X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
5 Ways A Good Robo-adviser Can Help You In Financial Planning... - Outside View by PersonalFN
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

5 Ways A Good Robo-adviser Can Help You In Financial Planning...
May 11, 2017

With the advancement of technology, your shopping destination has moved from brick and mortar stores to online marketplaces. In the US, retailers are shutting their physical stores with the rise in online shoppers. Just a couple of days ago, global retailer Bebe Stores said it would close all its 175 shops and may move to an online-only model. Many others are following suit.

Similarly, in the financial world too, your mode to invest is shifting from signing and submitting paper forms to simply entering a transaction password. With a push from the market regulator, distributors are now playing the role of investment advisors.

Presently, we have computer algorithms (also known as robo-advisers) that offer personal financial and investment advice on submitting your personal finance details. And there's no need to fix an appointment, you just need to log in to your account, submit your info and voila!-your financial plan is generated in an instant.

With a 24x7-service window, robo-advisers are the future of financial planning and investments in a time-strapped world.

Haven't heard of robo-advisory platforms before? You're not alone. According to a survey by Gallup, in the US (where there are more robo-advisers than in India), less than 50% of investors were familiar with this service. Just about 5% are highly familiar or have already used this service. So clearly, there is still a long way to go before these platforms gain recognition.

Also read: Will Robo-Advisers Spell Doom for Traditional Financial Planners?

The Gallup poll defines robo-advisers as "digital advisory services that use computer algorithms to select stocks and other investments for people based on the information people provide about their risk tolerance and goals".

However, online advisors come in a variety of options. Some may offer you complete automation-that includes creating your financial plan and completing the transactions. Others may just offer transaction services with the financial advice given offline. With the plethora of automated financial planning services available, you need to choose wisely. Along with the services provided, you need to check if these robo-advisory platforms are putting your interest before theirs.

Here's five ways a good robo-adviser can ensure your financial well-being:

  1. Understand your financial goals

    The key to any financial plan is to set and prioritise your financial goals. If you're in a situation where investments are made randomly without being goal-centric, first align your current investments towards your financial goals. A good robo-adviser will help you do just that.

    Retirement, savings for a house or property, child's educations, etc. are important financial goals. With a good robo-adviser, you can set up multiple financial goals with just a few clicks. All you need to do is enter the details and the robo-adviser will generate a plan suggesting the monthly commitment needed to achieve your goals.
  2. Select the right asset allocation

    Calculating how much to save every month is just the first step. A good robo-adviser understands the need of an efficient asset allocation. The asset allocation is defined based on your risk-profile and investment horizon. Therefore, if you are investing for the long-term or if you are a high-risk profile investor, the plan will include a higher allocation to equity. Conversely, if you are a low-risk profile investor, you will be asked to invest a higher amount in debt. This will ensure that the risk is managed efficiently, without compromising on returns.
  3. Select the right products

    There are myriad financial products available. Most robo-advisers will suggest investing in mutual funds as these are the most convenient form of investing and you can allocate among different asset classes. However, under mutual funds, there are hundreds of plans available under the different categories. A good robo-adviser will help you separate the wheat from the chaff. In other words, the robo-adviser will select mutual funds that are back by sound research. Performance will not be the only criteria. There will be different qualitative and quantitative parameters that will be looked at before arriving at the top schemes.
  4. Creates a habit of investing systematically and regularly

    To create wealth in the long-term, investing regularly with discipline and determination is the key. Saving and regular investing can enable you to meet all your financial goals in life in a comfortable manner. With a robo-adviser that provides good service, you can just set and forget. Your robo-adviser will do the rest.

    Once you have created your investment plan, your robo-adviser will keep it on track. If investing on your own, market noise may sway your investment decisions. If you buy because the market has gone up, or sell because it has gone down, you may ruin your financial plan. A robo-adviser will be devoid of these human biases.
  5. Low on costs

    When planning for their finances or investing, you may tend to ignore costs. Especially, when costs are mentioned in percentage terms, it may seem small and insignificant. However, with the power of compounding, these expenses may eat up a substantial amount of your wealth. Thanks to technology, robo-advisers are able to lower their costs; hence, they are relatively cheaper than traditional financial planners.

    A good robo-adviser will be low on costs and offer you mutual fund direct plans as an investment option. Over time, this will help you save lakhs of rupees.

Read here: Why a robo-advisory platform should offer you direct plans?

To conclude...

If you are always strapped for time and your financial planning bears the brunt, then a robo-adviser can offer you a world of convenience. From KYC (Know Your Customer) compliance to transactions, everything is virtually paperless. This convenience does come at a cost, hence opt for a specialised robo-advisory service that will ensure your financial well-being and proves to be worth more than the costs.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "5 Ways A Good Robo-adviser Can Help You In Financial Planning...". Click here!

  

More Views on News

What They Forgot to Tell You About Sensex at One Lakh (Smart Contrarian)

Nov 29, 2017

Stocks that could beat Sensex returns in the long term.

How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

Jun 10, 2017

Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

The Technological Marvel That is Ethereum (Outside View)

Feb 23, 2018

Have you been wondering what the hoopla about Ethereum is? It commands the second highest value among virtual currencies and its popularity is rivalled only by bitcoin. Let's break it down.

A New Quest for the Stock Market's MOST Profitable Ideas... (Smart Contrarian)

Feb 23, 2018

If you want to receive the best ideas in the Indian stick markets...you need to heed this important announcement.

Ramesh Damani is Bullish on Niche IT Stocks and I've Found One for You (The 5 Minute Wrapup)

Feb 23, 2018

This IT Company can be a huge wealth Creator for Smart Money Secret's Subscribers.

More Views on News

Most Popular

The Foundation for Sensex 100,000 is Laid(The 5 Minute Wrapup)

Feb 17, 2018

Top three reasons for Tanushree's presentation at Equitymaster Conference to be centered around a possible 30% correction.

India's Rs 1,66,276 Crore Problem(Vivek Kaul's Diary)

Feb 15, 2018

That's the loss, the government owned public sector enterprises are expected to make this year.

The Big Gamble(The Honest Truth)

Feb 15, 2018

Once you accept the fact that elections are round the corner and that this budget is geared to reach a 40% target, everything makes sense.

How I Beat the Index by 2x... And Why I Believe This Could Happen Again(Smart Contrarian)

Feb 12, 2018

Will Microcap Millionaires be able to replicate its past performance of beating the index by 2x?

NPAs Set to Rise Further with New RBI Rules(Chart Of The Day)

Feb 15, 2018

The RBI overhauls bad loan framework. Banks may come under additional pressure due to rising NPAs and increased provisioning.

More

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Feb 23, 2018 (Close)

MARKET STATS