Robots Took My Son’s Life Savings

Earlier this week, I got an email from Elizabeth M. in Texas, who’s worried about her son’s investment decisions.

She writes:

My son has a good job at a legal firm that pays well. But he told me at dinner last night that his wife had invested ALL their money in “robot advisers.” I’ve never heard of them before, so naturally I was suspicious. What the heck is a robot adviser, and ARE THEY SAFE?

Before you go knocking down your daughter-in-law’s door, let me assure you that your son’s finances are in no immediate danger.

I have the same concerns about investing with robo-advisers as I do with putting all your money in the bank (in a crisis that money is inaccessible), but as investment strategies go, robo-advisers aren’t overly risky.

In fact, the whole idea behind robo-advisers is slow and steady growth rather than big risky bets.

So What Exactly Is a Robo-Adviser?

A robo-adviser is simply an automated investment website.

Instead of having a human financial adviser who supervises your portfolio, robo-advisers use math to generate your entire financial plan automatically.

When you sign up, you’ll answer a simple questionnaire that will establish your risk tolerance and when you plan to retire.

The robo-adviser uses this information to create a selection of custom portfolios to choose from, usually made up of a diversified array of ETFs or index funds.

Generating portfolios this way — without any human involvement — allows robo-advisers to offer lower fees and no minimum investment amounts.

Depending on the robo-adviser, you’ll be charged somewhere between 0.25–0.85% of your assets under management. So on a $5,000 account, your fees could be as low as $12.50 for the whole year.

This makes robo-advisers an attractive option to young investors who don’t command a large amount of capital. But as with all investments, the more money you have, the more potential you have to make money.

But with so many robo-advisers popping out of the woodwork, which is the best one for you?

Betterment

Betterment is the granddaddy of all robo-advisers.

It planted its flag right in the middle of the 2008 financial crisis… and its success gave birth to a new wave of investment websites.

The technology that formed the backbone of Betterment’s success was nothing new. Hedge fund managers had been using automated investment programs for years. But the technology was expensive and only made available to the elite few.

Betterment dragged that technology into the public eye. And their 0.25% annual fees and no investment minimum meant that anyone could use it.

They also pioneered automatic tax-loss harvesting. I don’t want to get into the weeds explaining tax-loss harvesting here, because it involves some crazy complicated financial wizardry. But the upshot is that you pay less tax on your investment gains.

They also offer premium plans. The fees on these accounts are a bit pricier (0.40%) and require a minimum investment of at least $100,000. But you get 24-hour access to Betterment’s team of financial advisers.

Betterment was the first of the robo-advisers… and for my money, it’s still the best.

But like I said above, these websites are for building wealth slowly and steadily. And that means locking your assets into a system that will probably be totally inaccessible in a real crisis.

If you’re going to use a robo-adviser, you should have an emergency fund as well as an allotment of a physical investment, like gold or silver, that can be easily accessed.

All that said, if you’re looking to build wealth fast, robo-advisers aren’t for you. You need the personal touch of someone who knows what they’re doing like investment pro James Altucher.

James has devised a simple strategy to pull $3,000 from the stock market every month with multiple relatively low-risk trades.

All you have to do is buy when and how he says… and you can collect up to $36,000 a year in extra income.

If you’re curious, you can CLICK HERE to see James demonstrate this strategy with a couple of strangers on the streets of New York.

All the best,

Owen Sullivan
Editor, Money & Crisis

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