Thats the 100$B question right? Because fear. Because unfamiliarity. Also because 1% seems small, but its really more like 14% (if the average return is 7%, you're giving up 1/7 of your return!)
What's funny is... whenever you call an FA (financial advisor) in a moment of panic... they answer always is "don't act emotionally and stick to the plan". Maybe a real "robo-advisor" should just be a chatbot that responds to any message it gets with "HODL".
>> Because unfamiliarity.
This one is going to be interesting to watch evolve and I see it becoming less of an edge for financial advisors. More and more, we are seeing retail investors gain familiarity (not saying knowledge... but at least familiarity) with financial markets through blogs, social media, etc. I think we are moving to a world of more self-directed investors than advised investors.
Some interesting articles to that effect:
https://www.wsj.com/articles/rich-millennials-to-financial-a...
https://www.wsj.com/articles/fidelity-once-stodgy-and-adrift...
https://www.m1finance.com/blog/the-rise-of-financial-influen...
For example, during the onboarding they direct you to set up recurring investments and they show you in real time what that small investment might become by retirement age. That simple mechanic, which nobody else seems to do in that way during onboarding, makes it really obvious that you need to set that recurring deposit to be as high as you can possibly afford.
My robo-advisor did, during the giant tumble the markets took during the beginning of this pandemic, put up a message on the site & send a pro-active communication saying, essentially, to HODL. (In more eloquent terms, of course.) I presume a human had a hand in it, ofc., as they likely understood the fear most people would feel looking at the graph.
(My mistake, really, was not buying more at the bottom.)
By Year 40:
* >$500K &
* ALMOST a quarter of the portfolio
When I was starting out, someone in my company's 401k forum mentioned this # (at that time the # was almost 40%, fees have gone down a lot since the early 2000's). And I am glad I paid attention.
I try and pass on this wisdom everytime I can. Now, you can too.
Here is a NerdWallet article on this topic: https://www.nerdwallet.com/blog/investing/millennial-retirem...
AND
My attempt at recreating their math (TL;DR: It matches, almost): https://docs.google.com/spreadsheets/d/1QTa4XBIUgnLCt_lo6x0n...
edit: for formatting
All the discussion on this thread of "oh just go with a mutual fund" is insane to me. Even if funds have dropped in price from 1.5% to 1% to .7%, that is a huge number over the course of your life. The only realistic approach is super-low-cost ETFs, but those arent friendly to use or make a portfolio from. So the WealthFront layer is pretty critical IMHO.
say you have $100k invested
the 1% fee for that will be $1k
the earnings will be $7k