Back in the 1980s the world was introduced to the Terminator. At the time, that type of sci-fi was far removed from reality. Computers were a luxury available only to the super-rich and cellphones were unheard of. Investment and trading options were undertaken in a traditional way – with paper contracts and stock brokers via telephone, or in person. Back then, Skynet – the computer system with artificial intelligence that takes over the world’s defense systems and brings about Armageddon – was an implausible thought.
Today, it is very much a reality.
Unbeknownst to many casual traders, the vast majority of trades that take place today on the financial markets are made with robots, known as bots. These complex programs are capable of performing high-frequency trades in milliseconds. Computers programmed with the requisite software can easily spot trends in financial markets on a mass scale. They can manage hundreds, perhaps even thousands of stocks, commodities, indices, and currency pairs at any point in time, alerting the investor to the precise moments when price points have been reached for call options or put options accordingly. The question as to the efficacy of robo investing is a moot point: It is a highly effective means of trading in the financial market.
Carlson Capital's Black Diamond Arbitrage Partners fund added 1.3% net fees in the first quarter of 2021, according to a copy of the firm's March 2021 investor update, which ValueWalk has been able to review. Q1 2021 hedge fund letters, conferences and more At the end of the quarter, merger arbitrage investments represented 89% of Read More
Are Robo Investors Better Than Human Investors?
Perhaps the answer to this question is as follows: there is a symbiotic relationship between Robo investors and human investors. The two complement one another in every way. With so many financial assets to trade on the markets, it is imperative that investment gurus utilize all the resources at their disposal to make it easy for traders and investors to act decisively. Financial investment advisors are expensive. That is one of the major drawbacks of using their services, or those of institutional investors at high profile land-based brokerages.
When it comes to costs alone, Robo advisors are far more effective, efficient and suited to the average investor. Consider that many financial investment advisors require portfolios of $500,000 +; this is well beyond the reach of the majority of investors nowadays. If you are a casual trader or a low-income investor, chances are you will not be able to afford the services of a financial investment advisor. Besides for the minimum portfolio requirements, there also extortionary fees tacked on to the services these professionals provide. This can range as high as 2% of your transactions, making it really expensive to generate the type of returns you need to get ahead of the pack.
Retirement Is a Risky Proposition Nowadays
Anyone thinking of retiring without a sound strategy in place is walking through a minefield. In the days of old, companies would provide for the retirement plans of their workers, since lifelong employment was commonplace. Nowadays, the government is unable to provide for the retirement needs of the country, so self-funded retirement is essential. Unfortunately, many people do not know how to invest, or what to invest in. That’s where financial investment advisors come into the picture.
They know which assets are performing well, which funds are generating the best returns, and how best to diversify a financial portfolio. The problem is that they are too expensive. Robo advisors are the solution to the problem. By using a smart computer algorithm, Robo advisors automate trading activity for users. They may work with investment professionals where human intervention is required such as estate planning or retirement planning, but otherwise they can act independently of human advisors.
Each person’s requirements will vary. A Robo advisor may be a good fit if you are receptive to this type of investment advice. Your risk appetite is a big determinant of which way you are likely to invest. Mutual funds tend to aggregate the performance of industries, sectors or even indices. They give you an average return for the market’s broad performance. This is a safe way to trade since you’re not putting all your proverbial eggs into one basket. Many brokerages offer their own Robo advisors for a nominal fee. This is not to say that financial advisors have no value – they certainly do.
How Do Robo Advisors Compare?
There are many unique elements that must be considered when you are choosing a Robo advisor. These include the assets under management of the Robo advisor, how your funds are controlled (do you manage them, or does the company providing the Robo advisor manage your funds?), and how automated the services are. 100% automation could be effective for some people, while others prefer a degree of human intervention with the Robo advisor. Then, there are the fees that need to be paid with these types of AI systems. Robo advisors are not all cut from the same cloth and some involve ETF fees and other costs, while others require a minimum deposit to be made.