What are the Benefits of Using a Robo-Advisor Like M1 Finance?
By Space Coast Daily // March 23, 2021
The pandemic has changed the dynamics of the stock market. Pre-pandemic, just 10% of trades were made by individual investors, whereas during the pandemic this number rose as high as 25% on peak days.
It indicates that smaller investors want to get into the markets. If you are someone who is thinking about investing but don’t know how to start, consider a robo-advisor to help you out.
Robo-advisors like M1 Finance come with a range of unique benefits you won’t find by investing through a traditional brokerage.
Let’s take a look at the benefits of starting your investing career with a robo-advisor like M1. You can also check out this M1 Finance review for more details on the specific platform.
What is a Robo-Advisor?
You may be unfamiliar with robo-advisors and how they work. The truth is the first major commercial robo-advisor was started by Jon Stein in 2010. Today, this popular robo-advisor is known as Betterment.
Robo-advisors are essentially investment advisors that require minimal human interaction. Most people will choose to invest in a set portfolio that automatically rebalances itself according to certain market parameters.
The technology is more complicated than this, but all you need to know is that small investors can deposit and invest in a standardized portfolio at the click of a button. Of course, there are many portfolios offered, with different asset classes and different levels of risk attached.
So, why should you consider trying out a robo-advisor?
Low Account Minimums
Traditional brokerages require high minimum account balances to get started. It’s not uncommon for brokerages to demand retail investors deposit a minimum of $5,000.
Robo-advisors vary in terms of their fee structures and account minimums, but if you take a look at this SoFi Invest review you can see that the minimum balance is $0. You don’t need to make an initial deposit to open your account.
Other robo-advisors offer similar minimum account balances, with M1, Acorns, and Stash among them.
If you want to tiptoe into investing, robo-advisors are great because you don’t have to make a big initial commitment.
Part of learning how to invest wisely is not getting killed by fees. At a traditional brokerage, you’re lucky if the fees are as low as 1%. Most brokerages charge anywhere from 2% to 3% of the total assets held.
Fees at robo-advisors are often extremely low or are only charged on certain products, such as investment portfolio rebalancing.
M1 Finance, for example, charges no broker commissions or management fees. They make their money by providing lines of credit and other financial services. That means you save money and your overall rate of return increases.
Diversity in Assets
The majority of robo-advisors recommend ETFs, due to their low-risk nature by exposing you to a broad segment of the market. Robo-advisors have improved in the last ten years and investors now have a range of the most common assets to choose from.
You can invest in stocks, ETFs, and bonds. These are segregated by market sector and risk. M1 also enables you to decide how to split your portfolio between different asset classes. If you want to invest mainly in government bonds or individual large cap stocks, you can do it through the same platform.
Robo-advisors continue to offer a level of control, which allows you to invest the way you want.
The Technology Works
Perhaps the biggest concern people have about robo-advisors is the technology behind them. Platforms like M1 Finance use Nobel-winning technology. Eugene Fama and Robert Shiller shared the 2013 prize for economics because the technology works.
The best practices behind investment theory are used to inform the different investment choices offered by robo-advisors.
In an era of increasing concern about the performance of human investment managers, robo-advisors have shown not only to match their returns but to better them.
Many online stock screeners utilize this technology to provide them with leads for the latest hot investments. The numbers back up the proficiency of robo-advisors.
Expanding Accessibility to Financial Advice
While robo-advisors are not 100% personalized (yet), they do expand the accessibility of financial advice. With services like M1 Finance, you gain access to real, human financial advisors associated with the service.
For investors who need guides on how to invest, this is invaluable. Low net worth investors have typically struggled to gain professional advice, which leads to disastrous DIY strategies.
Professional advice is also advantageous if you simply have no interest in learning about the markets. A robo-advisor can do the bulk of the work for you.
M1 Finance is one of the best investing apps on the market today. Robo-advisors yield positive returns year after year, and the technology is only getting better over time.
It’s not a stretch to say that one day the average retail investors will be using this technology exclusively to invest their money in the right places.
Have you tried using a robo-advisor for your investments?