The Rise of the Machine Part II: The Role of Robo Advisory in Today’s Financial Landscape
A fundamental requirement of living in the information age is accepting the ever-increasing role of machines in daily life. Today, we entrust our home security, banking, commerce and communications to sophisticated algorithms that automate minutia and help us live more efficient, productive lives. The world of investing is no exception, with “Robo Advisors” assuming an increasingly large role in daily financial decision-making.
A Robo Advisor is, simply defined, a computer program that factors your investment goals, historical and current market data, and chosen timescale to suggest an investment strategy and execute trades. As private investors look for ways to save labor time and costs, Robo Advisors represent an attractive option. By removing the human element, Robo Advisors operate quickly and cost-effectively, offering investors fully automated trading (“set it and forget it”) with low expense ratios and fees.
While leaning on a Robo Advisor might seem like a no-brainer, traditional options – i.e., relying on a human to manage your portfolio – have critical merits, as well.
A Robo Advisor may be able to process complex numerical data, but current technologies lack the ability to factor and weigh external semantic information: For instance, relevant news stories that may impact future market conditions.
Additionally, a Robo Advisor is only able to understand your investment goals from the perspective of “target number by target year.” A human, conversely, can take the time to understand your goals on a deeper level, making tailored, strategic adjustments as your goals evolve and shift.
Inevitably, Robo Advisors and other machine-learning based technologies will play a fundamental role in investing and other financial disciplines. In fact, they already are. The sheer processing power of computers makes them invaluable for contextualizing market data and trading in real-time. That said, it’s important that human advisors continue to “captain the ship,” working with investors and leveraging technology to marry strategy, intuition, and efficient execution. Relying solely on machines to manage your portfolio may save time, but ultimately, it’s wise to take a rounded approach that brings you the best of both worlds.
There is no guarantee that an investment strategy will yield positive outcomes. Investing involves risk, including loss of principal. The advisors of Cypress Private Wealth are Registered Representatives with, and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice is offered through Strategic Wealth Advisors Group, LLC, a registered investment advisor. Strategic Wealth Advisors Group, LLC and Cypress Private Wealth are separate entities from LPL Financial.