(MoneyHippo.com) – Picking the best investments to match your goals can be intimidating because many choices exist. One option that’s becoming popular is to use a robo-advisor to do the investment picking for you, but are they safe? The answer is: They generally are safe to use, but do your homework.
Robo-advisors use algorithms and software to build a portfolio to fit the investor’s needs and manage it to keep the growth on track. With costs much lower than a personal financial advisor, it may seem like a great option to help with investment decisions, but there are factors to consider.
The positive aspects of using a robo-advisor are that using them is accessible, simple, and you can usually start with as little as $1,000. Some are completely computerized, while others come with a human advisor option. While it might make sense to rely on the intelligence of computer software to choose and manage investments, taking away a face-to-face meeting with an experienced human advisor can have some disadvantages.
For instance, when using a robo-advisor, the investor can plug in investment goals, but the software doesn’t consider other factors in a person’s life. Additionally, their programming can’t handle more complex investment strategies like puts and calls, limiting these types of advisors.
The bottom line with robo-advisors is they are safe as long as they are secured by the Securities Investor Protection Corporation (SIPC). While investing, there’s always a chance you will lose money, but that’s true whether you do it yourself, use a human advisor, or choose the robo route.
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