Automated investing services, sometimes called robo-advisors, have been around for several years, but they’re still fairly new in the world of investing. They’re gaining popularity due to their availability, ease of use, and consistent investment returns driven by advanced algorithms.
When you start an account with a robo-advisor or automated investing service, you’ll typically answer a series of questions designed to customize your investments to your goals and risk tolerance. Then, the robo-advisor will build an investment portfolio for you and manage your investments over time. This could mean not only choosing stocks or exchange-traded funds (ETFs) to invest in, but also rebalancing your portfolio or offering tax-loss harvesting services, should you need them.
1. What’s the difference between a robo-advisor, robo-investing, and automated investing?
There’s no substantive difference. Those different terms refer to the same thing: an investment platform that’s automated and managed by a computer algorithm and software.
2. How can using a robo-advisor impact my taxes?
As with any investments, there will be tax obligations (or benefits) as a result of your gains (or losses) over time. Typically, investors pay income tax on any gains from nonretirement investment accounts at the end of each year. Or, they may get a tax break at the end of the year if their investments lose value (or it could be a mix of both).
Some robo-advisors offer automated tax-loss harvesting to help spread out and minimize your tax burden. Every night, after markets close, an algorithm can look tirelessly at each “position”—or investment held—for opportunities to offset tax losses against gains.
If necessary, the robo-advisor can submit a trade, and the tax realization process will occur. In an advisor-managed account, an advisor generally does that manually across many clients, and typically only about once a year.
3. How does rebalancing my account work with a robo-advisor?
Each portfolio contains a mix of assets that aligns with an investor’s goals and risk tolerance—but most automated investing services (like Truist Invest and Truist Invest Pro, for example) will work to optimize your individual asset mix over time for better gains and less risk to your investments.
For example, you may have 90% stocks and 10% bonds in your account when you first open it, but as you age, your robo-advisor may shift more of those stocks to bonds as your investing horizon and risk tolerance decrease. Whenever that happens, the robo-advisor will automatically realign the investments so you are back at an optimal mix. As with tax-loss harvesting, rebalancing is something that happens automatically in the background, handled by artificial intelligence (AI).
4. Can you explain how the client-advisor relationship works with Truist Invest Pro?
Some robo-advisors—such as Truist Invest Pro—come with access to human advisors in addition to an automated investing service. The algorithm is responsible for the day-to-day investment management, and the advisors are focused on the client relationship, such as planning and goal setting.
“We handle the emotions,” says Truist Invest Pro advisor Ali Mabod. “Maybe you want to retire in 5 years. You see the market is up and down. You call me, and I can reassure you that our long-term strategy is on track.”
With Truist Invest Pro, about 40 advisors work together on the same close-knit team. You can reach out to your advisor if you’ve had a life change that affects your financial goals—like if you’re getting married, getting divorced, or have a death in the family.
Truist Invest Pro advisors reach out to you when setting up a new account and then once a year afterward. But you can call any time within working hours—either by appointment or whenever you need help.
5. Who can most benefit from a robo-advisor or automated investing?
Just about everyone. These days, where time and attention are precious, most of us could benefit from an automated investment account. If you want to know that your money is working for you behind the scenes over the long term, without taking the time to talk with an advisor, this can be an ideal platform. Once you get going, you can check your account and make adjustments as frequently or infrequently as you wish.
6. Can a robo-advisor manage multiple account types?
Yes. Within most automated investing services, you can have retirement accounts, such as an IRA and Roth IRA, in addition to a general brokerage (investing) account. You can also hold joint accounts with a family member, partner, or spouse. They would all be managed by similar algorithms—but the portfolios for each would be made up of a different mix of funds depending on your particular goals and preferences.
7. How is my money actually invested when using a robo-advisor?
Different robo-advisors offer different investment options. However, one hallmark of robo-advisors is the limited scope of investments compared with a traditional brokerage account, without the ability to make specific stock or fund picks.
With Truist Invest and Truist Invest Pro, your investment options include a variety of ETFs that track the major stock indexes (for example, an ETF that tracks and delivers performance similar to the S&P 500), or bond funds.
In keeping with Truist’s guiding principles with regard to investments, these assets are chosen specifically to offer long-term growth with relatively low risk.
8. How do the fees work for automated investing services?
Like with many robo-advisors, the fee structure for Truist Invest and Truist Invest Pro is set up as an annual percentage of your account assets (0.5% for Truist Invest and 0.85% for Truist Invest Pro.
To give you an idea, imagine you have $20,000 invested in either service. Truist Invest would cost roughly $100/year for an account that contained this amount, while Truist Invest Pro would cost roughly $170/year.
Essentially, the fees for Truist Invest are set up so that Truist doesn’t start earning more unless you’re earning more. The bank—and your advisor, if using Truist Invest Pro—are incentivized to grow your wealth.
9. Are my investments secure with a robo-advisor?
Robo-advisors were born in the digital age, so most automated investing platforms are built securely—although the security specifics could vary by brand. At Truist, we maintain the highest industry standards when it comes to encryption and cybersecurity. Dedicated teams monitor for any signs of fraud or unusual activity and have strict protocols and monitoring actions in place over all data transfers when it comes to investing accounts.
Anytime there’s a request to withdraw funds from a robo-advised account, it’s reviewed by a person. And anytime there’s a lot of activity in terms of deposits or withdrawals, it’s reviewed by a person, too.