What on earth is a robo advisor?
Firstly, if you have never heard of one - that’s ok! And secondly if you have and you don’t really understand them, that’s ok too!
If you know everything there is to know this blog will be very dull for you.
Ok so where were we.
What is a robo - advisor
The term came from a new wave of companies that make investing more accessible for people like you and me who don’t know how to invest ourselves.
The idea is that you can set up an account, answer some questions, transfer some money and voila - you are a bonafide investor!
These robo-advisors apps are super user-friendly and there is MUCH less jargon than you would get on ‘investor’ sites like Hargreaves Lansdown or AJ Bell.
They really are designed and built for non-experts and people who have better things to do than pour over the details of different investments (which is most of us, I hope)
Another thing they are is cheap, which is very important when it comes to investing as any money you pay in fees will reduce the amount you make from your investments and that’s not what we want. This is about your money working as hard as it can so you can do the things you want to do!
How much do they charge?
The majority will charge between 0.5% and 1%.
So if you invest £2,000 and they charge 0.75% you will pay £15 a year.
Compare that to a walking-talking-human financial advisor, which would be more like £40 a year. Well, actually, it wouldn’t because they wouldn’t even take you on as a client until you had at least £50,000 anyway...
What do they actually do?
Robo-advisors tend to invest in something called ETFs but I wouldn’t worry too much about this right now.
ETFs mean that you can invest in funds that have very low fees, which again helps to make sure you can hold on to as much money as you can.
Investing in an ETF is not like investing in one company or 10 companies. It’s about spreading your money across lots of different companies - this is something called ‘Diversifying’ and basically means you don’t put all your eggs in one basket. If one company goes bust, you don’t lose all your investments.
Ok so what have we learned so far:
How much money do I need?
They range but you can invest from as little as £1, where some have minimums of £500.
How do I get one?
Head to one of their websites, you can find a list here and start opening an account!
What kinds of questions will I get asked?
These vary between the different sites but in general these are the types of question you will get asked:
Type of account
Usually the options will be:
How do you know which is right for you?
An Individual Savings Account (ISA)
A General Investment Account (GIA)
This is the amount you would like to invest. You can change your mind about this so don’t worry if you aren’t sure yet and you just want to get a feel for the process.
Investment horizon / time-frame
This is how long you are planning on investing for. You can usually change this at any time, but remember investing is a long-term strategy so you should be investing for at least 3-5 years.
Risk appetite / Investment style / Investment goals
This is where some of the more complex questions come in - but don’t let it scare you!
Robo-advisor platforms tend to have a range of portfolios – this will usually be on a scale of least risky to most risky.
Some may ask you to choose a risk level and some may ask you a series of questions to work it out for you.
When they ask you questions like:
They are trying to understand you as an investor and will use these answers to give you a suggested 'risk-level'. This will decide which portfolio you will be given (you can usually change this at any time.)
Is your risk-level / portfolio right for you?
It tends to be the higher the risk, the higher the potential for making more money – however, this also means you could lose more money as well.
Once they have given you your risk-level rating and if you are happy with it, they will then show you your portfolio.
This may look overwhelming but don't worry!
It might be a list of funds, or it might be a graph of percentages. Either way it will be a diversified (not all your eggs in one basket) portfolio based on your risk rating.
You will then add all your personal and financial information and deposit your first amount.
And there you have it.
You are a tech-savvy digital investor - why not tell your friends at your next Zoom pub quiz.
The quick take:
The above is not financial advice and is only provided for educational purposes.