Can A Robot Really Make You Money?
Today we take a look at the most often automated and optimize passing indexing. A way for the investors to manage the passive income update –Robo Investing.
Robo Investing is automated financial advice and portfolio management. It uses technology to provide algorithm based advice, it reduces the barrier to entry, it vastly reduces the fees you pay, it is available to anyone and it is truly passive. What’s not to like? Plus, despite it being tech driven and passive, Robo Investing is still very much underpinned with strict regulation and oversight from the Financial Conduct Authority.
TL;DR
- Human Error – Robo investing is algorithmic based and instant, reducing the chance of human error
- Global ETFs – provides easy access to Global ETF’s, diversified global range of stocks
- Passive – allows you to passively invest in low risk, global stocks
- Lower Costs – removes the middle man, and reduces fees for investing (usually 0-1%)
- Lower Buy-in – lower minimum investment amount compared to traditional investing methods
- Easy Access – can liquidate and access your money at any time
How Do You Invest And Make Money With Robo-Investments? Well before we get excited about the new way, let’s look at the old way. Traditionally investing in the markets looked like this;
– Save up long and hard because most advisors only work with clients who have a certain amount to invest, say £50,000 or more.
– Find a financial advisor or stockbroker and do due diligence by talking with several of their existing clients.
– Have a meeting with said advisor to learn how they work and help them understand your objectives and risk profile.
– Start your investment to make money and pay your advisor 1 – 2% of the value of your assets to manage them.
– Take advice based on human opinion and be aware that some trades recommended by your advisor may pay them more commission than others.
While Robo Investing looks more like this; – Get started with any amount and be able to top up as you go.
– Sign up online and complete a survey to determine your objectives and risk profile, getting started in minutes.
– Constantly have your portfolio automatically balanced – Pay much lower fees, typically less than 1%
– Get consistent algorithmic advice based investments
Timing; You’re maybe wondering whether this is the best time to enter the markets, given these unprecedented times. I’m not here to give you my opinion on whether we’ve hit the bottom or not but the recent stock market crash illustrates a strong benefit of Robo Investing nicely.
Your objectives and risk profile will determine how your portfolio should be made up and generally it is split between equities and bonds.
Hopefully it goes without saying that these kinds of investments should have a medium to long term horizon which means you can ride out short term fluctuations.
But, all market movements create opportunity. When the Covid crisis began effecting the market, equities and shares crashed… but bonds rose… So a balanced portfolio has both’s wins and losses, and with Robo Investing your portfolio automatically re-balances to maintain your objectives.
Volatility for a Robo Investor is actually a good thing, provided you have the right balance between equities and bonds and the particularly Robo Investor has a good algorithm backing it up.
It’s for this reason that we are personally a fan of AutoWeatlh, a Singaporean Robo Investment platform (But open to global customers). Here at Profit Hacks, we were fortunate to discover AutoWealth some time ago thanks to the excellent Turtle Investor blog. If you want to see how AutoWealth performed and profited during the market crash in March 2020, you can read this post.
How To Get Started with Robo-Investments
Just as technology still has FCA oversight so should your process of selecting a robo-investment solution, starting with research and due diligence.
You should research the different platforms available, evaluate their differences and determine which closely match your objectives. Then you should do due diligence on each platform.
There are a growing number of platforms out there, and we don’t have time to review them all but my personal favourites are AutoWealth and eToro.
AutoWealth is a Singapore based platform that is very simple. The simplicity starts with the sign-up process and continues with defining your goals and mapping out your situation and returns. Honestly, I also like the fact that because of technology I am not restricted to an advisor that pops round for a cup of tea, I can tap into a global economic powerhouse like Singapore. While, eToro is based in the UK and regulated by the FCA and was an early mover in this space, launching in 2007. I like their track record and the ease of use but eToro also has what I consider to be a silver bullet, which I’ll go into shortly.
Once you’ve done your due diligence go ahead and sign up. You’ll need the usual documents to prove your identity and then you’ll answer questions about your objectives and risk profile.
Obviously you’ll also need to have decided how much you are going to invest to start and how much (if anything) you will invest on an ongoing basis.
And then you’re good to go!
As a rough guide, and by no means is this financial advice, to how you may consider structuring your investments:
- Conservative – the allocation might be 60% bonds, and 40% stocks.
- Moderately conservative – the allocation might flip to 60% stocks, and 40% bonds.
- Moderate – this allocation may have something like a 70/30 stock/bond split.
- Moderately aggressive – this portfolio will be primarily in stocks, as much is 80%, with the balance in bonds.
- Aggressive – your portfolio will be 90% or more invested in stocks.
Things to Consider Before Using Robo-Investments
The usual one – markets go up as well as down and you need to ensure your investing horizon is long enough to weather these movements.
The stock market has famously produced great returns over the last 100 years but it is never a straight line.
Nor is it a get rich quick scheme.
Algorithms are fixed. Once you set it moving the technology will continue to do what you’ve asked it to do, until you stop it. Which is great, but it cannot correct mistakes or give you an opinion. So it’s crucial to get it right when you set it up!
Robo advisors have Customer Service but they robots aren’t going to come and meet you, so if the personal touch is important, this may not be for you.
Robots are not humans. Sounds obvious doesn’t it, and there are lots of reasons why that’s a good thing when it comes to investing, but here’s the kicker on why I love etoro – you can get the best of both worlds!
On eToro you can do ‘regular’ Robo Investing but you can also automatically copy the trades made by proven, successful traders.
For me this is the investing equivalent of having my cake and eating it.
We all know that the key to successful investing is diversification (hence having 30+ different passive strategies) and this takes it to the next level.
You can diversify into the markets
You can build a diversified portfolio
You can sit back and relax while the robots build your passive income
But you can also diversify by having some of your money invested in the trades of human experts.
Win, win & win!
I think a simple illustration of this can be made with the covid-19 crisis.
The world went into lockdown and certain technology products saw surges of demand. Zoom (video conferencing) stock price went from $105 on Feb 24th 2020 to $158 on Apr 24th 2020. Robo advisors can see and react to something like this.
What robots can’t do, which human traders might, is theorise that if people are confined to their homes for weeks and months perhaps there will be a baby boom 9 months down the line and perhaps that makes certain stocks attractive today, ahead of time.
Old world / new world.
I also love the fact that in the old world I’d be paying a fortune to a human advisor whereas now I can follow an expert for a fraction of the cost. Plus, honestly, these experts are probably better than the chap who used to come round for a cup of tea.
How Much Does It Cost To Get Started With Robo-Investing?
Short answer – not much!
Etoro has a minimum deposit of $200.
Autowealth has a minimum deposit of S$3,000.
Much less than the £50,000 or more that you used to need to do this.
It would likely be good practice to make regular ongoing investments and this would enable you to benefit from dollar cost averaging which gives you even more protection against fluctuations in the market.
Lets take a look at both of these a little closer
This our preferred platform for traditional Robo Investing.
AutoWealth is a robo-advisor, based and regulated in Singapore, that automates investing, allowing you to skip the costly middleman and get good returns at a low fee.
It takes just 3 simple steps to get started
1. Create an account and tell AutoWealth about yourself
2. Review their recommended investment options
3. Open your account and starting investing As we highlighted above, AutoWealth stands out for both it’s excellently performing alogorithm but also it’s top notch customer service, which is sadly lacking in many other robo-investment platforms.
We’ll all have different requirements when it comes to choosing a Robo Investment partner so please do your own research. But do make sure AutoWealth is on your shortlist, as it is truly an excellent offering.
>> Learn more about AutoWealth here
– eToro
eToro is different in that instead of looking to use an Algorithm to make our investments, we are still relying on a human being. But the key difference here is that we are able to back and follow proven, long term profitable investors through eToro’s social investments platform.
The best way to think about this is if you have ever been to a Casino and you see someone winning and winning at the blackjack table, you are able to place a bet behind them instead of playing in your own seat. You place your bet, they play the hand and if they win, you win.
This is how eToro describe themselves:
“Trade with confidence on the world’s leading social trading platform.
Join millions who’ve already discovered smarter investing by automatically copying the leading traders in our community, or get copied yourself to earn a second income…”
With eToro, you have two investing options.
You can invest in Market Portfolios that bundle together CFD Stocks, Commodities or ETFs under one chosen market strategy.
This is the most similar approach to our AutoWealth example. The other route, which is unique to eToro is their Top Trader Portfolios. Which looks like this: Both CopyPortfolio options are designed to help minimise investor risk, promote opportunities for growth, by creating diversified investments.
>>> Get Started with eToro today from just $200
Please be aware that all trading involves risk. 75% of retail investor accounts lose money when trading CFDs with this provider.You should consider whether you can afford to take the high risk of losing your money. This content is for educational purposes only and is not investment advice. Your capital is at risk. Other fees may apply. Virtual currencies are highly volatile. Your capital is at risk.