Are Robo-Advisors the Future of Investing?
Robo-advisors are as the name implies. They are computer programs that determine your risk level and invest and manage your money. They are surging in popularity and are projected to handle $8 billion by 2020. You would think that the millennial generation would be all over this technology. Think again! A new LendEDU poll found that millennials still prefer traditional financial advisors. The full report and methodology can be found here: https://lendedu.com/blog/robo-advisors-vs-financial-advisors/
Here are the highlights:
- 46.41% of millennials are working with a financial advisor, while 24.30% have used a robo-advisor
- 51.59% said robo-advisors are more likely to make a mistake managing their money
- 62.35% said robo-advisors are more likely to lose their money, and 68.92% said human financial advisors are more likely to get a better R.O.I.
- Nearly a quarter of millennials have used a robo-advisor, but of those who have not, 61.58% said it was because they have never heard about robo-advisors, suggesting a marketing problem that is holding back the potential for tons of customers
Maybe it is because they see the flaws in the robo-advisor model.
First, determining risk levels is an art rather than a science which I believe a computer software model can't always accurately accomplish.
Second, it is a system run by Pop Culture Finance beliefs. Pop Culture Finance deals in money management principles as if they are absolutes and work all of the time. It it were only that easy.
Third, let's see how much value they provide in a bear market. My guess is that they will do no better than the average investor because they don't access risk.
Unfortunately, Pop Culture Finance is messaging this as an easy way to invest and manage money. In a bull market, they are going to go up just like everyone else. Since they have come onto the scene, no one knows how they will handle a bear market.