Sun. May 26th, 2024

What are the advantages of robo-advisors for investing in the stock market? 

Robo-advisors embody the progressive digitization of asset management and the democratization of stock market investing. Indeed, they offer automated, personalized and accessible financial advice to the general public. The formula relies heavily on new digital tools, such as AI (artificial intelligence).

That said, the model also integrates and values human expertise.

What is a robo advisor ?

In 2010, U.S. investors saw the disadvantages and advantages of using a stop loss advantages of robo-advisors for investing in the stock market. The year was marked by the fast-crash of March 6 caused by an automated portfolio manager. The robot in question suddenly sold 4 billion shares and caused the Dow Jones to fall by 9% in about ten minutes.

This action has encouraged other bots to follow suit and further devalue the index.

After the incident, dematerialized financial advisors tried to distinguish themselves from this type of "robots". This positioning is still perceptible in the’article on the Yomoni review. The process has nevertheless been helped by the disappearance of the "t" from the original name in everyday language. Thus, the term "robo advisor" is preferred for this model of financial advisory services.

However, the debate remains open regarding the hyphen.

In any case, a robo-advisor is an investment and wealth management platform. The concept is essentially defined by the rationalization of expertise through the automation of internal or low value-added tasks. In other words, financial advisors only intervene on operations requiring their know-how.

AI allows, on its side, to analyze the profile of each investor to determine the best supports on the stock markets.

What are the advantages ?

Profitability is one of the first advantages of robo-advisors for investing in the stock market. Automation allows to limit the operating costs of the advisory and investment management company. This reduction in expenses logically helps to lower management fees.

As a result, financial advice is more accessible to individuals and independent investors.

In general, traditional financial advisors charge various services and apply significant management fees (1% and more). The cost becomes a deterrent for savers and small investors. Therefore, the services become automatically selective, even with affordable entry tickets.

Robo-advisors, on the other hand, have low management fees of up to 0.7%, even depending on the assets. Moreover, they are accessible from 1 000 euros.

From this amount, the investor benefits from an investment management service. The offer can include advisory services, portfolio management or guided asset management. In all cases, the AI develops a customized strategy based on the risk profile, objectives and values of the investor. The algorithms can then lead to SRI (socially responsible investments), life insurance units of account, ETFs..

Some advice on how to invest

The saving of time is one of the great advantages of robo-advisors for investing in the stock market. On the one hand, automation allows investors to delegate time-consuming actions such as the constitution and management of portfolios. On the other hand, it makes advisors more available to accompany investors and intervene in delicate situations.

The model thus optimizes the performance of the chosen investments and the specialists involved.

Some advice on how to invest well

In order to invest properly, it is important to remember the role of each one, from the elaboration to the execution of the strategies in the stock market. Algorithms are only tools. They therefore give variable results depending on the quantity and relevance of the data provided. For their part, the financial experts are above all advisors.

The investors are thus responsible for the decisions taken and the arbitrages made on the markets. On this basis, it is important to fully appreciate that :

  • Indicators and rates refer to real money;
  • The investments represent potential returns or losses;
  • Projections are probabilities, not certainties;
  • Past results do not guarantee future index values;
  • Mandates and powers of attorney always include a disclaimer from the platforms concerned.

Moreover, the potential returns are generally proportional to the risk of capital loss. Guaranteed funds rarely offer high returns. Conversely, promising assets are more often than not risky. Therefore, the investor should only invest the funds he is able to lose.

Diversification nevertheless allows to spread the risks between the assets of the portfolios.

By admin