The prospect of robotics and automation is something that is often met with equal amounts of fascination and fear. However, the reality is that they exist in many ways beyond a machine acting like a human.
There’s no denying that when implemented effectively, it can lead to higher productivity and ultimately, help individuals and larger organisations save time.
A robo-advisor uses AI, automation and other clever technology to help individuals via online platforms – and this can be applied to the world of trading and investing. Many trading platforms and apps integrate sophisticated technology like this to enhance user experience, from analysis tools to helpful insights and resources.
Robo-advisers are a relatively new type of technology, so it’s important to consider the pros and cons. Here’s what you need to know.
Should Robo-advisors Be Part of Your Investment Strategy?
Automatic investing in a nutshell
Automatic transfers can be set up so that your money is routinely placed elsewhere. This might be a savings account, a workplace retirement account, or whoever you owe bills to.
This set-it-and-forget-it approach can be applied to investing too. The idea is that you invest little and often but without having to lift a finger once you’ve set everything up, therefore building wealth over time.
More sophisticated versions of this include using a robo-advisor where an automated platform chooses investments for you. It will take into account any information you provide, including your risk tolerance. They tend to strive towards diversifying your portfolio too, which is a highly praised approach to investing.
When robo-advisors can be a good idea?
A key advantage of robo-advisors is that they remove the emotion from investing, which in turn could maximise an investor’s chances of returning a higher yield. Plus, an investor would be less reliant on the traditional approach of hiring a financial advisor, which can be costly. It essentially marries software with the role of investment managers into one.
With this in mind, robo-advisors can make investing more accessible to the masses – and they’re designed to be super-easy to use. Plus, depending on the design of certain robo-advisors, you can benefit from a more personalised customer service experience, which can make you feel less alone in the investing process. Beginners and more seasoned investors can benefit from the presence of a robo-advisor, not least because it can save money and time.
Reasons not to use robo-advisors
As with any decision you make regarding finances, it’s important to consider the cons too.
Firstly, they offer less flexibility with investing. If you’re at a beginner or intermediate level, this won’t matter too much. However, if you’re more experienced and prefer to take on more complex strategies, a robo-advisor might not be the best match for you.
Then, of course, they can limit the human interaction you might otherwise gain from collaborating with a financial advisor or planner. At the end of the day, they can’t add that human touch and may lack understanding of context, unlike a real human. You have to be prepared to steer the process.