Do Robo Investment Platforms Actually Work?
Artificial Intelligence is slowly taking over many aspects of our lives, from manufacturing and shopping to sports and entertainment. Nowadays, you can also automate your investments through a robot advisor. Your robot investment fund does all the hard work for you. All you do is sit back and watch your portfolio grow. Millions of people trust these programs: they manage more than $200 billion worth of investments according to US News. An Overview of Robo Advisors  Robo advisors are software programs that use AI algorithms to manage peoples investments. Although many Robo investment platforms are full automated, some of them also support human intervention. Proponents of Robo advisors say these tools eliminate the human emotion factor that often cost many traders their profits. Because software is emotionless, it can make fact-based decisions to maximize your profits and limit your losses. What Robo Advisors Can and Cant Do  Before we talk about the effectiveness of Robo advisors, lets talk about how they work. Robo investment programs invest based on the information fed to them. If programmed to buy when the price rises by 2%, thats what they do. If programed to sell your investment if it goes down by 5%, they stick to the rules. They cant go off track. That means a Robo advisor will be right and wrong based on the information fed to them. Additionally, they can handle these tasks:  Dollar cost-averaging  Portfolio balancing  Harvesting tax losses  Finding investments for you  Balancing Risk with Reward  That said, you cant interact with a Robo advisor in the same way you can connect with a human advisor. It cant tell you whether to change or not to change your portfolio. Its up to you. Best Robo Advisors  If youre convinced a Robo Advisor is what you need to make money in the stocks market, there are plenty of options. Robo investment platforms vary in how they work, their fees, and limits, though. If you want to maximize your profits, ensure you pick the right platform for you. Lets say you want a program that invests in ETFs and not individual stocks; choose a platform like Nutmeg or MoneyFarm, both of which specialize in ETFs. Before you make a decision, compare multiple platforms to learn how their investment programs work. MoneyFarm, for example, has seven portfolios. Each portfolio differs in how it allocates your money: developed markets, upcoming industries, corporate bonds, to name some  That being said, below are the top five most popular Robo investment platforms in the UK and the US:  Vanguard Digital Advisor  Scalable Capital  Wealthify  Wealth front  Stash  Benefits of Robo Advisors  Robo Advisors have been around for more than a decade. Importantly, some of them have incredible results. Nutmeg, for example, has returned 43.7% since 2013 on its fully-managed program with a 5/10 risk rating. On the other hand, one of Money Farms portfolios has a return of 50.12% since 2016. If you need more convincing that Robo Advisors work, take a look at these benefits of the programs. Automated Investing  Lets start with the obvious. Robo advisors are effective in investing on your behalf. The programs give you a questionnaire with questions to assess your goals, risk tolerance and appetite for profit. After that, the program takes over the investment process. If its programmed to invest through ETFs, it allocates your money to different ETFs. Then it monitors your portfolio, to buy and sell at the right time in a bid to make you profits. Financial Planning  If youre unsure of how to invest, a Robo investment program can help you customize your portfolio based on the answers you give in your questionnaire. They are not as persuasive as human advisors. And they certainly lack a human touch. But they can help you make a financial investment plan. Low Fees  Generally speaking, Robo Advisors are cheaper than human investment planners. They dont even charge you a minimum investment amount. You can start with a small amount you can afford to lose. When it comes to management fees, the best programs charge you from 0.25% to 0.75% per year. The fee could be lowered if youre planning to invest a huge amount, usually $100,000 or more. Unlike traditional brokers, Robo Advisors dont charge day-to-day trading fees. They dont ask for commission fees either. And as a result, they can help you save a significant amount of cash that would otherwise go to fees. Free of Human Emotions  Emotion is a big reason why many people lose in trading. Lets say you win a trade. So, you take on margin to increase your position. Sadly, the market goes against you and you lose. Robo Advisors are free of human emotions. They dont increase or reduce positions based on how they perform. They are immune to stress, excitement and other emotions some people rely on to make investment decisions. And due to that, they have a significant advantage over their human counterparts. Theres Variety  Contrary to popular belief, Robo Advisors dont look and work the same. Theres a variety of them, which means you can choose a program design to work in alignment with your principles and goals. If you want to invest in entertainment stocks, you can find a program that targets the industry. If youre after fees, theres a Robo advisor for you. Verdict  Robo Advisors arent fully personalized. You cant have a face-to-face meeting with a software program. But heres what a Robo advisor can do for you. It can invest on your behalf after learning about your goals. The best Robo advisors have a history of turning profits consistently. But you have to be careful to pick the best programs. Otherwise, a terribly programmed piece of software cant help you much. As always, you can start small to learn first-hand about the effectiveness of these programs. If you like them, you can increase your portfolio.