Investing With Robo Advisors
Robo advising is on the rise—here's where the statistics land now:
- Increasing number of funds. The U.S. counts more than 200 robo advisors now, compared to estimates of ~100 globally as of 2016.
- Fund assets are growing. Assets under management for U.S. robo advisors have exploded to $292.8 billion as of June, up more than 160% from two years ago. Forecast is that assets will more than double to $634.1 billion by 2022.
- More people are turning to robo-investing. The number of investors using robo advisors in the U.S. is 6.6 million this year, double the total of 2016. Statista projects a total of 12.7 million for 2022.
- People are devoting more money. The average robo investor has $44,462 committed to the platform, up 31% from 2016. Statista sees that amount rising to $50,115 in 2022.
Whether you decide to use a robo advisor depends on your personal financial goals as well as your comfort level with automated investing.
Robo Advisor Considerations
Consider the Advantages:
- Low fees, low account-balance minimums and low time requirements.
- Robo advisors offer well-known investment options and complete portfolio services such as tax harvesting. Some even offer automatic portfolio rebalancing.
- Many combine their investment selection with advice from a live investment advisor.
- Since most of the investments go into exchange-traded funds (ETFs), investors pay a fee of ~0.25% to ~0.35% of their robo-investment assets per year.
- The lower the fee, the better it is for you—but don’t sacrifice your objectives just to secure low fees.
- Anyone who wants to engage in robo investing can do it—account minimums range from zero to ~$100,000.
Consider the Disadvantages:
- Some robo advisors connected with money-management firms may have a bias toward funds managed by their own firm, so you may want to avoid robo advisors with this potential bias.
- Most robo advisors started up in the last few years, so they haven’t experienced a bear market in stocks. Make sure your robo advisor has a good plan to deal with the next market decline.
Quell These Common Fears:
- If the idea of turning over your investment management to a computer makes you uneasy, don't fear: many robo advisors offer the option of contact with a human advisor.
- If you’re worried about how a market decline might affect your portfolio or what’s the best way to rebalance your holdings, you can receive counseling.
- Many robo advisors invest in well-known ETFs that have provided solid returns for years. If you’re considering a robo advisor, check out the funds that will be in your portfolio to make sure they align with your risk tolerance and investment goals.
To learn more about robo-investing, contact your Fifth Third advisor who can offer programs tailored to your unique investment goals and appetite for risk.