If you are new to investing, you might have come across the term “robo-investing” in your preliminary research, and you may be wondering what it is, and whether or not it might be the right vehicle for you.
Are robo-investment platforms trustworthy?
The first thing you will undoubtedly want to know is, “Is robo-investing a genuine, bone-fide investment platform?” This is an easy one to answer, and the answer is yes – it is. In fact some of the most trusted and popular wealth management companies, like Moneyfarm and Wealthfront for example, operate their own, bespoke robo-investment platforms.
The key thing about basic robo-investment platforms, like the one operated by companies like Wealthfront; is that they are totally automated. Now before you ask the question, “Aren’t they all?” – The answer is no, they are not. There can be various degrees of human intervention across the robo advisor sector, which is where someone like Moneyfarm, offer an interesting “halfway house.”
Who is best suited to working with a robo-advisor?
Using a robo advisor is very popular among young and first time investors. Robo investment platforms are built on sophisticated tables of algorithms. These are designed to facilitate automatic rebalancing, tax loss avoidance, and initial portfolio design aimed at maximising returns on the investment.
The reason they are as popular as they are, is that they are very simple to use. So, if you are someone who wants to have minimal participation in maintaining the growth your investment, and you would rather have little or no human intervention, a robo advisor package offered by the likes of Wealthfront, will be ideal for you.
How management costs differ
When it comes to cost, a fully automated robo-investment platform, can cost as little as between 0.15% and 1% to run. This compares to anything from 1% to 3% for a traditional investment package with expert human management.
Controlled by a series of sophisticated algorithms
Because there is so little human intervention with basic robo-investing, it doesn’t require a team of investment experts to constantly monitor what is happening. This doesn’t mean though that your investment is just left where it is, come hell or high-water. The algorithms we mentioned earlier, automatically do the managing.
The advantages of using a traditional (non-robo) investment advisor
Although using a robo-advisor is gaining in popularity, the vast majority of investors feel more comfortable working with a traditional (non-robo) investment advisor. This is particularly the case if you are a person who values direct human contact.
The only contact you get with a robo-advisor tends to be limited to asking questions about the system itself. A non-robo advisor will field and address all of your questions and concerns about the performance of your portfolio.
With a robo platform, once your appetite or aversion to risk has been established, that’s pretty much it. Your portfolio will be assembled and there will be little or no room for movement. On the other hand, a traditional non-robo investment advisor will offer you flexibility.
Nurture your investment by commissioning a robo advisor with the human touch
A robo-investment platform that offers the human touch as well is a very interesting proposition. It offers the best of both worlds. In this situation, the robo-advisor has a human side, or to be more accurate; a human investment expert, who will keep any eye on your portfolio’s performance, intervene where necessary, and offer help and advice when you call.
This is the sort of robo-investment platform that scores on all fronts. A supervised robo platform you can talk to someone about; that has flexibility, and that is offered at rates more closely akin to fully static, automated platforms.