The secret to smarter investing: Robo-advisory explained

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Did you know AI can pick stocks and build your portfolio? Robo advisors manage your investments automatically with low fees and smart tech. Curious? Here's how it works.

Have you ever heard someone say, "AI will do the work, and you can just sit back and relax"? Robo-advisors are basically just like that, but for the stock market. By employing AI-driven platforms such as ChatGPT, you can have the best stock and mutual fund recommendations at your fingertips without doing exhaustive and boring research or paying a pricey advisor to do it for you.

What is a robo-advisor?

Robo-advisor is an AI application technology-powered automated system that uses computers to deliver customer financial services. It is not a person but a platform that leverages data-driven algorithms to optimize and rebalance your investment portfolio, which may include stocks, mutual funds, ETFs, or bonds.

Simply respond to questions concerning your fund goals, risk tolerance, and desired investment amount.

The platform becomes your investment portfolio designer.

If you are lucky to have one of the advanced robo-advisors, then your tax planning might also be in their hands and they could even be executing your portfolio changes without your direct involvement.

How do robo-advisors work?

Initially, the process to get started is quite straightforward,

First Step: Registration and Answering Questions: Your marital status, age, income, goals (e.g. home, retirement), and risk tolerance are some of the personal information that will be given.

Building the portfolio: The robot assistant designs the portfolio, combining the data of stocks, bonds, and funds that best suit you.

Automatic investing & rebalancing: The system will not only invest your money but also keep your portfolio balanced through regular monitoring so you can relax during the tough times.

Accessibility around the clock: Most of the robo platforms, in contrast to traditional advisers, are online, thus letting you access your investments whenever you want.

The pros of robo-advisory

Robo-advisory has opened up the avenues for expert financial advice without paying hefty amounts.

Low Fees: Most robo advisors charge much less than a human advisor—making them ideal for beginners, millennials, and Gen Z investors.
Convenience: Everything is digital, no meetings or paperwork.
No danger of emotional investing: AI doesn't panic during market crashes, so there is less likelihood of it making poor decisions.
Easy start: Several platforms will allow you to start with a small amount of money.

Don't consider robo-advisory if...

Robo-advisory might not be suitable for everyone, depending on various factors.

Not Suitable for complex needs: If you have complicated finances, large wealth, complex tax requirements, or multiple investment goals, a robo-advisor may not be sufficient.
Still at an early stage in India: The use of robo-advisory in India is just starting to become popular but the experts believe it will spread quickly as investors seek more intelligent and cost-effective choices.
No human touch: If you want the kind of advice that is just for you, then a conventional advisor might be the best.

The future of robo-advisory

The world market for robo-advisory is successfully growing and is expected to reach more than 41 billion dollars within the next five years. Advanced AI technology will gradually make long-term investing more and more easily accessible and affordable. In India, there are already many new robo-advice ideas springing up, which will make it easier for investors to start their investment journey.

Should you try robo-advisory?

Robo-advisors help you with your investments while you keep your focus on your dreams. They are perfect for those who are new and just want the convenience and low-cost investing. But if your finances are complex, it would be prudent to advise you to seek the combination of robo and human help.