What is A Roboadvisor And What Can It Do for Me?

by Andrew McGuinness     Jul 16, 2019

4 mins read

If you are new to the world of trading and investing, odds are that you aren’t familiar with a lot of the different technical terms used on the market. The investment vocabulary is far too vast to cover in a short period of time, and expands more often than you might think.

As trading is being innovated and transformed to suit the future, even experienced investors will feel lost and left behind at some point or another. For this reason, as an investor of any kind, experienced or novice, it is essential to keep your trading knowledge updated.

If you have invested in the stock market recently and have been keeping track of the latest investment news, it is likely that you have heard of the term ‘roboadvisor’. If you decided not to look into just what a roboadvisor is and how you could use it to your advantage, here is your second chance. The following is a summary of what a roboadvisor is and what exactly it can do for you.

1. What is a roboadvisor?

To put it simply, a roboadvisor is an investment platform that has been innovated to suit the needs of the new world and its technologically advanced customers. These platforms supply advice and guidance to investors with as little human interaction as possible. In other words, they are quite literally robotic versions of advisors.

These platforms begin with an online survey that compiles all of the information necessary in order to get a good idea of the prospective investor’s or investment holder’s requirements, goals, and capacities. Upon collecting all necessary information, the roboadvisor will provide you with a number of the best assets that uniquely suit your criteria for you to consequently invest in.

2. What are roboadvisors good for?

The very first roboadvisor in existence was called Betterment and was used in order to balance investments within portfolios and reach a particular goal in terms of funds earned. Created in 2008, it was also the first roboadvisor available to businesses as well as the public. Before this time, ever since the 21st century began, wealthy investors and businesses always had access to roboadvisors. It was not until 2008, however, that roboadvisors became economical and widely used with the help of Betterment.

Roboadvisors are a cheap substitute for financial advisors, which you may require as an investor in the market. Of course, you do lose the personal touch of a human advisor that consults your needs, but you also lose the constant fees charged by advisors, as well as the sometimes unreasonably high commission.

While roboadvisors may charge a flat annual fee of up to 0.5% of the customer’s balance, a traditional financial advisor is likely to charge anywhere from 1%-2%. This may not seem like much out of context, but if you gain returns that are on the higher end of the scale, 1% really adds up.

3. What should roboadvisors not be used for?

No survey can cover all of the bases that a human financial investor is able to cover. You may be asked countless questions about your financial history, what you need from an investment, and the risks you are willing to take, but no algorithm can personalize an investment plan as well as a human being who has 30+ years of experience on the market and gets to properly know your needs as an investor.

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