What is Robo-Advice and is it Really Worth it – 2024 Guide

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Investments are the new “in”. The fever started a couple of years ago when the first cryptocurrencies entered the market. They opened the door for many people, without so much knowledge and money to start thinking about investing to secure their future, in a way. And the internet is full of useful resources one can use to educate himself and start.

People who have literally 0 knowledge of economy and investments have the possibility to use tools that help them start successfully. For example, before many people could not afford to pay a consultant for advising them how, when, and in what to invest. They had to do it themselves, using all the tools available, such as computers, stock markets, etc. This burden of responsibility and decision making was a really tough thing to bear, and before you know it, you’re completely worn out. Now, there are tools and software, such as Robo-advisors found on Moneyfarm that do all the job for you. You literally don’t have to move a finger.

In the rest of the text, we’ll try to explain what they are, how they work, and a little assessment on are they really worth it. Keep reading to find out.

What is Robo-advisor?

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Everybody has heard how robotics is the future of engineering and how many have been developed to help a modern man cope with his everyday troubles. They will be entering every aspect of our lives, from housekeeping to body functioning. They have officially entered the financial world as well. However, not in the same form as the ones in housekeeping. They’re more of an internet tool, programmed in a way to choose your investment portfolio for you.

All you need to do is set your financial goals and determine the level of risk you can bear to have, and after signing in Robo-advisor, feed it with this information. Based on this info, it will create an algorithm. The algorithm will be used to describe a recipe of the traded assets. There are many different available on the market, some can even buy ETF’s for you.

What’s the purpose?

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Many might ask this question at the start. Well, the purpose is obvious. You want something that can help you make correct decisions when it comes to investments. They aim to serve investors who have simple investment requirements, and still cannot do this independently, therefore search for external help. To explain it in plain words, all the tasks you would normally pay a person to do is performed by software. This way you cut down your costs of hiring someone (a financial advisor).

Still, those who have enough experience and know exactly what to do can cut the expenses by investing independently. But, let’s face it, an average person working from nine to five, outside the financial sector, cannot afford the time to track all the changes on the market, as a Robo-advisor can. It works 24/7 tracking all the changes that can affect your investment portfolio. It maintains the division of your assets with automatic rebalancing, all the time searching for a way to optimize its performance and keep the expenses as low as possible.

So, it’s definitely useful.

Many beginner investors who wish to pursue a simpler portfolio, and don’t have complicated needs have chosen to use these services because they are fast, simple, and internet-based.

Are there more on the market, or just one type?

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There’s a variety of them, and they’re not all equal. For example, there are some who can partly depend on you, and some who are entirely automated. This is one of the ways to choose the most suitable one for you.

Semi-automated ones, as we wrote, still partly depend on you. They’re great for those who are still suspicious and do not wish to give too much authorization to a robot. What they do in this case, is analyze the market and give you suggestions that might suit you. You get to decide on your goals and input them in your portfolio, an advisor suggests based on this, but the final decision on investing is still yours to make.

Automated ones are taking all the burden from your back. They’re designed in a way to completely automatize the process of choosing the best investments, implementing them, and keeping the balance. However, there is one minor drawback, such as lack of control, which some investors may not like. But, for beginners, such a service is perfect. In any case, one is able to choose the most suitable option.

There are some other things to consider when choosing the advisor, such as your investment goals (what do you wish to achieve with investing), the type of your investment account, and minimum balance requirements.

Keep in mind that the most important thing is to evaluate possible expenses. You really want to know how high are the expenses for managing the investment fund. All of this needs to be answered before deciding on the appropriate type of Robo-advisor. What kind of financial planning is offered? If the strategy of investment is not aligned with your goals, there’s no sense in continuing.

How expensive are the services?

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It would sound too good to be true, of the services was free of charge, after all even the financial advisors need to pay for what they do. It is true that Robo-advisors do cut down on your costs significantly, but under no condition they are free. The price usually depends on the size of your portfolio, and amount to approximately 1%.

So, are they really worth it?

No doubt, they are an interesting possibility for all those who don’t feel confident enough to enter the investment world independently and carry the burden of their decisions.

However, even without experience, one has to be very clear of what he wants to achieve, in order to take full advantage of such a service. Then, and only then, it can be purposeful and give results.