Without question, more people than ever are looking to have their money work for them today. According to a recent MagnifyMoney survey, 45% of Americans regret not pouring more cash into the stock market over the past decade. As many of those polled have stated, they believe they have missed out on sizeable financial opportunities by not doing so.
While timing a perfect market entry point is virtually impossible, perceived missed chances are predominantly driving changes in strategies on how to invest. From a pool of half of the stockholders who believe they have made investment mistakes in the past, 60% have adjusted their approach to the market. Thus, many individuals have turned to stock performance tracker software and explored speculative, volatile assets like digital items (NFTs and crypto) and meme stocks.
Despite popular belief, today’s Gen Z members and Millennials have more economic power than any generation before. And they are earning, saving, and investing at higher rates than Baby Boomers. In a staggering fact posted in a 2018 FINRA report, 31% of Millennials have already begun investing prior to turning twenty-one, with Bank of America claiming that one in four Millennials have saved up more than $100,000. The impact of young generations on the financial sector could prove dramatic, and so can their investment choices getting guided by high-end algorithms that track market changes. That gets explored below.
What are Automation and Robo-Advisory in Investment Tracking Software?
A robo-advisor is a software platform that supplies algorithm-driven, automated investment services, and financial planning with no or little human supervision. This tech aims to optimize passive indexing strategies utilizing advanced portfolio theory. Although these solutions have gotten criticized for their lack of understanding of various nuances of the stock market and their lack of empathy, they are gaining traction because they are inexpensive and ask for low opening balances. Furthermore, they are easy to set up, offer comprehensive financial tips, and have high-end security features.
The initial robo-advisor hit the digital sphere in 2008, Betterment, and its original goal was to help users rebalance assets within target-date funds, aiding them in buying and holding investments via a rudimentary web interface.
How Do Automation and Robo-Advisory Work in Investment Tracking Software?
Brokers and wealth managers have been using automated portfolio allocation tools since the start of the twenty-first century, years before Betterment appeared. But it was not until the mentioned American financial advisory company launched its digital investment and cash management service that such a solution was available to the general public.
Once Betterment software debuted, everyday investors could employ passive indexing strategies optimized to utilize versions of PMT – modern portfolio theory. Some robo-advisors go so far as to deliver features that automatically handle complex jobs like retirement planning, tax-loss harvesting, and investment selection. They can also, on their own, partake in Halal investing, socially responsible resource distribution, and implement tactical strategies akin to those used by hedge funds. Naturally, they do this by scanning and analyzing historical and current data and incorporating and factoring predefined patterns, milestones, and indexes.
What Are the Benefits of Using Automation and Robo-Advisory in Investment Tracking Software?
The chief perks of robo-advisors are:
- They usually have flat annual fees, often a small percentage of the amount managed. That means they incur lower costs than traditional advisors while providing a similar, albeit a more robust version of the same service for a fraction of the price.
- Robo-advisors can require a minimum asset baseline as low as $3,000 to start, with some boasting no account minimum. That makes it significantly cheaper to begin investing when one implements these solutions.
- The degree of efficiency in play is far superior. Before these auto-consultants showed up, it took a while for investors to execute a trade. They would need to call their advisor, lay out instructions, and wait for that person to execute them during the working day.
- Everyone sees better results when incorporating an indexing strategy. That is a fact. It is true that automated investment solutions limit asset allocation options. Yet, many times, when someone is trying to beat the market, that can generate substantially disappointing outcomes.
What Are the Risks of Using Automation and Robo-Advisory in Investment Tracking Software?
As discussed above, some question the lack of empathy that goes into auto-investing. It removes the human dimension from the process, putting profits front and center. That may be positive for a single investor but can be unideal for the market or humanity.
Many experts also doubt their role as a one-size-fits-all instrument to wealth management, viewing them as a decent entry-level option. That is because trading insiders see them as ill-equipped to resolve extraordinary situations and unexpected crises. An Investopedia study did show that during times of extreme market volatility, investors wish to rely on a combination of tech and human guidance because they do not trust software to make decisions alone in hazardous periods.
How to Choose the Right Tracking Software?
The best course of action is to stick to tried-and-tested options that have proven track records of yielding decent results in the long term. Most recommend opting for choices with tax optimization features, annual fees below 0.5% of a user’s account balances, a referral program, and an account minimum below $3,000, preferably none. Wealthfront, Acorns, Betterment, SigFig, and Ally Invest currently rank as this landscape’s premium picks.
How Secure are These Apps Around Personal Data?
As a rule of thumb, they provide almost identical data and access protection like most online and physical banks. So, Secure Socket Layer encryption and tokenization are in play concerning this software, which also tracks user activity for suspicious transactions and access locations. Therefore, they have anti-fraud safeguards in place and adhere to modern privacy laws.
To Sum Up
It seems like using artificial intelligence in all aspects of life is closer than predicted. Hence, it should not surprise anyone that leveraging algorithmic trading is something that will go mainstream soon. Based on modern portfolio theory, robo-advisors can do more varied and complicated tasks quicker than any human financial consultant for a fraction of the cost, with fewer errors. Accordingly, their appeal, particularly for younger, tech-forward folk, should be super obvious.
