hey Vera Tiffany Thomas with the wealthy Tiffany dot com and in today's video we're
gonna be talking about Robo advisors and if they are worth it or not there are a
lot of Robo advisors out there for example there's wealth front betterment
m1 finance personal capital acorns just to name a few and there's a lot that I
didn't name let's first define what a Robo advisor is a Robo advisor is a
website or an app that uses a computer algorithm to invest your money for you
based on a list of questions about your investing preference and you're
investing goals and your risk tolerance and once they have that information then
they provide you with an asset allocation on where your monies should
be going whether that's into stocks or into bonds or even both they usually use
ETFs exchange traded funds to invest your money in the stock market and if
you're not sure what an ETF is I do have another video on that so I will leave a
link to that video and you can check that out for more information about an
ETF with Robo advisors they're more automated and there's less human
connection and I get that there are some Robo advisors out there that offer an
extra service to have that human interaction where you can ask questions
to a human and they can answer you about your investments but not all of them
provide that option and there's usually a cost associated with a Robo advisor
and yes that cost is less than working with a financial advisor one-on-one but
that's actually reason number one why I don't think most Robo advisors are worth
it because there is a cost associated with
using a Robo advisor a lot of Robo advisors seem to charge anywhere from
0.25 percent all the way up to almost 1 percent to invest your money with them
and to me that's a really high cost that you're paying just to have someone
automatically invest your money and where they are using these et
they're actually most of them are Vanguard ETFs and you could do that on
your own I can do that on my own and not have to pay that extra cost and just to
give you an example one of vanguards ETS is the Vanguard total stock market ETF
it's abbreviated vti and this ETF only costs point zero three percent to invest
your money in and when you are using a Robo advisor you're paying that I will
just go with 0.25 percent that seems to be a pretty popular amount you're paying
that point to 5% to invest in that Vanguard fund which is only a point zero
three percent expense ratio and you're also paying that expense ratio when
you're investing with a Robo advisor that does not get waived so essentially
you're paying more than eight times as much to invest with the Robo advisor in
this fund and to me that's not really worth it paying eight times the amount
to invest in a fund that I can simply invest in myself and it honestly doesn't
take that much time to do it I can see if you want to spend a zero time you
have zero interest in figuring out how to invest your own money but even if you
just spend 10 minutes and maybe that's even 10 minutes a year I don't know you
can set this on autopilot pretty much so just spending that little bit of time
you can really see a higher return on your money and I want to share an
example with you so you can see exactly how much this really affects your money
so let's say you have $10,000 in your savings account right now and you want
to invest $1,000 a month we'll say so $12,000 a year and let's put it into
this fund this beatty i-vt ietf yeah lots of letters here the Vanguard total
stock market ETF and let's just say this returned 8% each year which is the
average return for the the stock market and let's say you wanted to invest it
for 25 years and you can see our ending balance if we were just to pay the point
zero 3 percent expense ratio with this ETF is going to be just over a million
dollars but if we were to use this robo-advisor
and be charged that point two five percent charge on our money then we
would not have quite a million dollars and our investments and you can see that
that's about forty thousand dollars less which is a yearly salary for quite a lot
of people so that's a significant amount of money that is essentially going to
waste because you can honestly invest very simply on your own just by taking a
little a little amount of time you guys it really doesn't take that much time I
have plenty of videos on how to invest simply but if you just take that little
bit of time you can have that extra year that $40,000 to invest that money or
retire a year early how great would that be
there's a lot of things you can do in one year so the cost of using a
robo-advisor is really the number one reason that I
wouldn't use one and I get that there are some that are free so if you are
really interested in a Robo advisor find one that is free and another thing to
mention is that the costs seem to continue to rise with these Robo
advisors over time I know that betterment for example they used to have
a lower cost to invest with them and they have raised that and just to quote
their CEO he says we're preparing for the long haul as always and we aim to
make this a public company the first large public financial services company
which seems like a positive but in actuality when a company goes public
it's no longer about the people they're serving it's about making money and they
do that by increasing fees that's one way they do that sure there are other
ways but they're a business and they're going to want to make money and you can
see that they have already raised their fees once who's to say they won't do it
again so cost is there really big factor when you are looking
at Robo advisors because when I've said this multiple times before because when
you are investing you want to keep your fees and your costs as low as possible
so that you can have the majority of your money working for you and not going
towards someone else and the second reason that I don't really love Robo
advisors is because they are investing in things that I can invest in myself
they don't have special funds or ETFs that I wouldn't have access to or even
individual stocks so they are choosing investments that I already have access
to that I can invest on my own for a lesser amount a less expensive amount
and if you take a look at the different websites and I can show you better meant
they actually show on here that most of our ETFs they're using our Vanguard ETFs
which is actually what I invest in I have an account at Vanguard and invest
in the Vanguard total stock market ETF so I already am investing and things
that they're going to be investing in so it doesn't really make sense for me to
pay that extra fee to have someone else do what I can already do reason number
three that I don't really love Robo advisors is because they promote this
tax loss harvesting and essentially what that is is when you have an investment
you have a stock or an ETF and the price has gone down from what you paid for it
then they will sell that investment for you and take a loss and then you can
deduct that on your taxes and then they will buy a similar ETF or stock and so
that your money is still invested but you can take that loss sooner rather
than waiting over time and while tax loss harvesting it can be a good thing I
really don't see that out weighing the cost of using a Robo advisor you have to
pay that cost that point to 5% very example but yet depending on the market
this may not be to your advantage to do the tax loss harvest
so when you're required to pay that cost but yet you don't have a guarantee on
the return that you're getting on this tax loss harvesting that doesn't really
seem to be a win for me because there's no guarantee that that's really going to
offset that cost that you're paying and you can also do this on your own if you
wanted to of course it would take a little extra time but you can definitely
still do this on your own that's just something to think about the actual cost
they are paying and then are you really getting a return on your investment that
is going to be worth it and then reason number four that I don't really love
Robo advisors is because I want to invest my money when I want to invest it
and I get that people want to use a Robo advisor and just have it all automated
for them but I just want to give you an example when the stock markets a good
dip and this was during brexit I don't know if you guys have heard of that but
one of the Robo advisor companies had frozen their trading when this happened
and they were saying they didn't want people to get nervous and start selling
all of their investments at a loss but yet they weren't able to purchase these
investments when the prices were so low and I really like having that freedom if
there's something that I can take advantage of in the stock market and a
certain time then I want to be able to do that I don't want someone else to
regulate that and say no sorry you can take advantage of that and also if there
is a stock or an ETF that I feel like it's going to be a lower price at the
beginning of the day then I want to make that purchase right then rather than
waiting until the end of the day to make that purchase if I think the price is
going to be higher and that may not matter to some people but I just like
having that freedom and that knowledge that if I want to make an investment at
a certain time then I'm going to be able to do that and no one can tell me not to
do that or stop me from doing that and I know that at least one of the companies
and one finance they only do training at one
time during the day instead of exactly when you want to make your trade either
buy or to sell so I don't really love not having that freedom so these are
just a few of the reasons that I don't really care for Robo advisors that being
said I get that people want it all automated and they don't want to think
about it at all they don't want to take just a little bit of time to understand
investing so if that is the case then pick a Robo advisor that is free that
doesn't have a cost associated with it and go ahead and get started because
getting started is better than doing nothing but not investing your money at
all I personally just like keeping my fees as low as possible with my
investments and I like having the freedom of investing in what I want to
when I want to and you can't really do that with Robo advisors some of you may
already be using a Robo advisor and if you are then comment below which Robo
advisor you are using because I'm curious to know which one people are
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watching and I'll see you guys in the next video