What Are Robo-Advisors?

| 20 Dec 2019

Technology has enhanced industries to bring convenience to customers worldwide. Before advancements, the financial sector was very much a “people-person” sort of place. If you wanted to invest or deal in the financial world, you would have had to go through several people. 

From brokers to advisors, the journey to investing was long and tedious due to the strict regulations enforced to protect all the money being pumped in. However, with new technology being made available to the public the investing journey has been greatly simplified.

 

So what are Robo-Advisors?

An example would be the “Robo-Advisor”, an automated system that provides financial assistance and advice through minimal human interaction. Robo-advisors were made publicly available after the 2008 financial crisis to help the public better manage their portfolios.

Previously, only portfolio managers had access to these and used them to balance their client’s assets based on an algorithm. 

Since then, numerous Robo-Advisors have popped up. Some of the more popular and well-known ones include Betterment and Wealthfront in the USA, 8 Securities in Asia and StashAway in Singapore. 

A Robo-Advisor’s main task is to help manage your portfolio and balance the asset allocation to your suited risk appetite, as well as making sure that you have access to your own portfolio at any time.

 

Is a Robo-Advisor truly safe?

The reason why the financial sector required “people-persons” to function was that humans needed a face and a connection to someone to start trusting them. Advisors and brokers help the public form a bond to those investing with their money. 

In Robo-Advisors, there’s hardly any human interaction and some people feel that you’re just “feeding money to a computer and praying”. There’s also the aspect of being able to tekan (a Malay word meaning “press on” or “pressure”) an actual person to make good returns on your investment. 

But Robo-Advisors are safe, having an insane amount of security. For example, Singapore’s homegrown Robo-Advisor StashAway has 2-FA authentication, rigorous testing of their server’s infrastructure, intrusion detection systems and will even lock down your account for investigation when suspicious withdrawals are made. 

 

Why should you use Robo-Advisors?

Low Capital

Traditionally, people don’t start thinking about investing when they’ve only got a couple thousand in the bank. Since the returns you get isn’t worth putting most of your savings into an investment account. 

However, Robo-Advisors don’t require much capital and anyone can start from as low as $100. By starting early, you’ll start to get into the habit of investing and saving for your future. Even if your returns are small now, your habits will help it grow into a suitable fund for bigger investments.

 

Full Portfolio based on Investment Profile

Building an investment portfolio from scratch can take a significantly long time. During which, you would need to do a large amount of research on the stocks you’d want. 

Robo-Advisors build a full portfolio for you from the moment you start your investing journey, reducing most of the effort required. Also, you won’t need to check in to monitor your portfolio constantly since the asset allocation is done automatically.

 

Hassle-Free versus traditional banking

Traditionally, there are a ton of forms you’d need to sign in order to start investing. Robo-Advisors pretty much reduce all of these forms into a few simple ones. 

For example, your MyInfo details can fill up most of StashAway’s forms. Other than that, StashAway requires a personal bank account or an SRS account (for deposits and withdrawals) and a signature detailing if you are an accredited investor. 

 

Woohoo! 

And that’s it! You’re ready to start investing. If you need some financial planning advice, feel free to contact our friendly representatives at PolicyPal. Contact us at +65 3163 9184 or [email protected]

 

PolicyPal


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