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What Robo Investing Is

December 8, 2015

The previous blog discussed some pros and cons of robo investing.  Today, I will describe it further.

Robo investing is where automation is used to choose investments that meet clients’ needs based on their goals, risk temperament, timing of withdrawals, distribution amounts, asset preservation desires, reactions to volatility, level of security they want and an asset allocation configuration designed to accomplish their goals.  Customer information is provided with extensive questionnaires and build-it-yourself models.  A great benefit of robo investing is lower costs than using an investment manager.

Most robo advisers provide little or no hand-holding (very important if the markets experience large swings), little integration with income tax filing status, little flexibility when original goals change or if there is a question about a particular security included in the portfolio.

Robotics are being used successfully in manufacturing and distribution while automation is being more wildly used in medicine and much of our bill paying and deposits are being done electronically.  There is a trend which is actually a reality, and this has seeped into investment management with the robo investing.

It would seem that the purpose for robo investing is to fill a need by people with lesser amounts of investible assets but who are somewhat knowledgeable with investments, risk and asset allocation and who are certainly comfortable with using computers and electronic transfers and instructions.  The robo investments are usually with low cost exchange traded or index funds.

Robo investing is an alternative to using a professional investment manager, broker or regulated investment adviser for those that do not want to do it for themselves.  It is new, but rapidly gaining traction.  As a model I do not think it can be ignored, but because it is new and growing I don’t think that should be the only reason to use it.  In deciding who or what to use, put this on your list, but also check it out carefully and compare it to the alternatives and see what looks like what will best get the job done for you.

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