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Automated investing vs. traditional investment advisor

Andrew Goldman

Andrew Goldman has been writing for over 20 years and investing for the past 10 years. He currently writes about personal finance and investing for Wealthsimple. Andrew's past work has been published in The New York Times Magazine, Bloomberg Businessweek, New York Magazine and Wired. Television appearances include NBC's Today show as well as Fox News. Andrew holds a Bachelor of Arts (English) from the University of Texas. He and his wife Robin live in Westport, Connecticut with their two boys and a Bedlington terrier. In his spare time, he hosts “The Originals" podcast.

There are two primary methods you can use to invest your money, both have their merits. The first is the old way — through a traditional investment advisor, otherwise known as a financial advisor. This is a person who will make all your investment decisions for you. They'll likely pick the stocks they think will outperform other stocks, mutual and index funds he likes, and, if they're on the ball, they'll also periodically rebalance your portfolio, making sure you’re not too exposed in one sector or underexposed in another.

By and large, traditional advisors will make their money by charging all of their clients a small percentage of their entire investment every year as a fee for their investment-picking expertise. 1% is a common fee for clients with less than a million dollars invested. The mutual funds they buy will often assess fees of their own, so you could easily be looking at an annual fee of 2% on your investments. That's a hefty fee but it's the price you'll pay for a dedicated financial advisor that can help you navigate complicated financial situations and major life events as you run into them.

The second method you may choose to use is called automated investing. Though the process might sound totally devoid of input from people, automated investing — using what’s often referred to as robo advisors — involves a great deal of human thought and input on the front end. People with investing expertise pick your investments, but unlike with a traditional advisor, they’ll often pick low-cost index ETFs that directly mirror the ups and downs of the market, rather than managed funds that attempt to anticipate which investments will outperform the greater market. Robo advisors charge a fraction of management fees than the financial planners of the world.

Want to get started with automated investing? Sign up to Wealthsimple and get a personalized investment portfolio in a matter of minutes.

After you’re invested with an automated advisor, sophisticated technology will take care of all of the rest of the processes, including trading and periodic portfolio rebalancing. Unlike a traditional advisor, an automated advisor will always follow calculated principles. History demonstrates that funds that track the major stock indices have performed better over the long term than the vast majority of actively managed funds. That's not to say the trend will continue in the future though. The greatest advantage of automated investing is the fee structure. They normally take less than half a percent which allows your money to potentially make more money.

Now that you know some more about automated investing, we humbly suggest you take a good long look at Wealthsimple (that's us). We're an automated investment service that offers state-of-the-art technology, low fees and the kind of personalized, friendly service you might have not thought imaginable from a robo-advisor. Get started investing with us or find out more details here.

Last Updated November 29, 2017

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