Stockbrokers vs. Robo-Advisors: Which Is Right for You?

“`html

Understanding Stockbrokers and Robo-Advisors

If you’re looking to buy or sell stocks, you’ll need an intermediary or brokerage platform to do it. That’s where stockbrokers and robo-advisors come in. They both can help you purchase and manage stocks, but they work a little differently and have unique benefits and drawbacks. The best option for you will depend on the type of support you’re looking for as an investor. Here’s a closer look at how stockbrokers and robo-advisors are alike and different.

What Is a Stockbroker?

A stockbroker can be a licensed professional or brokerage firm that’s authorized to buy and sell securities on your behalf. That may include stocks, bonds, exchange-traded funds (ETFs), mutual funds, and more. Stockbrokers may also manage your investment portfolio and provide strategic investment advice.

Individual Stockbrokers

Also known as investment advisors, these licensed professionals work for full-service brokerage firms and interact directly with investors. They may earn a commission on a per-trade basis. Alternatively, they may be compensated by taking a percentage of the interest you earn on uninvested cash, or by charging an annual fee based on a percentage of your investment portfolio.

Online Brokerages

These online trading platforms allow investors to buy and sell securities on their own through a brokerage account. Some may offer commission-free trading, though most discount brokerages charge per trade. This option is more hands-off when compared to working with an individual stockbroker or a full-service brokerage firm.

When choosing a stockbroker, think about the level of involvement you want. Some investors are fine with initiating trades on their own, while others prefer the personalized guidance of a stockbroker. Whether it’s an individual or a brokerage firm, be sure to ask how the stockbroker makes money and what the fees are for working with them.

Pros and Cons of Stockbrokers

Pros

• Depending on the brokerage firm, you may work with a dedicated stockbroker who can explain your investment choices and answer your questions.
• They may create and manage your investment portfolio for you.
• Some stockbrokers offer personalized investment advice. For example, they might suggest which securities to buy and sell, and how to time your trades.

Cons

• You can expect to pay higher fees than for a robo-advisor.
• Stockbrokers must register with the U.S. Securities and Exchange Commission (SEC) and act in your best interest, but the way they’re paid could affect their investment advice.
• Some brokerages require a minimum investment to get started. That can range anywhere from $1 to tens of thousands of dollars, depending on the brokerage.

What Is a Robo-Advisor?

A robo-advisor is an automated digital investment platform that allows you to buy and sell securities like stocks, bonds, and ETFs without working with a financial advisor or stockbroker. You’ll likely complete an online questionnaire about your investment timeline, financial goals, risk tolerance, income, assets, and more. The robo-advisor will then use algorithms to generate and manage your portfolio. That includes automatically rebalancing your portfolio in response to changes in economic conditions.

Robo-advisors must also register with the SEC. They operate fully online and are available through major investment firms like Charles Schwab, TD Ameritrade, and more.

Pros and Cons of Robo-Advisors

Pros

• Fees tend to be much lower than working with a human advisor.
• Many robo-advisors will open and manage your portfolio—and rebalance it as needed.
• Robo-advisors can be good options for investors who prefer a hands-off approach.

Cons

• Robo-advisors rely on algorithms, not people. That might make investing confusing for beginners.
• If you’re an experienced investor, you may prefer to take a more active role in your portfolio.
• Robo-advisors aren’t known for their flexibility and may focus on a limited number of investment products.

Other Investment Options

Stockbrokers and robo-advisors aren’t the only ways to invest. Below are some other entry points to the stock market:

Workplace Retirement Accounts

Employer-sponsored retirement accounts, like 401(k)s, are typically funded with automatic payroll deductions. A wide array of securities may be available to you, and many 401(k)s are set up as target-date funds. Contact your plan administrator to understand your investment options.

Individual Retirement Accounts (IRAs)

You can open a traditional or Roth IRA through a brokerage firm and make contributions on your own. You can also take an active role in your investment decisions if you choose. Like 401(k)s, IRAs offer unique tax advantages and are designed specifically for retirement.

Real Estate Investment Trusts (REITs)

REITs allow you to invest in companies that own income-producing properties. Shares of REITs are available on major stock exchanges, and their risk is generally lower compared with investment properties. REITs are also required to distribute at least 90% of their income in the form of dividends.

The Bottom Line

Both stockbrokers and robo-advisors provide access to the stock market—it’s the way they do it that’s unique. Robo-advisors are different in that they use digital tools to create and manage an investor’s portfolio. That means there’s little, if any, human involvement. That may be a pro or a con, depending on how you look at it.

No matter how you choose to invest, maintaining strong credit is a critical part of financial wellness. That’s why Experian allows you to check your credit report and credit score whenever you choose—and it’s absolutely free.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We are here to help you with all your mortgage needs!

“`