Investors react to volatile markets in a variety of ways. Some choose more cautious investment strategies, invest in perceived "safe haven" assets, such as gold and silver, or exit the markets completely. Others become more aggressive. Some consult a financial advisor, while others take no action.
Trading technology has given rise to another way to attempt to mitigate risks from market volatility:"robo-advisors." Robo-advisors automate trades and potentially help investors minimize emotional impulses.
How a robo-advisor can potentially help investors
Investing technology continues to improve and investors now have more choices for combating market volatility. Digital investment services such as robo-advisors were in the early development stages less than 15 years ago, but they are quickly becoming more popular and advanced in their offerings.
Robo-advisors allow investors to select investment portfolios that are recommended based on their financial goals, risk tolerance, and timeline. When it comes time to rebalance the portfolio, the changes to asset allocation are based on an algorithm and target allocation instead of the individual investor, which can help eliminate the influence of emotional investment decisions. Various portfolio choices, asset allocation models, and even some aspects of the algorithm are usually designed by a team of investment professionals.
Robo-advisors can assist investors in navigating market volatility more confidently because the investment decisions made by robo-advisors are more disciplined and not based as heavily on human emotion. Investors who use robo-advisors can potentially benefit from the convenience of using a formula based on the theories and practice of investment professionals and academics, potentially reducing the amount of time an investor spends on research and portfolio management. And depending on the offering, many robo-advisors carry low fees and low investment minimums.
Robo-advisors can provide tailored portfolios based on your goals and timeline. Schwab offers two different choices:
- Schwab Intelligent Portfolios®: The robo-advisor builds, monitors and rebalances your portfolio, and you can get 24/7 live support from U.S.-based service professionals.
- Schwab Intelligent Portfolios Premium®: In addition to offering robo-advisor insight, it's possible to get human guidance as well, with access to unlimited 1:1 guidance from a CERTIFIED FINANCIAL PLANNER™ , interactive planning tools, and a personalized roadmap for reaching your goals.
The bottom line
If market volatility is among your top investment concerns, a robo-advisor may be worth considering for automated trading decisions. Robo-advisors leverage the experience of professional portfolio managers and computer algorithms to help you avoid some of the emotional pitfalls that can arise in turbulent trading times.
Consider both the pros and cons of robo-advising as you determine the appropriate strategy to pursue your financial goals.
Learn more about how robo advisors work.
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Diversification, asset allocation, automatic investing and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets.
The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The type of securities and investment strategies mentioned may not be suitable for everyone. Each investor needs to review a security transaction for his or her own particular situation. Data here is obtained from what are considered reliable sources; however, its accuracy, completeness or reliability cannot be guaranteed.
Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
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