Robo Advisors: Quintessential Contest Between Advice & Wisdom
While watching a Sci-Fi film, Richie exclaimed, “Grandpa, How come we call TV an ‘Idiot box’ but not computers?’
Because computers can think and give you advice, but television cannot. John replies with a smile on his face. Richie was surprised. “Advice? How can a non-living thing advise us?” Computers are built on different principles and measures, due to which they can function for our benefit. They can think when they are programmed to think.
Well, Grandpa was not wrong at all. Computers were created to make human lives easier, and when we program them as we need, they can give us advice on the most important matters of our life, like Wealth. There was a time when financial advice was only meant for super-rich people. But when the 2008 economic crisis struck the world, people became conscious of their money. They now needed financial advice for investment and portfolio management to save it from future recessions. That’s when Robo Advisors came to the rescue, to provide professional guidance to people who want to manage their finances.
The primary purpose of a Robo advisor is to make investment easy for you. It asks you a few questions and based on that, it decides where you should invest and how much risk you can take. They are divided into three parts: a)Technical competency, where you are asked different sets of questions by simplistic and comprehensive advisors based on your spending habits, investment plans, etc. b)Revenue stream, where robos earn income through commission or advisory fee, and c)Scope where you can get advice on different financial assets.
Robo advisers have been affordable and easy to use for people without a wait for appointments from big companies for their investment and portfolio management. However, they are just cracking the surface when it comes to advice. They depend on the person who is coding it, and he may or may not be experienced in financial advice. Robos still need minimal human interaction. They will read your spending patterns, study your net worth, and then decide on an investment that may be good for your retirement plans and other savings. Based on your answers in the quiz, it creates a pattern and then guides you.
People wonder about “do robo advisors beat the market?” And the answer lies in a survey of the past five years. The top five robots in the group of 10 had average yearly returns of 13.4% and a 74% average allocation to large-cap equities. The bottom five robos had an average large-cap stock allocation of 63% and an average yearly return of 11.7%. Over five years, the 1.7% performance differential would increase profits by hundreds of dollars.
Even though Robo advisors are working well in providing robo investor returns, they still need supervision because if they don’t, everyone would have trusted a machine with their money.
We have had many science fiction stories where robots overpower humans. It will take a long time to be a reality. And even if it happens most people won’t rely on AI with their money. They would trust a human brain for that because it has the real-time experience, but a machine doesn’t have that. But what if we could invest somewhere that can utilize the machine’s analysis in the decision-making process?
Secvolt, a quant hedge fund is designed considering market risks and values. It works on four levels wherein the proprietary system analyzes sentiment and fundamentals on the news and Twitter and sees the trajectory of assets. After that, they analyze the chart and historical patterns of the investment opportunities along with the past market movement. After a thorough analysis, they get a confidence score based on which they invest the money as per the high win rate and Risk vs. Reward ratios. The track record of Secvolt investments has been commendable. They have provided returns of over 220% and are still going on.
The management has mentioned multiple times that their primary focus is risk aversion. And they take it very strictly. They have risk management systems that help us prevent the market’s downside. The recessionary pressure and bear markets don’t bother them. With the human abilities of risk calculation with effective use of the quant system, Secvolt can be Bullish whenever it wants. It is a perfect combination of the Human Mind & AI, that creates a successful trade.
Mankind is obsessed with creating the world entirely Automatic. We sure can sit on the swings of our porches and leave all the trading to the Robo advisors. But in the end, we know it can’t handle the market’s swings as we do. We build machines, and they will function exactly as we have programmed them. So totally depending on them would be like entrusting your money to a computer created by a non-trader.
This Recession and fear of a long winter have scared the investors, who don’t want to take any risks. They can’t rely on robots or machines for financial advice now. It’s not about financial advisor vs robo advisor anymore. It’s about the protection of their assets in this strange market. They are looking for an opportunity to turn a bearish market into a bullish one for them, And they got one!
The team at Secvolt understands the struggles of HNIs when they say, “I want to build a Legacy for my family. They won’t struggle as I did. They should get their Generational Wealth.”