What older investors like about robo advisers


Since its debut a decade ago, robo investing hasn’t always been synonymous with retirement planning for older investors. Yet large numbers of retirement investors have been adopting robo advice (according to a recent study, nearly half of baby boomers using a robo advice offering feel it is perfect for their life stage), and more retirement-specific robo services are available than ever before. Half of robo clients at Schwab
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 are over the age of 50, and retirement is the most common investment goal among our robo clients of all ages.

If you are working toward retirement (or are there already) and seeking investment solutions, income planning or general guidance, it’s worth understanding your automated investing options. Here are four things about robo investing that you might not know:

1. Robo investing doesn’t mean giving technology control of your money

One common misconception about automated investing is that choosing a robo adviser essentially means handing control of your money over to robots. The truth is that robo solutions have a combination of automated and human components running things behind the scenes. To a large degree, the “robo” aspect of robo advice provides an easy, simple client experience and day-to-day maintenance of your portfolio. Clients are guided through an efficient digital process which typically leverages a short questionnaire to help select investment goals, preferences, risk tolerance, and portfolio allocation. From there, the robo adviser’s technology generally monitors the portfolio and may automatically rebalance holdings to maintain diversification and the intended risk profile.

The degree to which robos rely on human professionals for portfolio construction and monitoring varies. For example, Schwab has a team of investment experts who oversee investment strategy and keep watch during periods of market volatility. Some services involve more human input than others, but most robos typically have a high degree of human oversight when it comes to client portfolios.

2. Robo investing isn’t just for millennials

Robo investing has been credited with using technology to lower barriers and attract younger people to the world of investing (and rightly so), but automated investing isn’t just for young or novice investors. Older investors are also interested in using technology to manage their finances in a more modern way, and they value the accessibility of low-cost automated solutions as much as younger investors. During 2020’s market ups and downs, many new clients who signed up for our hybrid robo advice offering, which combines automated portfolio management with human advice, were older investors approaching retirement who needed extra guidance during a time of extreme uncertainty.

As robo offerings mature and expand, more of them offer dedicated tools for retirement-specific needs like figuring out how much money you can withdraw every month in retirement and how to withdraw from a combination of taxable, nontaxable, and Roth accounts in a tax-smart and efficient way. Tools like this are needed to help ease the anxiety that preretirees feel about navigating the financial complexities of retirement. In a 2019 survey, 65% of people nearing retirement told us they feel overwhelmed at the prospect of saving enough for retirement, and 52% feel overwhelmed by how they will ultimately manage their different income sources once they take the leap into retirement.

3. Robo investing doesn’t mean foregoing personalized planning and guidance from a human adviser

Despite what some might think, automated investing does not mean you have to sacrifice holistic financial planning and guidance from a human adviser. Hybrid robo services offer a combination of human advice and automated investing — and many older clients are finding that combination very attractive. In 2020, around two-thirds of our hybrid robo advice clients were over age 50, and we saw an increase in follow-up appointments with our team during the peak of COVID-related market volatility.

In addition to planning for retirement, hybrid robo advice clients work with advisers to plan for a range of near- and long-term goals like travel, auto purchases, and home improvement. A hybrid robo adviser means having access to a human to help avoid costly emotional investing decisions in the short term, so that clients can enjoy the fun part of planning for the financial goals they’re looking forward to in the future.

4. Robo advice portfolios are not one-size-fits all

Many people incorrectly assume that robo advisers only offer basic portfolios for young, aggressive investors with long time horizons. The truth? Robo investing services offer a range of diversified portfolios with varying risk models. The largest portion of our robo investor clients maintain moderate risk profiles, and one-quarter of the investors in our hybrid robo solution are conservative. Not the stereotypical robo investor you might think of.

Many robo advisers also offer at least some degree of portfolio customization based on individual needs and preferences — a capability that is sure to grow as the financial services industry continues to innovate and scale up personalized offerings for everyday investors. Beyond portfolio customization, robo advisers often offer a range of financial planning tools and educational resources to help investors get deeper into the financial planning process and develop a truly personalized road map for their finances.

The upshot

Planning for and paying yourself in retirement is complex. There are many options out there to help investors through it, and robo investing is one of them. Many thoughtful, long-term investors have discovered that they want a more modern, streamlined, and inexpensive way to invest, and robo investing fits the bill. They are happy to let technology handle the mundane activities that are harder and more time-consuming for investors to do themselves (e.g., tax-loss harvesting), so they can focus on higher-level planning activities that can ease the overwhelming feelings that so often come with navigating retirement.

Whether you are interested in relying more heavily on technology to assist in your investing journey, or you prefer to rely on a traditional human adviser, it is worth knowing what robo investing really is.

Cynthia Loh is Schwab vice president of Digital Advice and Innovation.

Disclosures: The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

Please read the Schwab Intelligent Portfolios Solutions™ disclosure brochures for important information, pricing, and disclosures relating to Schwab Intelligent Portfolios and Schwab Intelligent Portfolios Premium programs.

Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™ are made available through Charles Schwab & Co., Inc. (’Schwab’), a dually registered investment adviser and broker-dealer. Portfolio management services are provided by Charles Schwab Investment Advisory, Inc. (”CSIA”). Schwab and CSIA are subsidiaries of The Charles Schwab Corporation.

Schwab Intelligent Portfolios has no advisory fee and doesn’t charge commissions, and Schwab Intelligent Portfolios Premium offers financial planning for an initial fee of $300 and a $30 a month advisory fee charged quarterly after that.

Diversification, asset allocation, and rebalancing strategies do not ensure a profit and do not protect against losses in declining markets.

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