In 2020, robots can write articles, cook you breakfast, drive cars, vacuum your home and, yes - even give you financial advice.
Robo-advisors are online investment platforms that follow algorithms designed specifically for your portfolio preferences, and recommend opportunities for you - and they’re extremely popular.
Robo-advisers are projected to hit around $2.2 trillion in assets under management by 2022.
They’re designed for basic portfolios - like beginners - and typically offer lower fees than your average human financial adviser.
If you’re a share market novice, Ladies Finance Club co-founder Molly Benjamin says robo-advisers might be for you.
“[Robo-advisers] just help me work out a good spread of investments to help me achieve my goals, so consider using one if it’s not something you want to do on your own,” Benjamin said.
“The one I use personally is called Stockspot. I quite like it because they have reasonable low fees and they invest in ETFs, and they do all the reporting and the heavy lifting for me.”
How do robo-advisers work?
If you’re picturing Bender from Futurama in your living room breaking down your budget with you, I’m sorry to say it’s a lot less cool.
Robo-advisers aren’t really robots or advisers at all, they’re just website platforms that ask you a handful of money-related questions when you sign up, like how risk-averse you are or how long you want to invest for. They then pick a portfolio for you based on your responses.
They typically have lower entry points than other funds would. For example, to invest with Stockspot, there’s a minimum investment amount of $2,000. Or, for micro-investing app Raiz, you can invest for as little as $5.
Humans vs Robo-advisers
Robo-advisers are great for beginners who want to invest cheaply and easily. There’s also minimal human error - every decision is based on an algorithm.
“Getting professional financial advice can be expensive, especially if you don’t have a whole lot to invest initially,” Finder’s investments editor, Kylie Purcell, told Yahoo Finance.
“Robo advisers are a tenth of the cost of a regular financial advisor, making them cheaper and more accessible than a traditional financial advisor.”
They’re also a great set-and-forget option. If you don’t have a lot of time to be meeting with your financial adviser, and just want the platform to handle it, Purcell said they could be a fit for you too.
However, if you are thinking of investing a large amount of money, or you’re a first-timer wanting to meet someone face-to-face to begin with, they might not be right for you.
And, if you value a human touch, then you may also be better off with a human financial adviser.
What’s more, while you will be required to answer some questions about your financial goals, robo-advisers don’t often get the whole picture. They won’t be able to fully understand all your financial hopes and dreams, and if you’re wanting to express them, robo-advisers may not be a good fit.
Choosing the right robo-adviser depends on how much you’re prepared to invest, according to Purcell.
Here are the three robo-advice platforms.
Stockspot was launched to the public in 2014 by ex-UBS portfolio manager Chris Brycki, and reached 3,000 users within its first year of launch.
According to Finder.com.au, 80 per cent of its users are first-time investors and 60 per cent are under the age of 40.
For investments of $2,000 to $10,000, the platform will manage your portfolio for free for the first six months, and then charge a fee of $5.50 per month following that.
Fees increase to 0.66 per cent per year for investments of $10,000 to $50,000.
For investments of $50,001 to $200,000, fees remain at 0.66 per cent per year, but users gain access to “Stockspot Themes”, which enable users to have more control over their portfolio.
For investments of $200,001 to $2,000,000, fees decrease to 0.528 per cent per year, and for investments of $2 million and above, fees decrease again to 0.396 per cent.
The site offers five investment strategies: Topaz (aggressive growth); Emerald (growth); Turquoise (balanced); Sapphire (moderately conservative); and Amethyst (conservative).
The model portfolios are invested across Australian shares, global shares, emerging markets, bonds and gold.
There are no entry or exit fees, and Stockspot rebalances your portfolio without charging fees when necessary.
InvestSMART launched its own automated investment advice service in July 2015, and its investment fees are also tiered by how much you invest.
For investments of $10,000 to $18,000, fees are set at $99 per year.
For investments of $18,000 to $82,000, fees are set at 0.55 per cent per year, and for investments above $82,000, fees are set at $451 per year.
There are also some transactional and operating costs across the portfolios: like brokerage fees and ETF fees. There are no withdrawal fees.
InvestSMART invests across Australian equities, cash, international equities, fixed interest and property and infrastructure.
It offers nine portfolios for the various risk profiles, from low-medium risk up to very-high risk.
Spaceship Voyager has the easiest barrier to entry: you can invest a minimum of $1 and there are $0 annual fees for balances below $5,000.
There are two portfolios: an index fund called Spaceship Index Portfolio and a managed share fund called Spaceship Universe Portfolio. Both of these portfolios invest directly in the companies that create the fund, rather than via ETFs.
For balances above $5,000, the Spaceship Index portfolio charges a fee of 0.05 per cent per year, and the Spaceship Universe Portfolio charges 0.1 per cent per year.
The platform also has an in-house content team to deliver news about companies in your portfolio, so you can keep up to date with what you’re invested in.
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