Reduce Emotional Trading with Robo-Advisors
Investors react to volatile markets in a variety of ways. Some choose more cautious investment strategies by investing in perceived "safe-haven" assets, such as gold and silver, or some may exit the markets completely. Others become more aggressive. Some consult a financial advisor, while others take no action.
Trading technology has created 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 like robo-advisors were in the early development stages fewer 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 help investors navigate market volatility more confidently because the investment decisions these robo-advisors make 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 an investor's goals and timeline. Schwab offers two different choices:
- Schwab Intelligent Portfolios®: The robo-advisor builds, monitors and rebalances your portfolio, and you can access 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 goals.
Bottom line
If market volatility is a top investment concern, 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 avoid some of the emotional pitfalls that can arise in turbulent trading times.
Consider both the pros and cons of robo-advising when determining the appropriate strategy to pursue financial goals.
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Please read the Schwab Intelligent Portfolios Solutions disclosure brochures for important information, pricing, and disclosures relating to Schwab Intelligent Portfolios and Schwab Intelligent Portfolios Premium programs.
Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium® are made available through Charles Schwab & Co., Inc. ('Schwab'), a dually registered investment adviser and broker-dealer. [Portfolio management services are provided by Charles Schwab Investment Management, Inc. ("CSIM"). Schwab and CSIM are subsidiaries of The Charles Schwab Corporation.]
There is no advisory fee or commissions charged for Schwab Intelligent Portfolios. For Schwab Intelligent Portfolios Premium, there is an initial planning fee of $300 upon enrollment and a $30-per-month advisory fee charged on a quarterly basis as detailed in the Schwab Intelligent Portfolios Solutions disclosure brochures. Investors in Schwab Intelligent Portfolios and Schwab Intelligent Portfolios Premium (collectively, "Schwab Intelligent Portfolios Solutions") do pay direct and indirect costs. These include ETF operating expenses which are the management and other fees the underlying ETFs charge all shareholders. Schwab does not charge an advisory fee for the SIP Program in part because of the revenue Schwab Bank generates from the cash allocation (an indirect cost of the Program). The portfolios include a cash allocation to FDIC‐insured Deposit Accounts at Charles Schwab Bank, SSB ("Schwab Bank"). Schwab Bank earns income on the deposits, and earns more the larger the cash allocation. The lower the interest rate Schwab Bank pays on the cash, the lower the yield. Some cash alternatives outside of Schwab Intelligent Portfolios Solutions pay a higher yield. Schwab Intelligent Portfolios Solutions invests in Schwab ETFs. A Schwab affiliate, Charles Schwab Investment Management Inc., receives management fees on those ETFs. Schwab Intelligent Portfolios Solutions also invests in third-party ETFs. Schwab receives compensation from some of those ETFs for providing shareholder services, and also from market centers where ETF trade orders are routed for execution. Fees and expenses will lower performance, and investors should consider all program requirements and costs before investing. Expenses and their impact on performance, conflicts of interest, and compensation that Schwab and its affiliates receive are detailed in the Schwab Intelligent Portfolios Solutions disclosure brochures. Certain conditions must be satisfied for FDIC insurance coverage to apply. Charles Schwab & Co., Inc. and Charles Schwab Investment Management Inc. are not FDIC-insured banks and deposit insurance covers the failure of an insured bank.
Diversification, asset allocation, automatic investing and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets.
This material is intended for general informational purposes only. This should not be considered an individualized recommendation or personalized investment advice. The securities, investment products and investment strategies mentioned may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decisions.
For illustrative purpose(s) only. Individual situations will vary. Not intended to be reflective of results you can expect to achieve.