How Does Robo Advisor Work?

In this world, everyone is trying to make money as much as they can to secure their future and spend lives with financial stability. There are many investment businesses available in the market to increase the zeros of your account such as investment in Stock Exchange and different businesses. Traditionally, the advice of an expert is used to make an investment, they hired to take care of the money and manage all ins and outs of it for the businesses or individuals who hired them. Whereas, they charge a small percentage of invested money, for their services. All the financial institutions use to invest in different portfolios with the help of the advisors and generate money to run their businesses. 

Now, the duty of investment advisor is shifted to the automated system, known as Robo Advice. In this era of advanced technology, a large number of systems are built to replace human intelligence. Same like that automated investment advisor is taking place of the human financial advisors and are even cheaper than them. It is spreading like a fire in all over investment businesses and working same or maybe even better than humans.  

What Financial Services Robo Advisor can perform 

They are offering various financial services such as 

  • Assets Allocation: They analyze the available options of investment and suggest the best portfolio on the basis of artificial intelligence. They use the algorithm method to rank the different investment options and allocate your wealth to a relatively best option available. 
  • Automated rebalancing: With time, they automatically rebalance the weightings of the portfolio when needed. It is related to the sale and purchase of the assets to maintain the desired or ideal level of allocation. e.g. if the target allocation is 50% investment in stocks and 50% in bonds; due to any reason such as if stock performs well and it might increases their weight in allocated assets, so to bring it back at the target level, the system automatically sells some stocks or bought some bonds to rebalance it. 
  • Dividend reinvestments: If you have some investment, dividends are earned on a quarterly or yearly basis on it. Robo advisors have the ability to manage the accounts by themselves and allowed to reinvest the earnings to the best available options. 
  • Tax loss harvesting: To offset the loss with any taxable income, sometimes intentionally they let the investment suffer some loss. It helps the investors to minimize the payment of tax by use of some intelligent tactics even by following the tax laws. 

We do not deny the importance of human advisors but it is the best alternative available in the market. Even human advisors can improve their efficiencies through the use of Robo Advisors and take more informed and rational investment decisions. finance-service