When using a Robo advisor, it needs to know what you expect from it in order to function well. Your robot advisor will determine this through a simple questionnaire that helps it to determine an algorithm for your portfolio.
Every robot advisor has different questions but most have the following, basic questions in some form or another. It is important that you consider these questions before answering them. If you answer in a way that isn’t exactly what you want, the Robo advisor may not function the way you expect it to.
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1 – What is Your Current Age and When Do You Mean to Retire?
This question is pretty obvious. The algorithm will take your current age and take that away from your expected retirement age. This allows the algorithm to determine how many years you have to achieve your retirement fund goals. It will then determine what kind of trades need to be made in order to have the best chance at achieving that goal.
2 – What is Your Level of Income?
While a robo advisor’s aim is to make you as much money as possible, it will also ask about your income so that you don’t inadvertently invest more money than you are able. The worst mistake you can make is to invest the money that you need and hope that you get it back in time. The robo advisor will ensure that you only invest what you are able to.
3 – What are Your Financial Goals?
This question will further reinforce how much the robo advisor should invest and what level of risk it should take in order to achieve your goals. Most of these basic questions work together to give the algorithm the best chance at giving you what you expect.
4 – How Much Risk Can You Tolerate?
While a robo advisor will do everything it can to achieve your financial goals, it will not exceed the level of risk you are willing to take. The more risk you are willing to take on, the more likely you will achieve your financial goals. However, higher risk could just as easily cause you to lose the money you invested. Make sure you don’t ask for high risk if you can’t afford to lose it!
These are just a few of the questions a typical Robo advisor will ask you. Knowing the answers you mean to give for these questions before getting too far along is very useful. This way, you’ve had time to really measure out how much risk you are willing to take in order to achieve your financial goals.
Good luck and happy trading!
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