Pros and Cons of Robo Advisors: Should You Invest Your Money with a Robo Advisor?

Pros and Cons of Robo Advisors

Pros and Cons of Robo Advisors

The Fintech (aka financial technology) world has exploded in recent years with the introduction of Robo Advisors, with everyone clamouring to create their own Robo Advisor firm.  For more information on Robo-Advisors, check out Money Sense’s guide “Which Robo-Advisor is Right for you”.

WHat is a robo-advisor

A robo-advisor is a company that combines the financial aspect and the technology aspect so that you can invest your money without setting foot in a bank and just through the computer.  You deposit your money and it gets automatically invested (depending on your risk profile) into certain exchange traded fund portfolios.  You will get charged a fee (most are under 0.50%) to have your money managed.  By money managed, it is just a passive investing but it will rebalance your money if your asset allocation is off.  The Exchange Traded Fund fee will be in addition to the robo-advisor fee, so it will cost approximately 0.75-1.00% to manage your money with a robo-advisor.

Robo-Advisors are meant for people who are not confident enough (or who don’t have the time for) Do It Yourself Investing.

There are a plethora of Robo Advisor Companies in Canada, here are some of them:

NB: note that they might not be offered in your province or territory

PROS Of robo advisors

  • If you’re scared to invest but don’t trust the financial advisors at the bank who sell you mutual funds with MERs of 2.5% +, robo advisors may be right for you.
  • There are some promotions available since they are so new, some offer to manage a certain amount of money for free for a certain time
  • You don’t need a ton of money to start a robo-advisor account
  • It takes the emotion and discipline out of managing your portfolio and does it for you (and as we know, emotions are the bane of the do it yourself investors (and also hedge fund managers) existence)

Pros and Cons of Robo Advisors

cons of robo advisors

  • For people that ‘don’t have money to invest’ (whether it be because they are eating too much avocado toast (haha!) or saving for a down payment on a home) a robo-advisor won’t fix that
  • If you prefer to meet someone in person then Robo Advisors aren’t for you
  • There’s still a lot of affiliate stuff going on (not unlike financial advisors who get a commission for selling a certain financial product) so when you see recommendations on the Internet you may be wary of whether the review is biased or not

ACORNS and MYLO: THE SUPER ROBOS!

I recently heard about Acorns, an app based out of Australia that has been popular in the United States that automatically rounds up your credit card purchases and with that change, will automatically “micro invest” your money for you.  Acorns has piqued the interest of Ashton Kutcher who has invested in it.  Acorns makes money by charging you $1 a month (if your account is <$5000, if it is over $5000 then it is 0.25%).  And you can choose how aggressive (or not aggressive) you want your ETF investing to be.  It sounds like you can round up to the $0.01 or to $5.

Mylo is similar to Acorns and also charges $1 a month and is based out of Canada.  Prior to May 2017 their beta testers were able to have Mylo for free per month.  Similar to Acorns, Mylo also rounds up your purchases, they give an example of buying a $3.25 Starbucks drink and they will round up to $4.00, investing your $0.75.

To me these options are for those who are absolutely afraid of investing and feel that they don’t have the money at the end of the month to invest.

This takes the reasoning and the guilt out of setting aside money which, in my opinion, if you start very young, you will be able to see your money grow.  Likely you’ll need to invest more if you want to see big changes but this is a good baby step in my opinion.  And perhaps this will increase your confidence with the stock market so that you can invest your money yourself without having to automate it with an app.

Readers what do you think of Robo Advisors?  Do you use them?

Pros and Cons of Robo Advisors

Share the genymoney.ca love!
  • 115
  •  
  •  
  •  
  •  
  •  
  •  
    115
    Shares

About genymoney

GYM is a 30 something millennial interested in achieving financial freedom through disciplined saving, investing, and living a minimalist lifestyle.

11 comments on “Pros and Cons of Robo Advisors: Should You Invest Your Money with a Robo Advisor?

  1. I think they’re great for some people, but a lot of investors can just do the balancing themselves so I don’t bother. Also, last time I looked at the selection we have in Canada, they all charged outrageous MER’s compared to their US brethren so I took a pass.
    MrSLM recently posted…Financial Update – August 2017My Profile

    • @MrSLM- That’s what I think too, but I think a lot of people don’t have the confidence. I was just catching up with an old friend and he is into real estate (like most people in Vancouver) and interested in investing. He hadn’t heard of the term roboadvisor, I think robo advisors are a good option for people who plan to ‘gamble’ in the stock market by doing it themselves without knowing how to do proper stock analysis.

  2. I have a robo investment account from Wealthfront(not sure if it’s accessible for Canadians) and its a easy process. They ask you a few questions about your financial background and risk tolerance ,then they offer ETFs that fit your needs and you can approve some or all of them.
    Robo advising is the perfect way for people who never invested in the stock market to give it a try because its they will do it all for you and all you have to do is sit back to watch it (hopefully) grow.
    Kris recently posted…The Chronicle Expenses, August 2017: Ikea and DiapersMy Profile

    • @Kris- Oh cool! How has your rate of return compared to a benchmark (or do you have a DIY account to compare it to?)? Have you been happy with your roboadvisor account?

      • I had my robo account for about a year now and getting around an 18% return so far. But with the stock market here in the U.S. sky rocketing , I would except that kind of return. The real test is whenever the market plumments

  3. I will admit I haven’t looked deeper into this. However, the fear of the unknown with such automated services scares me. I mean, if there is a market correction, it will reflect on the portfolios of most investors – thats something you can’t escape.
    However, letting someone else manage your funds, you don’t know what they’re doing. I mean they can package junk bonds and call it safe, and by the time you learn it may be too late.
    Cheers,
    Personal Alpha Investments
    PAI recently posted…Why I bought Medical Facilities Corp and Shopify – Part IIMy Profile

    • @PAI- Yes, I recently read an post about how robo advisors might do a disservice to investors when the next downturn/ market correction comes because since robo advisors have come on the market, there hasn’t been a downturn yet. Actually it’s by Evan from My Journey to Millions. There’s a lot of recommendations for robo advisors in the PF industry probably more so because of referral fees (similar to how Blue Host is the most recommended hosting service because of the high referral fee).

  4. I had no idea there were so many different robo-advisors nowadays, especially so many located in Canada.

    My brother uses the Schwab Intelligent Portfolio service that is free for clients of Schwab. It doesn’t charge a fee at all, but does seem to place people into a slightly higher percentage of cash versus its major competitors (namely Betterment and Wealthfront). He keeps about half of his taxable brokerage account in Intelligent Portfolio and the other half in the stocks and ETFs that I helped him pick out.

    My girlfriend recently opened an account with Wealthfront and said that it was very easy to set up. She did a 401k rollover into a traditional IRA with them as well as opened a Roth IRA.

    I’m hoping to get them both to write a short post on my site about their experiences.
    Scott recently posted…August 2017 IncomeMy Profile

Leave a Reply

Your email address will not be published.

CommentLuv badge