Robo-advisors are transforming the way people invest by automating investments and helping people achieve better financial securities!
The evolving landscape of investing is now looking for smarter ways to make investment decisions- hence the need for robo-advisors is witnessing a boost. A robo-advisor, as the name suggests, is designed using several sets of algorithms to reduce or eliminate human intervention from the investment process. These advisors are used for tax calculations, stock monitoring, portfolio management, and more.
A Grand View Research report suggests the size of the robo-advisory market is expected to grow at a CAGR of 29.7% between 2022 to 2030. Additionally, a Statista report also throws some light on the exponentially growing strength of robo-advisor users. The report says that by 2027, the number of users using robo-advisors will touch 234 million.
Robo-advisors (also known as robo-investing platforms) are digital platforms that are trained using massive amounts of algorithms. Users use robo-advisors to make wiser investments. These data-driven advisors eliminate the impact of human emotions and make decisions solely based on trends, predictions, and historical records.
Robo-investing platforms begin working as soon as users onboard the platform. For starters, these platforms ask users a few questions to understand their current financial situation and financial goals.
A robo-advisor can ask users for bank and credit card transaction history, investment details, saving plans, and other such financial information to plan users’ investments accordingly.
Robo-advisors invest on the basis of users’ risk tolerance capabilities, investment behavior, preferences, and amount. The goal of the best robo-advisors is to eliminate risky investments as much as possible and safeguard the money being invested.
Once robo-advisors have the required data, their artificial intelligence algorithms and predictive analytics capabilities get to work. The quality of algorithms, however, might vary depending on how much data has been fed to these systems and how fast servers are getting updated.
Types of Robo-advisors that Dominate the Market
Robo-advisors are segregated into several categories depending on their characteristics. However, these categories evolve as the requirements of the market evolve. At the time of writing this blog, these are some categories that require your attention!
The name itself hides the primary characteristics of robo-advisors from this category. Pure robo-advisors are fully automated and use massive amounts of data to make investment decisions. These categories of robo-advisors are the best for a headache-free investment approach. One can simply set requirements and let the robo-advisor do the rest of the work.
These robo-advisors are equipped with the characteristics of automation and manual work. The platforms are equipped with algorithms to automate the investment strategy, however, there are human experts as well involved in investment recommendations. This makes hybrid robo-advisors a more comprehensive and practical solution for dynamic markets.
These platforms are directly accessible to retail investors. Consumers can directly register and invest using direct-to-customer (D2C) robo-advisors. D2C platforms are more affordable and are designed to minimize human interaction. Additionally, these platforms can automate resource allocation to reduce risks of possible losses as well.
White-label robo-advisors are built by fintech companies for other financial institutions such as banks, financial advisors, or wealth management companies among others. This eliminates the need for clients to build their own software from the ground up to assist target customers.
These robo-investing platforms can be customized to meet the requirements and business models of client organizations. Developers can integrate White-label robo-advisors even in existing client software depending on the project and compatibility.
The involvement of financial advisors makes these best robo-advisors quite trustworthy in the industry. Developers build these advisors for financial experts, who then, on behalf of their customers, automate financial tasks and manage portfolios with better efficiency.
These AI-based financial platforms are specifically designed to help users set and secure their post-retirement goals. Robo-advisors are useful for managing IRA and 401(k) accounts as well. Robo trading platforms of such nature have a limited target market and often deal in less risky investments.
These robots are designed to target specific requirements, niches, or themes. One could pick healthcare investments as the preference and build specialized robo-advisors around it. Some themes that specialized robo-advisors can be built for are healthcare, real estate, income-focused, gold, art, and more.
As the name suggests, customizable robo-advisors are designed to give users full control over their investments. Users of customizable advisors can pick specific stocks to invest in, ETFs, and more.
A customizable investment platform can be the best robo-advisor for beginners as well as it provides them the opportunity to test their investment skills. Additionally, there are several research tools and market insights that these robo-advisors offer to help users make wiser investment decisions.
Global robo-advisors are designed to help investors target international portfolios. These advisors are functional beyond the borders of countries and can be useful for greater profits. These robotic advisors are great for a diverse investment portfolio.
Additionally, users can invest on these platforms using more than one currency. A global investment portfolio also provides the opportunity to reduce or recover losses by diversifying the portfolio.
Robo-advisors are designed to ease down the user journey. These platforms are equipped with advantages that focus on reducing investment risks, reducing investment costs, and boosting profits. Here are some of the advantages of robo-advisor investment strategies.
Robo-advisors are still evolving and as more and more data gets generated, these advisors get smarter. However, there are a few limitations that might create a gap between the user and the best robo-advisors out there. Let’s have a look!
The market of robo-advisors is grand with hundreds of options in countries like the US, the UK, China, Germany, and more. This makes it difficult for potential users to find the best options that could assist them with their finances.
A few popular examples of pure robo-investing platforms are:
Wealthfront stands tall among the best robo-advisors out there due to its ability to deliver a seamless automated investment experience. When users onboard the platform, it asks a few questions to know their investment preferences better. Wealthfront supports investments from as little as $500.
Betterment is one of the earliest adopters of robo-advisors. The platform makes it as easy as possible to automate investments. At the time of writing this blog, the platform has over 800,000 users and a history of managing over $36 billion. Betterment can also help users automate their savings to achieve certain goals which can be a dream vacation, bike, or anything else.
SoFi has a great reputation among the best free robo-advisors out there due to its ability to reduce users’ efforts effectively. The platform offers features such as auto rebalancing, goal planning, and diversification among others. Users can plan their investment goals whether they want to make enough money for a wedding, buy a dream car, or more. The robo-advisor is smart enough to guide you through it all.
This dynamic platform has grabbed a massive fintech market and offers a range of features. The platform delivers a perfect automated tool for passive investing. Users have the ability to customize their investments and pick from over 6,000 stocks plus ETFs on the platform. On top of that, there is no commission, trading fee, or management fee charged by M1 Finance.
This robo-advisor tops the chart when it comes to delivering standard automated investing services. Stash offers smart portfolios to help users make better returns. Users can even get expert help on the platform if they are interested in some crypto exposure as well. Stash has personalized investing advice, automated recurring investing, and dividend reinvestments among other advantages.
Read the full Stash review here.
The market of robo-advisors is evolving, especially when users are getting more financially literate. Users prefer robo-advisors to make wiser investment decisions and secure financial securities.
Looking at their advantages, robo-advisors are surely the future of the investment market. Due to the rising standards of lifestyles and their ability to deliver financial securities, robo-advisors are helping users feel financially safer.
A Statista report predicts that the average assets under management per user on robo-advisors will amount to $8.05k in 2023.
Now apart from being great for retail investors, robo-advisors are also great for organizations. Companies are using these platforms to collect more accurate user behavior data and provide faster financial services. It gives them a better understanding of the market as well.
A robo-advisor invests the money of user on their behalf to automate their financial portfolio. Depending on the type of robo-advisor being used, the platform can automate the investment process entirely or in parts. Robo-advisors are also great for financial insights and analytics-based market data.
Robo-advisors can not tell the future, instead, they use algorithms to guess the future market conditions and make investment decisions accordingly. This can sometimes end up in losses as well.
Robo-advisors are automated and have almost no human interaction. This can be a disadvantage, especially if investors want to have some insights from a human financial advisor first.
Robo-advisor can be a great tool for beginners to understand how stock markets work. The best robo-advisor for beginners can invest on behalf of the user and guide the user throughout the investment process.
Robo-advisors are as risky as human financial advisors as both take factors like market conditions, current affairs, etc. into account while making investment decisions. However, robo-advisors are not controlled by emotions and can be better in terms of accurately predicting future market conditions.
If you want to automate the investment process and have data-driven market insights, using robo-advisors would be a great step. These platforms will teach you how markets work and you also get to know how much loss or profit a financial portfolio like yours generates.
Best robo-advisors can be great for a diversified portfolio. This gives you financial security. For instance, a diversified portfolio might increase your probability of recovering losses (if they occur) and making better profits.
Robo-advisors are a set of algorithms that automate investment decisions, create a diversified portfolio, help users secure better profits, and more.
Robo-advisors reduce the stress of making manual investments. You can simply set goals and automate the investment process increasing your chances of making good returns in parallel, that too, with the least effort. Robo-advisors are also great if you like to keep up with evolving financial trends, or are new in the market and want to learn more about investing.
A Robo report states that between 2017-22, the returns are expected to fall between 2% to 5% per year. Robo-advisors make money through the diversification of portfolios. However, there are several factors that influence how much money is being made by these platforms. For example, the risk tolerance of the user, the amount allocated for investments, etc.
Aparna is a growth specialist with handsful knowledge in business development. She values marketing as key a driver for sales, keeping up with the latest in the Mobile App industry. Her getting things done attitude makes her a magnet for the trickiest of tasks. In free times, which are few and far between, you can catch up with her at a game of Fussball.
Cut to the
chase content that’s credible, insightful & actionable.
Get the latest mashup of the App Industry Exclusively Inboxed