Tired of managing every nook and cranny of your investment portfolio? Maybe you’re experiencing the emotional stress of continuous decision-making. Whatever the reason, adopting a hands-off approach to portfolio management can make a world of difference.
One such option is automated investing. Here’s a short 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 aim is to make investing an easy and passive process for the average individual.
How Does Automated Investing Work?
Automated investing has transformed the financial advisory industry. Investors no longer need to work with investment advisors and portfolio managers who charge an arm and a leg for a single session. Instead, automated investing platforms and robo-advisors make moves and manage your portfolio on your behalf.
The following steps are involved:
Onboarding
As an investor, the first thing you need to do is fill out a questionnaire. The automated investment portfolio will collect information about your investment goals, risk tolerance, time horizon, and overall financial situation.
Strategy recommendation
Based on your goals and risk tolerance, the platform would recommend a personalized, algorithm-driven investment strategy.
Asset allocation
Your chosen automated investment portfolio would allocate your funds across various asset classes, including stocks, bonds, and real estate investment trusts (REITs). The platform does not consider assets or objectives outside of your stated goal.
Execution of trades
A robo-advisor will automatically buy and sell assets on your behalf to comply with the allocation strategy.
Portfolio rebalancing
Using an automated investing platform isn’t a one-and-done deal. Advisors continuously review and rebalance your portfolio to keep it in line with your investment strategy and long-term financial goals.
Benefits of Automated Investing
Now that you know how automated investing works, let’s unpack its benefits:
Cost-efficiency
It might sound surprising, but automated investing platforms actually cost less than hiring a human portfolio advisor. Moreover, an automated platform bases its fees on a percentage of the invested assets. As a beginner with limited funds, 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 investing platforms have low or no minimum funding requirements. This makes automated investing accessible to both novice and experienced investors.
Automated Investing vs. Robo-Advisors
Automated investing tools and robo-advisors are often considered the same. There is a slight difference, though.
Automated investing encompasses a wide range of technologies and strategies and can be used for several aspects of today’s financial features. For instance, making 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 will provide you the ease and expertise to reach your financial goals faster.