When it comes to finances, being a Millennial is no walk in the park. Older Millennials graduated right into the thick of the financial crisis. Younger Millennials are now embarking into the wreckage left behind.
The average full-time salary for Millennial men is around $35,000 a year. Their female counterparts are making only around $30,000 a year.
In short, Millennials don’t have a lot of money to invest—but they are desperately aware of how dire their circumstances will be later in life if they don’t find a way to grow a nest egg.
This puts Millennials between a rock and a hard place. On one hand, if they do not get financial advice to manage their modest investments, they won’t have a shot at retirement. On the other hand, they cannot afford to get advice from financial advisors.
Plus, many Millennials don’t actually want that advice. They have a low level of trust for investment professionals, who may come across to them as salesmen (and for good reason; they have learned the hard lessons of their parents well—many of whom cannot afford to retire either).
To top it off, many in the Millennial generation feel uncomfortable with face-to-face interaction. They would prefer to handle banking and investing services online.
Enter the Solution: Robo-Advisors
This is why many Millennials are now turning to robo-advisors. A robo-advisor is exactly what it sounds like. It is an automated replacement for a traditional human financial advisor. As an algorithmic program, it provides personalized investment advice to Millennials who cannot afford or do not wish to interact with traditional advisors.
Here are some of the benefits to Millennials:
- A robo-advisor is not a salesperson. It is not going to try to push an unwanted solution on someone who cannot afford it or has no interest in it.
- No face-to-face interaction is required. This is a more comfortable option for many Millennials who feel safer and more at ease behind a monitor than they do at a meeting.
- Robo-advisors are lower in cost to interact with. They rely on passive rather than active investing methods. Typically this means that they select index funds as investing benchmarks.Most of the expensive fees which traditional financial advisors charge are management fees for active investments.
- With robo-advisors, Millennials do not need a ton of money to invest. Traditional financial advisors target high earners with plenty of money available to invest.The average Millennial simply does not have hundreds of thousands of dollars to invest—or even tens of thousands.
Lower barriers to entry put investing back within reach of those who traditionally would be unable to afford it.
- Rebalancing is hands-off. With traditional investing methods, consumers need to revisit their investments and manually rebalance their portfolios on a regular basis. This is important for the sake of maintaining appropriate diversification (you don’t want to keep too many nest eggs in one basket). But it can also be overwhelming for a new investor just starting out.
Robo-advisors will analyze and rebalance portfolios automatically on the behalf of customers.
Top Robo-Advisors to Consider
If you are a busy, low-income Millennial looking to invest, robo-advisors can offer you a flexible, low-cost alternative to traditional investment pathways. But how do you get started? Which sites are the best?
There are a lot of big names out there, but two of the top choices to consider are Betterment and Wealthfront.
This firm charges only 0.35% as an annual fee for accounts with a value up to $10,000. That fee drops to 0.25% if you have an account value ranging from $10,000-$100,000. Have more tan $100,000 to invest? The fee is only 0.15%.
What is awesome about Betterment is that there is no minimum deposit or balance requirement. There are also no fees for withdrawals, and you may be able to get a deal at sign-up which gives you 6 months fee-free. There is also no minimum amount to add to your active investments.
Have $2,000 to invest? You can do that. Only have $20? You can throw that right into your retirement plan as well. You have full control of the amount that you invest, so even if you only have a little bit of money to save, you can grow it into a real nest egg. Be sure to check out this review of Betterment to learn more.
This site requires a $500 minimum deposit, but there are no advisory fees for accounts under $10,000. If your account has more than $10,000, you will be charged an annual fee of 0.25%. Additionally, there is a 0.12% fee on exchange-traded funds.
If you want to learn more about what this company has to offer, be sure to read this review of Wealthfront.
As you might guess, both Wealthfront and Betterment have their pros and cons. Can’t decide which one might be the best fit for your needs?
Check out this comparison between Wealthfront and Betterment.
No matter what you decide to do, it is important to look for ways to start saving for retirement now. The world may be recovering from its most recent economic crisis, but a looming retirement crisis is on the horizon. Add to that the fact that half of all jobs may be automated within the next 20 years, and Millennials are facing some major-league challenges their parents could never have imagined.
Robo-advisors have lowered the barriers for investing and have simplified a complex world into terms even a beginning investor can understand. Take advantage of these services while you are still young—even if you only have a little bit to start out with!