The Securities and Exchange Commission (SEC) has released an investor bulletin for investors to understand the fundamentals of robo-advisor investing, or the practice of using automated investment platforms.
Robo-advisor investing has risen in popularity, especially among d-i-y and at-home investors due to the relatively low cost compared to traditional investing and expedited nature of deals.
With this rise in popularity, however, risks are bound to follow. Automated trading platforms may be vulnerable to hacking and computer fraud.
Robo-advisor investing can be a great tool for casual investors or ones that want a direct, hands-on approach to their investments. Like any investment, there are risks, but understanding and mitigating these risks is key to making safe, sound investment decisions.
Here are some basics for understanding robo-advisor investing:
What is robo-advisor investing?
Automated investing platforms, also known as robo-advisors, allow investors to make investment decisions and transact deals with little to no interaction with human advisors. By completing online questionnaires outlining investment goals and financial information, these systems compile and manage portfolios for investors.
Why use a robo-advisor investing platform?
- Directly manage your investment portfolio
- Lower cost alternative to traditional investing
- On-demand deal transaction
When not to use a robo-advisor
Robo-advisor investing may be a great alternative for some, but it may not be the best option for every investor. Depending on your particular investment goals and needs, a traditional investment advisor may be a better fit.
Robo-advisor investing can only operate based on personal and financial information provided. Therefore, it can only advise and suggest deals in a limited capacity. Traditional advisor can take a more nuanced approach to your portfolio.
Also, as an economical alternative, robo-advisors offer low-cost investment advice. It may not offer truly high-value advice like a human investor might be able to.
- To view the SEC’s full robo-advisor investor alert, click here
- Check out our blog archives for even more tips for safe investing practices