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Currently in the United States, many consumers are increasing their disposable income. According to the Federal Reserve Bank of St. Louis, real disposable income per capita rose to nearly $44,000 as of November 2018. Which is up from about $38,000 ten years prior. Naturally, the average consumer with greater disposable income looks for ways to put that money to work, whether it’s saving more, buying new things, or paying down debt. Another popular way to put that money to work is investing it. So let’s talk about how to become a beginner investor in today’s market.
While having more disposable income opens the door to new investments, there is still another important hurdle in the way: understanding how to invest smartly. Many consumers do not fully understand how to put their money to work, which is especially true for a beginner investor who is just getting his or her feet wet.
Despite this hurdle, there are ways to shorten the learning curve, ranging from technology-focused solutions to traditional sources of advice. Here are just a couple of ways to get help if you’re just getting started in the investment game.
Use a Robo-Advisor
Given the focus and availability of technology today, it’s only natural for a beginner to consider a robo-advisor investment app. In short, robo-advisors are personal finance or investment apps that can be downloaded on a desktop or mobile device.
Robo-advisors are great for beginners who want to start investing semi-independently, while also being able to rely on accessible recommendations and advice. Consumers can pick and choose investment options ranging from exchange-traded funds (ETF), retirement accounts, stocks, bonds, and other investment funds.
Beginners would be happy to know these apps offer access to support and recommendations that are tailored towards certain personal goals. For instance, one consumer who wants to invest in a retirement fund would receive personalized advice based on that end. Additionally, app users may have access to personal human support in some cases.
Another benefit is the ability to make quick, daily decisions and changes, allowing for speedy portfolio management and diversification.
However, it should be remembered that there is a cost to using a robo-advisor, like any other financial advisor. Different apps come with different fees. An example would be a monthly or annual fee, but some apps will charge a small percentage on an account balance.
What About Traditional Financial Advisors?
While robo-advisors are an option today, they weren’t always around. The traditional way to get investment advice was to hire a human advisor for help. Here are a few comparisons between the two:
While robo-advisors rely on algorithms to make recommendations in real time, human advisors make decisions based on their own observations and access to data. In some cases, these decisions are backed by years of experience. Going the traditional route can offer access to someone who personally understands goals and tolerance for risk. Consumers who value this human interaction and perspective may prefer a traditional advisor, but those who put their stock in technology may prefer a robo solution.
A higher buy-in cost may steer people away from traditional financial advisors. In some cases, an advisor may not take on new clients without a substantial initial deposit. On the contrary, robo-advisors generally charge lower fees on a monthly, yearly, or percentage basis. But, it should be noted that not all human advisors may charge high fees.
As always, investing is not a risk-free game. Whether choosing between a human or robo-advisor, there will always be risks associated with any investment decision. Theoretically, an advisor is supposed to mitigate this risk, but it will never cease to exist.
At any rate, the first step is to learn more about how to properly invest money and manage risk. A robo-advisor can be a cost-efficient solution to that end.
About the Author
Andy Kearns is a Content Associate for LendEDU and works to produce personal finance content to help educate consumers across the globe. When he’s not writing, you can find Andy cheering on the Lakers, or somewhere on a beach.
%%focuskw%% | How to Become a Beginner Investor Today