A robo-advisor is a middle ground between managing investments on your own and hiring a full-service financial advisor.
It’s a lower-cost service that uses technology and algorithms to automate investing based on the information you provide about your goals, timeline, and risk tolerance.
Think of it like doing your taxes:
Robo-advisors fall into that middle category being an automated investing platform. They gather your basic information, recommend an investment portfolio, and then handle the ongoing investment management tasks like rebalancing your portfolio.
Some even offer budgeting tools or limited access to a human financial advisor for some general guidance(usually at an added cost).
Popular robo-advisors include:
There are over 100 robo-advisors globally, but these are some of the more recognizable names.
Another alternative is balanced or target-date funds (like Vanguard’s Target Retirement 2045 Fund). These funds also handle investing and rebalancing automatically, but be sure to check the costs of these funds as they tend to vary. As you get closer to the target-date, age or goal the investment fund is for, it will gradually become more conservative to preserve your capital.
A robo-advisor can be a great fit if:
It might not be the right choice if:
At the end of the day, it comes down to your needs, complexity, and preferences.
If you want a “set it and forget it” option with minimal costs, a robo-advisor can be a good solution. But if you’re looking for someone to act as your personal CFO - helping you manage not just investments but the full scope of your financial life - a financial advisor is usually the better fit. Please note that the financial advisor will likely have a higher fee, but could deliver value that exceeds the fee being charged.
The good news in the robo-advisor vs. financial advisor debate, you’ll likely know when you may need a financial advisor. As your financial life gets more complex, you’ll start asking questions that go beyond what a robo-advisor can answer. That’s often the signal that it’s time for more personalized guidance.
Shohei Ohtani signed a contract with the Los Angeles Dodgers worth $700,000,000 over 10 years. But here’s the surprising part: instead of taking all the money upfront, he chose to be paid just $2,000,000 per year for the next 10 years (a total of $20,000,000), deferring the remaining $680,000,000 until later.
Why would he do that? Doesn’t he want the money now?
Here’s the likely reason: California’s top marginal income tax rate is 14.4%, on top of federal income and other taxes. By deferring the bulk of his contract, Ohtani has the option to move to a state with no income tax in the future. If he were to receive the deferred income outside California, he could save an estimated $95,000,000 in taxes.
California regulators aren’t thrilled and are trying to cap this kind of strategy, but if it works out, it could be one of the smartest financial moves of his career.
It made me think: what would I do with $95,000,000? Personally, I’d rent a beach island or resort and invite everyone who has impacted my life for an all-expenses-paid trip. I’d also make sure financially that my family and friends were taken care of - enough to live comfortably but not so much that it robs them of motivation. And then, I’d dedicate the rest to philanthropic causes that matter most to me.
“Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it.” - Steve Jobs
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Life is short and time is precious. Thanks for taking yours to read this and I hope to be a part of your Financial Takeoff!
Disclaimer: This is just for informational purposes and should not be used or viewed as tax, legal, or financial advice. Work with your tax professional, legal professional, and financial planner to evaluate which strategies would be the best for your situation.
