Should you trust a human or a robot with your money?

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Hanna Horvath, CFP®

Hanna Horvath, CFP®


Hanna Horvath is a CERTIFIED FINANCIAL PLANNER™ and managing editor for growth at Policygenius. She helps produce the Easy Money newsletter, and owns all growth initiatives for Easy Money. She recently passed her exam to become a CERTIFIED FINANCIAL PLANNER™ in November 2020.

Hanna's work has appeared in NBC News, Business Insider and Inc. Magazine. She is regularly quoted in top media outlets, including CNBC, Best Company and HerMoney. She has also appeared on the Money Moolala podcast and All's Fair podcast.

Prior to Policygenius, Hanna wrote for KNBC in Los Angeles and WNBC in New York. When she isn't writing, she's (often) running, (usually) cooking and (sometimes) doing photography.

Published February 3, 2021|5 min read

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Learning to invest is a goal on many Americans’ to-do lists, but the sheer amount of information can be overwhelming for beginners — I felt like a beginner before taking a certified financial planning course myself.

It can take a lot of learning to get comfortable investing on your own, which is why many people get help. There are plenty of free resources available on how to invest (like this one), but paying someone to do the heavy lifting for you can be less stressful. Two of the most popular options are robo-advisers and financial professionals.

But which is better? I decided to offer a robo-adviser and a financial adviser $5,000 to see what they would do with it. My criteria: I was looking to build wealth over 25 years, was comfortable with moderate-to-high risk and had a fairly extensive knowledge of investing. Here’s what happened.

First: What’s the difference between robo-advisers & financial advisers?


Robo-advisers provide services typically performed by larger financial institutions, but use computer algorithms to create and manage an investment portfolio. They bear the promise of being easy and simple to use. It will answer a couple questions about goals and risk, transfer your money and send you off to the investing races. Most robo-advisers allow users to set up automatic transfers and reinvest gains for you, so you can truly set it and forget it.

The big benefit of robo-advisers is the cost. Most have no initial start-up costs because they are passively managed — a buy-and-hold strategy that requires less active monitoring. Several robo-advisers don’t charge administrative or management fees, said Eric Roberge, certified financial planner and founder of Beyond Your Hammock.

“Going to a robo-adviser means you can open an account and have it funded in five minutes, set up an automated contribution and never touch it again,” he explained. “They’re great for do-it-yourself investors who want to make the process easier by having something else rebalance for them and pick funds for them.”

Financial advisers

Financial advisers are professionals that help families manage their money. Many advisers are certified financial planners, meaning they took a rigorous course to become financial experts. Financial advisers typically cost more — the average comprehensive plan costs around $2,400. Obviously, you'd have to invest way more than $5,000 to make that worth your while, but the key benefit of CFPs is their ability take a personal, holistic approach to your finances.

“We don't live within spreadsheets, and a financial adviser can help you dig into the more subjective, emotional side of money where there may not be a single right answer,” said Roberge.

Not to get too much into market theory, but studies show that humans aren’t rational investors. We often make money decisions rooted in emotion and are risk averse, even if that means losing out on gains.

Having a professional that understands those cognitive biases can help you make more informed decisions, often better than a robot can (because robots can’t detect emotion — yet). Financial advisers can also answer questions specific to your situation better than a robo-adviser can. But, of course, a drawback to financial advisers they may be prone to human error.

Now, on to the good part. Who’s actually better?

What the robo-adviser said

I chose Charles Schwab Intelligent Portfolio as my robo-adviser. Without getting into the weeds, I chose Schwab due to its well-known reputation and variety of investing options. Setting up an account is fairly easy: Once I filled out my personal information, I was prompted to fill out a survey to gauge my financial goals, risk tolerance and time horizon. I was asked about my previous knowledge of stocks and bonds, how I make financial decisions and my understanding of market volatility.

The adviser gave me a tentative allocation based on my goal to build wealth over a long time — while I wasn’t looking for a specific number to hit, I was curious which one would make me the most money. I was able to adjust how much value fluctuation I was comfortable with and my time frame. The adviser included a chart of how much money was expected to grow in 25 years. I could add a monthly contribution to see how much growth potential I had.

According to the algorithm, without any additional contributions, my $5,000 would grow to around $21,227 by 2045. Not bad. My allocation was as follows:

  • Stocks (74.5%): Almost 30% of the stocks were in large U.S. companies (think Apple or Microsoft). Another 30% of the stocks were in index funds, or a diverse collection of stocks that track the overall market, and close to 20% went to small U.S. companies. Around 18% were in international companies and 2% were in exchange-traded real estate investment trusts.

  • Fixed income (17%): These investments are typically more conservative and promise to pay a set amount on a fixed schedule over time, typically bonds. My money was split between municipal bonds, typically used to fund local public works like parks and bridges, and U.S. bonds.

  • Cash (8.5%): Cash provides liquidity and can reduce risk in a portfolio.

I turned to Robert Schmansky, a financial adviser and president of Clear Financial Advisors, for a professional human opinion. I've interviewed him about investing in the past, and thought he would offer sound advice. He recommended a slightly similar allocation:

  • Stocks (70-80%): Schmansky recommended investing a majority of my money in stocks. Around 25% of those would be index funds, another 25% in large U.S. companies, 25% in small U.S. companies and around 15% in investment funds, pretty much on par with the robo-adviser’s suggestions. He also suggested putting 10% of my stock money in real estate funds, higher than what Charles Schwabb suggested. Schmansky explained that the real estate market typically won’t fluctuate as much with the stock market, so keeping a portion of your money in real estate helps diversify your portfolio.

  • Sector funds: (10%): These investments focus solely on one industry or portion of the economy. It could be precious metals, or energy or health care. Schmansky explains these funds are often “hedges” against market downturns and can better diversify your portfolio. (Learn about investing in gold here).

  • Fixed income (10%): Schmansky suggested a mixture of municipal bonds, corporate bonds and U.S. bonds to balance out my portfolio and keep it less volatile. He didn’t recommend keeping any of my investing money in cash — while having cash on hand is very important in case of an emergency, it doesn’t earn any money sitting on the shelf. Most bonds, especially those backed by the U.S. government, are extremely safe.

Predicting how much money I would earn over time via this approach was a bit more difficult than the robo-adviser. Schmansky explained that while he could make an estimate based on historical data, nothing’s guaranteed. But, given my long-term horizon, he said it’s likely I could earn closer to $30,000 depending on market returns, much higher than what the robo-adviser proposed. Most advisers assume the market will increase positively over the long-term at a rate of 8% to 10%.

Who gave better advice?

Unfortunately, that’s not an easy question to answer. Choosing between a robo-adviser and financial adviser depends on you and your goals. If you’re willing to spend extra money for more personalized advice and support, you may prefer a financial adviser. While robo-advisers may offer educational support, they don’t know your personal situation, including biases and emotions, like a financial adviser would.

“One big and obvious difference is that robo-advisers rely more on algorithms as a baseline, and financial advisers focus more on human interaction,” said Roberge. “I mean the ability to sit down and have a complex, deep and nuanced conversation with another person that goes far beyond data.”

But robo-advisers are typically more affordable (it’s often free to open an account). If you already feel confident in your investing ability, a robo-adviser may be the way to go. If you’re ready to get started, we have a guide to finding a financial adviser here.

Who did I end up choosing? Well, a couple of months ago, I actually passed the exam to become a certified financial planner myself. Since then, I’ve been actively managing my own portfolio, buying and rebalancing my stock allocation every quarter. So for now, it looks like I’ll be going off my own advice.*

*FYI, I am a human.

Image: d3sign / Getty Images