Thought I’ll write something on robo advisors. What are they? How does it work? Not going to name whom you should be investing with. That’s a choice you have to make yourselves. This a thread.

(1) For a long time, buying unit trusts was often in the hands of agents. Several years ago, robo-advisors emerged to take advantage of demand from investors to make investing easier and digital. As the name suggest, robo advisors get their name from abbreviation of robot advisor

(2) Robo-advisors are online platforms that can allocate your money to multiple funds / assets based on your unique risk profiles. Why unique? Because all of us have different goals, risk appetite and amount to invest. These factors make a difference to how / what you invest in

(3) Before robo advisors emerged, the manual way of asset allocation was to put investor in age & risk buckets. Typically younger means you can take more risk, older means less risk. Though you can switch this around (young but less risk, old but more risk), choices are limited

(4) The argument was also that markets were moving so quickly and there are so many asset classes, it was impossible for somebody (the agent) to keep tabs of everything and be able to advice you accordingly.

(5) Robo advisors automated this process, by calculating what your wealth objectives are and how much you needed to invest & where. This is done by asking you questions about how much you can save monthly, how much do you need, how much do you spend etc

(6) Investors can change their risk profile as you go. This is important as people’s priorities change (children etc) so your appetite changes too. The app allows this by realigning your portfolio to ensure you are on track

(7) Important to note that robo advisors need not be the fund managers themselves. The funds they invest in can be from other fund managers. The larger the funds they have access to, the more robust the portfolio is. But equally requires top notch technology to keep track

(8) Most robo advisors start off by having small number of funds on their platform. For example when you see your portfolio have ‘US stocks’, the robo advisor is likely investing into a US ETF (S&P500).

(9) Number of funds grow when robo advisors have data on what their investors want. This is hiw more funds are selected on to the platform. Being all digital, there is an ability to aggregate the data and make better decisions.

(10) Robo advisors make money by charging monthly management fee, which is much lower than the traditional means because it’s done by machines. Fees drop lower when you invest more money.

(11) All aspects of the investing is made easier too. You fill less forms, and KYC (Know-Your-Client) requirements are verified by taking selfie of yourself and photo ID. Spares you a visit to meet people / go to bank.

(12) Despite this, it carries the same risk as investing via other means. Short term market profits are caused by volatility, newsflow & luck (never discount this). If somebody told you they made so much of money in 1 week, it’s luck or a lie.

(13) Robo advisors are there to make investing easier & simpler. The adage “dont put all eggs in one basket”, this is what they do, diversify your investments for you. It also charges lower fees so your gains dont get eaten much.

(14) Always research, ask questions, read terms & conditions, and start small. Build confidence, understand how it works, then you can invest more. What works for others, may not for you. Most importantly, be patient. Investing is a marathon, not a sprint.