The Roboadvisor universe does not stop growing. Since they were born in the United States in 2008, these types of investment products have been expanding. But is all that glitters gold?
When we talk about saving and investing, and especially when we are starting out, it is easy for us to become overwhelmed with information that we do not know. Many new concepts emerge such as ETFs or mutual funds. We can read promises of gurus who sell a course saying that with their method you will get rich.
Don’t be in a hurry, a month before or a month later, you will end up investing. Or not? Maybe this is not for you, you never know. But it is likely that only because of inflation you will regret not having invested your savings within 30 years.
There are many different types of investment, useful conservative methods to get a return on your wealth with little risk. But also other much riskier methods in which you can earn a lot of money, but which is equal or more likely that you will lose what you invested. First of all, it is important to know the relationship between profitability and risk.
Why do we say all this? Because we know that it is difficult to learn and easy to get confused with so much term. That is why in this article we will talk about the roboadvisor, their relationship with passive management, some tips and for that it is important to make a good comparison of the roboadvisor.
Are roboadvisors passive or active management?
Although the belief that roboadvisors are passive management is widespread, this is incorrect. Why? You see, in general we can say that there are two types of management: active and passive. We explain you ↓
Active management or active investment is the investment process through which the manager of an investment fund searches for and selects financial assets based on their own criteria and analysis, with the aim of achieving higher returns than those of the market.
For its part, passive management or passive investment is the investment process through which the manager of an investment fund will make investment decisions with the aim of not undoing those decisions in the long term.
Put more simply, active management bears that name because there is a continuous movement on the part of the manager to search for a portfolio that performs better. Meanwhile, passive management bears that name because it does nothing. He is practically unfazed.
In this sense, the roboadvisor does not sit still and do nothing. The manager does nothing because there is no human manager, but an algorithm does it based on your preferences. Of course, the non-human component does not imply that it is not active management.
Another point that has become confusing is that some roboadvisors invest in index funds (not all) and index funds are a type of passive management. But from the moment you change the composition of the portfolio. That is, you buy and sell the indexed ones according to different criteria in order to beat the market, you are probably not doing passive management.
and where is the problem? Nowhere. We simply let you know so that the motorcycle is not sold and you know that you are going to hire. In fact, it is more if the roboadvisor (still very young industry) are able to demonstrate their good results over the classic passive management it will be a good turning point for the average investor.
Is a roboadvisor a good choice?
Depends. About what? Of your knowledge and your time, but mainly of the former. Although there are companies doing well in Spain, the management of the roboadvisor still has to improve a lot. We are not saying that they are doing it wrong, simply that it can be improved from the point of view of assets and the type of portfolios. But of course, roboadvisors are the future of investment, because they make it more efficient and affordable.
For a person with a lot of financial knowledge and some time, you don’t need a roboadvisor. But for a person without time and without sufficient knowledge it can be a good option. You will pay more commissions, but in the worst case the behavior of your investments will not be too different from what you would have achieved on your own. Especially when it comes to small amounts.
It can also be a good option for a small part of the savings. There are investors with very advanced knowledge who invest a small part in roboadvisor to diversify and not waste free time managing that part of the portfolio.
In conclusion, they are a good option, it depends for whom, depending on the knowledge and time available.
Compare, compare and compare again
In any contracting or purchasing process, it is always vital to compare. Compare to not pay more for the same, compare to avoid scams, compare to get the best customer service, the best service, the highest security, the lowest commissions and the highest returns.
And what am I supposed to compare?
- Security and regulation.
- Commissions and associated costs.
- Customer Support.
- Cost effectiveness.
- Types of assets you invest in.
- Tax treatment (it is not the same to invest in ETFsthan in mutual funds).
- Application, platform and speed of transactions.
- Automation of contributions.
Yes, it is a lot to ask, but by comparing we will not only be ensuring the best option for us, but we will learn a lot along the way.
Don’t be afraid to call customer support, ask all you want and put them to the test. It’s your money, you don’t deserve less. Don’t be ashamed, if they want a client, fight it. Nor is it about being annoying, they have work and it is not a matter of wasting time for companies, but do not skimp on that balance.
