Everyone craves a certain amount of automation to make life's challenges more manageable. A roboadvisor does the same for investors, putting your investments on autopilot.
Using a computerized algorithm, a roboadvisor establishes a portfolio based on your goals and then rebalances that portfolio over time. If you're interested in lower costs and simplicity, you might find that a roboadvisor fits the bill.
What is a Roboadvisor and How do They Work?
While a typical financial advisor relationship requires that you sit down on a regular basis for a face-to-face conversation, a roboadvisor lets a computer do the heavy lifting to make sure your investment goals stay on track.
By asking you questions about your financial goals, timeframe, risk tolerance, and initial investment, a roboadvisor can make a portfolio recommendation to get you from where you are to where you want to go.
Once you make your initial investment, a roboadvisor like First Horizon Digital Advisor puts your money to work for you.
If you'd like to add money to your portfolio, that's a breeze, too. The roboadvisor will invest the money in your chosen strategy. Over time, the roboadvisor will automatically rebalance your portfolio to ensure your investment strategy stays on target.
Roboadvisor Account Types
Investors can open roboadvisor accounts for a wide variety of savings goals. If you're saving for a big vacation or a house down payment, you can open a taxable brokerage account. A roboadvisor can steer you toward a lower-risk portfolio to help you preserve capital while targeting modest gains.
For retirement accounts, a roboadvisor acts similarly to a target-date mutual fund. Over time, your portfolio will automatically rebalance from an asset mix more focused on capital appreciation to one with capital preservation and income in mind as you near your target retirement date.
Don't let the automation fool you — roboadvisors can offer a wide array of investment choices and account types to help you meet your goals.
Most roboadvisors build portfolios using a mixture of low-cost exchange-traded funds (ETFs) and mutual funds. By investing your money in low-cost instruments, you're able to keep your management fees low while still enjoying guidance toward your financial goals.
Due to their automated nature, roboadvisors are often a highly cost-effective way to invest. Fees tend to be lower than working with a human advisor, and many platforms offer the ability to connect investors with a human advisor should questions arise.
Benefits of Roboadvisors
Platforms like First Horizon's Digital Advisor offer investors several benefits that extend beyond your initial investment:
- Simple signup. Getting started with your investment takes a few simple questions. There aren't any cumbersome or time-consuming account applications, and the easy opening process will get your account up and running quickly.
- Low investment minimums. Low account minimums can help you start saving for any goal.
- Automatic rebalancing. Unlike self-directed brokerage accounts, you'll never have to worry if your asset mix is out of alignment with your financial goals.
- Secure document storage. Use the online document vault to store digital copies of important papers safely.
- One low fee. No hidden charges. No surprises. Just one simple fee to keep your money working for you.
- Consolidated finances. From a single dashboard, track your net worth across all your accounts.
- Easy access. Check-in 24/7 to see how your investments are performing.
How to Determine if a Roboadvisor is Right for You
While roboadvisors aren't necessarily a fit for all investors or investment goals, several situations might make this type of digital investment account ideal.
- You crave simplicity. Most roboadvisors have simple questionnaires and account opening procedures that can appeal to the no-fuss investor.
- You're overwhelmed when it comes to choosing investments. With so many investment options in the marketplace, a roboadvisor can give your confidence in your investment choices by choosing investments for you that align with your goals.
- The idea of rebalancing has you flummoxed. If you're concerned about keeping your self-selected investments on-track, you'll likely appreciate how a roboadvisor automates your rebalancing process over time.
However, with all the benefits to a roboadvisor platform, some investors might need a more hands-on approach to their investments. A roboadvisor might not be a fit for you if:
- You have a complex tax situation. For investors who need regular tax-loss harvesting or have intricate tax situations, you might do better with a financial advisor who can strategize with your CPA throughout the year.
- You desire comprehensive financial advice. If you have significant assets like a business, real estate holdings, and life insurance needs, you may find a better fit with a traditional financial advisor.
- You prefer a more hands-on approach. Some investors are more comfortable with having an advisor to call and meet with who understands their complete financial picture.
Wherever you're at in your financial life, a roboadvisor like First Horizon's Digital Advisor could help you save for your financial goals with low minimums and fees. As your financial situation becomes more complex and your net worth grows, you can speak to a financial advisor about how to incorporate your digital investment portfolio into your overall financial strategy.