Q&A: Robo Advising

With Cynthia Loh

Q: What is your best financial advice?

A: Don’t be afraid of leveraging technology to help you manage your investments. Technology has helped make lots of day-to-day aspects of our lives easier – whether that’s ordering an item on Amazon, or getting a ride from Lyft – managing money is no different. When it comes to investing, you can easily save yourself both time and energy by automating your portfolio through a robo advisor at a low cost. You can also automate the money that you’re putting into your portfolio by setting up automatic deposits from your paycheck or bank account on a monthly or bi-monthly basis.

Automation can also be effective across many other parts of your financial life. A few other things to think about automating: retirement savings (set up recurring contributions to your 401(k) or other retirement account), debt payments (from student loans to credit cards, automate your loan payments every month so you don’t incur late fees or added interest), bill pay (instead of painstakingly sorting through your bills every month, set up an auto-pay feature for the bills you know you have to pay regularly), and investment account deposits (for accounts outside of your employer, like a brokerage account or IRA, set up a monthly auto-deposit feature to make sure that you don’t forget to make a regular contribution).

Q: What is an easy way to get started with investing?

A: If your employer offers a 401(k), that is an easy way to get started. Set up a recurring contribution that deposits money from your paycheck, and max out the annual contribution if you’re able to (in 2019, it’s $19,000 per year). And, don’t forget to take advantage of any match potential that your employer may contribute!

Outside of your 401(k), robo advisors are a great tool for investors just getting started because as we all know, the best way to get ahead when it comes to investing is to begin as soon as possible. Most robo advisors have low investment minimums (you don’t need a fortune to get invested!), and automatically invest your money in a diversified portfolio.

Q: How does a robo advisor work?

A: Simply put, a robo advisor is a way to use technology to help you with investing and financial planning. When you sign up, a robo advisor will typically ask you a brief set of questions about your short- and long-term financial goals (such as when you want to retire) and risk tolerance. Then, it automatically selects funds and creates a low-cost investment portfolio for you. You get the benefit of not having to think about rebalancing because that is done for you, and many robo advisors will also tax loss harvest (selling investments and using the loss to lower your taxable gains, even when your portfolio has positive returns). 

Within a robo advisor, experts are regularly monitoring market activity and underlying investments to make sure that your portfolio is rebalanced appropriately by a sophisticated algorithm — all so you don’t have to. From there, you can log into your account to track progress, make adjustments, add contributions and continue toward your goals.

At Charles Schwab, we have two different robo advice offerings. Schwab Intelligent Portfolios is our fully automated robo advisor, available with no advisory fees and a minimum of $5,000 to invest. Schwab Intelligent Portfolios Premium is our hybrid robo advisor, which builds on the benefits of Schwab Intelligent Portfolios, PLUS unlimited access to CFP professionals and a digital financial plan for a $300 upfront advisory fee and $30 per month ongoing.

Q: What is the biggest challenge that women face when it comes to investing?

A: Women earn anywhere from 49 to 80 cents for every dollar earned by a man. One of the biggest challenges women face financially is that earning less than men on average means saving and investing less over time. That’s why having a financial plan, even a simple one, is an important way to make sure that you are working toward your long-term financial goals.

Only one in four Americans actually has a written financial plan, but there are many benefits to developing one. A written financial plan allows you to outline your goals as well as understand your current financial situation. Almost half of Americans without a plan say it’s because they don’t think they have enough money to merit one, but a plan is crucial regardless of how much money you have – even if it’s as basic as a budget at the beginning. Many robo advisors offer access to financial professionals who can connect virtually to help you build a plan.

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Cynthia Loh is Vice President of Digital Advice & Innovation at Charles Schwab. Cynthia leads the team responsible for defining the client experience for Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™, the firm’s robo-advisory and hybrid advisory and planning services. Her team is also responsible for developing and executing a growth strategy for both services.

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