Robo advisors are computer programs that can help investors make better investment choices. Robo advisors use algorithms to analyse data and identify patterns, then recommend specific investments to their clients. Robo advisors are becoming increasingly popular because they are cheaper than traditional investment advisers and they can provide online access to the advice they provide.
How do Robo Advisors Work?
In the investment world, there are two main types of advisors: human and Robo. Robo Advisors, as the name suggests, are computer programs that provide financial advice. But how do Robo Advisors work? And are they really as reliable as human advisors?
Robo Advisors use algorithms to make investment recommendations. These algorithms are designed to take into account a wide range of factors, including a customer’s age, risk tolerance, investment goals, and income. The Robo Advisor then creates a personalised investment portfolio for the customer based on these factors.
Types of Robo Advisors
There are three main types of Robo Advisors:
Passive Robo Advisors use a pre-determined investment strategy that is based on Modern Portfolio Theory. They typically have low fees and are ideal for investors who are comfortable with leaving the management of their investments up to a computer. Active Robo Advisors use a more hands-on approach, making tactical decisions about which stocks or funds to buy and sell in order to beat the market. Hybrid Robo Advisors use a combination of both active and passive strategies to help their clients.
The Pros and Cons of Robo Advisors
Robo advisors have several advantages over traditional financial advisors. They are much cheaper to use, with most services costing under 0.50% of assets under management per year. They are also much faster, typically completing a portfolio review in minutes rather than hours or days. And they are available 24/7, which is important for investors who want round-the-clock access to their money. As a result, robo advisors are popular with investors who want to keep things simple and secure. They also have the advantage of being able to use more advanced-level technology to analyze portfolios and make investment recommendations. The cons of Robo advisors are that they are not available for every account, and no one has yet figured out how to charge a reasonable fee for their services.
Should You Use a Robo Advisor?
With the rise of robo advisors, more and more people are wondering if they should use one. Robo advisors have several advantages over traditional financial advisors. For one thing, they’re much cheaper; most of them charge fees of around 0.25% of your portfolio balance per year. They’re also faster and more efficient; you can usually get a portfolio recommendation within minutes of completing an online questionnaire. On the other hand, because they are computerised, they may not be able to account for all of your individual needs and preferences when creating your investment portfolio. In the end it is a question about your preferences, do you feel comfortable with automated investments?
Here is a list of Robo-advisors on Forbes