Are algorithms the future of trading?
If you were to ask one-hundred people whether they would be willing to trust the investment of their entire savings into the hands of a robot, chances are that the vast majority of people would say, no. If you were to ask the same question, but replaced the word “robot” with “complex algorithms”, chances are that the result would be quite different. In much the same way that “the cloud” is not an actual cloud drifting around aimlessly in the sky; Robo Advisors are not a collection of funny looking robots working away in some huge blacked-out factory somewhere. In both cases, what is working away is an incredibly complex technological system that has been optimised to make the world we humans live in a little bit simpler.
What exactly does a Robo Advisor do?
The short answer is that a Robo Advisor is an automated, algorithm-driven financial planning service. Basically, a high-end, technologically-sound system that will manage your investments for you. It does this based on your personal financial situation, your investment goals, and its investing decisions are influenced by your chosen level of risk. All of this information is fed into the Robo-Advisor’s operating system when you first sign-up to a Robo Advisory service. What benefits do I get from using a Rbo-Advisor? One of the principal benefits is that a Robo Advisor is essentially another example of a FinTech driven subversion of the old rules as to how finance works. Traditional financial advisors have been operating, and making huge commissions, for almost as long as there has been money and commodities to advise upon, but the services of such people were usually only affordable to those who had a lot of wealth to begin with. Today’s Robo Advisors are yesterday’s financial advisors. Traditional financial advisors often only took on high-net-worth clients. A Robo Advisor can offer the same service to almost anybody with the desire to start investing. Another huge benefit is that a Robo Advisor is accessible 24/7. All you need to access your personal Robo Advisor is an internet connection and your log-in details. No need to make an appointment and head into an office in order to have the privilege of finding out how your investments are coming along. No emotion. Perhaps the biggest single benefit is that a Robo-Advisor is not controlled by any of the emotions that play such a big part in our own daily lives. The Robo Advisor simply executes the trade which the algorithms have deemed the most suitable in that particular moment. No second-guessing, no doubt, no fear.
What kind of people use Robo Advisors?
As mentioned above, robo-advisors are commonly used by those people who previously felt locked-out from the world of high finance. Those without much trading experience or huge amounts of capital to invest are now actively seeking out Robo Advisors as a safe way to start making their money work for them. A younger generation of investors has also been one of the biggest markets for the Robo Advisory movement. Millennials and those people who see technology as key to their daily lives can finally connect with a form of investing that matches up with their social profile. Whilst it’s true that a whole new breed of people are taking advantage of the simplicity and accessibility that Robo Advisors offer, this is by no means some kind of niche market. Many of the biggest financial institutions are already heavily invested in the robo-advisory movement. Not surprising when it’s predicted that by 2020, Robo Advisors will be managing more than $2 trillion in global assets.
Is a Robo Advisor right for me?
If you are new to trading or investing and would like to learn more but still get started straight away, a Robo Advisor could be the perfect option for you. Not only does a Robo Advisor have all of the knowledge you are lacking, it also has nothing but time to dedicate to making your money work. The beauty of using a Robo Advisor is that there is no obligation for you to place all of your capital into the hands of the robot. More experienced traders could try investing a percentage of their funds with the Robo Advisor and then compare the Robo Advisor’s performance against your own over a fixed period of time.