Bauer Wealth Blog

5 Reasons Why This is Not Your Father’s Financial Advisor

Nov 11, 2019 3:46:25 PM / by Chris Franz

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You’re out of college and working for a few years now and finally got a few bucks to invest. But you’re not sure where to go for advice. You know that your father has a financial advisor – the kind that sits behind a big desk in a fancy office that instantly makes you feel like this option is both unaffordable and reminds you of the school principal’s office.

Another option is to do the investing yourself but you don’t know enough to steer you through the ups and downs of the financial markets. So what’s your alternative?

Many young professionals today are using a Robo-Advisor to kick-start their savings program for both short and long-term goals. Here are five reasons why:

  1. It’s digital with 24/7 online access so you can track your investments at any time.
  2. Low minimums. Initial investment is between $1,000 and $5,000. Traditional advisors usually want individuals with $250,000 to invest.
  3. Low annual fees. Typically 0.25% to 0.75% of your assets being managed. So fees on a $20,000 account would range from $50 to $150 per year. A traditional advisor typically charges 1% to 2% of assets under management (AUM).
  4. Easy-to-use interface; and
  5. Automatic re-balancing. A computer algorithm decides how to invest your money based on your goals and risk tolerance level and periodically re-balances your account to ensure you continue to stay within your original allocation of stocks/bonds/cash.

Sounds intriguing, but how do you choose the right Robo-Advisor for you? Shouldn’t you just go with the one with the lowest fees? No. And here’s why.

There is a very big difference between simple re-balancing and managing risk.

Re-balancing just means that if, for example, your money is invested in 70% stocks and 30% bonds (called your portfolio allocation), and over time the stock portion of your investment increases to an 80% allocation then your risk has now increased to beyond your stated risk tolerance level. So the computer algorithm tracks this and automatically sells off some of the stocks and buys more bonds to bring your portfolio allocation back down to a 70%/30% split.

In comparison, managing risk is more about understanding the underlying drivers of the market changes and allocating your money based on risk versus just a dollar amount or percentage. Click here to learn more about our approach. (put a link to Stephen’s article about a Hybrid Investing Approach).

Leading the way in Virtual Advising

Bauer Wealth Management is the first Virtual Advisor to use a sophisticated computer algorithm that estimates the respective volatility of each individual investment and determines how that impacts the overall risk of your portfolio allocation. It’s a major step beyond the basic Robo Advisor model that offers simple re-balancing. This new approach is called dynamic risk hedging or budgeting. Click here to see how this helps you. (put a link to our animated video about this process)

To get started, check the diagram below to help you decide if our Virtual Advisor is the right approach for you.

Chris Franz

Written by Chris Franz

Chris Franz is the CTO of Bauer Wealth Management, a Wealth Management Firm, based in Colorado Springs, CO. Bauer Wealth Management is a Registered Investment Advisor (CRD#: 152977/SEC#: 801-71090) with the Securities and Exchange Commission. This article does not represent an investment recommendation or endorsement of any kind. Please consult with your advisor regarding your specific situation. Investing in securities does involve risk of loss that clients should be prepared to bear. The risks can range from failing to keep pace with inflation to losing some or all of the money you invest.