3 Reasons Women Should Try Robo-advisors to Grow Their Wealth

ByDan Kent Published On:

This is a post by author Danielle Kubes over at Ratehub

Robo-advisors burst onto the Canadian investment scene less than five years ago, but it seems like they’ve been here forever. That’s because they shook up the traditional, extremely conservative, top-down investment landscape so thoroughly that it’s hard to remember a time without them.

KPMG projects that robo-advisors will be managing US$2 trillion worth of assets by 2020, growing an incredible 68% from 2016. It’s easy to see why — letting a robot handle your money is far cheaper than dealing with a human advisor, while less scary and more manageable than figuring out how to do it yourself.

But are women being left out of this simplified way to grow wealth?

A 2018 online survey from Ratehub.ca says yes — their research indicates that women were only half as likely to have a robo-advisory account compared to men, at 4.5% versus 10.5%, with the number of female baby boomers with an account dropping almost to zero.

WealthSimple, one of the first robo-advisors in Canada, affirms this — their internal research shows that only 33% of their clients are women.

But women should start to consider robo-advisors as an important tool to grow their wealth, or risk being left behind.

Here’s three reasons why:

 

  1. It takes the guess work out of investing

We already know from a 2016 Statistics Canada report that financial management may be more of a challenge for women, since they report lower levels of financial literacy and have less confidence in their financial skills. On top of that, women are less likely than men, at 48% versus 63%, to state that they “know enough about investments to choose the right ones that are suitable for their circumstances.” But robo-advisory firms are designed to be accessible and take the guesswork out of investing. They don’t get you second guessing a recession, and instead are more of a set and forget method.

All you have to do is select a model portfolio that suits your risk tolerance, and an algorithm will take it from there, by automatically rebalancing it across asset classes. You can even automate monthly withdrawals from your bank account. It’s an excellent way for women who aren’t as confident in their financial chops to begin their investment journey.

 

  1. Lower fees means higher returns

 

Women need more money in retirement, but they earn and save less.

According to the same Statistics Canada report, women live about 4.5 years longer than men, and have higher disability rates. At the same time, women accumulate less money: compared with a man with no workforce interruptions, the average American woman has cumulatively earned US$1.06 million less than a man by the time she hits retirement age, according to a joint study from Merrill Lynch and Age Wave.

Luckily, aggressively (and smartly) investing can go a long way to help close this gap.

However, one thing that can greatly affect a return on investment is fees.

Thankfully, robo-advisories tend to charge far less than human-advisories. Firstly, they only offer low-fee exchange-traded funds in their portfolios, unlike many traditional brokerages which try to push mutual funds that have much higher fees.

Canadians pay one of the highest management fees on mutual funds in the world, at 2.2 =%, while the average fee on an exchange traded fund is under .20%.

On top of the fund fees, there’s also the management fees: robo-advisors typically charge around 0.5%, while traditional brokerages usually charge at least 1%.

Two percentage points doesn’t sound like a huge difference, but over a lifetime of investing it can easily add up to hundreds of thousands of dollars — seriously. 

 

  1. Women already have too much to do

Canada is far, far behind the United States in its finance technology. Most traditional brokerages still require cheques, snail mail, stamps and in-person meetings. Not to mention that they often still use back-end computer programs from the late 1980s. Compare that to robo-advisory firms which are digital-first, meaning the website and app is usually intuitive and sleek.

Although there is risk involved with investing through a robo-advisor, as with all investments, the automation, transparency and low-fees they offer are a refreshing alternative compared to the murky landscape of traditional human advisors, and one that most women would do well to consider.