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Automated vs. human advisor: Which investment style is right for you?

You have options when it comes to managing investments. This assessment can help you understand the differences between automated- and human-managed portfolios.

Tags: Investing, Investments, Planning
Published: February 06, 2019

Ask yourself some key questions to determine what type of management is best for your investment journey. Your answers will indicate whether you should consider using an automated portfolio management service or working with a human investment advisor.

Automated VS. Human - infographic
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1. How well do you know yourself as an investor?

A. Very well: I feel confident choosing my own level of risk.

B. Not very well: I probably need a lot of help to figure out a risk level that’s right for me.

Automated portfolio management

For investors who have a well-defined sense of their own risk tolerance, automated portfolio tools can be a good way to make your own investment decisions. Some even offer tools that can give you insight into your risk appetite.

Investment advisor

If you’re feeling uncomfortable or even overwhelmed by the idea of defining yourself as an investor, investment advisors can help you understand your risk tolerance and offer investment solutions tailored to your goals and needs.

 

2. Are your goals simple or complicated?

A. Simple: I have a straightforward goal and a good idea of what I want and when I want it.

B. Complicated: I have multiple goals; some of them are related while are others are less defined.

Automated portfolio management

For investors with defined goals and clear time horizons or target values, automated portfolios can be a good choice. Some tools even allow you to update your goals regularly, so your investment strategies remain relevant as your needs change over time.

Investment advisor

If you have multiple goals that are interdependent, you may need to talk with an investment advisor for additional guidance.

 

3. How much will you be investing?

A. Less than $250,000: I need an investment solution that is designed to work well at this level.

B. $250,000 or more: I want to take advantage of more complex, premium strategies.

Automated portfolio management

If you are looking to invest less than $250,000 in a particular investment strategy, automated portfolios can often be the lowest cost solution.

Investment advisor

Investments north of $250,000 usually allow for more diversification. Higher-end, premium strategies can help you take advantage of diversification, but are best navigated with the help of an investment advisor.

 

 

4. How comfortable are you with a “hands-off” approach?

A. Comfortable: I like to let the system do the work, I’ll just check my updates.

B. Uncomfortable: I prefer full service, with a live person taking care of my money.

Automated portfolio management

Automated portfolios are generally rebalanced using an algorithm. When the algorithm finds trades that can adjust your current portfolio to become more like your target portfolio, it automatically executes them. Some automated portfolios also consider tax impact when choosing to trade. If you are comfortable with letting this process run, an automated portfolio may satisfy your needs.

Investment advisor

Human advisors use technology to analyze your investments against your portfolio strategy — but the bottom line is that a human decides whether rebalancing or other adjustments are right. If you prefer a human in the driver’s seat, it may be best to have an advisor rebalance your portfolio.

 

5. Do you need just investment management or something else?

A. Just the management: I like handling my financial needs one piece at a time.

B. I’ll want more: I also want to know how my loans, insurance and other financial goals fit in.

Automated portfolio management

Automated portfolios are excellent for straightforward investments, but they don’t provide additional financial services.

Investment advisor

Human advisors are trained to look at the larger picture for wealth management, using an entire toolbox of financial solutions. They may be able to help with a comprehensive financial plan that maps your needs over time.

 

What’s right for you?

Three or more “automated portfolio advisor” answers? Your approach to investing may be best suited to using an automated portfolio management service.

Three or more “human advisor” answers? Your approach to investing may be best suited to working with an investment advisor.

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