, unbiased, and unmoved by anything but their calculations.

When it comes to your investments, this sounds great — and can be if you never have complex questions that are hard to quantify in a formula, or have no need to have an actual conversation with someone who can help you better understand your investments and the optimal moves to make with your money.

When it might not make sense to use a robo-adviser

The thing is, we’re human. We act irrationally and emotionally (even when an investing robot is telling us what the “right” thing is to do). If there’s not another human to walk us through complex topics or talk us out of rash decisions, that could be a problem.

Robo-advisers are a great way to get started with investing if you’re procrastinating or just not sure what to do.

But over time, as your portfolio grows, the time horizon to your biggest goals (like retirement or financial freedom) shrinks, and your financial life becomes more complex, it might not make sense to continue with this solution.

A robo-adviser can’t sit down with you and talk through why you’re investing. A robo can’t empathize with your goals, your values, or your dreams — and because they don’t have that context, they cannot provide you with a plan, guidance, or coaching on what to do in pivotal moments where you have to make much harder choices than just “what should my asset allocation be.”

Robo-advisers are fantastic tools to use if you want to invest but have no experience and no idea where to start. Time is your most valuable asset to leverage, so simply getting started somewhere is more important than choosing the optimal solution from Day 1.

But as your wealth grows and your life increases in complexity and nuance, it might be time to consider working with a human adviser, financial planner, and fiduciary who can help ensure you stay on the right track toward what you want your life to look like now and in the future.

Eric Roberge, CFP, is the founder of Beyond Your Hammock. He helps professionals in their 30s do more with their money.

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