7 reasons why robo-advisors are better than traditional investing

Robo-advisory is the future of investing. They are fully automated investment platforms that use computer algorithms to create and manage the most suitable investment portfolio according to individual needs, risk tolerance, and financial goals. Therefore, robo-advisors are becoming increasingly popular and are considered more efficient than traditional financial advisors.

Robo-Advisory is Low Cost compared to Traditional Investing

Robo-advisory has significantly reduced the cost of investment management for ordinary investors. Due to the minimal human intervention, robo-advisory is available at a much lower cost than traditional advisory. The fees charged by robo-advisory platforms range between 0.25% and 0.50% of the value of assets, compared to a median of 1% advisory fees charged by the traditional financial advisors. Moreover, most of the robo-advisors invest in low-cost ETFs and other funds. Thus, the overall cost of managing your portfolio with a robo-advisor is quite low using robo-advisory, leading to dramatically better investment performance, all other factors being equal.

Robo-Advisory Allows Lower Minimum Balances

The biggest drawback of traditional investing is their high minimum balance requirements. Most financial advisors require you to maintain minimum balances as high as £500,000 or £1 million. The amount is generally too much for ordinary investors and deters them from availing professional services for portfolio management. On the other hand, robo-advisory provides professional management of portfolios as small as £5,000, or even with no minimum balances. As a result, robo-advisory is becoming more popular among young investors with small net worth, who are willing to circumvent the minimum balance requirements.

Robo-Advisors are More Efficient

Robo-advisors do not follow a one size fits all model. They allow investors to fill up forms and questionnaires about their financial status, risk appetite, and short-term and long-term goals and design a personalised investment portfolio for them. Investors can also choose the industry, sector, and geographies they prefer their investments in and get a customised portfolio. Additionally, robo-advisory algorithms work on world-class investment models. They strive to generate the highest returns with minimum risks, making the investment portfolio highly efficient. Robo-advisors also rebalance the investment portfolio periodically, keeping the percentage of funds invested in different asset types consistent, thus improving returns and reducing volatility.

Robo-Advisors do not have Emotions

The most critical drawback of traditional financial advisors is that they get influenced by their emotions and previous experience to take spontaneous decisions. While this may turn out to be beneficial at times, it can also make the investment more risk-prone and subject to conflicts of interest. On the contrary, robo-advisors do not have emotions. They make investment decisions based on algorithms and proven models and let the investment be without tinkering with it now and then. Especially during market downturns, when the traditional financial advisors may have a higher propensity towards selling off the investment, robo-advisors let the investment alone and allow it to ride back its way up as and when the market recovers.

Robo-Advisory Helps in Better Tax Savings

During the times when markets are highly volatile, robo-advisory supports investors in significant tax savings by automated tax-loss harvesting. When the investments are at a loss, robo-advisory helps in selling the investment and immediately purchasing a similar investment, thereby locking in the tax loss. Robo-advisory is much faster in keeping up with this fast process compared to traditional financial advisors.

Robo-Advisors Keep it Simple and Hassle-Free

Robo-advisory works best for new and naive investors who are learning their way in the financial markets. They allow the investors to dip their toes in the market, without taking too much risk and without feeling intimidated. Moreover, investors get to invest as little as they like to begin their investing journey with, both in terms of money and time. While the young investors take the feel of the markets and understand them better, robo-advisory helps them settle down while the computers do all the work for them without worrying too much about the tools, techniques, and strategies.

Thus, robo-advisors turn out to be more cost-effective, highly efficient and hassle-free, and more unbiased for investors. They assist investors in working their way through the investment world and generate high returns with low risks.