Are you tired of managing every nook and cranny of your investment portfolio? You may be experiencing the emotional stress of constant decision making. Whatever the reason, a hands-off approach to portfolio management can make a world of difference.
One of those options is automated investing. Here’s a quick guide explaining what automated investing is, how it works and how it can help you:
What is automated investing?
Automated investing is the practice of using computer algorithms to automatically manage your portfolio. This technology-driven method uses mathematical tools to select and trade stocks, exchange-traded funds (ETFs) and other assets without human intervention.
The goal is to make investing a simple and passive process for the average person.
How does automated investing work?
Automated investing has transformed the financial advisory industry. Investors no longer have to deal with investment advisors and portfolio managers who charge an arm and a leg for one session. Instead, automated investment platforms and robo-advisors take steps and manage your portfolio on your behalf.
This involves the following steps:
On board
As an investor, you first complete a questionnaire. The automated investment portfolio collects information about your investment goals, risk tolerance, time horizon and overall financial situation.
Strategy recommendation
Based on your goals and risk tolerance, the platform recommends a personalized, algorithm-based investment strategy.
Asset allocation
The automated investment portfolio you choose will divide your money across several asset classes, including stocks, bonds, and… real estate investment funds (REITs). The platform does not consider assets or objectives outside your stated goal.
Execution of transactions
A robo-advisor will automatically buy and sell assets on your behalf to meet the allocation strategy.
Portfolio rebalancing
Using an automated investing platform is not a one-time deal. Advisors continually review and rebalance your portfolio to keep it aligned with your investment strategy and long-term financial goals.
Benefits of automated investing
Now that you know how automated investing works, let’s highlight its benefits:
Cost efficiency
It may sound surprising, but automated investment platforms actually cost less than hiring a human portfolio advisor. Furthermore, an automated platform bases its fees on a percentage of the invested assets. As a beginner with limited resources, automated investing allows you to save costs while taking advantage of premium strategies.
Targeted investing
As mentioned earlier, a robo-advisor creates a curated portfolio based on your goals and preferences.
Accessibility
Reputable automated investment platforms have low or no minimum funding requirements. This makes automated investing accessible to both novice and experienced investors.
Automated investing versus robo-advisors
Automated investing tools and robo-advisors are often considered the same. However, there is a small difference.
Automated investing encompasses a wide range of technologies and strategies and can be used for various aspects of today’s financial functions. For example, automatic transfers and contributions to investment portfolios can also be considered automated investing.
Robo-advisors are specialized platforms that provide automated investment advice and portfolio management. SoFi’s robo-advisors give you the convenience and expertise to reach your financial goals faster.
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