Maximizing Your Investments: A Guide to Robo-Advisors

Feb 24, 2024·By Chandra Savage

Robo-advisors have revolutionized the way individuals invest their money. These automated investment platforms use algorithms to create and manage a diversified portfolio tailored to your financial goals and risk tolerance. With low fees, accessibility, and convenience, robo-advisors have become a popular choice for both new and experienced investors.

Why Choose a Robo-Advisor?

One of the barriers to wealth that the BIPOC community faces is having a fear of investing. If you are one of those people who are curious to get started, you might want to try beginning with a Robo-advisor. Robo-advisors typically have lower fees, making them an attractive option for cost-conscious investors.

Many platforms have low minimum investment requirements, making it possible for anyone to get started. Wealthfront was the first Robo-advisor that I used when starting. I think I started with just $25 per month and they waived the fees for accounts under $10,000. Not only that but if you are also looking for a High Yield Savings account, they offer 5.00% on all cash savings accounts. This is a win-win for most people because it cuts down on the amount of new accounts to keep track of when you are working on building up your liquid assets.

With a few clicks, you can set up an account, and answer a few questions about your financial goals and risk tolerance, and the platform will automatically create a diversified portfolio for you. This saves you time and eliminates the need for extensive research and analysis.

How Robo-Advisors Work

Robo-advisors use sophisticated algorithms to determine the optimal asset allocation for your investment portfolio. They take into account your risk tolerance, investment goals, time horizon, and other factors to create a personalized investment plan.

Once your portfolio is set up, the robo-advisor will automatically rebalance it periodically. This means that if certain investments have performed well and others have underperformed, the platform will adjust the allocation to maintain your desired asset mix.

Robo-advisors also offer tax-loss harvesting, which can help reduce your tax liability. This strategy involves selling investments that have experienced losses to offset capital gains and minimize taxes owed.

Choosing the Right Robo-Advisor

Some popular robo-advisors include Betterment, Wealthfront, and M1 Finance.

M1 has zero commission and management fees. Additionally, consider the investment options available. Some robo-advisors offer a wider range of investment choices, including socially responsible investing and thematic portfolios. M1 has over 6,000 stocks and ETFs to choose from to make sure that you are truly diversified.

Customer service is another critical aspect to consider. Some Robo-advisors have better customer service than others. If you need some hand-holding, Fidelity Go might be the way to go.

Conclusion

Robo-advisors have made investing accessible, affordable, and convenient for a wide range of investors. Take the time to research and compare different platforms to find the one that best suits your needs.