Building a strategic investment portfolio is a critical element of planning for the future and retirement. A carefully-curated investment portfolio can provide significant returns, delivering financial freedom, and long-term security.
Understanding how to build an investment portfolio and execute an investment strategy, however, can be time-consuming. There are many factors to consider before setting out to build your own investment portfolios, such as asset diversification, risk management, and reinvestment.
Managed investment funds provide wealthy investors with the opportunity to take a hands-off approach to investing, but are often available only to investors with a significant amount of capital to distribute into investment opportunities.
Automated investing (or robo-investing) provides everyday investors with the benefits offered by a managed investment fund without the associated fees. It minimizes risk while maximizing the potential rewards of investment, allowing investors to distribute capital across the entire stock market without exposing themselves to volatile or unreliable asset classes.
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What is investing on autopilot?
Automated investing (or the use of robo-advisors) solutions are rapidly becoming one of the most accessible, understandable options available to investors today. Until the rise of fintech, decentralized finance, and other tools, diversified or managed investments have largely been inaccessible to everyday investors.
Many everyday investors lack the financial knowledge or the market insight necessary to actively manage a portfolio. The rise of artificial intelligence and automation, however, has dramatically expanded the options available to everyday investors.
Note
The automated investing industry is currently experiencing a rapid growth stage—the amount of assets managed for investors by auto investing platforms has skyrocketed from the $60 million under management in 2015 and is predicted to rise over $16 trillion by 2025.
One of the biggest advantages presented by investing on autopilot is the ability to create fully customized investment strategies that align with the preferences and personal risk profile of an investor and create a tailored, automated investment plan designed to help them reach their goals.
How does automated investing work?
Automated investing, or investing on autopilot, is a highly customizable type of passive investment that provides everyday investors with exposure to an extremely diversified portfolio, backed by extensive research and insight, with little to no active management.
Automated investing platforms are typically online platforms that provide investors with access to artificial intelligence or algorithm-driven investment services that create automated investment strategies based on the personal preferences and profile of investors.
In most cases, passive automated investment platforms will collect a range of information from investors when starting out, which it will later use to offer advice and build a personalized investment profile. The best automated investing platforms online today offer simplified account set up, automated portfolio management, account management services, strong security features, and extensive goal planning features.
Why is automated investing increasing in popularity?
Automated investing platforms, or services that offer investing on autopilot, have exploded in popularity recently due to the streamlined, easy to access nature of the investment options they provide. One of the most attractive features of automated investing services is the low opening balance required to get started with automated investing.
Investing on autopilot is primarily designed to benefit everyday investors that are seeking passive investment income, and therefore is ideal for investors that are seeking automated, passive indexing strategies that require little to no human supervision.
Importantly, it’s not necessary to possess extensive investment experience, financial education, or stock trading experience in order to capitalize on automated investing. Automated investment platforms automatically adjust and rebalance the account of investors, ensuring that investments have protection and remain as profitable as possible during changing or volatile markets.
The high cost of personal financial advisors often prohibits everyday investors from accessing a range of investment opportunities. Automated investing platforms minimize the cost associated with accessing highly accurate investment guidance, and are able to take care of a significant portion of the administrative load required when managing an investment portfolio.
Portfolio investments typically require a significant amount of administration, such as portfolio allocation, tax management, and market observation. The artificial intelligence that drives platforms that offer investing on autopilot automates these processes, often providing investors with simple reports that can be useful for tax accountants in order to simplify the creation of tax strategy.
Pros
- Significant cost savings;
- Low annual fees;
- Low entry barrier;
- Managed portfolios;
- Different risk levels.
Cons
- Limited control;
- Often not suitable for short-term investing;
- Carries a systemic risk, when a loss might be incurred due to a failure in the entire investing platform.
Related video: The pros and cons of automated robo investing solutions in a short video.
Benefits of investing on autopilot
The primary benefit of investing on autopilot is the significant cost savings automated investing offers when compared to traditional financial advisors. Automated investment solutions eliminate a large amount of administrative friction and human labor, allowing automated solutions to provide virtually the same services offered by managed investment portfolios at a fraction of the cost.
Most automated investment platforms offer annual fees that range between 0.2 and 1 percent of a client’s total account balance, which is far lower than the fees charged by commission based or human managed financial planning accounts.
The highly accessible nature of automated investment platforms means that they are available 24/7, and are accessible online at any time, from anywhere. Importantly, the minimum cost to get started with automatic investing is far lower — managed investment portfolios or financial advisors may demand a minimum investment of anywhere between 5,000 to hundreds of thousands of dollars, while automated investment platforms often have extremely low minimum investment of just one dollar to get started.
Investing on autopilot also offers investors the ability to automate and streamline the entire investment process. Rather than obligate investors into paying significant lump sum investments, investing on autopilot allows investors to set up automatic contributions that are debited from their account on a regularly scheduled basis, for as much or as little as they prefer.
Investors that invest on autopilot also benefit from dividend reinvesting, which allows users to reinvest their stock dividends automatically and increase the amount of capital their automated investment account generates.
Removing the human element
Another major advantage provided by automated investing is the way in which autopilot investing removes the human element from investing. Rather than make emotional-driven investment calls, automated investment platforms function on artificial intelligence and advanced algorithms that draw data directly from a wide range of data sources, ensuring that investment decisions are made in accordance with statistical artificial intelligence insight.
Lastly, autopilot investing allows investors to diversify their investment portfolio across an extremely broad range of investment opportunities, providing exposure to vehicles such as UK Government bonds, global company bonds, emerging market government bonds, and stocks in the UK, North America, European, and Asian markets, with minimal management or interaction.
The ability to access a broad range of markets has support from highly customizable risk levels which take into account the preferences of investors, building custom portfolios that meet specific needs.
Risks of investing on autopilot
Autopilot investing offers numerous benefits, but distinctions from traditional managed investment accounts should be noted. While it suits those desiring automated, accurate investment guidance with minimal risk, it may limit options for those wanting direct control over their portfolios.
Autopilot investors relinquish control over specific mutual funds or ETFs, instead relying on the AI’s recommendations. Individual stock or bond purchases are also unavailable, catering to those who prioritize AI-driven guidance over hands-on portfolio management.
Choosing a reputable autopilot investing platform is crucial for reliable results. A good service considers an investor’s financial situation, desired investment duration, and subjective goals. Although autopilot investing simplifies access to managed accounts, factors like the platform’s regulatory compliance and handling unexpected crises should come under consideration.
Autopilot services serve as entry-level options for investors allocating income to a dependable AI-driven solution, but they lack intricate financial services like complex tax strategies or estate planning. Additionally, they avoid high-risk opportunities, focusing on stable, reliable returns rather than volatile markets.
Investors must ensure accuracy when providing initial details to autopilot platforms, as the system’s effectiveness depends on the information supplied. Moreover, regulatory compliance is crucial, especially in regions like the US, where autopilot platforms are legally equivalent to human advisors, necessitating SEC registration.
Lastly, while autopilot investing simplifies investment processes, potential investors must carefully evaluate their goals, risk tolerance, and the regulatory standing of the chosen platform to make informed decisions.
How to choose the right autopilot investment platform
When assessing potential autopilot investment platforms, it’s important to ensure that the platform itself provides access to the products you want.
There are a number of factors that should be considered when choosing the best robo advisor, and you should ask yourself :
- Is the platform secure?
- Is the platform covered by insurance?
- What are the products offered by the platform?
- What kind of customer support does the platform offer?
- What are the prerequisites that must be met in order to open an account?
- What kind of investment performance does the platform offer?
- Does the platform charge fees, and, if so, how much?
- Does the platform offer any expanded functionality such as the ability to trade in specific shares?
Best robo-advisors to choose from
It can be difficult to choose the best robo-advisor for your specific needs, so below we’ve brought some examples and key differences between different automated investing service providers.
Here are some of the best robo-advisors in the market:
1. WealthSimple Invest
WealthSimple automated investing solution is one of the most popular and reliable autopilot investment platforms online. WealthSimple currently holds more than $5 billion CAD under management for over 175,000 customers. It also offers protection through the Canadian Investor Protection Fund for up to $1 million for individuals, making it a highly secure option for investors seeking an automated option.
Assessing the WealthSimple website reveals insight into the other due diligence questions that must be answered before investing in any autopilot investing solution — WealthSimple offers three main products which include automated investing, commission-free stock trading, and a saving account. Investors must be Canadian, US, or UK citizens with a residential address, ID, social insurance number, and must be 18 years of age.
WealthSimple provides extensive detail into the performance of the investment options offered. When assessing alternatives or other autopilot investment options, however, it may be more difficult to find a clear examples of portfolio performance or details on client asset protection.
2. Ally Invest
Ally Invest is a self-directed managed investment platform of Ally Bank that offers personal banking services, both subsidiaries of Ally Financial Inc.
Ally Invest offers an automated investing app with low fees, but doesn’t offer FDIC insurance for specific features such as cash-enhanced options. In the United States, the Federal Deposit Insurance Corporation ensures the protection of individuals’ funds.
As the FDIC considers assets held by some autopilot investing platforms as securities held for investment purposes and not bank deposits, this often leaves clients unprotected.
3. Wealthfront
Founded in 2008 and based in California, USA, Wealthfront is a robo-advisor providing automated investment services to individual investors. The company uses sophisticated algorithms to construct diversified investment portfolios tailored to individual demands and risk levels. The service is user-friendly and accessible via desktop or app.
Wealthfront charges a flat annual fee of 0.25% of assets under management, which is more competitive in comperison to traditional financial advisors, typically charging 1% or more. Wealthfront also offers a range of investment options, including stocks, bonds, exchange-traded funds (ETFs), and real estate investment trusts (REITs).
4. Charles Schwab Intelligent Portfolios
Charles Schwab Intelligent Portfolios is an automated investing solution by one of the leading financial services company Charles Schwab. Its robo-advisor provides automated investment service to individual investors using algorithms to construct and manage diversified investment portfolios for its clients. It offers various investment options, including exchange-traded funds (ETFs), mutual funds, and cash.
The solution does not charge any advisory fees or commissions for its services, but clients are usually subject to fees for underlying funds and other expenses. Overall, it provides a low-cost, diversified investment solution for individual investors who want to build wealth over the long term.
5. SoFi Automated Investing
SoFi Automated Investing provides automated investment management services to individual investors by Social Finance, Inc. (SoFi), a financial technology company specializing in student loan refinancing, personal loans, mortgages, and investment services.
Furthermore, SoFi Automated Investing robo-advisor uses algorithms to construct and manage diversified client investment portfolios. SoFi Automated Investing offers two different types of investment portfolios: a standard portfolio and a sustainable portfolio. They charge a yearly fee of 0.25% of the managed assets, and the platform is user-friendly and accessed via the web or mobile app.
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To conclude
When selecting the best autopilot investment options, it’s best to work with a platform that provides upfront pricing and fees, delivers clear performance metrics, and has the backing of insurance or coverage that ensures client funds are safe in any event, such as the services offered by Wealthsimple.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
FAQs about automated Investing
What is automated investing?
Automated investing allows everyday investors to participate in many markets simultaneously without direct hands-on management, eliminating middlemen and providing value directly to investors themselves. Investing on autopilot is a powerful way to invest on your own terms. Autopilot investing allows anybody to access the benefits of working with a highly intelligent, accurate investment portfolio management platform without the fees associated with traditional managed portfolio services.
Should I use automated investing?
While autopilot investing isn’t ideal for day traders or investors that want to maintain full control of every single aspect of their portfolio, it’s ideal for investors that want to direct a specific amount of their income towards a low risk, closely managed investment solution that offers exposure to a wide variety of investments with minimal interaction at an attractive price.
How does automated investing work?
Automated investing platforms allow everyday investors to set aside as much or as little capital as they like and direct it toward and automatic investing solution that incorporates the best artificial intelligence available today, offering a stable, reliable, and low-risk investment opportunity that saves a significant amount of time while delivering peace of mind.
How to choose the best automated investing platform?
When assessing potential autopilot investment platforms, it’s important to ensure that the platform itself provides access to the products you want.
There are a number of factors that you should consider, including:
- Is the platform secure?
- Does the platform offer insurance?
- What products does the platform offer?
- What kind of customer support does the platform offer?
- What are the requirements for opening an account?
