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What is a Robo-Advisor and How Does it Work?

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Robo-advisor uses computer algorithms to manage investments.

robo investing

Robo-advisors have become increasingly popular in the world of investing, and for good reason. They offer investors access to professional money management at a fraction of the cost of traditional financial advisors. But what exactly is a robo-advisor and how does it work? In this article, we’ll take a closer look at this relatively new technology and how it can help you manage your investments.

The term robo-advisor sounds really high-tech, but it's actually much simpler than you might think. A robo-advisor is a financial advisor that uses computer algorithms to create and manage investment portfolios. Designed as a way to bring professional money management to the masses, robo-advisors are accessible online, are often fee-based, and require a minimal amount of input from the user.

Robo-advisors typically use modern portfolio theory (MPT) to create diversified portfolios that seek to maximize returns while minimizing risk. The idea is to diversify investments across different asset classes such as stocks, bonds, and ETFs, while also taking into account your individual risk profile.

Robo-advisors use computer algorithms and data to select investments that best meet your goals and objectives. This means that the portfolio will be tailored to your individual needs, such as age, income, risk tolerance, and investment goals. The software also keeps track of your investments and automatically rebalances your portfolio as needed.

Operator of fake robo advisor admits fraud. Scheme promised high returns from automated crypto, forex trading. By: James Langton; February 10, 2021

Robo-advisors are becoming increasingly popular because they provide investors with access to professional money management at a fraction of the cost of traditional financial advisors. Many financial advisors utilize passive investing as their main investment strategy. For those that have less money to invest, robo-advisors offer a low-cost solution for creating a diversified portfolio. Thanks to fierce competition among robo advisor firms, even beginning and small investors can now get top-notch portfolio advice and services for a fraction of the cost.

Robo-advisors typically charge clients about a fee equal to 0.25% of their invest assets. That's far cheaper than traditional full-service advisors who often charge 1% or more of the amount being managed. This makes robo-advisors a great option for those investors who want professional money management without having to pay a hefty fee.

Using computer algorithms and data, robo-advisors are essentially software platforms that invest on your behalf, automatically rebalancing your portfolio as needed. This makes it easy to stay on top of the markets and make sure your investments are always in line with your goals and risk tolerance.

Robo-advisors can be a great way to get started investing. They provide an easy, low-cost way to access professional money management, and can be especially useful for those investors who don't want to spend a lot of time managing their own portfolios. Before you sign up for a robo-advisor, make sure to do your research and find one that meets your needs.


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