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Robo advisors

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In the past, building a diversified portfolio involved finding a financial advisor to help you build your investment. And, if you wanted to make the decisions yourself, the responsibility to set-up, maintain and monitor your investment was yours. Both consist of substantial time and monetary investments. These could include paying your advisor or developing the financial knowledge yourself.

Now, through technological advancements, investing is becoming more and more accessible.

Robo advisors are becoming a popular means to invest around the world – especially for the millennial generation. Their allure lies in the fact that they are easy to use, low-cost, largely DIY and, most importantly, digital. After all, in a world that is mostly shaped by digitalisation, why shouldn’t our investments be too?

What is a Robo advisor?

Maybe you are someone who likes information at the tip of your fingers and prefers the Do-It-Yourself way of life. Or you want to keep awkward meetings to a minimum and focus your time on your growing life. If so, Robo advisors might be a good option for you.

It is a software-based on man-made algorithms that provides you with digital advice about the market and a platform to invest through. A Robo advisor will create a tailored financial plan and a passive investment portfolio for you. It will consider your data and investment goals, which may range from retirement to buying a car. Based on this information, it is then able to set out the minimum investment requirement. It also provides an analysis of your current financial position. In addition, it gives financial advice supported by demographical data related to you.

It is an accessible way to invest for cost-conscious tech users. This is especially true if they are first-time investors with simple portfolio needs. It allows you to take time to make decisions without pressure. It also keeps you in charge of the whole process without being subject to a human advisor’s bias or error.

Cons

It is not a completely human-devoid process. The algorithms are created by humans. Thus, your investment decisions depend on how good they are at their job. Also, the absence of human advisors means that complicated financial needs cannot be handled. Such cases require the right expertise or human consideration.

Furthermore, the investor does not develop knowledge about the markets and investments. This is unfortunate as technology is aimed at empowering people. Robo advisors also do not address issues such as taxes, budgets and cash flow.

And ultimately, if you do not trust a human advisor, can you really trust a robot any better?



PLUS, we'll send you our Zonotho Personal Finance Starter pack to help you take your financial prowess to the next level!


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Meenakshi Nair

Meenakshi Nair is a Graduate of BCom Financial Management Sciences and is currently pursuing an honours degree in the same. She is a tutor for the Financial and Investment Management department at the University of Pretoria. Meenakshi hopes to learn and grow with her readers. She believes in empowering her fellow youth with financial knowledge for a better future.

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