The world of investing has long been deemed to be inaccessible to most people. Whether they lack knowledge on the financial markets or don’t like the idea of having to actively manage their portfolio, many people choose not to invest. But could the introduction of artificial intelligence (AI) and automation help change that?
The rise of automated investing solutions represent one of the most profound shifts in FinTech. They are helping to simplify the process, while also offering dramatically lower costs than traditional investment advisors or managers. With an automated investing tool, the investment choices are left in the hands of AI and algorithms, which make decisions based on investor’s risk parameters and long-term goals.
By letting AI and automation handle your investment it helps open up investing to a whole range of people. From beginners who don’t know where to start to investing veterans who are just looking for a more hands off and passive approach to investing.
So what are some of the automated investing tools being introduced to the market?
Well, there are now various AI investment solutions starting to emerge which are helping open up the world of investing to the masses.
Two of the biggest examples include:
Robo-advisors - They provide automated, algorithm-driven financial planning services that require little to no human supervision. They typically focus on building portfolios out of low-cost exchange-traded funds (ETFs) and index funds; they essentially mirror the behavior of an index, like the S&P 500.
AI Trading Softwares - This software allows traders to use AI to automate their trading activity. The software can recognize patterns and predict and react to future events, it can also be applied to different markets such as FX, Metals, Indices and Commodities.
Both solutions leverage AI and automation to help more people invest and compound their money over the long term.
What are the advantages of using such services?
Automating investment processes offers a variety of advantages. The biggest advantage is it is more efficient and saves a lot of time compared to manually trading and investing. This allows businesses and individuals to focus less on their finances (portfolio) while still seeing their accounts grow.
Another advantage for traders and investors in financial markets such as forex and commodities, is that it removes human emotion from the process of decision making. While it can be exciting and rewarding to see your trades profiting, constantly chasing wins can often lead to human error and when errors occur, most people will end up losing money. Automation removes any element of human error.
Why are they the future of finance?
Automated investment solutions are here to stay and will only continue to grow in popularity. In 2018, robo advisors managed an estimated $257 billion worth in assets and is expected to increase to half a trillion by 2023.
The reason for this fast growth is that the investment advisory industry is largely inefficient. Not only do financial advisors charge high fees, they also spend a lot of time allocating portfolios, managing tax situations, dealing with customer queries and spending time meeting clients. AI doesn’t have to deal with these issues, which enables the investment solution to be more efficient and a cheaper option than traditional financial advisors.
Automated investing solutions are disrupting the market and look set to dominate the finance industry moving forward. As more people start to utilise them, it could start to spell the end for many financial advisors.
If automated investing solutions are superior, why aren’t more people using them?
Automated investing solutions are still new to the market and although they are becoming more popular, they still need time to become more commonplace. A large issue which is preventing their growth is that many people still do not trust AI and algorithms to take care of their finances.
Many people still prefer people in the investment field to handle their money, feeling their money is in safer hands (even though this often isn’t true). As technology evolves people need time to acclimatise to the idea of a machine handling their personal investments.
Another factor is that most clients like to be educated about their investments. A human financial advisor can educate customers on their investments, and help them understand the level of risk they should bear, which some automated investment solutions can’t offer.
Once AI and algorithms start to record long proven track records and more people start to see the value automated investing solutions provide over traditional investment choices, the more this industry will start to grow. It’s not a case of if automated investing solutions will become the future of finance, but when.