Started by RoboForex, Sep 02, 2022, 05:54 am
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This overview is devoted to financial robo-advisors, which are modern, swiftly developing services for automatic management of investments. Let us try to tell you in as many detail as possible what robo-advisors are in the stock market, how they work, what types they have, as well as what advantages and drawbacks they can demonstrate.
A robo-advisor is a software solution that is based on AI technology and provides financial advice or manages investments with minimum to no human interference.
Based on the input data from the investor, robo-advisors help to form an investing portfolio. Investing robo-advisors are chiefly meant for private long-term investors.
First such services for individuals appeared in the US in 2008. According to rating agencies, market leaders in terms of the money volume in management are such large US robo-advisors as Vanguard Personal Advisor Services, Schwab Intelligent Portfolios, Wealthfront, and Betterment.
Today, services for automatic investment management are developing fast, and popular robo-advisors start to accumulate more and more money.
Financial robo-advisors use special mathematical algorithms for assessing and forecasting preferences, risks, and goals of investors. As a rule, investors file in the input data as a questionnaire: they answer a set of questions that help to create a portfolio based on the preferences of each user.
A robo-advisor analyses the investor's age, size of investment, and risk profile, then suggests a portfolio based on this info. An important task is to organise optimum distribution of assets depending on investing goals, horizon, and the client's attitude to risk.
At the same time, in most cases, robo-advisors do not use individual shares but rather concentrate on assets accessed via index instruments.
Normally, a portfolio consists of ETFs that provide for due diversity of investments and an optimum risk-to-profit ratio. The user opens an account via a robo-advisor, deposits it, and the algorithm automatically creates and sustains an optimum portfolio.
Depending on the market behaviour, a robo-advisor may rebalance the portfolio from time to time, optimise it by buying and selling instruments in the exchange.
Looking into robo-advisors, we may not do without mentioning the two types of such software -- simple and complex advisors.
Though robo-advisors are becoming more and more popular among stock market investors, they are much less popular among wealthy people with large portfolios or capitals. The latter type of investors are more likely to trust experienced financial counselors, especially in an unstable market.
However, robo-advisors are more affordable, which is their main advantage. For example, before robo-advisors appeared, an investor had to call or personally meet a financial counselor, explain their needs, and wait for the order to be finally executed. All this can now be done online from home.
Still, robo-advisors provide a limited number of investing options: as a rule, such services have a certain set of financial instruments, and no others can be used. For example, an investor may not buy stocks or bonds on their account separately. A financial advisor has a more flexible approach to the portfolio. Such an advisor might be a better choice if the investor has peculiar preferences, so that each decision has to be discussed in person.
Investment robo-advisors are a big step in the development of the financial industry. They have made personal money management services available not only to wealthy investors but to ordinary people.
Today the service of robo-advisors in the market is developing fast and acquiring popularity. This means that robo-advisors accumulate more and more money under management
However, about robo-advisors one should remember that these modern facilities have equally advantages and drawbacks. For now, investors may choose whether to opt for a robo-advisor or a professional financial counselor.
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