It is the year 2020. Technology has woven itself into almost all aspects of our lives. We even leave our trust to a single computer for the most tedious task (Does “Hey, Siri?” sound familiar?).
Did you know that it is now possible to employ a robot (more specifically, an algorithm) to follow your finances? Long gone are the days of poring over the month’s bills and checkbooks over the kitchen table until three in the morning. But do Robo traders really have an advantage over savvy, experienced, and well-researched traders?
Disassembling the Robo Trader
Companies that handle Robo traders and advisers assert that their algorithm removes all the emotions involved in investments. This allows the Robo traders to respond immediately to the changing market conditions. According to these companies, a Robo trader would gain better returns for a lower cost than the traditional trader. Robo traders handle and maintain investment profiles from the beginning. This includes interpreting trading signals to decide the number of shares to order once the pre-set criteria are met. Many beginner investors find the Robo trader appealing. This option allows easy entry into investments with minimal research, experience, and time spent.
Opening an investment account with a Robo trader would involve providing demographic information, as well as details about your short-term and long-term goals and risk tolerance. The Robo trader will now make use of mathematical algorithms that will make decisions using pre-set criteria from your investment portfolio.
A Battle Between Humans and Robots
- Hard to grasp the overall financial situation
Many beginners find Robo traders appealing because of its simplicity. Enter a few details about your life and your goals, and you find yourself a full-fledged investor. But is simplicity the best approach when it comes to investing your hard-earned money? Robo traders may remove important context such as your lifestyle, and the reason behind why you are investing in the first place. The Robo trader might choose an investment portfolio for reasons that do not meet your own.
Instead of relying on a Robo trader, a financial adviser might be best to consult on matters such as debt and emergency funds. A financial advisor will consider your financial stability and will give insights on how to address short-term issues before setting long-term strategies.
- Not 100% Personalized
The algorithm behind a Robo trader’s decisions can only do so much in terms of the information you provide. Information is usually limited to a few points such as age, projected retirement age, and how conservative you are in terms of financial risk-taking. While these details are important, algorithms only work with numbers, with black- and- white data. We live in the real world where life is full of nuances and differing circumstances.
Making an investment decision in the first place is usually backed- up by a very personal reason: you want to achieve a specific goal or live a certain lifestyle. It is hard to get a full grasp of short- term and long-term goals through a few sets of questions.
- Not all Financial Advisers are Expensive
Investors usually decide on a Robo Trader to avoid large fees but a considerable number of financial advisers are now more affordable than platforms offering Robo trading services. Some financial advisers charge an hourly rate or a minimal fee for their service. This allows a consumer to control their expenses while receiving more personalized advice and information.
Financial advisers have now also made themselves available online, charging much lower rates than setting an appointment with a financial adviser in their office. Some financial advisers also make use of a hybrid system wherein a Robo trader platform would supplement their own services, considerably lowering expenses.
- No face-to-face consultation
According to financial analysts, emotion is always involved when it comes to handling finances and investments. A financial adviser with years of experience and research can help balance your logical and emotional perspectives before making a financial decision.
There is a difference between sharing information with an algorithm and a human. An algorithm cannot evaluate and make sense of life’s nuances.; nor can it give you advice on challenging, emotional, or subjective situations that do happen in real life.
Robo traders do not guarantee performance
A Robo-trader will only work as well as the program and the algorithm designed by humans. Financial analysts and experts urge the close investigation of and research on investment strategy before making any investment.
Even though Robo trading has taken over human jobs in the process of stock investment, it is still necessary for investors to know the process and the strategy behind these processes. All investors should get to know the IT infrastructure design and the backup system behind these algorithms. A problem with the process may just cost you millions.
Should You Use a Robo Trader?
A Robo trader might be worth noting for a newbie investor without the time and capacity to analyze market trends. You will eventually come to a point when life gets more complex, and difficult decisions will have to be made along the way. When you would like to think long-term and only the experience and guidance of a financial adviser could appropriately fill that void for you. A savvy trader and analyst can evaluate how to leverage your financial resources to grow your wealth in consideration of your experiences.
Human advisers know how to adapt and evaluate real-life situations that artificial intelligence and algorithms cannot make sense of. While Robo traders might be a good starting point, financial advisors provide experience, accountability, and nuance to ultimately achieve your goals.
