Robot Advisors functionality:
Trusting your retirement savings with a computer might be a frightening task. But the investment strategies/ideas devised and managed by them are something which can’t be only developed by computers themselves. To suggest your investment strategy and then manage your money, robot-advisers use a human algorithm—a complex mathematical formula that considers three main elements: 1) the historical data of assets 2) Information you’ve provided about your investing goals, timeline, and 3) What is your principal; and a menu of low-cost investments, primarily index funds and ETFs.
With the help of this information, the algorithm decides the best way to achieve your financial goals. It will suggest an allocation in terms of different types of assets likr stocks, bonds, and cash, then over time buy and sell specific investments to make sure your asset allocation goals are met.
Because the various robot-adviser platforms draw on the same historical data and offer comparable ETFs and index funds, the portfolios they suggest for investors with similar profiles may differ little from one another. For example, no matter which robot-adviser a young investor who doesn’t expect to retire for several decades, he will probably be recommended a portfolio that’s almost entirely invested in equities (or stocks). That’s because over the long-term, stocks have outperformed other investments such as bonds and commodities, offering someone with more than a few years to go until retirement time to absorb the higher risk and maximize gains.
Reference: http://www.consumerreports.org/personal-investing/rise-of-the-robo-adviser/
Robo advising is the buzzword these days and companies, from startups to fund giants, are using robo advisors to select investments that meet clients’ temperaments and needs. They tout low costs and portfolios most commonly made up of exchange-traded funds. It will be interesting to see how long can this trend sustain for?
I found this article interesting because I have in the research that I have been doing for these posts, I have seen the term robo advisors come up and not known full what that entailed. Are there different levels of service to which these robo advisors can work, and if so what are the distinguishing factors between these levels of service?
Robo-advisors seem like a good starting point for people who are beginning their investment journeys. I don’t see this completely replacing the industry experience and personalized interactions with an actual investment advisor especially among those with more robust portfolios. I also wonder if such solutions are breaching any kind of laws put in place to protect consumers.
It seems that the Robo-advisors are making a growing presence in financial advising. While it seems like a great opportunity to make people’s lives more efficient, I think it also eliminates a great opportunity for people to grow and learn about these important topics. I’m interested in seeing how these types of technologies challenge higher learning, rather than create a complacent population.