You may think that you can win at investing just by choosing an investment account online and letting the algorithm do the rest. Sure, computers can do amazing things and you can teach them to follow static investing principles and crunch a lot of numbers. But robo advisors lack the ability to see your own unique needs and desires and craft a whole financial plan for you. Here are five reasons your investment advice should be automated but your financial planning needs to be humanized and why you should choose a human financial advisor over a robo advisor.
1. Your investments need to be emotionless
The market, like your emotions, can be volatile and swing up and down, but your investments should stay the course. If you sell whenever you feel anxiety, you will sell at a loss every time and lose growth opportunities later on. There may be a missed trade deal or a scandal at your favorite publicly held company, but pulling out of the market when there is bad press and your anxiety peaks will make you lose in the long run. Investing is about playing the long game and remembering that bad press and investor anxiety do not last forever and the market usually returns with a roar, so you want to make sure you are still in it when it is on the rise again.
2. Your financial planning needs to be emotional
Your financial advisor needs to be able to understand your needs and wants. They should understand your investing philosophy, how much risk you can stand, and what companies you choose to back. If you have strong emotional leanings not to invest in the fossil fuel industry and prefer to support green energy, your advisor can steer you toward the best solar power companies out there. Your advisor may also know that you are risk-averse and prefer to keep your investments in safe but slow-growth bonds. That may not be the calculated “best” investment strategy to follow, but the most important part of personal finance is that it is personal, and your investment advisor can tailor your financial plan to meet your personal needs and make you feel most comfortable.
3. Your investment philosophy needs to be static
Following an investment philosophy is like following a recipe, you make it the same way every time. That is where computers excel, they can be trusted to always make the same decision, over and over. If a stock is trending down and it no longer fits the investing philosophy, a robo advisor will drop that low-performing stock and choose a different company that is on the rise. Humans can get emotionally attached to a company and not want to sell even if that company is low-performing because they have a good memory of a prior stock rise or a happy memory associated with that company’s products. But a robo advisor will stick to the investment strategy and won’t be swayed by nostalgia, which can help your bottom line in the end.
4. Your financial planning needs to be dynamic
Day to day, your investing needs to be static and can be handled by a computer. But our lives are not always the same and when changes happen we need a financial advisor who can adapt our financial plan to those changes. Getting married, a new child, a job change, a decline in health, a death in the family,moving across the country, and buying a new home are all major life experiences which can turn your financial plan on its head. Planning for a single, non-homeowner who is employed by a large company is very different than planning for a married homeowner with three children, one with special needs, who works as a freelancer. So having a dynamic financial plan that you can change with your financial advisor as things change for your life is key.
5. You need to invest through good times and bad
As stated before, the market will go up and it will go down. There will be bull and bear markets. How true in your personal finances as well. Some seasons of your life may see you flush with cash, and others may be belt-tightening. Investing continually, despite the boom or bust years, will be the best way to make consistent, long-term gains and allow time and compound interest to work in your favor. In boom years you may invest more, and in lean years, less, but nonetheless continually investing will take advantage of time, something you cannot make up for.
The best choice for your financial planning strategy is to combine the human and robo advisor elements. Robo advisors have their place in your investment plan and you cannot beat their number crunching prowess, but there is no substitute for working with a living, breathing, human financial advisor who can work with you to tailor a financial plan to suit your ever-changing needs. They can steer you toward a financial plan with some automated investments that can take advantage of robotic investing algorithms while still catering to the personal side of personal finance. Make sure your investment advisor is not investing with emotions either and has a system in place that allows them to follow through… like a robo advisor. Your human investment advisor can maintain the course and see your finances through rocky waters, and steer you into safer harbors when you have to dock and reassess to make a life change, like another child or a job change. Choosing a human financial advisor over a robo advisor will give you the personal experience and flexibility you need.
