Why-Robo-Advisors-Are-Must-Have-Finance-Tools

Why Robo-Advisors Are A Financial Game-Changer

Up until recently, investment advice was usually given by professionals with many years of experience working in finance. However, the implementation of artificial intelligence is quickly changing this status quo. During the early 2000s, software developers began designing robo-advisors that provide automated financial services without any human interaction or intervention. The technology became widely used by investment and finance professionals over the next decade. However, it was limited to their use until 2008, when the tech became available to retail investors and other public users.

Today, virtually anyone can register with a robo-advisor platform and create their own automated investment portfolio that uses algorithms for streamlined financial planning. This technology eliminates the need to hire a personal financial advisor. Additionally, it minimizes paperwork and makes it easy to buy, sell and trade high-value assets.

How Popular are Robo-Advisors?

An analyst opinion from Statista states that the robo-advisor market is experiencing rapid growth. A rising number of users are turning to automated investment platforms instead of traditional brokers. The analyst notes that throughout the robo-advisor market, AI and machine learning technologies are increasingly merging. This is leading to more personalized services and recommendations for users.

Furthermore, robo-advisory services are improving and expanding to offer a wider range of financial services. These include debt management, retirement saving, tax optimization, and others. The analyst’s comments further state that it's expected that the market will continue growing over the coming years. Driving factors like the growing demand for cost-effective investment management tools and the burgeoning popularity of passive investing will play a role in this acceleration.

5 Reasons to Use Robo-Advisory Platforms

There are many benefits to using robo-advisors to manage your investments, from lower costs to better yields over time. Here are the top 5 reasons why you should consider using one of these platforms to optimize your finances.

1. Lower Expenses

If you hire a traditional financial advisor, you could expect to pay at least 1% of your assets under management in exchange for the advice you need. On the other hand, automated technologies can come at a far lower cost, and some are even available for free. 

Many robo-advisors also give users more ways to pay and invest, including a broad selection of cryptocurrencies. This makes it simpler to exchange and buy assets at the right times.

2. Advanced Investment Models

Most robo-advisors use algorithms based on a Nobel Prize-winning theory of investment. This focus on investment best practices helps to build investment portfolios that deliver the highest returns for the lowest relative risk. In the process, allowing you to maximize your money.

3. Improved Access to Financial Advice

If you’re young and just starting to earn or invest money, or you haven’t considered taking professional financial advice yet, robo-advisors could be the ideal place to start. These platforms are equally well-suited to users with low net worth and simple investment needs. Plus, they provide easy access to sound financial advice to virtually anyone who needs it. 

As mentioned above, the costs of using an automated solution are often lower or there are no costs involved at all. This makes robo-advisors a great, accessible choice for investors with limited budgets.

4. Time Savings

Managing your investment portfolio manually can be a tedious and time-consuming task. Especially if you’re new to investing. Robo-advisors take the guesswork out of portfolio management. They can automate many parts of the process (or the entire process) to save you time and effort. 

Your robo-advisor can automatically balance your portfolio, ensure that it remains diversified, and invest in the right assets to ensure that you meet your long-term goals. Some platforms can even adjust your holdings to suit your ideal risk strategy as you grow older. In addition, they can make necessary adjustments automatically to enhance and protect your financial wealth.

5. Automatic Tax Loss Harvesting

Every investment market has ups and downs, and this volatility is well-known and expected. Even the most skilled of investors use these market fluctuations to their advantage through tax loss harvesting. This practice involves selling investments that are down at a loss. Then immediately buying similar investments while locking in tax losses without losing your position in an asset class.

This is a challenging process for any individual to perform manually. But computer algorithms can handle it automatically and in a highly efficient way. Robo-advisors can also manage tax loss harvesting in larger portfolios and reap notable tax savings for their users.

Additional Benefits of Robo-Advisors

Along with our top 5 reasons to use a robo-advisory platform, there are a few other important benefits to know about. They include:

  • Robo-advisors only base investments on high-performing portfolios. These automation tools remove the risk of smaller investment managers and minimize the middleman in larger managers. Instead, they provide consistent access to quality portfolios that perform well over extended periods of time. While a human advisor may recommend funds that won’t be in your best interests, a robo-advisor will use a wealth of data to determine the very best investment funds for your needs—every time.
  • They only invest in low-fee funds. Many popular robo-advisors only use low-free ETFs to build their clients’ portfolios. Many of the funds this specific service uses have fees below 0.10%. And none exceed 0.23% at the time of writing. This focus on low-fee funds helps to ensure that your portfolio always has high liquidity and affordable expenses.
  • They charge reasonable management fees. The average robo-advisor will charge between 0.25% and 0.35% in management fees. However, this is dependent on your chosen services and your account balance. By contrast, a human advisor will often charge well over 1% for the same services. 
  • They provide a diverse range of investment services. Today’s robo-advisors provide an impressive selection of options that allow for easy portfolio diversification. Just some of the options include the opportunity to invest in stocks, passive investments, optimized portfolios, investment selection, and retirement planning. Many of the most trusted robo-advisory platforms are becoming complete turnkey solutions through which you can manage all of your investments and find solid financial advice without paying excessively for it.
  • They don’t make emotionally driven or impulsive decisions. Many human investors follow their fears and instincts when picking risky investments. These choices do sometimes pay off. But they could also lead to significant financial losses. Humans follow their emotions when trading investments. However, research has found that this can impact their ability to sell high and buy low. Computer algorithms don’t make emotional decisions, helping to protect your money and to invest in the ideal assets at the right times. A robo-advisor will know how to handle your portfolio during a market downturn and will take those data-informed actions on your behalf.
  • Robo-advisors offer consistently high quality services to every user. It’s an unfortunate fact, but some human financial advisors will favor their wealthier investors over those investing smaller sums. However, this is not the case with robo-advisors. These platforms get programmed to offer every user the same level of quality service and advice, regardless of the size of their investments or their net worth.

The Future Of Finance

Robo-advisors use powerful artificial intelligence technology to create and use optimal investment strategies based on decades of financial research. Not only are they programmed to make ideal financial decisions for every user, but they are also more cost-effective than hiring human advisors. They also provide a more consistent level of service, regardless of your investments’ values.

If you’re looking to invest for your retirement or grow your money using informed investment strategies, robo-advisors make it easier to access premium investment advice and automate your portfolio management. They handle your entire portfolio automatically, leaving you with more time to focus on building your future and achieving financial stability.