Find out how these two investing techniques—one classic, one contemporary—compare.
Are you new to investing, or do you want to minimize the amount of time you spend researching the markets? Researching individual stocks and bonds can be difficult and time-consuming, so you may be thinking about investing in mutual funds instead.
An alternative that you might not have considered is automated investing–a “robo” advisor”—that can offer a more personalized approach.
So what’s the difference?
Mutual funds: Crafted and managed by professionals, but not tailored to you
When you invest in a mutual fund, you’re choosing a preselected bundle of investments. Some of the benefits include:
- Professional management. You can tap into the investment management capabilities of experienced professionals rather than having to do the work yourself.
- Simplicity. One share of a mutual fund could provide you with various percentages of shares of a large number of stocks and bonds all at once. This makes mutual funds an effective and efficient way to diversify your portfolio.
- Some available at a low cost. Mutual funds can be a relatively inexpensive way to invest.
A potential drawback is that there are thousands of funds to choose from and the expenses and risks associated with them vary. So how do you choose which ones are right for you?
This is where automated investing can help.
Automated investing: Smart technology with choices based on your goals
Automated-investing platforms remove the guesswork by using technology to help you choose a balanced investment portfolio that’s based on your unique needs. Some of the benefits include:
- Simplicity. You answer a few questions about your goals, timeline, and risk tolerance, and a portfolio will be recommended for you.
- Ease of use. It’s easy to set up recurring or automatic contributions (and take advantage of dollar-cost averaging).
- Designed to keep you on track. The system will monitor your portfolio and rebalance it to your recommended asset allocation so it stays aligned with your investment goals.
- Tax efficiency. For taxable accounts—i.e., a regular investment account versus a tax-advantaged retirement account—the technology can help manage your gains and losses tax-efficiently, too.
Automated investing is one of the fastest growing ways to start investing and build good investing habits. It will not protect you from losses but does offer a simple and easy way to invest that saves you time.
A mutual fund is an investment company that pools money from many investors and invests the combined holdings in a single portfolio of securities including stocks, bonds, other securities or assets, or some combination of these investments. It is professionally managed according to stated investment objectives found in the fund’s prospectus.
Today, a wide variety of mutual funds is available, including those that pursue complex, specialized, or complicated investment strategies.
It is important to have a complete understanding of the investment strategies and underlying products to understand the mutual fund’s value to associated risks. For example, the level and type of risk associated with mutual funds may vary significantly from one fund to another. Before investing in any mutual fund, you should read about these risks, which are explained in detail in each mutual fund’s prospectus, and discuss your investment goals and objectives with your Financial Advisor.
Advisory programs are not designed for excessively traded or inactive accounts and may not be appropriate for all investors. Please carefully review the Wells Fargo Advisors disclosure documents for a full description of our services. Minimum account sizes apply.
There is always the potential for loss as well as gain. Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment losses.
Wells Fargo Advisors and its affiliates are not tax or legal advisors.