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Five reasons to rely on a robo advisor

The fintech industry appears to be an increasingly growing sector with no signs of slowing down.

As a widely covered topic in the media, you may have come across the term “robo advisor” as one of the innovations within the realm of financial technology.

Robo advisors, or digital wealth managers, are changing the way we invest.

We give you five reasons you should start relying on this type of wealth management company for next investments.

1. Expert advice

The internet enables anyone to access the world of trading: any individual can now buy and sell securities directly on the financial markets. However, most investors do not have the time or knowledge to do this in the most effective way, and investment options can seem endless.

When someone does not possess the necessary knowledge or expertise, investment options are often limited to high minimum investment levels and advice from independent financial advisors typically comes at a high price. This makes efficient investing very challenging, especially for individuals that have lower levels of savings.

Digital solutions are designed to close this advice gap. By matching individuals’ investor profiles and financial objectives to an adequate investment portfolio, robo advisors provide investors with an effective strategy to match their needs. The process is straightforward, simple and especially quick, allowing investors with no time or knowledge to have access to a diversified portfolio run by a team of experts.

2. Low cost

Many of the traditional investment platforms will charge its customers an excessively high management fee. Robo advisors are able to keep costs low thanks to the efficiencies they achieve through technology. This has a huge impact on the overall returns of your investments, allowing you to keep a larger chunk of your returns instead of giving them away in fees.

Additionally, the use of exchange traded funds (ETFs) as investment vehicles, further allows robo advisors to keep costs particularly low, making investing particularly cost efficient.

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3. Rebalancing

The financial markets are constantly changing and even a well-designed investment portfolio can move from its target. Portfolios must be rebalanced periodically. When investing yourself, rebalancing can be time consuming and particularly expensive due to the trading fees.

At Moneyfarm, for example, we do this process for the investors, by making adjustments to portfolios roughly every 2 months depending on market movements. An investment committee makes the portfolio decisions taking the burden off the investor, and trading fees are included in the overall management fee to keep costs for the investor low.

4. Transparent

Robo advisors offer a simple and transparent way to invest. Compared to traditional financial advisors, thanks to technology, investors have access to their investments 24/7 wherever they are.

At Moneyfarm, for example, you can track your portfolio performance, as well as the fees you are paying, on your Moneyfarm app. Where through traditional financial advisors you would need to wait to talk to someone and fill in long amounts of paperwork, now you can easily follow your investments at the touch of a button.

5. Rational decision making

Emotions play a big role in the world of investing. Although they make us human, they can often impact our decision-making, leading to important long-term consequences.

Specifically, in the world of investing, emotions play a big part in investors’ attempts to time the markets, leading investors to buy as the market goes up and sell as the market goes down – a strategy that inevitably leads to lower returns.

By calculating your risk tolerance at the start of the investment journey, digital wealth managers design portfolios that are suited to your individual needs. The decision making process is handed over to the provider, limiting the emotional bias that can downplay your investment returns.

Photo by Fabrizio Verrecchia on Unsplash

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As with all investing, your capital is at risk. The value of your portfolio with Moneyfarm can go down as well as up and you may get back less than you invest.