Robo Advisory Platforms in Investment

Did you know that robots can help you make trading decisions? Aren’t robots the fantasy creatures from movies like Age of Ultron? Well, yes. But they are so much more than just humanoid machines in our real world. Automation has become such a vital part of human life that robots have taken over quite a few attributes that help us in our daily lives. They help you automatically clean your house, brew your coffee for you, and so much more.

This trend has now also entered the world of share trading with the help of Robo Advisory Platforms.

What are Robo Advisory Platforms?

Investors have always had to study the changing trends in a stock market either by themselves or by the use of investment advisors. With the advent of automated technology or robo advisory platforms, investors can now count on robots to study the algorithms and predict the changes in a stock market.

Globally, since they were introduced in 2008, robo advisory engines have client assets of beyond a trillion dollars. They are much like the suits of iron man that guide him to perform marvellous actions, but there’s a small disappointment that no suits or actual robots are involved in the robo advisory platforms. They are just algorithms that study your preferences.

Also Read: What is Stock market Simulator?

To seek the help of a robo advisor you just have to make an account with the advisor of your choice, answer some questions regarding your investment preferences, and wait for it to automatically forage the internet to give you the best possible opportunities.

How do robo advisors work?

These systems study your risk appetite, your objective, and your time to create portfolios for your investments. Therefore, they make it easy for you to select the investment that’s best for you, without you having to frantically search the internet for it. Further, they also help you with your investment assets by managing them with respect to your goals. So the once week-long process of discovering a financial blueprint now takes minutes.

There are multiple robo advisory firms like Betterment, M1 Finance, Personal Capital, etc, who direct the industry of automated investments. Even in India, there has been a rise in the number of robo advisory engines with the advent of Angel Broking ARQ, 5Paisa Auto Investor, Scripbox, etc. These firms don’t just collect data once, instead, they keep on updating your investment portfolio according to the changes in the market and an investor’s profile.

What are the advantages of these engines?

• High data processing: Their computing power is unimaginable as they can study extremely high quantities of investment-related data. Further, they can handpick the opportunities that are best for you within minutes.

• Entry has lesser barriers: In order to get a human advisor you have to pay a certain amount, typically 1 to 2% of your capital. Further, you have to have a minimum amount of investment. These advisors however charge way less than what human advisors do and allow you to have very low to no investment balance.

• They are affordable because they perform tasks that humans take hours and weeks to do, way faster. Moreover, some actions that are done yearly by humans, can be done almost every day by robots. One of these tasks is rebalancing. Most investment portfolios usually deviate from the target allocated in the beginning. The process that includes returning these values back, as determined by the investment plan, is called rebalancing. For example, you want to have 40% investment in category “X” and 60% investment in category “Y”. In case it ever happens that the stocks rally, and it goes from 40% to 50% for “X”, the advisor will sell some assets to “Y” to go back to the initial ratio.

• They help with tax-loss harvesting as well. With every profit that you gain on your stocks, you have to pay a capital gains tax. Therefore, smartly selling some assets at a loss can reduce the tax bill.

• It is based on past, present and future trends. Therefore, there are no limitations to its abilities regarding changing trends.

What are the disadvantages?

• Since this is a fully automated technology and you have to only give them the details of your investment preferences, the stocks you own are determined by the algorithm. They choose what’s the best for you to maintain your position in the market. However, if you are someone looking forward to beating the market, a robo advisory platform would not work that well.

• These platforms are tuned to perform necessary basic investment actions. If there is a highly complex situation that you need answers to, then robo advisors might not be able to help you.

• Robo advisors are totally emotionless. They will not spend hours comforting you about the stock market, or console you when you incur losses. These are essential psychological needs one can only avail with human advisors.

The world is constantly evolving and the advantages and disadvantages of robo advisors keep fluctuating. Some firms have started offering human advisors alongside robo advisors to help you with all your needs. Therefore, you must research what it is that you need with respect to your investment. Only after this, can you choose the services these agencies provide.