You may have seen in the movies or read in articles and books that AI will change the future, where most crucial tasks will be completed by it. It wasn't wrong, primarily, as with the help of AI and deep machine learning, repetitive and menial tasks can be done in a fraction of the time. A proper AI model can analyze and present conclusive data, which took pros days to complete.
Similar trends and scenarios are now seen in personal finance management, where it can help you invest on automated platforms without needing a human, financial advisor.
Let’s discuss what Robo-advisors are and some of the latest trends in 2023.
What are Robo-Advisors?
These simple automated platforms follow a pre-designed algorithm that can invest on your behalf and analyze historical data and pre-existing conditions. They can manage their client's investment portfolios this way, minimize risks, improve goals, and further change according to their profile and needs. Furthermore, they have much less window of error and time consumption than their human counterparts.
Best Trends in the Robo-Advisory Scene
Here are the best trends in 2023 that you should understand and keep under your radar.
1. Passive Investing for the Long Run
When managing investment portfolios for clients, some robo-advisors prefer targeting only a passive income strategy as it is safer and accumulates returns in the longer run. To do that, they target specific market index and their performance and then mimic their trading. This is possible through holding and trading rather than a diverse set of portfolio index funds that profit in a longer time than others.
2. Democratize Investment Opportunities
They achieve this quickly by fixing their services at much lower costs as they don't have the same overheads as human advisors. This helps new investors start building a portfolio to the premiums they can afford and don't have to worry if it will break the bank.
3. Integration of AI and Machine Learning
This is, without a doubt most critical strategy of the investment market, as with the help of AI and machine learning, robo-advisors can process a massive amount of data. They can quickly analyze market trends and other aspects. AI and ML can give investors more predictable market data and help them enhance their portfolios. With a more complex model, the robo-advisors can also learn from customer and market behavior to make their recommendations more precise and accurate.
4. Modern Portfolio Theory (MPT)
MPT strikes a perfect balance between the risks of the market and returns from diverse portfolio opportunities. They create and invest in a chain of unique asset classes based on investors' goals and pockets. These classes include but are not limited to stocks and bonds and other commodities based on current and future markets.
5. Minimal Physical Interaction and 24/7 Service
This is one of the biggest game changers for those who have busy lives and cannot afford to visit or call their agent or broker during the day. They prefer observing market trends and investment openings on their mobile device. Because robo-advisors rely on ML and algorithms for data and analyses, they can present trading suggestions to customers on their mobile devices, eliminating the need to meet in person.
6. Hybrid Models
Some people do prefer building trust with their broker and taking humanly advise while reaping benefits from data they can get from ML and AI whenever and however they want. The hybrid model is also on the rise for these types of individuals. These models integrate human elements with digital tools integrated to robo-advisor platforms.
7. Risk-Based Allocation Methodology
Stocks and investment portfolios give more significant returns on higher investment amounts. This means that the higher the amount, the higher the risks involved because the market can be volatile if more significant returns are needed.
So some robo-advisors focus primarily on what tolerance different investors have against risks and reward schemes. These advisor platforms then input this data into their complex model and look for investments that can be allocated based on the particular individual.
8. Investment Opportunities Exploration based on Social and Ethical Backgrounds
Many investors want their investments based on their values or principles or support portfolios catering to causes or issues that benefit these causes. Some of these investment opportunities are ESG, Environmental, Social, and Governance investments or SRI, Socially Responsible Investing. Many robo-advisor platforms follow this calling and incorporate ethical and social data into their ML model to support and help these investors. So based on your ESG or SRI preference, you can tweak your plan and trading to support your beliefs better.
9. Gamification and Education of Investment Strategies
When you are playing games, you are incentivized by increasing levels, gaining rewards, and acquiring trophies by completing specific tasks/objectives and quests. Many robo-advisor platforms involve these metrics in their trading methods, attracting a younger crowd to these investment opportunities. Furthermore, this gamification educates the younger demographic to get familiar with stocks, trading, funds, and portfolios to make new customers.
10. Tailored Experience
One size doesn't fit all, which was a significant trend in every space for many decades. With the help of AI, ML, and IoT, companies can now understand the needs of their customers and base products and services according to the customers. For example, different software and services cater to students differently than companies and corporates and support smaller businesses and different light.
This customization approach allows robo-advisors to include their customer’s personal preferences and risk tolerance into their model to facilitate them better. This personalization is crucial if companies and platforms want to attract new customers or retain subscribers longer.
Ending Comments
These are some prime examples of trends emerging due to the popularity of robo-advisors in recent years. Automation is becoming a big part of how we interact with different services or things we deem essential. We advise you to read through the article for what you fancy and add more research for better results.
