BUSINESS

  PERSONAL WEALTH HEALTH

ROBOTS VS. HUMANS

ALGORITHMS OFFER AN ALTERNATIVE TO LIVE FINANCIAL PLANNERS

WITH ROBOTIC machines doing everything from stocking shelves to helping surgeons perform surgery, it’s no surprise that “roboadvisors” have entered the personal finance arena. These are forms of automated investing based on algorithms unique to their individual developers. Roboadvisors offer an option for investors who prefer to leave managing their portfolios up to someone (or something) else. Here are a few points to consider:

PRICE

Major roboadvisor suppliers, such as Wealthfront.com and Betterment.com, have clear and transparent pricing structures on their websites. Conversely, there is no standard pricing structure for live financial advisors, and some can be unclear as to exactly how they arrive at their charges.

EXPERIENCE

“As you trawl their websites, robos will offer you some rudimentary guidance on how certain investment vehicles work,” says Lou Carlozo, contributing editor to “Money Under 30,” in his piece “Roboadvisors vs. Live Financial Advisors: Which is Best For You?” Carlozo compares the relationship between roboadvisors and live advisors to that of taking an online course vs. an in-person course. Roboadvisors will ease an investor in to investment principles, while also providing the anonymity of learning at a computer screen.

Some sites tell all investors to get started with $1. “As in 100 pennies,” says Mr. Carlozo. “Try getting your local financial advisor to take you on for that kind of chump change.”

INVOLVEMENT

If you’d rather not pore over financial data and agonize about what to buy or sell, a roboadvisor may be the right choice.

“Because robos automate your investing, you could get lulled —easily lulled — into thinking that making money is as easy as taking a selfie,” says Mr. Carlozo. “If it were that effortless, wouldn’t everyone be doing it? You have the same financial risk with automated investing as with any other form of investing, and maybe more when you decide to sit back and allow someone else to do the all work for you.”

RESULTS

Differences in profitability are more difficult to define. Roboadvisors are designed to accommodate the needs of a wide range of people and, thus, to be invested in conservative products. While that may make them less vulnerable to stock market volatility, the nature of conservative investing may limit profit potential.

Live investment advisors can’t guarantee a better return. However, they do gain an insight into your situation, allowing them to make adjustments suited to your financial objectives.

CORRECTIONS

Ups and downs are inevitable in the stock market. Many of us tend to panic in the face of a major market correction.

“And if you panic, and move your money around in panicky ways, a robo isn’t going to stop you,” says Mr. Carlozo. “That’s an individual advisor’s job.”

WHICH TO CHOOSE

Automated investment services promise to make investing easy, inexpensive and even fun. However, both automated investing and the use of roboadvisors offer advantages and disadvantages. OM

Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations. Consult an accountant or tax advisor for advice regarding your particular situation.

WILLIAM J. LYNOTT is a freelance writer who specializes in business management and personal and business finance. Visit www.blynott.com, or to comment on this article, visit tinyurl.com/OMcomment.