Millions of people are now using automated portfolio advisors to guide their investing. These are algorithmic-based tools that can help create personalized investment portfolios for everyday investors.
Brian Concannon, Head of Digital Advisor and Mass Affluent Advice at Vanguard, said: “Today, there are three ways to build an investment portfolio. You can do it yourself; with the help of an investment advisor; or with the help of an algorithm that combines professional competence with the convenience of a mobile application.”
Since the launch of these robotic assistants in 2008, their popularity has grown exponentially. In 2020, $460 billion was invested with Robo-advisors, 30% more than in 2019. By 2024 some analysts expect the market to reach $1.2 trillion.
Algorithmic portfolio advisors select assets for investment and then strategically weight each asset within the portfolio. They take into account the customer’s preferred investment horizon, investment amount and acceptable risk. The aim is to maximize return for a given level of volatility.
To keep on top of the latest developments the algorithms monitor the markets and adjust the portfolio where necessary. All the customer has to do is sign up, take a short survey and the robotic system will recommend a personalized portfolio to buy.
Another advantage of algorithmic advisors is the cost. Usually, human advisors will charge between 3% and 5% of your assets and will specify a minimum investment amount. Robotic advisors often charge only a fixed monthly fee or a much smaller percentage and there is no minimum. Thus, the emergence of such technology has democratized investment consulting, making it available to a wider range of investors.
As with any technology, the primary early adopters were the younger generation, but Vanguard research has found there has been a surge in the baby boomer generation over the past year, 24% of whom are interested in or already using algorithmic advisors. Today, Robo-advisors are available from big-brand companies such as Wells Fargo, UBS, Morgan Stanley and others, and start-up companies Betterment, Wealthfront and arty. Thus, there is competition in the marketplace between small tech companies with new ideas and top talent and traditional financial corporations with many years of experience.
Of course, there are some areas where robots cannot replace humans. Any unique, specific needs of the customer or more nuanced questions such as estate planning, inheritance etc. are out of bounds. And there is always the chance that new risks emerge that cannot be foreseen.
However, for standard, accessible, reasonably priced, professional investment advice, the algorithmic approach is best – especially when built by experienced financial analysts and data scientists.
arty is a great example of such an approach. arty is an artificial intelligence Investment Advisor designed, built and overseen by a team of 20+ quantitative researchers. arty can help you get more from your money by building a portfolio that targets your chosen level of risk while delivering higher investment returns. Sign up to find out more today!