Robo-advisors: everything you need to know before investing
Robo advisors
Posted by MoneyController on 07.10.2022
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Robo-advisors are automated financial advice and investment programmes. Interest among investors, including retail investors, is growing. This is also shown by a projection of the company Deloitte: in 2025, these programmes will manage 16 trillion assets, compared to 10 trillion for BlackRock, which is the world's largest asset management company. But what is worth knowing before choosing and investing in these automated financial advice and investment programmes? Jacob Wolinsky writes about this in CEOWorld magazine.
Wolinsky reminds us that the term 'robo-advisor' can be misunderstood: these are not real robots, but calculation programmes that use algorithms to identify the best investment choices based on crucial parameters, such as 1) the investor's risk profile, 2) the capital available, and 3) the investor's time horizon. Here are the first two advantages of robo-advisors: they minimise the costs linked to the human component and are protected from emotional interference. But there are also the first two disadvantages: the human component of the investment cannot be taken into account (life goals) and personal interaction is cancelled out.
Not all robo-advisors are the same. There are, for example, differences in performance, but also in the ways in which they set up investments. In addition, the minimum investment requirements often differ between the different service providers. Robo-advisors, Wolinsky explains, are preferred by the younger generation for two reasons: a) they are more familiar with new technologies; b) these software products are less expensive than personal financial advice.
Robo-advisors, Wolinsky admits, are not perfect. According to some, they will never be able to replace the human component of advice, as well as being able to formulate tailor-made strategies for any client, let alone fit an investment into a comprehensive financial planning. However, Wolinsky points out that these technologies do represent an interesting step forward in the investment field, in terms of analytical and predictive capabilities. Financial advisors have also realised this, and often delegate some calculations to these investment programmes, which some say are more reliable (not least because they are less influenced by emotions). This means that many financial advisors do not see robo-advisors as a threat, but as a resource to make their work more efficient.
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