Investing on Autopilot: Why Digital Advice Solutions Are in Vogue
One way to categorize people in our commercial world is to divide them into those who make investments and those who do not. While one group of people is investing and becoming richer, the other is standing inactive, paralyzed by self-doubts and fear, and watching others reap rewards from their investments. This is not to say that those who refrain from investing are wrong. Considering how many investors lose money, it seems wise not to take risks.
And yet, people who refuse to put funds into financial schemes or stocks overlook a simple fact that the investing process has drastically changed lately. Stock trading is now more in the hands of automated buyers than human traders. As machines are taking up a growing share of investing, one needs neither experience nor basic knowledge, nor even time to achieve a profit from one’s investments. With a great investing platform , literally anyone can invest as proficiently as the best-known investor of all times, Warren Buffett, because a sophisticated software, devoid of human emotions, will be in charge.
We are explaining below how you can set up automatic investments, how digital advice solutions work, how they manage your electronic portfolio, and when you need to reassess your situation to continue profiting. The value of automated investment solutions will be stressed throughout so that, by the time you have finished reading, you will be ready to choose one of the best robo-advisors in Canada and start reaping handsome rewards. If you have no time to scrutinize stock market charts or have no previous trading experience, putting your investing on autopilot might be a good option for you.
Digital advice solutions or, as they are also called, robo-advisors are a kind of cutting-edge software that will advise you about your investments or your financial situation. To activate a robo-advisor, you need to fill out your personal details, indicate your financial goals, and determine your risk tolerance. When you have specified this information, the software will create your portfolio and manage it on your behalf. The management of your portfolio is performed with the help of sophisticated algorithms.
Your automated investment solutions platform will also rebalance your portfolio, when needed, and will use tax harvesting to minimize your liability to the Internal Revenue Services (IRS). That is, your robo-advisor will sell those securities that tumbled, after which it will replace them with a similar security. This will allow the software to maintain the best asset allocation and expected returns.
Helped by the software, you can focus your attention on other parts of your life, because, after you have filled out all required details, it will automate all processes for you. But do not run with the idea that you will never need to come back to your robo-advisor and check what is going on with your portfolio. The truth is that we live in a changeable world, in which our financial situations constantly evolve. It is, then, your responsibility as an investor to reassess your financial status once in a while and inform your software that the data you have put there initially requires readjustment. When your financial situation changes or when your financial goals get modified, you need to revise your risk tolerance , your time frame, and your investing style. No digital device can read your thoughts and intelligently guess that some information in your portfolio needs to be altered.
But this is as far as your engagement with your robo-advisor goes. Apart from readjusting some data, when your life takes a different direction, you do not need to become involved in the process and yourself make investing decisions. Detachment from actual investing also guarantees that you will not make behavioral mistakes that often cost investors dearly. Never swayed by emotions or cognitive distortions , automated investment solutions will not try to buy into expensive funds, will not forget to diversify, and will not get hysterical or panic, when stocks take a plunge. As statistics show, the average investor loses about 4 percent of profits because of emotional involvement in trading and behavioral mistakes. With the robo-advisor, you will be protected from losing this 4 percent of your profits.
Automated investment solutions platforms are not free, though they are considerably cheaper than human financial advisors. You will need to pay a service fee together with a payment for expenses of the used investments. The fee you will pay will be calculated as a percentage of assets. Or you may be asked to pay a fixed fee. When your payment is predetermined, your fee will depend on the size of your portfolio. If you pay a certain percentage of assets, expect your payment annually range from 15 percent to 50 percent of your account size. Also note that your initial investment with any robo-advisor is usually as low as $500 CAD.
Most digital advice solutions offer a free trial period for new users. If you are still unsure whether you want to invest on autopilot, try a free offer and see how well the platform will trade on your behalf. Then make a decision to put your funds into the hands of an automated buyer.