People often make mistakes when investing, many of which are related to human emotions, such as fear, greed, insecurity, and uncertainty.
Roboadvisors, which power online financial advice or investment management using technology vs. human intervention, can remove “emotions" from your investment equation and help you see your investment plans more clearly. bill.
Investing is a long-term process of managing your risks and maximizing your investment returns. Roboadvisors can serve to keep your financial goals on track by helping you avoid some of the most common investment mistakes:
1. Not Setting Clear Investment Goals
Why are you investing? What do you hope to achieve with this money? How soon do you need your investments to deliver a return? How much risk can you tolerate?
Roboadvisors ask you a series of detailed questions to help you clarify these and other investment goals. For example, when you sign up for First Horizon Digital Advisor, you will complete a questionnaire that helps them identify your overall situation and create an investment strategy for your needs.
Depending on whether you are saving for retirement, for your child's college tuition, or for some other short- or long-term financial goal, a roboadvisor can help you build a specific plan and design a portfolio that is appropriate.
2. Failing to Diversify
Some investors make the mistake of putting all their eggs in one basket by concentrating their investments on just a few favorite company stocks. Picking stocks can be fun, but it can also be risky; the stocks you choose might lose value, or they might fail to keep pace with the performance of the broader stock market.
Roboadvisors can help you put together a diversified portfolio of low-cost funds that are appropriate for your risk tolerance and financial goals.
3. Being Too Risky or Too Conservative
Some investors make the mistake of investing too aggressively; they put money that they've been saving for a down payment on a house into the stock market, and risk losing money in the short run. Other investors make the mistake of being too conservative, keeping too much of their money in cash and not investing in stocks at all even if they have many years left for their investments to grow.
Roboadvisors, such as First Horizon Digital Advisor, can help you evaluate your options based on your risk tolerance and time horizon, and put your money into the right mix of investments to suit your goals.
4. Staying Stagnant
Some investors make the mistake of investing too aggressively; they put money that they've been saving for a down payment on a house into the stock market, and risk losing money in the short run. Other investors make the mistake of being too conservative, keeping too much of their money in cash and not investing in stocks at all even if they have many years left for their investments to grow.
Roboadvisors, such as First Horizon Digital Advisor, can help you evaluate your options based on your risk tolerance and time horizon, and put your money into the right mix of investments to suit your goals.
For example, if you are a young person with many years left until you retire, you might be comfortable having an investment portfolio of 90% stocks and 10% bonds.
By the time you reach retirement age, you will likely wish to shift your money into a less risky mix of investments, such as 40% stocks and 60% bonds and cash.
Or, if your son or daughter is still a baby, choosing to invest what will be their college fund in the stock market is advisable, but by the time they get to high school, you will want those college savings to be re-allocated so that your portfolio has less investment risk.
Some people fail to rebalance their portfolios; they leave their money allocated in a mix of investments that are too risky and/or too close to the end of their time horizon. Roboadvisors can help you get the right mix of investments to help meet your goals and match your risk tolerance.
5. Mistiming the Market
The extreme market volatility of 2020 is a recent example that stocks can go down (and up) very quickly. Left to their own devices, people's emotions can often cause them to make bad investment decisions — they sell stocks after a big drop in the stock market, they put extra cash into the market right after stocks become more expensive, or they keep cash sidelined in the bank for too long when that money should have been invested in stocks instead.
Roboadvisors essentially automate your investments. They rebalance your portfolio over time.
6. Overreacting
Roboadvisors can help people make better investment decisions by avoiding emotion-driven mistakes. Many times in investing, the best decision is no decision: instead of overreacting to the latest financial news, it can be best for investors to buy and hold.
The experts agree: Put your money to work in the markets, keep buying a diversified portfolio, and leave your investments alone to let your money grow over time. Roboadvisors can help remove the emotional element from your investments.
Roboadvisors are not just another way to buy stocks; they give you a bigger-picture level of support and assistance to understand your financial goals, stick to your financial plan, and keep investing through the ups and downs of the markets. Roboadvisors can serve as your special assistant to keep nudging you in the right direction and help you get more out of your money while navigating the risks and downsides.
