Automated Investing vs. Human Guidance
When you’re looking for help managing your investment portfolio, you have a decision to make: Should you work with a financial advisor or a robo-advisor? A financial advisor is a professional specializing in financial planning, wealth management and other personal finance services. On the other hand, a robo-advisor is a digital platform that uses algorithms to invest with very little human supervision.
Since the launch of the first robo-advisors during the Great Recession, they’ve become popular as cheaper alternatives to financial advisors. They typically work best for people who have very simple investment needs, while they can be a poor option for individuals who want to tackle complex issues, such as estate planning. No matter your financial situation, there are benefits to working with a financial advisor that the robo-advising process can’t easily replace.
1. Setting and planning for goals
Financial advisors can help you establish financial goals and implement strategies to help you achieve them. At the outset of working together, a financial advisor will typically go through a discovery process where they ask you questions about what you hope to accomplish with your money. Some goals may be relatively simple like saving for a down payment on a house or a child’s college education. Others may be more complicated, such as leaving a legacy or ensuring a dependent child will be taken care of after you’re gone.
Once your advisor understands your goals, they can help you choose the right strategies to accomplish them, from maximizing savings in retirement accounts to helping you implement an estate plan or trust.
As you age, changes in career, marriage or the birth of children may lead to shifts in your financial goals. Regular meetings with an advisor can help you keep tabs on your changing needs, and your advisor can help you make adjustments to your financial plan as necessary.
2. Keeping you on track
Financial advisors don’t just set up a plan with you; they help you stick to it along the way. No matter how rational you think you are, emotions can influence your personal financial decisions, often to a surprising degree. Letting emotions get in the way can lead to counterproductive investment choices, such as panic selling — selling assets after they’ve dropped in value, rather than staying in the market and taking advantage of an eventual recovery.
Your financial advisor is your sounding board, and when you get worried about changes in the market, you can voice your concerns. Your advisor can provide an objective point of view and information on how short-term volatility might affect your long-term financial plan.
A financial advisor can also provide a sense of accountability that can help you stay on track, making you less likely to do things like put off saving or empty your investment accounts on a whim.
3. Building a team of experts
The benefits of a financial advisor go beyond wealth management. Your financial advisor can assemble a team of professionals around you to deliver expertise and services in other fields. Access to CPAs, attorneys and insurance brokers can help you address all your financial needs in a coordinated, holistic way.
Whether a financial advisor or robo-advisor best fits your needs will depend on your individual circumstances. Making an informed decision requires an understanding of the range of benefits unique to financial advisors. It’s important to bear in mind, too, that when it comes to access to new machine learning technology, it’s not an either-or proposition. Financial advisors use advanced digital tools to analyze portfolios and market data, so you can enjoy the advantages of a personal touch without forgoing the benefits of technology.
Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities or to advise on the use or suitability of The AMG Managed Portfolio Series, or any of the underlying securities in isolation. Information specific to the underlying securities making up the portfolios can be found in the Funds’ prospectuses. Please carefully read the prospectus before making an investment decision.
This commentary offers generalized research, not personalized investment advice. It is for informational purposes only and does not constitute a complete description of our investment services or performance. Nothing in this article should be interpreted to state or imply that past results are an indication of future investment returns. All investments involve risk and unless otherwise stated, are not guaranteed. Be sure to consult with an investment & tax professional before implementing any investment strategy.
Investing involves risk. Principal loss is possible. Investing in ETFs is subject to additional risks that do not apply to conventional mutual funds, including the risks that the market price of the shares may trade at a discount to its net asset value(“NAV), an active secondary market may not develop or be maintained, or trading may be halted by the exchange in which they trade, which may impact a fund’s ability to sell its shares. Shares of any ETF are bought and sold at Market Price (not NAV) and are not individually redeemed from the fund. Brokerage commissions will reduce returns. Market returns are based on the midpoint of the bid/ask spread at 4:00pm Eastern Time (when NAV is normally determined for most ETFs), and do not represent the returns you would receive if you traded shares at other times. Diversification is not a guarantee of performance and may not protect against loss of investment principal.