You’ve probably been on Facebook, Instagram, or Twitter in the last 24 hours and have come across an ad for a company called Wealthsimple – Investing on Autopilot. Or maybe you’ve just heard from friends, family, and coworkers about these new Robo-advisors. So while you sit there, scratch your head, and wonder what this new type of tech is, I’ll explain it to you. As easily as possible.
What is a Robo-Advisor
A Robo-advisor is a new class of financial advisor. It uses algorithms to provide investment management and/or advice with little human supervision. Using a certain type of software, a Robo-advisor is able to automatically buy, sell, and rebalance assets in your portfolio. Don’t know the first thing about investing? Don’t you worry. Robo-advisors will do it all for you. So if you’re new to investing, and feel a little overwhelmed by the financial jargon that your financial advisor spews out, then a Robo-advisor may be a perfect fit for you.
Where do I start?
I recently signed up for Wealthsimple account because I wanted to see what the interface was like, and how easy it was to put money into my account. When you first sign up for a Robo-advisor, you will be taken through a risk tolerance questionnaire where you’ll be asked about short or long-term financial goals. Based on the answers from your questionnaire, you will be provided with a suggested portfolio. My portfolio was a balanced portfolio that was a mix of stocks, bonds, and cash. With Wealthsimple, I was able to pick a socially responsible portfolio which invests in companies that are more environmentally conscious. Yay for saving the world!
Not quite…. but I’m trying.
This is what my portfolio looks like. And since opening my account on October 15th, you can see that I’ve already made a whole $2.16! And I didn’t have to do a thing. Talk about a passive income!
After you agree to the portfolio, you can link up your banking information so that you can start to contribute to your account. Robo-advisors offer a number of different registered and non-registered accounts ranging from TFSAs, RRSPs, RESPs, cash trading accounts, etc. And you can set up automatic deposits, or a one time deposit with the amount of your choice.
What are the fees
Since Robo-advisors don’t use a lot of human management on the back end, they often have lower management fees than other investments. Robo-advisors charge an MER of anywhere from 0.2-1.5% which is going to put more money into your pocket at the end of the day. I’ve talked about MER’s in my past posts, and how Canada has some of the highest mutual fund fees in the world. Let’s say you have a portfolio of $100,000 with a financial advisor. You’re probably paying an average 2-2.5% MER or $2000-$2500 in commission regardless of how your fund performs. But if you’re using a robo-advisor, you’re only paying a commission of $200-$1500 (based on the 0.2-1.5% MER). That extra money that you’re not paying in fees will go a long way with that sweet principle called compound interest.
Robo-advisors in canada
These are just a few of the bigger ones but there are lots more out there!
- Wealthsimple – I’ve partnered with Wealthsimple to provide you with no MER fees for the first year when you sign up using this link.
- Invisor CoPilot
- Nest Wealth
Well….. with the New Year right around the corner, it may be time to re-think your current investment strategy, or grab the bull by the horns and actually start tucking away some money for long-term financial growth if you haven’t started yet. And truthfully, I think Robo-advisors are the best way to go for newbie investors. I’ve been investing since I was 18, and I now make enough of a passive income where I don’t need to work for the next 4 years if I didn’t want to. And it was all because of investing. If you are interested in learning more or would like a one-on-one consultation to teach you the ins and outs of budgeting and investing, you can contact me.