A beginner’s guide to robo-investing

What is robo-investing and is it the right option for you?
Robot toys | Wealthify
Reading time: 4 mins

Remember 2007-08, when financial institutions collapsed and countries around the world plunged into recession? Needless to say, the years that followed were a time of uncertainty and crisis. But this is only half of the story. The Global Financial Crisis also brought some positive change to the world of finance. Stricter regulations were implemented, and ground-breaking innovations spread rapidly within the industry. 2008 saw the birth of robo-investors, also known as online investment services. And over a decade later, these platforms are more popular than ever – it’s estimated that by 2024, robo-investors will be managing $2.5 trillion worldwide1! If you’re looking for an easy way to invest, robo-investing could be a great place to start, but before you commit, make sure you understand how it works.

 

What is robo investing?
Robo-investing is an affordable and effortless way to invest and have your money managed by experts. Essentially, with robo-investing, you can become an investor with just a few taps (or clicks) and you don’t even need to be super rich or knowledgeable about investing to get started. Many digital investment platforms let you invest as little or as much as you want, and they’re designed to do the hard work for you. At Wealthify, for example, our investment experts will build you a Plan and manage it on an ongoing basis. All you need to do is choose how much you want to invest and select the risk level that suits your needs – investing couldn’t be easier than that!

Robo-investing is also about transparency and control. With online investment platforms, you’re both in the know and the driver’s seat as you can check how your investments are doing or top up your plan at anytime, anywhere.

 

Is my money managed by robots?
When we talk about robo-investing, it’s often assumed that robots are calling the shots, but we can assure you that it’s just a preconceived idea. Although in the US, some services are fully automated, in the UK, this would be the exception. In practice, robo-investors, like Wealthify, employ algorithms (a set of rules to be followed in a calculation) to process large amounts of information and analyse what’s going on in the markets. Our investment experts, who are reassuringly human, will then use these algorithms and the information they delivered to decide what to buy and where to invest. The advantage of using technology is that it helps remove human bias from our investing decisions – everything is data-led.

 

What are the benefits of robo-investing?
The main benefit of robo-investing is that it has helped open up the investment world. Years ago, you had to have thousands to invest. Digital investment services have managed to break down these barriers and opened the gates to everybody. You no longer need to be super rich to become an investor, and with some robo-investors, you can even get started with as little as £1!

And that’s not all! Thanks to online investment platforms, investing has become accessible to everybody – even those without financial knowledge or experience. In fact, you don’t need to know much about stock markets or investment types to dip your toe in the investment world. Investment professionals with years of experience and expertise will take care of everything – and by this, we really mean everything. They will monitor markets, analyse data, research companies, keep a close eye on the news, and make any adjustments to your plan if needed to keep it on track not with your investment style.

Robo-investing isn’t just about simplicity, it’s also about affordability. Whether you’re picking your own investments via a DIY platform, hiring a wealth manager to look after your money, or opting for a robo-investor, fees will be deducted from your investments. Depending on the type of service you’re using, costs can vary. At Wealthify, we try to keep costs down and only charge a simple annual fee of 0.6% for managing your investments – fund charges will also apply. If you want to know more about costs and charges, please visit our fee page: https://www.wealthify.com/why-invest/fees.

 

What are the cons of robo-investing?
Before you adopt robo-investing, it’s important to know what you can do with these digital investment platforms. Most robo-investors won’t let you pick your own investments – that’s our job. However, this doesn’t mean that you don’t have a say in where your money goes. At Wealthify, for instance, you can choose between five risk levels and your choice will determine what you get invested in. If you’re Cautious, you could expect to hold a greater portion of safer investments, such as government bonds. But if you’re Adventurous, then you’ll be holding more shares, compared to other investment types.

Another thing to be aware of is that some robo-investors aren’t regulated to give advice on whether investing is right for you. So, if you want someone to thoroughly examine your financial situation, and tell you what investments to choose, then you may want to broaden your options or talk to a financial adviser.

 

Is robo-investing right for me?
We can’t say whether robo-investing is right for you – it will depend on your financial situation, personal circumstances, and own preferences. But generally-speaking, robo-investing can be a good option for people who don’t have time or don’t feel confident enough to pick their own investments. It’s also a great place to start if you can’t afford to invest large lump sums or just want an easy way to put your money to work.

 

How to get started with robo-investing
Before you join the world of robo-investing, it’s important to do your homework and shop around. Not all robo-investors offer the same service and if you want to make the most of your investment journey, it could be worth comparing what every platform offers. Obviously, it’s a good idea to look at fees, but don’t just focus on that, there are other things to consider, such the investment strategy, their customer service, or the products they offer. Some platforms will offer General Investment Accounts and Stocks and Shares ISAs, Others like Wealthify, will have a broader choice with Junior ISAs, Personal Pensions, and Ethical investments.

Once you’ve made your choice, you’ll simply need to sign up and choose the account type you’d like to open, the amount you want to invest, and the risk level you’re most comfortable with. Then you’ll need to answer a few questions about your finances and circumstances and as soon as you’re set up, we’ll start investing your money for you.

 

Reference:

1: https://www.statista.com/outlook/337/100/robo-advisors/worldwide

 

The tax treatment depends on your individual circumstances and may be subject to change in the future.

 

Please remember the value of your investments can go down as well as up, and you could get back less than invested.

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