Investor Alert: Automated Investment Tools

By Jason Robinson, Summer 2015 Graduate Research Assistant

Advancements in computer technology and the growth of internet access have made automated investment tools available to a wider range of investors. Some examples of automated investment tools are online calculators, portfolio selections services, asset optimization services, and investment management programs. While these tools can be beneficial to investors, according to a new FINRA and SEC Investor Alert on Automated Investment Tools, there are a number of risks and limitations that investors should understand before using them.

Here are five tips to keep in mind before using an automated investment tool:

  1. Review the terms and conditions before using the tool. Some tools come with fees, expenses, and/or limitations on when a user can terminate an agreement or withdraw funds. If you are unclear about any of the terms and conditions contact the sponsor of the automated tool directly.
  2. Consider the limitations and assumptions associated with the specific tool. It is important to make sure that the tool’s assumptions apply to your specific financial situation and the market in which you are investing in.
  3. Recognize that the information that you provide to the tool dictates the tool’s output. Make sure that you understand the questions that the tool asks and that you answer the questions correctly.
  4. An investment tool’s output may not be right for you. The investment tool may not account for certain variables that are relevant to your financial needs or goals.
  5. Beware of scams or investment tools that could jeopardize your personal information. Read through the tool’s privacy policy and contact the tool’s sponsor if you are unclear about anything.

For more detailed information on this subject take a look at the full Investor Alert on Automated Investment Tools.