How robo advisers are growing in popularity as a cheap way to invest money
Robo advice is booming in popularity allowing investors to tip their cash in and pay low fees, but is it OK to allow a robot to do the investing for you?
Robo advice is booming as investors looking for decent returns on their funds turn to this low-cost option.
It’s one of the fastest-growing areas of wealth management in the world, allowing people to invest without engaging a human being.
Financial algorithms are used to decide which way is best to invest a person’s money, after a robo adviser assesses their risk appetite.
Often money is invested in exchange-traded funds - a low-cost investment that tracks an asset or market index.
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Automated investment advice platform Six Park’s director of business development, Ted Richards, said it was a much cheaper alternative to engaging a human adviser.
“Australians should consider robo-advice as it provides investors with their own internationally diversified portfolio overseen by experienced investment managers, but with fees at a fraction of the price usually associated with financial advisers,” he said.
“It’s the main reason why robo-advice is so popular in the US and around the world now.”
While investors can dabble in shares starting with as little as $500, robo advisers often require a bigger chunk of funds, starting at around $5000.
Some of the nation’s most popular robo advisers include Six Park, Stockspot, InvestSMART, Raiz and Cashwerkz.
Naomi Owen, 36, who works in human resources, started investing this year with a robo adviser because she wanted to have a pot of savings growing outside of her superannuation.
“I wanted multi streams of income and I thought shares would be a good way to go,” she said. “I didn’t want to go to a large bank and invest my money, I have a trust issue with the banks after the Royal Commission.”
She started with about $20,000 in savings to get started and after receiving a redundancy payout she also tipped this money into a robo adviser.
Ms Owen also wanted to remove the need for her to pick individual stocks, something she said was a difficult ask.
Robo advisers’ fees can start from about $50 per year for a $10,000 investment.
The Australian Securities and Investments Commission’s MoneySmart senior executive leader, Laura Higgins, said investors needed to understand if using a robo adviser suited their individual needs.
“Do some homework ahead of time, understand the limitations of the advice you are seeking and be aware of the risks,” she said.
“Don’t set and forget. Depending on your current circumstances and your life stage, different types of advice might be appropriate at different times of your life.”
Originally published as How robo advisers are growing in popularity as a cheap way to invest money