#4 - Do Robo Advisors Increase Our Need for Human Advisors?
Thanks to technology our ability to invest in the stock market is becoming easier and easier. You can literally choose today to purchase a drink with your meal or send that $1.50 to a robo advisor to invest. There are robo advisors that will invest that $1.50 with no transaction charges into investments that represent ownership of hundreds of companies.
Many people blame the recent run-up of the stock market on this and similar technological advances. It has become increasingly simple for the average person to invest even if they have no knowledge of the investment market.
The implications of these advances are yet to be seen. One potential implication is more severe volatility. It is easier for the average person to buy stocks and it also easier for the average person to sell stocks. Therefore, an individual is even more prone to making decisions based on fear or greed. This is one reason that robo advisors have made working with a fee-only financial advisor even more important. A financial advisor can help you make rational decisions by looking beyond the “Buy, Buy, Buy!” or “Sell, Sell, Sell!” headlines.
Robo advisors do have significant advantages. They can make investing cheaper, allow for more efficient rebalancing, and greatly simplify the account setup and transfer process. That said there are disadvantages to the simplification of investing. We are not always (some would say we are rarely) rational beings. It is important to have a third-party financial advisor engaged in your situation to assist you in weathering the investment storms.