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Earlier, investing in the stock market was often considered costly and reserved for the experts. You either needed to have investment expertise yourself or hire a professional which was a costly affair as you not only needed a huge sum of money to get started but also pay them higher fees.
But thanks to the advent of robo traders in the last decade or so, this notion has significantly changed. Now anyone with limited funds and knowledge can start their investment journey by answering a few simple questions. This process is automated, cost-effective, and backed by strong investment strategies.
Having said that, it’s important to know whether or not robo trader is the right choice for you. This article gives you a detailed insight into the pros & cons of this automated software so you can get a better understanding of these platforms.
Robo traders, also called Robo advisors, are online investment management services that are designed to provide automated financial advice with minimal human intervention. They allocate your assets efficiently by using algorithms that allow the entire process to operate automatically.
Robo traders allow you to start investing with little to no minimum requirement of assets and can get you started with your investing journey in a matter of minutes. Some robo advisors are fully automated, while others provide human assistance to answer questions. In both cases, you get access to customer service for resolving any issues.
Robo advisors use preset algorithms designed by financial advisors, investment managers, and data scientists, that are executed by advanced software to automatically build and manage your investment portfolio in the most effective way.
They make use of an online survey to gather information about your financial position, degree of risk-aversion, and desired ROI to create financial advice for you.
While they can provide services ranging from portfolio creation to tax optimization, you can choose your desired services between the offerings.
Robo traders can seem like the perfect option for hands-off investment but understanding its pros and cons is essential before you decide whether or not to opt for it.
Let’s look at its plus sides and downsides to understand if a robo trader is the right option for you.
Robo-advisors are a cost-effective way to automate your investment management. They are getting increasingly popular for gaining access to the markets and for good reasons:
Although they offer cheaper and faster investment services, they lack in the following aspects:
If you are looking to hire a Robo trader for your portfolio management, you should consider the following points:
On the other hand, human advisors are costlier but often offer a wide array of services along with portfolio management such as goal planning, estate planning, retirement planning, and more, which may be important to you.
The interaction here is minimum and lacks the human touch. With human advisors, you can have live communication to guide you with your assets on a regular basis.
The robo-advisory domain is still relatively new. While these platforms can provide cheap, easy-to-use automated trading experiences, they don’t come without flaws. Robo traders can vary depending on the firms configuring and handling them. Also, cost-effective advice is not always necessarily the best. It is always advisable to do your own research about how their algorithms work before accepting their investment suggestions.
Having said that, if you want to opt for automated investment management, these companies develop the best Robo traders in the market.
If you are looking for long-term investment, both robo-traders and human advisors can be beneficial for your financial growth. However, depending on your preferences and goals, one can outweigh the other.
For example, if you are a new investor with limited funds looking to diversify your portfolio, robo traders can be a cost-effective way to manage your assets. On the other hand, you can opt for human advisors if you are looking for a broader range of personalized services for a greater amount of assets.
If you are confused between the two, another option that you can use is the hybrid robo trader model or online financial services that offer a mix of automation and in-person assistance.