Perhaps the most enticing way to generate revenue is passive income. For most of us, passive income appears to be a faraway dream; a luxury reserved for society’s well-heeled – the aristocrats. Passive income is generally thought of as income derived from rental properties, royalties on books, and the like. However, there are ways to generate passive income that don’t require extraordinary accomplishments such as becoming a Pulitzer prize-winning author or a real estate mogul. One such avenue that’s being explored in the trading arena is that of robo advisors. At first glance, this may appear to be something out of a sci-fi action thriller, but it’s a feasible reality that many more traders are turning to for generating reliable income streams.
What Is a Robo Advisor?
If you’re looking for a way to take charge of your investments without a human being physically present, a Robo advisor may be precisely what you’re looking for. They are quickly becoming the go-to options for clients seeking to replace their human financial advisors with a 24/7 robo advisor dedicated to their accounts. They also known as online advisors or automated investment programs. Their job is simple: manage your investment portfolio, optimize your taxes, and advise you accordingly.
They haven’t yet replaced human financial advisors entirely, but they are gearing up to do that. On the plus side, these algorithmic advisors are far more cost-effective than their human counterparts, with companies charging minimal fees (0.25% – 0.50%) in annual management charges for the assets currently being managed by the robo advisor. If you have a financial portfolio worth $100,000, you could pay anywhere between $250 and $500 per annum to manage that for you. This is significantly less than you would pay a human financial advisor. Right there you have massive cost savings which can go towards your investment portfolio.
With a robo advisor, you are unlikely to pay transaction fees. These sophisticated AI programs are geared towards taxable account portfolios, and 401(k)s. They are even capable of managing trusts. It is important to take stock of the minimum investment amounts needed to enjoy the services of a robo advisor. Before you get started, you will need to provide basic information which is used to ascertain your risk profile.
Based upon your preferences, a range of investment products will be presented to you for approval. These can be aggressive investments or conservative investments. Other factors which will be taken into account include time until retirement (less time means less aggressive portfolios) with more of an emphasis on conservative investments such as cash and treasury bonds. Aggressive investors will be allocated a portfolio rich in equities.
What Do You Get from a Robo Advisor?
There are many services offered by the world’s premier robo advisors, notably portfolio rebalancing. This is extremely important, since financial portfolios need to be re-assessed regularly to keep returns as high as possible. Not only does this align with your financial goals, it also maintains the right risk profile for your needs. There are also other aspects of a financial portfolio that can be passively managed by a robo advisor – notably tax loss harvesting. Whenever your robo advisor package enlists the assistance of a human financial planner, the costs of the overall service will increase dramatically. Various companies charge in the region of 0.30% of your investment portfolio per year in charges up to 0.89%+, with high initial deposits.
One of the most respected robo advisors currently on the market is NestWealth (Canada). The costs of this service for assets under management of less than $75,000 are $20 per month. There are many benefits to being a client of this robo advisor, including a personalized portfolio, portfolio monitoring, portfolio re-balancing, and portfolio construction. Another robo advisor available to Canadian citizens is Just Wealth (Canada). The creators of this sophisticated robo advisor include certified financial planners, analysts, and digital engagement experts to name but a few. Instead of meeting with a bank manager or agent personally, the robo advisor allows clients to establish their own financial portfolios online. For an investment portfolio of $500,000 or more, the fee is 0.40%. It is possible to open USD accounts, create custom portfolios (60+ options available), and enjoy access to personal portfolio managers.
This post comes in conjunction with a Personal Profitability partner.
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