Downsides of Using Robo-advisors

Downsides of Using Robo-advisors

Robo- advisors have basically encouraged numerous people to get into stocks and investment. They act as your personal financial advisors that are made using an Algorithm. These are mostly available in the form of mobile applications and software. You can start using them by downloading the app, signing in, and answering a questionnaire regarding your investment goals and risk capacity. The main reason for their popularity is the fact that they are exceptionally easy to use. With numerous benefits along the way, it is also essential to look at the downside. In this article, let’s decode the mishappenings that the Robo- advisor can bring along-

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  • They just calculate using your answers:

Robo-advisers are algorithms; they just process your answers and calculate using the data. They might not pay attention to the actual reason that made you interested in your investment. In the long run, this can cause chaos. As they only run on data and do not study the market highs and lows. There is a possibility that you may not reach your financial goal in the time you calculated.

  • The diversification provided by Robo-advisors are not powerful enough:

As an investor, you might not want to put all your eggs in one basket. You might want to invest in real estate, keep money in hand and invest in stocks as well. This sometimes is not offered in Robo-advisors. They tend to give you limited options according to your questionnaire. Thus, splitting your resources into different types of investments is not very powerful in the case of Robo-advisors.

  • They may take rash discussions during turmoil without including you:

Once you select one of the portfolios suggested by the Robo- advisor using the questionnaire data, it makes all the investments on its own after that. This sometimes creates problems. You want to know what is happening with your money. But it becomes difficult to keep track of Robo- advisors.

  • Carelessness while filling the questionnaire might lead to unnecessary loss:

The complete investment plan that the Robo- advisors suggest to you, is based on the answers you give during the signing-in process. Any dishonesty in those questions can lead to loss. It is thus, very risky to go with Robo- advisors. Changing your investments and plans in between can also lead to loss of money as well as time.

Bottom Line

If you choose Robo-Advisors, Be careful while answering the questions, always track your investments and manage your risks smartly.

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