Last week, in a financial coaching session, someone told me flat-out they didn’t want to deal with or learn about investing. “I just want to save,” they said. “I don’t have time and to learn about what’s going on behind the scenes. I just want someone to do it for me.”
And I get it, truly I do. Investing can feel intimidating, full of jargon, charts, and acronyms. The temptation to hand it off to someone (or something) is strong and just takes away the stress. But here’s the thing, even if you’d rather not dive deep into financial markets, you still need to know what you’re invested in and why.
Because whether you’re 25 or 65, your money deserves more than autopilot, and as I’ve mentioned before, no one (or nothing) will look after your money as well as you do. Robo-advisors don’t know you and they don’t care how old you are or what stage of life you’re in. Although they will do a few things that will certainly save you some time.
What’s a Robo-Advisor and What Do They Do Anyway?
A robo-advisor is an online investing platform that builds and manages a diversified portfolio for you, usually using ETFs (exchange-traded funds). You answer some basic questions (or click your favourite selection) about your goals and risk tolerance, and it does the rest, rebalancing, reinvesting dividends, and adjusting allocations over time.
Popular Canadian options include Wealthsimple and Questwealth, though most big banks now offer their own versions too.
For many people, especially those nearing or in retirement, the appeal is obvious:
1. It’s easy peasy.
2. It’s (usually) cheaper than a traditional financial advisor.
3. It’s hands-off so you can just watch Netflix and not have to think about it.
No stock picking, no trading platforms, no stress.
But Simplicity Comes With Trade-Offs
Robo-advisors aren’t all equal, and the fine print matters, especially in retirement, when every percentage point counts.
1. Fees can quietly eat into your returns.
Some “robo” services offered by banks charge over 1% once you include fund fees (MERs). That’s basically the cost of a human advisor, but without the human. Compare that to Questwealth (0.37%) or Wealthsimple (around 0.50%). With a million-dollar portfolio, that’s a difference of thousands per year. Look at the stats here for a $1,000,000 portfolio:
– Regular advisor or bank robo-advisor @ 1% = $10,000 per year
– Questwealth porfolio @ .37% = $3,700 per year
– Wealthsimple Portfolios @ 0.50% = $5,000 per year
2. Income planning isn’t built in.
Most robos focus on total return, meaning dividends are automatically reinvested. You’ll need to set up systematic withdrawals to fund your retirement income, so there’s still some work involved. If you’ve not learned what you’re doing by the time you retire, well, you’ll be scrambling.
3. Flexibility is limited.
You can’t easily tweak your portfolio, say, to hold more dividend stocks or less in bonds during certain market conditions. The robo sticks to its formula, even when your goals or the economy shift. You have basically handed over all responsibility and decisions to your robo-advisor.
My Take: Be an Engaged Investor
I actually love the concept of simplicity. I’m a fan of automation, yes I automate a lot of my finances. But I’m an even bigger fan of awareness.
Whether you’re using a robo-advisor, an all-in-one ETF, or managing your own mix of funds, you should understand:
- What you own
- Why you own it
- How it fits your goals and stage of life
As you move through different life stages, paying off debt, raising kids, approaching retirement, your investment strategy should evolve too. You don’t need to become a portfolio manager, but you do need to be an informed participant in your own financial story.
If you really don’t want to deal with it, a robo-advisor can be a great middle ground. Just make sure you’re not paying too much for the convenience, and that you still check in occasionally to see whether your money is aligned with your life.
Before You Choose a Robo-Advisor, Ask Yourself:
– Self, what’s the total cost, including ETF MERs?
– Self, how did the portfolios perform during tough years?
– Self, how easy is it to withdraw or reinvest income?
– Self, is there good customer service if I have questions?
Compare at least two or three options. The differences might seem small, but over time, small savings compound, just like your investments.
Robo-advisors can be fantastic for “hands-off” investors, but hands-off doesn’t mean head-out. Know what you’re invested in. Know what you’re paying. And know when it might be time to adjust.
Because at the end of the day, your future self is the one who’ll live with the results.
