When most people think of making charitable contributions, activities like volunteering, donating gently-used household or clothing items, or writing a check at a fundraiser come to mind. However, donating stock to charity is another way to make an impact. The process of giving stock to a non-profit organization is similar to that of any other contribution of stock investments, but this type of donation may provide tax benefits to you as the donor.
While the benefits of charitable stock donations may be enticing, keep in mind that you can only make a donation if you own stocks in the first place. You need to select and invest in a stock before you can even consider any benefit from a donation; it can be difficult to make the right buy, especially if you’re new to investing.
Luckily, beginner and experienced investors have two main options for investment advice. Alongside traditional human advice, robo-advisors are a growing resource for portfolio management thanks to advances in technology. This begs the question: which advisor should you rely on? How do up-and-coming robo-advisors stack up compared to traditional advisors?
What Are the Advantages of Using a Robo-Advisor?
Robo-advisors are a relatively new addition to the investing marketplace. Through technology-driven platforms, robo-advisors help individuals invest their money in a variety of investment vehicles, often automatically. Investment options currently include mutual funds, exchange-traded funds, and individual stocks. Through a mobile app or an online website, robo-investors can add money periodically or systematically to an account, and the funds are immediately invested.
One of the most significant benefits of using a robo-advisor is the lower barrier to entry. Robo-advisors are designed to help novice investors get started with building a portfolio. They often only require small contributions to start, reducing the upfront commitment. This provides access to stocks in smaller increments, with lower dollar amounts necessary, giving investors the ability to build up a stock portfolio over time that can ultimately be donated to charity.
Robo-advisors may be less expensive than traditional brokerage accounts or investment advisors. There are minimal fees when using a robo-advisor, which can be beneficial when trying to invest for a future donation. Lower fees may benefit an investor by reducing the overall cost of investing and increasing the final profit margin.
Aside from reduced cost, robo-advisors offer live data and instant updates on stock performance, allowing an investor to keep tabs on their money. This could help an investor make faster decisions and react more quickly to the market if needed. Furthermore, robo-advisors will offer suggestions based on your individual risk tolerance and preferences which could be instrumental for a new investor still learning the ropes.
Are They Trustworthy Compared to Traditional Advisors?
Although robo-advisors can be less expensive and easier to work with on the surface, investors have another option for building up a stock portfolio with the help of a traditional financial advisor. Human advisors are the preferred choice for some millennial investors according to a recent study, given the higher level of engagement, knowledge, and experience they bring to the table.
To start, traditional investment advice is typically more expensive compared to a robo-advisor. Selling points for robo-advisors are the low account minimums and fees. Contrarily, some traditional advisors may charge higher fees and only work with clients who are investing larger sums.
Although fees and account minimums are higher, human advisors bring a wealth of experience to the table as well as the human touch. They can see possibilities and developments that a robot may not always catch. Some would argue that human advisors can extract a greater return from your investments, whereas a robo-advisor may offer more limited investment options.
However, others still argue that robo-advisors are able to generate the same or better investment performance as fee-heavy financing advisors over the long run, but this may not be completely accurate yet. The current short track record of robo-advisors may not be comparable to financial advisors.
Additionally, human advisors can add much more in terms of forward-thinking and strategic planning. Financial advisors can tailor a portfolio for the purpose of donating stocks in the future, while robo-advisors may not be able to factor in this intention.
The Bottom Line
Donating appreciated stock can be a smart move from a tax perspective – not to mention an incredibly valuable contribution to a charitable organization. Donating investors pay a greatly reduced capital gains tax on the transaction while the charity reaps the benefits of an asset it can use later on.
Robo-advisors offer the ability to invest without high or unrealistic account minimums, like some financial advisors require. They can also offer stock investing on the cheap, compared to the fees charged by human advisors. However, these benefits do come with trade-offs as mentioned. On the other hand, traditional advisors offer strategic advantages, but at a cost. An investor needs to weigh those costs and advantages with the expected growth of their investments.
With that in mind, beginner investors may want to start with robo-advisors to build up a portfolio, then transition to a human advisor for the long term before donating to charity.
By Andrew Rombach, a Content Associate for Lendedu – a website that helps investors, consumers, small business owners, and more with their finances