Our hearts are still aching for those suffering through the devastating storms and hurricanes that have wreaked havoc across the Southeast. The destruction in Florida and surrounding states has been hard to watch. Asheville is going to take a while to rebuild.
When things like this become too much to know what’s going on with IRS changes, we here at Wilklow & Associates, CPA PC will make sure you don’t miss any IRS assistance updates.
For example: The IRS has stepped up to reassure hurricane victims that they’re ready to help. If you live in one of the affected disaster areas (or anyone you know) – Alabama, Florida, Georgia, North Carolina, South Carolina, parts of Tennessee, or Virginia – the IRS is automatically granting extra time to file your returns and pay taxes.
The new deadline to file your 2023 returns is May 1, 2025 (if you had an approved extension). While tax payments for 2023 are not eligible for this extension, the IRS is also giving until May 1 to file your 2024 returns and settle any taxes due for 2024.
Continuing in the interest of keeping you updated on what’s available out there to help you do life and finances, there’s another topic I’d like to clue you in on today: Automated financial advising.
Once upon a time, you had to sit across the desk from a real human to hash out your financial or retirement planning. Now, as with many things once done by people, you can replace that human with an algorithm.
*Cue robo advisors*
Today, robo advisors like Wealthfront and Betterment have become wildly popular among the general public. There are currently (as of 2024) 32.6 million robo advisor users, and according to Statista, that number is expected to reach 34 million by 2027.
What’s all the hype about, you might ask? Some of my other Colorado Springs clients were wondering the same thing, so I decided to write up a few notes about it…
What is a Robo Advisor: Our Guide for New Colorado Springs Investors
“Change is inevitable. Growth is optional.” – John C. Maxwell
The idea of “robo advisors” started in 2008 as a way to make automated portfolio allocation software (say that 5 times fast) accessible to anyone, not just wealth managers. Fast forward to today, and robo advisors are being used by millions (see above) for financial advice and investing.
So, what is a robo advisor? I’m glad you asked. No, it’s not like RoboCop. The basic idea: A robo advisor is an automated program that uses algorithms for financial planning and investment management. It’s a financial advisor minus the human component.
Asking what is a robo advisor? begs a few other pertinent questions: Should you abandon old-fashioned financial advisors and adapt to this technology? Are you missing out on major benefits if you don’t?
Like most things in life, there’s not a black-and-white answer.
What is a robo advisor good for?
The true strong suit of a robo advisor is its ability to ongoingly monitor and rebalance your portfolio. The result? More successful investing with little to no energy spent on your part.
How do they do it? Your robo advisor crunches your data into an algorithm and gives you a tailored investment plan. From there, it builds a personalized portfolio, usually a mix of stocks, bonds, and other assets.
It can also give general financial advice. Want to pay off debt or build an emergency fund? Your robo advisor can light the way. And, more advanced robo advisors can even advise you on tax loss harvesting.
The big perks of choosing a robo advisor are…
- It costs less than a traditional financial advisor. You don’t have to give a lot upfront to get started.
- It makes investing easily accessible to basic-level investors. Because they’re easy to use and cover the bases of standard investing, they’re great if you’re just dipping your toes in the water.
- It gathers and applies the most up-to-date research on investment theories – meaning better portfolio performance and less risk for you.
But what is a robo advisor not so great at?
- They can’t give highly personalized advice, which is especially appealing if you have a more complicated portfolio or have nuances to your situation due to age and life situations.
- They lack empathy and understanding. Translation: Sometimes you may not be able to communicate exactly what you want and have the advantage of a human’s ability to see beyond the surface.
- There are limits to your investment options. Most robo advisors stick to pre-built, cookie-cutter portfolios with a pretty limited selection of asset classes. This means you could miss out on some juicy growth opportunities.
Yes, robo advisors can be a cost-effective choice for sound advice and hands-off investing. But they’re undeniably limited.
Should you be using a robo advisor?
Start by considering what your financial goals are and what financial issues you’re facing. What is a robo advisor going to do for you in that context?
Here are a few important questions to ask:
- What are my long-term financial goals? (Think retirement, buying a home, or college savings).
- How comfortable am I with investment risk?
- Does the robo advisor offer the investment options you’re interested in?
- Does the robo advisor provide tax-optimization strategies?
- How do the costs and benefits of a robo advisor compare to a traditional financial advisor?
If you fall in the category of having a long-term vision for your money — like retirement savings or wealth accumulation over decades — and you have a moderate-to-high risk tolerance, a robo advisor might be worth considering.
But if you’re dealing with more specific financial issues – for example, estate planning or tax optimization – or you don’t feel comfortable navigating financial topics with only an algorithm by your side, you might be better off with a traditional financial advisor.
The fact of the matter is, not every popular technological tool is right for you. I urge my North Colorado Springs contacts to consider all the angles before jumping on a trend. In this case, your goals and preferences can be too personal to be handled by an automated system.
But, we could all use some genuine (non-robo) advice from time to time, especially when it comes to our finances. Grab a time on my calendar to chat about the financial hurdles you’re currently facing.
719-260-0320
To facing the future,
Susan Wilklow