How many times you have
listened to the advice of your friend/colleague or someone you know, to invest
in stock market? Many people have gained and lost their fortune with this guess
work and now younger generation is more scared to hand over their hard earned
money to someone for investing.
Until recently, you had 2
options for investments - either hire a human financial advisor or do it
yourself. Human advisors charge substantial fees starting minimum 1% of value
of assets to manage your portfolios. Do it yourself option requires lot of time
and energy and you may lose your money due to result of overtrading,
panic-selling during downturns, and trying to time the market as the issue for
many individuals is they aren’t cut out to go it alone
This is where robo-advisors
have scored more over humans.
A robo-advisor is an
online, automated wealth management service based on data science algorithms
with no or minimal human interventions that allocate, deploy and rebalance(spreading
your money in stocks, mutual funds, bonds to balance risks) your investments.
The robo-advisor industry
is in its infancy. Online life is migrating from persona desktop computing to laptops
to tablets and finally to mobile.
Here are some of the
advantages of using a robo-advisor:
·
Cheaper
fees or free compared to traditional financial advisors
·
Automatic
diversification into various options
·
Easy
online access as we all are accustomed to shiny apps on mobile
·
Safer
than picking your own stocks
·
You
don’t need a degree in finance to understand the recommendations.
Big data and advanced
analytics can help broaden the scope of robo-advice dramatically, incorporating
financial planning into broader retirement planning, tax planning, vacation
savings, higher education planning.
Robo-Advisors have
typically targeted millennials segment because these young investors want to
save & multiple money faster and often don't have enough patience & wealth to warrant the attention and
interest of a human advisor.
High Net worth
Individuals also think, online and automated investment tools can positively
affect their wealth manager's advice and decision-making.
Overall, robo-advisors
provide a good user experience with latest digital technologies such as slick apps and fancy
interfaces. These platforms make sure that they fit right in with your
daily online browsing, and are great options for novice investors who are just
starting out and want to dip their toes in the world of investments, or for
people with a simple financial plan who just need an affordable,
straightforward place to start their retirement plans
Wealthfront &
Betterment are two popular commercial fee based robo-advisors available today.
In the Free category WiseBanyan & CharlesSchwab are making the ground.
But it won’t be long
before Amazon, Google, Facebook and Apple get in on the robo-advisor industry.
Robo advice is certainly
here to stay, and it has its place in the wealth management landscape of
tomorrow. But what's missing most,
with robo-advisers is the personal touch. In this age of hyper-personalization, the lack
of a human element is one area where robo-advisors may fall short.
The robo-advisor can't
replace a trusted age old adviser, your elders have worked with, who lives
nearby and can rush right over in case of need, who knows you and your family.
With the pace of
improvement that Artificial Intelligence and machine learning bringing up, robo-advice has the
potential to become highly personalized and specific over time.
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