Robo-advisors have been around for less than a decade. However, in their relatively short time on this Earth, they have already made their mark on the worlds of investing, finance, and even artificial intelligence. Robo-advisors represent the latest frontier in our implementations of data analysis and algorithm-based decision making.
For investors, robo-advisors have opened the door to hands-off passive investments for just about anyone. They are able to manage portfolios, both large and small, automatically, and with little to no input from the user. Here are five ways in which robo-advisors are changing the investment industry.
Removing Barriers
One of the most significant positive effects that technology has had on our society is in removing or lowering many of the traditional barriers to entry that existed amongst various industries. Education, for example, is now more accessible thanks to the availability of online courses, which are cheaper than traditional campus courses. Online universities allow students to complete their studies, mostly or entirely from home. This means that people who traditionally would struggle to attend a regular university are able to take advantage of educational opportunities that would otherwise pass them by.
Similarly, robo-advisors are allowing people who don’t have Ph.Ds, or even investment experience, to invest passively and with a high chance of success.
Reducing Costs
There has traditionally been a cost of doing business associated with most forms of investing. Most people require the services of a financial advisor, an accountant, and maybe even a lawyer as well, depending on the nature and level of their investing. A robo-advisor can remove or greatly reduce your need for all of these people. The fees that you do pay for investments through a robo-advisor will be lower than the fees you would pay a human advisor. Have a look at this review for Personal Capital fees as an example.
Reduce Stress
The world of financial management can often feel a lot like gambling. But, unlike with gambling, you can employ skills and knowledge in investing in order to secure yourself a better position. You are not a slave to luck like you are in the casino, but there is always a similar threat of losing your investment, which hangs over everything you do.
A robo-advisor will make decisions for you, and they will do so with the kind of logical consistency that only a machine is capable of. A robo-advisor will also automatically rebalance your portfolio, a process that used to take considerable time and effort.
Tax-Loss Harvesting
This is something that was once off-limits to all but the wealthiest of investors. Tax loss harvesting involves selling losing investments that have gone bad, and then immediately purchasing a similar investment. This allows them to take advantage of the tax loss now in their portfolio. This can offset the taxes to be paid on gains made elsewhere.
Robo-advisors are proving to be game changers for the world of investment. They are removing the barriers that once existed so that investment can be for anyone.
