Building a financial portfolio has become easier than ever with automated investing platforms or so-called “robo advisors” transforming the world of trading. This is made possible by combining technology, investing, and data. In a nutshell, these services use automation and algorithms to offer financial advice and make investments for clients.
A quick intro to automated investing
Investing in the stock market historically required a strong financial acumen. Moreover, having a conventional tailored stock portfolio demands a high net worth. Automated investing platforms have greatly reduced these barriers. They make it straightforward for individuals of limited financial literacy to make solid investment decisions. And their use of computerized algorithms (rather than relying solely on human brainpower) to help build investment portfolios for clients decreases costs.
Automated investment tools are also becoming progressively more sophisticated. For many platforms, the term robo advisor no longer really fits. They personalize clients’ investments by factoring in variables such as investment goals, anticipated time horizon, age, and risk tolerance. When these factors change, they recalculate and shift investments.
You’ve probably heard of a few of the more well-known automated investment management services. These include:
- Personal Capital
But there are a lot more than these three. The options for automated investing are growing, leaving investors with an increasingly difficult decision in choosing the platform that’s right for them.
The benefits of automated investing for medical professionals
Physicians are a perfect crowd for automated investing services. We’re generally quite busy with work but value having downtime for ourselves and to spend with family. As high earners, our investment decisions shouldn’t be taken lightly. Yet, many of us don’t have the expertise to do our own in-depth financial analysis in the limited time we’re willing to dedicate to it.
Automated investment advising is a good fit for several reasons:
- Simple – automated investment platforms are user-friendly and the process is straightforward
- Convenient – everything is web-based and can be done on your own time from the comfort of your own home
- Saves time – you don’t need to research stocks or spend time becoming a financial guru, and it doesn’t require scheduling meetings with a financial advisor
- Saves money – use of computer algorithms decreases costs for clients
- Eliminates human error – automation avoids human biases and the urge to try to time the market, so outcomes may be better
- Leads to improved financial intelligence – for me, using automated investing has sparked my interest in learning more about investing without it being overwhelming
These benefits boil down to efficiency and productivity from both a personal and financial perspective.
Automated investing versus human financial advising
Everyone’s financial situation is different. Automated investing fees tend to be significantly lower than a traditional financial advisor (typically 0.2% to 1% compared to 1% or more for a human). It’s important to consider the impact of these fee differences and your own needs. Robo advisors stick to investments. Human advisors can offer comprehensive financial advice and planning.
For some physicians, the additional services offered by a traditional advisor may be important. These include helping you address your debt, make big purchases decisions (e.g. new home), and develop long-term goals. The additional fee for a human advisor might be worth it, depending on your personal situation.
A great investing option for early- and mid-career physicians
Early- and mid-career physicians are a special bunch. Generally speaking, we still have med school debt and don’t yet have a high net worth, though we’re earning a high income and have money to invest. We prioritize our families, our social lives, and pursuing interests outside of medicine. Many of us don’t care to spend a large chunk of our free time watching CNBC or reading about investment opportunities.
Automated investing can be a good option for medical professionals in this situation. It makes stock investing feasible and accessible.
Most platforms aim to democratize access to tailored value investing using a buy and hold approach. Though the company is young, it has a great track record of selecting stocks for clients that have consistently paid dividends for a long period of time.
There are a handful of things that make automatic investing a strong consideration for this group of investors.
Stocks, ETFs, and mutual funds*
A key way in which certain automatic investment platforms differ from each other is their use of equity portfolios, exchange traded funds (ETFs), and mutual funds.
What’s the difference?
Mutual funds tend to be more expensive than stocks because of the human effort involved in selecting stocks to include in a fund. ETFs are not as expensive as mutual funds, but are less personalized, as the fund typically includes all the stocks within a category or sector.
A focus on individual stock portfolios can mean more customization at a lower price.
With a focus on dividend investing, portfolios can be made up of companies that have consistently paid cash dividends for a long time. This means passive cash income for you, the investor. Clients have the option of having dividends automatically reinvested in their portfolios. This allows even small dividends to potentially make a big difference in your overall portfolio size over time.
Low minimum investment
Some platforms are open to anyone, regardless of income level. I’ve seen as low a mere $500 fund minimum. Investors can just dip a toe in the water.
Human financial advisors often have a much higher requirement. A minimum of $100,000 or more in assets under management is common.
A human touch
As medical practitioners, we know that there’s a balance to strike between the use of decision support tools and using our knowledge and experience to make informed decisions about individual patients. Automated investing is somewhat similar to decision support in medicine in this way.
Automated investing platforms use technology to build portfolios based on the client’s characteristics and goals. However, they don’t let their algorithms do all the work. With the best companies, each portfolio is further examined by the company’s financial analysts to ensure the selected stocks are the best choices for the client.
How to get started with automated investing
The exact requirements and processes for automated investing services differ by company. All the platforms that I’ve looked at, though, make it as easy as any other web-based business to create an account and get started.
All that is routinely needed from the client’s end is:
- A US address
- Completion of a quick questionnaire
- Transfer of at least the minimum fund requirement
- A review of your new personalized portfolio!
After that, the system monitors and rebalances your portfolio as appropriate. You can log in at any time to see a nice snapshot of your investment performance over time. You can track your progress, edit your goals, and make additional contributions to your portfolio.
Snapshot from a platform that takes your personal goals and risk tolerance into consideration.
Client dashboards allow you to see your portfolio’s performance over time.†
Readers, best of luck in your financial journey as you transition from massive educational debt to high net worth. Low cost, high value automated investing is a great way to get there!
*Mutual Funds and Exchange Traded Funds (ETF’s) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
†Screenshots are hypothetical examples used for illustrative purposes and do not represent the performance of any specific investment or product. Rates of return will vary over time, particularly for long-term investments. Investments offering the potential for higher rates of return also involve a higher degree of risk of loss. Actual results will vary.