What we'll cover
The ins and outs of automated investing
Average cost of robo vs. human advisors
Benefits and risks of a robo advisor
From smart homes to self-driving cars, technology has redefined the way we live. And robo advisors have changed the way we invest. They add the benefits of automation to your finances by helping you build and manage an investment portfolio with the help of technology.
What is a robo advisor?
A robo advisor is an investment offering that combines human smarts with digital efficiency and convenience. It uses computer software and unique algorithms to build diversified portfolios for investors.
Instead of working one-on-one with a human investment advisor, robo advisors allow you to take an automated approach to investing and sometimes, avoid big fees at the same time.
Learn more: Open an Ally Invest Robo Portfolio with just $100.
How automated investing works
Here's a quick look at the process of opening an automated investing account:
You'll take a quick survey about your investment goals, timeline, risk tolerance and how much money you want to invest. With an Ally Invest Robo Portfolio, you'll choose between a core, income, tax optimized or socially responsible portfolio.
An algorithm then recommends a diversified portfolio based on your input.
You can set up automatic transfers to add contributions from your bank on a regular basis.
Sit back and watch the automation take over. Ally Invest's Robo Portfolios take investment management a step further and offer features like automatic rebalancing and portfolios designed for tax optimization.
Many robo advisors build diversified portfolios that consist of exchange-traded funds (ETFs), which are low-cost funds that trade on an exchange like a stock. Offering ETFs is one way robo advisors aim to keep investor portfolios as tax efficient as possible. When considering tax matters, we do recommend you consult with a tax professional.
Are robo advisors safe?
Robo advisors at reputable brokerages should come equipped with bank-grade security and fraud alert features. When deciding to open an account, it's best to confirm the exact measures and safeguards the brokerage has in place to ensure your personal information will be protected.
In terms of your investing risk tolerance, robo advisors also offer another degree of safety and security: portfolio rebalancing, which can help keep your portfolio in line with its diversified target allocation and your risk tolerance level.
Of course, you still want to monitor your portfolio yourself, too — don't completely "set it and forget it." That goes for any investment you make!
What are the benefits of using a robo advisor?
When you let a robo advisor choose your investments, it eliminates the headache of trying to create a diversified portfolio on your own. You don't have to be a stock or investing expert to use a robo advisor. The platform uses the information you provide about risk tolerance and financial goals to present you with a balanced investment portfolio that aligns with your specific needs.
When you let a robo advisor choose your investments, it eliminates the headache of trying to create a diversified portfolio on your own.
What are the risks of using a robo advisor?
The biggest downside to a robo advisor is that you lose a slight human touch in the process of choosing investments and walking through your goals.
However, one misconception about robo advisors is that they're completely digital — that's not necessarily the case.
While computer software programs do some of the work when it comes to portfolio management, more comprehensive robo advisors, like Ally Invest's, also employ human financial professionals to oversee portfolio recommendations.
Read more: Is a robo or financial advisor right for you?
How do you decide if a robo advisor is right for you?
If you're new to investing and want to make building a portfolio as simple as possible, with minimal costs, then a robo advisor can help you do that. On the other hand, if you'd prefer more control over what goes into your portfolio, you might be better off with a Self-Directed Trading account instead, so you can pick and choose which investments(stocks, bonds, ETFs, mutual funds, etc.) you'll use to pursue wealth.
Before you invest, you should carefully review and consider the investment objectives, risks, charges and expenses of any mutual fund or exchange-traded fund (ETF) you are considering. ETF trading prices may not necessarily reflect the net asset value of the underlying securities. A mutual fund/ETF prospectus contains this and other information and can be obtained by emailing support@invest.ally.com.
