As an expat, finding new ways to make your money work harder is always welcomed. One of the best ways to set yourself up for a comfortable retirement is to invest your savings, but should you use a Robo-Advisor application or work with an independent advisor? Below, we have rounded up the pros and cons of both options to help you make the right decision…
Though Robo-Advisor apps are designed to take the guesswork out of investing, they also offer valuable guidance on the markets and the different products available to you. You’ll be exposed to basic investment principles, learn what works and what doesn’t, and gain a greater understanding of the industry, even if it is only the surface-level stuff. As you venture deeper into Robo-Investing, you might use your Robo-Advisor app as a stepping stone to make larger investments and build your portfolio on your own terms; you’ll learn as you go.
Perhaps one of the most obvious benefits of choosing a Robo-Advisor over an independent financial advisor is that the barriers to entry are lowered. Not only can you start investing with an app with relatively little in the way of savings, but it’s much less intimidating than having a professional look into your everyday finances and make decisions on your behalf.
It is recommended that would-be investors start with a Robo-Advisor to “dip their toes in the water” as it’s relatively low-risk and doesn’t require a great deal of time or prior knowledge. Indeed, you can start investing with as little as $50, whilst local advisors will only work with you when you’re ready to invest thousands. Some Robo-Advisor apps are actually geared towards investing tiny amounts, like “round-ups” from monthly bank transactions, allowing you to get your foot on the stock market without needing to hand over a big chunk at once.
Although Robo-Advisor apps and software are exactly that - software - they’re designed and maintained by trained financial professionals who put their knowledge and market experience into their algorithms. That means you’re able to access their expertise without the hefty price tag, with some applications starting from as little as $10 per month, and others charging a commission of anywhere between 0.1% and 0.3%. Granted, you won’t get personalised advice and you’ll invest in products that other Robo-Advisor investors are backing, but you’ll generally receive better advice through an app than you would if you invested on your own, going off hunches or listening to “the experts” on Twitter and Reddit.
Although there are serious benefits to letting an app manage your money on your behalf, the drawback is that you can get lulled into a false sense of security. The truth is that, if it was as easy as downloading a Robo-Advisor app and letting them take care of your investments, everyone would be doing it with every bit of spare change they had. Reality check: there are still risks involved when investing via an application or algorithm, and perhaps even more so than if you were investing via a financial institution, as you’re assuming the Robo-Advisor knows what they’re doing and is making the right decisions every time. Whilst Robo-Advisors offer great convenience, you do need some market knowledge to fully utilise their features.
Don’t be fooled into thinking that you can “set it and forget it.” Robo-Advisors need input from time to time, and it’s important to check-in and make sure they’re investing in the right stocks and products for your savings or retirement goals. And a word of warning: a Robo-Advisor won’t stop you if you’re making a bad investment decision or pulling out too early; if you cash out at the wrong time you can still lose money. Having a seasoned advisor or friend you can turn to for advice is advised. It’s also possible to pay for someone to manage your Robo-Advisor portfolio.
Finally, another word of warning: Robo-Advisors are robots. Although the developers behind the apps want you to make money so they can grow their business, it’s up to you whether you actually do. The biggest limitation of Robo-Advisors is that they don’t react to major life changes or economic shocks; you’ll need to man the ship to ensure you don’t get lost at sea.
The biggest advantage of a financial advisor over a Robo-Advisor is that they’ll review your current financial picture, ask you to consider future plans, and shape a portfolio that works.
Robots can’t help you set up a retirement fund or invest in stocks that will mature when you’re due to retire - nor can they weather the storm should you choose to get divorced or move to another country. An independent advisor will get to know you and your goals, and make decisions that work for you and your family, whatever the size of your estate.
Financial advisors can stay with you through your life and change their approach based on the decisions you’ve made. They’re loyal, conscientious, and build relationships that put trust at the forefront - after all, if they’re helping your portfolios grow, they’ll benefit from it, too.
It’s wise to check in with your advisors every year or two to see how your funds are maturing and make any necessary changes - catch-ups can be done over the phone or in-person.
Another benefit of choosing an independent financial advisor over a robot to manage your finances is that you have access to a real person - an expert in their field who can answer any questions you may have about your finances. They’ll be able to advise on retirement ages, give tips on reducing your tax burden, and help you safely manage your money from anywhere in the world - ideal for expats who want to invest in their native country and current country of residence. Understand your advisor’s arrangements and limitations, though: some charge by the hour and that off-the-cuff phone call could result in an expensive invoice!
One of the biggest risks you face when working with a financial advisor is taking their word as gospel and being encouraged to make an investment into funds or schemes that aren’t actually right for you, just so they can earn a greater commission. It’s vital that you choose a truly independent advisor with a proven track record, and look for an advisor that’s part of a government or industry body for added reassurance and peace of mind. If an investment or scheme sounds too good to be true, get a second opinion and don’t be afraid to walk away.
Although advisors want to help you generate healthy returns on your assets, those who are inexperienced might take unnecessary risks. After all, you pay them for their expertise and their time, not based on performance. It’s easy to be tempted to buy stocks blindly without properly looking at the terms or yields - although your advisor can give recommendations, it makes sense to read the small print and be sure that they’re making the right choices.
Generally speaking, Robo-Advisors are inexpensive - with some basic models available from just $10 per month. Independent advisors, on the other hand, typically charge a percentage fee based on the size of your equity, anywhere from 0.25% to 2%. Choose an advisor that is transparent on their fees from day one and make sure you’re confident that, even after their commission is taken off, you’re going to be in profit once your stocks and shares mature.
There are benefits to both Robo-Advisors and Independent Financial Advisors - as an expat, you might use both as part of an investment strategy. Whatever you choose, do let us know in the comments below and check back to the Money Saving Expat blog soon for more…
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