When it comes to investing, most people assume that you will need a financial advisor to do the work for you. While some people do still choose to go this route, that’s not the case. You can manage your own investments online. There are two options to do this – the first is via a robo advisor and the second is via an online brokerage. Here’s what you need to know about both options:
A robo advisor, such as Wealthsimple Invest, is an automated investing service that runs on an algorithm to build and manage your investment portfolio. While the title makes it sounds like it’s being run by a robot, that’s not actually the case. Yes, it is automated, but there are professional human beings behind the scenes that are available should you have any questions or need help. Granted, it’s not the same in-person experience as you would have with a financial advisor. But, while this might be a disadvantage for some, it also allows for much lower fees, which is one of the main draws for choosing a robo advisor.
Robo advisors often target new investors since they are so simple and easy to use, but a robo advisor can be a good choice for anyone. While the low fees are a huge benefit, a lot of people choose to go the robo advisor route because it allows for a ‘set it and forget it’ type strategy. You just have to do the initial setup when you open your account, then you choose the level of risk that you are willing to take. Finally, you transfer the money. You can even set up automatic payments as you please. Once all of that is taken care of, your robo advisor will do the rest for you allowing you to sit back, relax, and watch your money grow.
An online brokerage, such as Wealthsimple Trade, is an online trading platform that offers you the ability to buy and sell stocks, bonds, ETFs, mutual funds and assets on your own. This DIY type of investing is popular among those who have the knowledge to do so because it has the lowest amount of fees. After all, with an online brokerage, you are doing the work yourself. While the lower fees are a huge draw, managing your own investments can also be time-consuming, so before you jump on this method of investing, you want to make sure you can commit to the work and time that goes into it.
Using an online brokerage is much more hands on than the ‘set it and forget it’ strategy offered by robo advisors. You are the boss and any decisions, good or bad, are on you. This can be a huge advantage for those who are well informed and want to choose their own investments. Pairing your knowledge with the limited fees can lead to good returns. However, it can also be pretty risky and provides the opportunity for people to get in over their head.
Which one should I choose?
Both robo advisors and online brokerages can be used to manage your investments online. One isn’t necessarily better than the other. It all depends on your goals and the amount of work and effort that you want to put into your investments. If you like sitting back and letting someone else do the work, then a robo advisor is the best bet. If you prefer being hands-on and would like to manage your investments on your own, then choose the online brokerage. Both options tend to be much cheaper than taking the traditional route of using a financial advisor.
Barry Choi is a Toronto-based personal finance and travel expert who frequently makes media appearances. His blog Money We Have is one of Canada’s most trusted sources when it comes to money and travel. As a completely self-taught, do-it-yourself investor with no formal training, he makes money easy to understand for all Canadians. His specialties include personal finance, budget travel, millennial money, credit cards, and trending destinations.
Barry Choi is a paid spokesperson of Sonnet Insurance.