Written by Jeremy Biberdorf
Robo-advisors are machine based, as you might expect from the name. They have been in use by financial advisors since early in the 21st century, but it’s only more recently that they have come to the attention of the average investor. For anyone who wants to build a portfolio without delving too deep into the world of investing, they can be a useful solution.
Robo-advisors help to develop and manage portfolios with very little intervention from humans. They use algorithms and math to allocate investment in a way that is aimed at maximising profit and optimising tax navigation. Most of the work done by robo-advisors involves ETF investment. However, they are perfectly capable of managing portfolios in other areas such as real estate.
The Role of a Robo-Advisor
A robo-advisor is intended to be an online resource where an investor can get self-guided assistance with creating the right portfolio for their needs. The software uses information from investors, and specially designed algorithms, to create and manage optimised portfolios.
The two main advantages that an investor gets from using a robo-advisor, instead of a traditional financial advisor, are the low costs that are incurred and the low minimums that are required in order to invest. For instance, in the US, a financial advisor or planner may require a minimum investment amount of around $50,000 in order to proceed. Investors only need around $500 to use a robo-advisor.
Robo-advisors are regulated by the Securities and Exchange Commission in the US. This means that investors have a level of security when they use one of these investment advice solutions.
The Start of the Robo-Advisor Revolution
It was during the global financial crisis that investors first started using robo-advisors in a one-to-one situation. It gave them the opportunity to manage their funds at a time when this opportunity was much needed. The most well-known of this new brand of advisor was launched in 2010. The creator of Betterment, Jon Stein, has seen it grow into one of the most respected robo-advisors in the world.
The Rise of Betterment
Betterment has risen to be one of the most familiar robo-advisors in existence. It manages the investments of more than 225,000 clients across the globe. The approach of this respected company is to optimise earnings from investment while also lowering the amount that investors have to pay in fees. This famous robo-advisor also helps to create improved investor behavior and optimises investors’ tax position.
Betterment uses cutting edge technology to develop investor portfolios. It also has human investment professionals on hand, for any investors who are looking for additional advice.
The success of Betterment is testimony to the important role that robo-advisors play in today’s investment world. They provide a low-cost means for investors to create a portfolio, and have it managed, even if they have a limited amount of money to invest up-front. This is a much needed revolution in investing that has grown over recent years.
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