Feb. 26, 2021 "Robo-advisers": Today I found this article by Lana Sanichar in the Costco Connection:
According to Traders magazine, by 2023 assets managed by robo-advisers are expected to jump to $2.5 trillion in value.
While many people think about investing, it is often associated with fear and anxiety because of the complexity and lack of education around the topic. People work hard for their money and don’t wish to lose it.
One option available to investors is robo-advisers. The website Investopedia explains, "Robo-advisors … are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision."
Essentially, they build a portfolio for you by selecting investments based on your risk tolerance, and rebalance the portfolio when necessary. They remove the decision-making process for you.
Here’s a look at the pros and the cons of using a robo-adviser.
Advantages
Less expensive. Fees are inexpensive compared to using a human investment professional.
The fees charged by robo-advisers typically range anywhere from 0.2% to 1%, whereas the cost of active management by a human adviser is anywhere from 1% to 3% annually.
Less money to start. You can begin investing with very little money. In many cases, human advisers require a minimum investible portfolio before they will accept you as a client.
Disadvantages
Lack of human assistance. In most cases, you cannot reach a human to discuss your portfolio and the choices surrounding it, although this is changing.
"Often an adviser really only earns their fee when they can talk you down from panic selling when the market drops," says Peter Hodson, founder of 5i Research, an investment research company. "With a robo-adviser, missing this might be the biggest drawback."
Lack of personal advice. Robo-advisers are not financial planners and do not look at your overall financial well-being, whereas a human financial professional will take everything into account when creating a personalized financial plan for you.
Limited investment types. Robo-advisers typically invest only in exchange-traded funds (ETFs), and you have little to no say in which ETFs are chosen.
Investing money is just one aspect of complex financial decisions. Thankfully, there is help; whether it’s human or not is your choice. As always, perform your own due diligence or seek professional help before making investment decisions.
Investor options
Robo-advisers can take the stress out of investing, because they make all of the security investment decisions for you.
However, they are just one of many options. Other alternatives include Certified Financial Planners (CFP), Chartered Investment Managers (CIM) and Chartered Financial Analysts (CFA). For more information about investor options, visit Canada.ca and search "Choosing a financial advisor."—LS
is president and editor-in-chief of Canadian MoneySaver magazine.
Through an exclusive arrangement, Canadian MoneySaver’s ex perts partner with the Costco Connection to share advice about relevant financial topics.
Email topic suggestions to moneyinfo@canadianmoneysaver.ca.
Costco Connection - March/April 2021 - Robo-advisers
Aug. 6, 2021 "A penny saved": Today I found this article by Lana Sanichar in the Costco Connection:
Albert Einstein is said to have called compound interest the eighth wonder of the world.
Mastering personal finances can be challenging, especially if you weren’t reared in a household where money was discussed openly. Here are my favourite personal finance rules to limit fees and taxes in order to meet my retirement expectations.
Understand your priorities
This will be different for every individual. Someone who is 25 years old is likely prioritizing a home and starting a family, whereas a 40-year-old may be thinking about what their retirement will look like and how much they will need to meet their retirement expectations.
Avoid credit card debt
Interest rates on credit cards are astronomical and range from 14.9% to more than 19.9% for purchases. With this in mind, I pay my credit card balances every month so as not to trigger any interest. And beware the minimum payment suggestions.
Using a calculator from bankrate.com, if you only commit $20 each month at 19.9% it would take you 109 months and an additional $1,166 in interest to pay off a $1,000 balance.
Prioritize your debt repayment
There is a difference between bad debt (credit cards, auto loans) and good debt (mortgages, student loans). Usually, paying down bad debt with the highest interest rate is a priority since it costs you the most on a monthly basis.
Prioritizing your debt will allow you to create a strategy that makes sense for you and your financial goals.
Start investing as soon as you can
Compounding interest is when the interest you earn in a savings or investing account is reinvested, thereby earning more interest. And the longer the time frame, the better.
Let’s say you invested $1,000 and you let that investment sit earning about 8% annually for 30 years. Total interest earned over 30 years would be about $9,935.
Taxes matter
The annual income tax filing is always a stressful time in my home. You want to make sure that it is done accurately so you do not pay more than required. Besides filing on time, always take into consideration any tax advantages that may apply to you and your personal finance situation.
Consult a professional when needed. As I began to educate myself on my personal finance situation, questions arose that I could not answer. In an effort to keep more money in my pocket, I reach out to the experts.
Talking about money
Most people are hesitant to talk about their finances or even their net worth.
Money is emotional. Anxiety, stress and shame are often associated with money and personal finance.
Start talking about money with your partner or significant other. According to Psychology Today, money is one of the top reasons for divorce.
By making it a weekly—or daily—conversation, you will each understand not only your attitudes surrounding money but also your concerns and future plans.—LS
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