Robo-advisors have revolutionized investing by offering automated, algorithm-driven financial planning services with minimal human intervention. Using robo-advisors like Wealthfront or Betterment can save you money compared to hiring a wealth management firm. However, your approach should still have some hands-on aspects.
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Below, three financial experts weighed in with money moves they’d recommend for people using a robo-advisor.
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The foundation of a successful investment strategy is a clear set of financial goals. Whether you’re saving for a down payment on a house or planning for retirement, it’s important to have specific objectives to guide your investment decisions. Setting goals isn’t something you can outsource to a software program.
Robo-advisors typically offer goal-setting tools that help you visualize your financial objectives and track your progress. Use these features to align your portfolio with your aspirations. By setting more precise goals, you’re helping the robo-advisor better customize your investment plan.
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Everyone wants to pay less in taxes, and you can use a robo-advisor to help maximize your tax efficiency. “Tax-loss harvesting can help you offset gains and reduce your taxable income, said Kelan Kline, financial expert and the owner of The Savvy Couple. “This allows you to keep more of your investment returns working for you over the long term.”
Many robo-advisors offer tax-loss harvesting features that will automatically sell losing investments to reduce your tax liability. Tax-loss harvesting can be particularly advantageous in taxable accounts, as it helps minimize your capital gains taxes.
Your risk tolerance is central to your investment strategy, and it can change over time. Risk tolerance, according to Charles Schwab, is your willingness and ability to handle market volatility and potential losses. As your financial situation and goals evolve, your risk tolerance may change, as well.
Chunyang Shen, financial expert and founder of Jarsy Inc., noted,”You have to assess and rebalance your risk tolerance each time you go through significant life changes like a job change or reaching retirement.” For example, a young professional with a new, higher income and a long investment horizon might be comfortable with a higher level of risk, while someone nearing retirement may prefer a more conservative approach.
Robo-advisors typically offer risk assessment questionnaires to help determine your risk tolerance. Take advantage of these tools and adjust your portfolio whenever you have a major life change.
While robo-advisors offer automated portfolio management, it’s still important to review your investments on a regular basis. Financial markets are dynamic, and your personal circumstances may change over time. Regular portfolio reviews help ensure that your investment strategy stays aligned with your goals and risk tolerance.
Be sure you’re taking a look at your portfolio at least once a year. During these reviews, assess your portfolio’s performance, asset allocation and any changes in your financial goals. Robo-advisors often provide detailed performance reports and insights into your portfolio’s composition. Use these tools to stay informed and make any necessary adjustments.
While robo-advisors can automate investing for a relatively low price, there is a case for also involving a human advisor in your financial planning. “The question you have to ask yourself is whether the benefits of automation outweigh the luxury of human interaction,” advised Raquel Curtis, author and financial expert at The Boujee Banker. “I’ve found that many people benefit more from being held accountable to their financial goals by a human than a machine.”
You may also need more personal advice for complex financial situations, including estate planning, high-net-worth or major life transitions. Consider a hybrid approach, combining the efficiency of a robo-advisor with the personalized guidance of a human advisor. For an additional fee, many robo-advisors offer human advice for a more comprehensive financial planning experience.
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This article originally appeared on GOBankingRates.com: 5 Money Moves To Make if You’re Using a Robo-Advisor, According to Financial Experts
