How robo-advisors can help you

Money plays an important role in our lives. Saving and making wise investment decisions can help us achieve financial security for the future. However, it is important to consider a number of factors when making investment decisions, from risk tolerance to market conditions. However, this can be time-consuming and complex, especially for a novice investor.

This is where robo-advisors come in - a new trend in the financial world. These are online platforms that use algorithms to help you make investment decisions. But can robo-advisors really help? Can they replace traditional financial advisors?

In this blog post, we will take a closer look at robo-advisors, how they work, the pros and cons, and compare them to traditional financial advisors.

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What are robo-advisors?

Simply put, a robo-advisor is an online platform that provides investment advice in an automated way. It's like having your own personal financial advisor in your pocket, always available and ready to help you with your finances.

Unlike traditional financial advisors, who provide personalised service and advice, robo-advisors do not have human client advisors. Instead, they rely on sophisticated algorithms and artificial intelligence to make investment decisions. These algorithms analyse your financial goals, risk tolerance and other relevant data to create a personalised investment portfolio for you.

Robo-advisors are perfect for beginner investors who have no experience in investing and are looking for a simple and affordable solution. They are also useful for those who want to manage their investments themselves, without the help of a financial advisor.

The robo-advisor works like this:

You register on the platform: Create an account and answer questions about your financial situation, goals and risk tolerance.
Risk tolerance assessment: Based on your answers, the platform will assess your risk tolerance. This helps determine how risky your investments should be.
Building an investment portfolio: The algorithm creates a personalised investment portfolio for you, taking into account your goals, risk tolerance and market conditions.
Automatic rebalancing: Your portfolio will be regularly monitored and rebalanced to ensure it is in line with your objectives and market conditions.
Ongoing investment advice: Access useful and educational materials and investment advice.

Robo-advisors offer a convenient and affordable way to invest. They are particularly useful for novice investors and for those who want to manage their investments themselves but still get help and advice in making decisions.

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Functions of the Robo-advisor

Robo-advisors offer a wide range of features to help you invest wisely and conveniently. The features offered may vary depending on the provider, but here are some of the main features offered by most robo-advisors:

1. Assessing risk tolerance:

A robo-advisor will ask you questions about your financial situation, goals and risk tolerance. Based on your answers, the platform will assess your risk tolerance. This will help determine how risky your investments should be.

2. Investment portfolio drafting:

The algorithm creates a personalised investment portfolio for you, taking into account your goals, risk tolerance and market conditions. The portfolio is made up of different investment funds diversified across asset classes such as equities, bonds and real estate.

3. Automatic rebalancing:

Your portfolio will be regularly monitored and rebalanced to ensure it is in line with your objectives and market conditions. For example, if the stock market falls, the robo-advisor will sell some of your shares and buy bonds to reduce the risk in your portfolio.

4. Ongoing investment advice:

Robo-advisors provide access to useful materials and investment advice. You can read articles, watch videos and take part in webinars to learn about investing and make more informed decisions.

In addition to the above, many robo-advisors also offer the following features:

Setting investment targets: You can set investment goals, such as saving for retirement or buying a house. A robo-advisor can help you achieve these goals.
Recycling: You can reinvest your investments regularly to increase your returns.
Tax strategies: Some robo-advisors offer tax strategies to help you reduce the tax burden on your investments.
Credit choir: Some robo-advisors will give you access to your credit score and help you improve it.

Robo-advisors offer a wide range of features to help you invest wisely and conveniently. Before choosing a robo-advisor, it is important to compare the features and prices of different providers.

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Pros and cons of a robo-advisor

Robo-advisors have both advantages and disadvantages that should be considered before choosing a service.

Pros:

Affordability: Robo-advisors are significantly cheaper than traditional financial advisors. Fees are usually a percentage of your investment and range from 0.25% to 0.50% per year.

Availability: The robo-advisor service is available online around the clock. This makes investing convenient and accessible for everyone, regardless of location or time.

Objectivity: The decisions of robo-advisors are based on algorithms and artificial intelligence, which ensures the objectivity of investment decisions. This helps to avoid relying on emotions, which can lead to poor investment decisions.

Simplicity: Robo-advisors are designed for novice investors. The interface is simple and straightforward and the investment process is automated.

Cons:

Lack of personal communication: In the case of robo-advisors, there is no personal interaction with the financial advisor. This can be a problem for those who want personalised advice and support.

Limited capacity to deal with complex financial issues: Robo-advisors may not be able to solve complex financial issues and needs. In this case, it is necessary to turn to a traditional financial advisor.

Dependence on the algorithms used: The success of robo-advisors' investment decisions largely depends on the quality of the algorithms. Algorithms can make mistakes and the investment portfolio may not meet your expectations.

To sum up: Robo-advisors offer an affordable and convenient solution for investing. They are perfect for beginner investors and those looking for a simple and automated investment solution. However, it is also important to take into account the drawbacks of robo-advisors, such as the lack of personal interaction and their limited ability to deal with complex financial issues.

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Robo-advisors and traditional financial advisors

When making investment decisions, it is important to choose the right adviser for you. Choosing between the two main options - a robo-adviser and a traditional financial adviser - can be difficult. Comparing the pros and cons of both options can help.

When to choose a robo-advisor?

Getting started investing: If you are a beginner investor and want to start investing with a smaller amount and a simpler portfolio, a robo-advisor is a good choice.
Affordability and convenience: Robo-advisors are more affordable than traditional financial advisors and offer a convenient online service.
Automatic investing: Robo-advisor automates the investment process, well suited for those who want to passively manage their investments.

When to turn to a traditional financial adviser?

Complex financial objectives: If you have complex financial goals, such as saving for retirement or growing a specific asset class, a traditional financial adviser may be a better choice. They can create a personalized financial plan that takes into account your unique needs and situation.
Personal communication: If you want personalised advice and regular contact with your financial adviser, a traditional financial adviser is better for you.
Major investments: The advice of a professional financial adviser is important when making large investments. They can help you to mitigate risks and think through investment decisions.

In summary both robo-advisors and traditional financial advisors have their advantages and disadvantages. The best option depends on your individual needs, investment experience and financial goals.

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Robo-advisors have made investing accessible to many people. They offer an affordable, convenient and automated solution to investing. Robo-advisors are ideal for novice investors who want to grow their money without having to actively monitor the markets themselves.

Traditional financial advisors, on the other hand, offer personalised advice and communication, which can be important for complex financial goals. They are also well suited to large investments where professional help is essential.

Before you start investing it is important to familiarise yourself with the different services offered by robo-advisors and their fees. You should also consider your investment objectives and risk tolerance.