If you're worried about a robot taking your job, think about how investment portfolio managers feel as robo-advisors surge in popularity among retail investors.
- Roboadvisors managed over one trillion dollars in 2020, a figure that’s projected to triple by 2025.
So why are people ditching traditional advisors and saying, "Domo arigato investment Roboto"?
A robo-advisor is an algorithm-driven investment platform that provides low-fee, automated investment strategies tailored to the user's financial goals.
- They charge lower fees compared to the 1% to 2% a human financial planner might charge.
- They are also more efficient for simple trades, making it possible to buy and sell with a few clicks of a mouse rather than needing to call a human financial advisor.
- It takes a lot less capital to get started with a robo-advisor, and some services have no minimum balance required.
Robo-advisors typically adhere to Modern Portfolio Theory (MPT), which is fancy language for a strategy that aims to maximize returns without being too risky with your selections.
- They focus on passive investment and diversification through mutual funds and ETFs to build wealth over time rather than aiming for the outsized returns that more expensive, actively-traded funds promise.
Yes, but: Automated investing has some drawbacks. If you want to discuss your finances with a human, robo-advisors won’t be able to provide that service. And they’re often not capable of handling complex trades or financial goals (like estate planning).