AMA The Fifth Person
Asked on 20 Feb 2019
Let's start with understanding both the concepts. Robo-advisories are platforms that help you assess your risk appetite, create your portfolio accordingly and then choose different strategies, assets and instruments that you can invest your money in. On the other hand, ETFs are instruments that you can invest in. You can go for different ETFs, and invest in them through a Robo-advisory. These are still not very different from your ordinary financial advisors as both options will still have a management fee incurred for users. The difference lies with the amount, as Robo-advisors have lower management fees. And the best part is that they give you the most unbiased advice.
I work at Kristal.AI, and my mojo is to help people make the right financial decisions. If you think I helped you, do give me "Thumbs up". If you think my response was biased let me know, I will work on it.
I hope this helps you make the right decision.
I've recently answered a similar question and did a thorough analysis here! Do take a look :) At the end of the day, ask yourself the usual questions before investing:
What's your risk appetite?
What's your starting capital? Are you alright with paying for intermediary fees?
How much do you know about each type of investment?
How much effort and time would you like to spend on the investment?
Ultimately, diversification is key! So you can actually invest in BOTH Robo-Advisors and ETFs at the same time :)
Robo-advisor buys ETFs for you. You pay more fees to robo compared to ETFs for them to help you manage your investments. DIY ETFs on the other hand is slightly cheaper in terms of expenses and you can customize it more differently compared to robo with fixed allocations based on your risk appetite. Both are mainly for passive investors just that DIY ETFs will have to buy yourself through a broker every time you want to invest more. If you wan more flexibility in ETFs and ok with doing research yourself and buying monthly yourself through a broker, go for DIY ETFs. If you want to do a totally hands free investment and ok with paying abit more fees and abit less flexible, go for ROBO.
I prefer to go with ETFs because there's greater control over you own investments and the costs are typically lower. With that being said, it requires a lot more discipline and time to do so and it might not be suitable for everyone. If you're willing to put in the effort, DIY investing is not that difficult.
Depends on your own effort, interest and motivation.
Dedicating a lot of reading in the beginning surely can make you an independent
self-directed investor (like I did myself). You don't need many books, websites with balanced unbiased information are important. Then you can do all with ETFs what robos could do for you only for higher costs/fees.
To be successful avoid: mutual funds, unit trusts, options, blockchain, greed ...
more on my private thinking here:
For robo advisor, it is totally hands free as the companies will do everything from investing to conversion of currencies for you. However, on top of the etfs fee you have to pay, there is also a robo advisor fee as well. For DIY in etfs, you can choose which etfs to invest so you can get more freedom and you do not have to pay any extra fees other then the etfs expense ratio fees.
I think you should consider ETF over robo advisors because there are extra fee involve for robo advisors.
Both roboadvisors and ETFs are good to invest for younger investers. Roboadvisors actually invests in ETFs that are recommended for you based on your portfolio. Si I think the question would be more on whether to invest in ETFs yourself or using Roboadviosrs. If you are more of a passive investor and is comfortable with letting these roboadvisors doing your investing for you, then investing in roboadvisors would be a good choice. If you are more comfortable with actively monitoring the markets and take an active approach towards investing, then investing in ETFs yourself would be a better choice.
Hope this helps!
Robo advisors can be a great solution for beginner investors, young professionals who want to put their portfolio on automation. Robo advisors are not financial planners and are generally good for basic financial assistance.
ETFs on the other hand is also good for investors. Traded like stocks, these can broaden the diversity of portfolios a person manages. In ETFs trading fees can quickly add up and affect your investment's performance. Lack of liquidity is another major concern with ETFs.