Is Automated Investing Right For You?

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You hear friends talking about investing. Every week, you see news in the media about savvy young investors and how well they’re doing in life/financially. You want the same for yourself, but have no idea where to start. You’re just sitting on a pile of savings and not making your money work for you. Sad to say, money doesn’t grow by itself. (If it did, we’d all be millionaires by now.)

You have to make it work for you.

Enter automated investing to the rescue. Just as how the Internet has brought about a revamp in the travel industry and our media consumption habits, technology has breathed new life into the way we think about and manage our money, including our investments.

What is automated investing?

In a nutshell, it’s about automating your investment process.

Instead of a traditional human adviser, the computer helps you pick and select what to invest in based on your profile and preferences.  In the States and other parts of the world, the technology is often referred to as “robo-advisors”, growth of robo-advisors exploded fairly recently; 77% formed after 2009; several major overseas players like WealthFront, Betterment, SigFig etc.

“Robo-advisory services will become mainstream over the next three to five years,” consulting firm A.T. Kearney concluded in a report published this week. By 2020, robo advisors will manage about $2 trillion in the U.S – Robo advisors: The next big thing in investing

Automated investing makes investing easy, inexpensive, and even fun. They take the pain and uncertainty out of investing, which is great news for investors. Even millionaires are using automated investing, which speaks volumes about its benefits.

3 key benefits of automated investing

  1. Automate the investment process, making it a breeze to use (increase efficiency, reduce behavioural bias, and streamline process through a single computerised interface)
  2. Reduce human contact (convenient; no need to meet-up with your adviser; also eliminates human error)
  3. Charges low service fees (No more hidden fees and separate charges for trading, just one minimum fee for everything)

Fees and account minimums used to be barriers for young investors who are starting to accumulate wealth. These online automated investment services provide a simple, transparent and low-cost solution.

Traditionally, investors have relied heavily on using the services of human advisers / professionals they meet with face-to-face, to help them put together a financial plan and invest their assets in the securities markets. While this lends a personal touch, it also opens up room for human error, plus the need to compensate your adviser a generous (sometimes, hefty) fee in exchange for his time and expertise. (Not to mention your advisor may be distracted/will likely have a bunch of other clients to deal with) Automated investing takes that out of the equation by returning the focus on you, the investor.

Automated investing is ideal for younger more tech-savvy generation/millennial investors who are comfortable using digital services with limited human contact, and they have smaller available asset amounts/if you have relatively small amounts to invest. (In the US, average asset amount for robos is US$20,264)

It’s a great option if you want low-cost advice about the appropriate mix of stocks and bonds to buy and hold for the long term, and if you’re content to monitor your investments on a home computer or a mobile app. If you don’t want to spend a lot of time and effort choosing funds or tracking market fluctuations.

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