Investing is changing as fast as any other type of technology. New investors want the process to be modern, affordable, flexible, convenient, innovative, fast and, of course, profitable. Small and new investors can now take advantage of unlimited knowledge to make decisions on investments. Ultimately, the internet has made it easier to invest.
Digitization opened up new opportunities in digital investing. Financial service providers and banks are no longer the only ones explaining the financial world to people. A new, younger financial industry has emerged to question the status quo. These Fin-techs disrupt the industry. They cover the investment market but additionally are active as payment service providers, account providers and lenders or even insurance intermediaries. Online banking and online brokerage have become the norm and Social Trading, Roboadvisors, and Crowd-investing are becoming more and more established.
Digital Investment Opportunities
Roboadvisors provide financial advice and financial management online based on algorithms with little human intervention involved. This new creation of the Roboadvisor has taken a complicated factor out of investing: human emotion. Many of the Roboadvisor’s algorithms rely on a Nobel Prize-winning investment theory to drive their models. Selection, investment, and risk management are done by algorithms, programs, and scientific analysis or portfolio theory, relieving the investor of one of the hardest parts of investing: deciding on assets.
Another positive of this type of investing is that it is far more affordable than hiring a traditional human asset manager. Small or new investors can participate in investment strategies and product selection by professional investors or experienced experts by tracking their transactions on social investment platforms and replicating the process with their own money.
Pros and Cons
Digital investing has many advantages:
1. Convenience – It allows you to get advice or make investments via phone, mail, or video. You will always have someone to answer your investing questions due to the digital nature.
2. Affordable – Lower minimum investment amounts means better diversification.
But digital investing isn’t perfect. There are disadvantages:
1. Lack of personality – Roboadvisors lack some of the personal touch of a human asset manager. They are not going to hold your hand and talk you through a market drop. They also offer less personalized options to set investment goals. You are also missing out on the personal contact many investors want with their financial advisor. You sacrifice personal contact and relationship building for convenience.
2. Imperfect Technology – There are risks of data misuse, data breaches, and aggressive advertising strategies. If funds are misappropriated, or investment programs and algorithms are wrong, capital losses can be high.
Roboadvisory is just getting started. Potential investors benefit by lower fees while contributing many paths to professional asset management. Only time will tell if or when a robot can provide as much trust and security for you personally as a human advisor.
Sven Franssen