Key Takeaways
Automated investment solutions, or robo advisors, take some of the pressure off individual investors
Automated investing doesn’t mean you set it and forget it forever
Changing life circumstances, changing goals, or changing risk tolerance are occasions to recalibrate your investment autopilot
Digital advice solutions (sometimes referred to as “automated investment solutions” or “robo advisors”) have entered the investing scene in recent years. These digital services allow investors to input their personal goals, basic financial information, risk tolerance, and time horizon, and receive a recommendation for a managed portfolio.
Such investors might think they can just stop checking and assume that the autopilot has the portfolio management under control. That’s true to some extent, but there are times when it can be prudent to pause and consider whether your investment strategy continues to match your current life situation and goals.
In a perfect world, investing would be like roasting one of those turkeys where the little stick pops up and tells you when it’s ready. Preparing a turkey that way is relatively simple because you know how hot it needs to get and the temperature of your oven. Those variables don’t change.
But real life is full of variables that can shift how you want your money handled. If your investments are in a digital advice solution like Essential Portfolios from TD Ameritrade Investment Management, LLC, it’s important to reassess your situation now and then and speak up if something needs adjusting.
“A digital advice solution recommends a managed portfolio based in part on your personal goals, along with your time frame and risk tolerance. But if your goals change or your financial situation changes, you should be prepared to adjust your risk, time frame and your investing style,” said Keith Denerstein, director of guidance for TD Ameritrade. “A digital advice solution isn’t going to know about a change in your financial situation. The investor needs to tell the advisor about what life changes are happening so that portfolio changes can be made for the client.”
Let’s look at three common occasions when you might need to open up the proverbial portfolio management oven, check the contents, and possibly stir them or adjust the temperature and cooking time.
A Change in Circumstances
It’s often said that the only constant is change. Perhaps a new baby is on the way, whether expected or a surprise package. A sudden expensive illness or surgery can also mean you need to re-think your investment goals. “Things happen all the time,” Denerstein said. “Maybe the money is invested for a child’s college education, but suddenly you need it to pay for medical care. That could mean a change in your investment strategy.”
A change in circumstances can also occur if you suddenly come into a large chunk of money. Whether it’s getting a big bonus at work or a gift from a generous relative, new money can alter your life in many ways, including your portfolio allocation. Time to raise your hand and reach out to your financial professional.
A Change in Goals
This is somewhat different from a change in life circumstances. When you begin investing in a digital advice portfolio like Essential Portfolios, you answer a series of questions about the goals you have for your money. Maybe you had a retirement age in mind when you started, but that’s changed over time. Or suddenly you get a hankering to buy a vacation home or a boat. Perhaps you’ve read some of those articles about people who move to Costa Rica to retire, where the cost of living is lower, and you’re starting to dream of volcanoes and the rain forest in a place where you won’t need as much money to retire as you initially thought.
There’s nothing wrong if your goals change over time. Most people starting out in the workforce and setting up automated investing plans don’t necessarily know what they’ll want to do or where they’ll want to be in 30 or 40 years. But if your goals do change, it’s a good idea to let your financial professional in on your plans so they can help you decide if you need to make any adjustments in your portfolio allocations.
A Shift in Risk Tolerance
One big question people have to answer when they start their digital advice journey is how much risk they feel comfortable taking. Sometimes this is hard to quantify, especially when the same couple might have different ideas. Maybe you and your spouse or significant other approached investing cautiously back when you started, knowing you had college debt to pay, small children to raise, and the need for quick access to cash. That could have led you to take a conservative approach.
However, as the years go by, debts get paid, and children grow, perhaps you’re not so happy with your conservative allocation any longer and feel pressure to make your money work harder. That’s perfectly normal, but it won’t happen if you leave such funds on autopilot.
A Watched Pot …
Now that you know when you might want to check your digital advice (or “robo advisor,” if that’s what you prefer) portfolio now and then, remember that automated still means you don’t necessarily need to get too involved. The whole point of these portfolios is to take the pressure off so you can go about your life without worrying too much about how your funds are invested. That’s the job of the professionals who make investing decisions, and opening the oven too often could keep the meal from getting cooked properly.
“People have the tendency to want to get in and buy and sell and move money around, but that’s not what this is about,” Denerstein said. “These portfolios are managed to help you pursue your goals in the time frame you stated. If something changes in your life, that’s when you need to be active and keep your financial professional aware.”
Automated Investment Solutions
Get solutions that fit your goals, even when they change and grow.
See which managed portfolio* might be best for you.
*Managed portfolios are offered by TD Ameritrade Investment Management, LLC.
Managed Portfolios are offered by TD Ameritrade Investment Management, LLC.