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Should I Use a Robo-Advisor? - YouTube
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you probably wouldn't trust a robot to
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babysit your kids or write you a
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prescription or even cut your hair so
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why should you trust one to manage your
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money robo advisors have been steadily
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gaining popularity since their
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introduction in 2008 with total client
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assets now exceeding one trillion
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dollars and expected to be 2.9 trillion
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by 2025. that's a lot of money to put
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under the care of a bunch of machines
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let's hope they don't become self-aware
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and use it to finance the great robot
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uprising despite the name there are no
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actual robots involved the term robo
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advisor refers to algorithms that
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automatically manage an investment
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portfolio based on your financial
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situation and goals these are tools that
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financial experts have had access to for
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decades but are now available to anyone
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there are dozens to choose from like
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betterment and wealthfront and most
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traditional brokerages are now offering
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their own versions but should you use
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one and how can you know which one is
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right for you
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much like a human financial advisor a
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robo advisor will begin by asking you a
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bunch of questions about yourself
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how much do you make a year how much do
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you have saved how much are you willing
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to invest what are you saving for
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retirement house your kids college how
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much risk can you handle it uses that
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information to build an investment
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portfolio mathematically engineered to
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meet your goals and continually updates
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it as the market changes
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one of the biggest advantages of robo
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advisors is their low barrier of entry
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most human advisors charge an annual fee
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of around one to two percent of your
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total account balance and require a
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minimum investment in the hundreds of
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thousands of dollars
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robo advisors on the other hand
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typically charge less than half of that
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and most have extremely low to no
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balance requirements
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how can they afford to do that by
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automating tasks that are difficult and
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time consuming for humans to do
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two of the major ones are rebalancing
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and tax loss harvesting in finance
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rebalancing refers to the buying and
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selling of assets to maintain a certain
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level of allocation or risk let's say
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you and your financial advisor decide
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that your optimal investment strategy is
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to have thirty percent in emerging
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markets thirty percent in traditional
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blue chips and forty percent in
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government bonds if your emerging market
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stocks rally it will throw off this
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balance and your advisor will sell some
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off and reinvest it in other categories
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to get you back to your desired ratio
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of course selling stocks at a profit
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incurs a capital gains tax and that's
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where tax loss harvesting comes in by
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strategically selling other stocks at a
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loss your advisor can offset the gains
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and minimize your tax bill because the
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practice can be abused the irs has very
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strict rules about how and when it can
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be done
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rebalancing and tax loss harvesting are
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both powerful tools for getting the most
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out of your portfolio they're also
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a big pain in the butt which is why many
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human advisors will only do them for you
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once a year the robo advisors can do
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them every day finding opportunities and
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strategies that no human eye could see
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the downside of this automation is that
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you have little to no control over which
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stocks you own robo advisors are solidly
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based on modern portfolio theory which
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states that the best strategy for most
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investors is to diversify their
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portfolio to just match the market but
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if you're the kind of investor who wants
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to try to beat the market by picking
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individual stocks then a robo advisor
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won't be enough for you instead you
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might use a trading app like robinhood
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which lets you buy individual stocks
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while avoiding the usual fees and
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minimums
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but be warned while a few have made
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fortunes this way like warren buffett
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the vast majority of such investors
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underperform the market another reason
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you may not want to rely on a robo
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advisor is if you have very specific or
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complex financial needs like estate
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planning or an unusual tax situation
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though they've become much more
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sophisticated over the last decade
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they're still designed to fulfill pretty
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basic investment functions
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some people also want the human touch
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that comes with a flesh and blood
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advisor money is after all a highly
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emotional topic advisors do more than
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crunch numbers they listen they educate
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they help you understand what your goals
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really are and how much risk you're
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really willing to tolerate a
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robo-advisor won't be there to talk you
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off the ledge when the market is having
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a bad day
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still for those who are just entering
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the world of investing robo advisors are
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a sound and cost-effective tool that has
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opened the door to millions of people
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who are essentially excluded by high
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fees and balance minimums if you're
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thinking about using one it's pretty
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easy to compare rates and services
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online make sure they offer rebalancing
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and tax loss harvesting at no additional
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cost if you want your portfolio to
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reflect your values you can find some
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that allow you to prioritize socially
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responsible investments and if you still
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crave the personal touch many online
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brokerages now supplement your
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robo-advisor with a human advisor for
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much less than they would traditionally
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cost
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but remember that technology is
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constantly evolving robo advisors can
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spare you from having to watch your
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portfolio every day but you should still
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know how they work and what changes are
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on the horizon advancements in ai are
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expanding what areas of financial
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planning can be automated and you should
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research any new services before diving
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in that said so far they've been doing a
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pretty good job with basic investments
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so if that's your need you can feel
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safer with a robot handling your
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portfolio and a pair of scissors
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and that's our two cents
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before you go could a blind gamer beat
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you in mortal kombat have you ever heard
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of the gay rodeo and why are these guys
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putting underwear on goats
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subcultured a brand new documentary
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series from pbs answers those questions
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and so many more exploring lesser-known
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communities and folks that have had a
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major impact on the mainstream check it
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out over on pbs voices link in our
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description and let them know that two
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cents sent you
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thanks to our patrons for keeping two
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cents financially healthy click the link
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in the description to become a two cents
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patron
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[Music]
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