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July 3, 2020
Robots: They answer the phones at our insurance agencies; they build cars in our factories. And if we are lucky enough to own a Roomba-brand vacuum, they even vacuum our floors.
They now can now also make personalized investment decisions for you related to your retirement.
Robo-advisors are a relatively new type of online investment service that is designed to help individuals make the best investment decisions possible.
Not all robo-advisors offer the same services but most will touch on these five aspects of retirement investing.
Robo-advisors start by helping to develop an asset allocation strategy. They help decide how your assets are invested and what percentages of your savings are deployed in different types of investments. Putting all your eggs in one basket might be a poorly conceived asset allocation strategy. Having a mix of bonds, Exchange-Traded Funds (ETFs), mutual funds, and stocks might be a better asset allocation strategy.
Asset allocation strategies are developed based on these factors:
Secondly, robo-advisors select individual investments. It is not enough to know that your asset allocation should invest 25% of your money in stocks. You need to know what stocks and usually, the right answer is a balanced and diverse portfolio of different stocks. The robo-advisor can tell you exactly this.
Perhaps the most boring task a robo-advisor performs is actually making the investments. But getting it done is also the most important aspect of investing.
Robo-advisors also help you to rebalance your portfolios. Rebalancing is the act of buying and selling your investments in order to maintain your asset allocation strategy. This is a task that often goes undone by investors going it alone.
Tax efficiency can be an important aspect of making investments and rebalancing. PlannerPlus subscribers can see annual estimates for federal, state, and capital gains taxes, review annual taxable income as well as realized capital gains and specify itemized deductions and property taxes.
There are quite a few advantages:
There are also some disadvantages to using a robo-advisor:
Here is a handful of high-quality robo-advisors. If you are interested in investment advice, you might browse each one and get a feel for which best suits your preferences.
We have provided the company’s own descriptions of themselves to help you size up their personality. (Just remember that this is their own marketing.)
Wealthfront: “Designed to earn you more.”
Future Advisors: “You already have investment accounts, we help make them smarter.”
AssetBuilder: “Diversification. To us, it’s the only investment strategy that makes sense.”
Personal Capital: “The modern way to manage your net worth.”
Betterment: “Investing made better”
MarketRiders: “Do it yourself investing software, made simple.”
There are real advantages to using a robo-advisor for retirement planning, no matter your wealth profile.
However, one of the biggest challenges you might face is determining your goals. You need to be able to answer the important retirement planning questions:
To help with these questions, you might want to use a different kind of robo-advisor: a retirement calculator. The NewRetirement Retirement Calculator is one of the best because it gives you lots of options for discovering your goals.
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