Unlocking Financial Success with Robo-Advisory and WealthTech

The Asia Pacific market for Robo advisory is expected to grow at a CAGR of 34.27 percent until 2032 according a report published by the Brainy Insights. The technology is being adapted by individuals and organizations in order to create personalized investment portfolios that are always aligned with the changing dynamics of the market and also helping them survive downturns by providing needed advisory.

“Using information you provide, the robo-advisor algorithm chooses a diversified array of assets, including ETFs, stocks, and mutual funds, and subsequently, autonomously readjusts the portfolio to sustain the target asset allocation,” says Rachit Mehta, head, Product Strategy, IIFL Securities.

There are many ways in which robo-advisors are transforming wealth management and automating portfolios. Let us now look into some of those aspects in detail.

Helping Determine Financial Goals and Risk Tolerance

By utilization of robo-advisors crucial information on one’s financial goals and risk tolerance can be determined. The risk tolerance aspect provides information about how comfortable one is with the changing dynamics of the stock market. On the other hand a record of financial goals could mean saving for a perfect holiday, planning to buy a house and other retirement plans. Only if correct information is fed into the system, a robo-advisor can create a financial as well as an investment portfolio for an individual.

To give an example of a robo-advisor that helps determines financial goals and risk tolerance is Wealthfront. It is one of the popular robo-advisor platforms that uses algorithms and automated processes to assess users' financial situations, goals, and risk tolerances.

Compare to decide the Right Robo-Advisor

In the highly competitive finance sector, all robo-advisors do not provide the same output. This is exactly why it is very important to make a comparison of all different platforms available over the internet and choose the right one that aligns with specific consumer requirements. In this regard good customer service, good track record and open to multiple investment options are some of the key areas that need to be considered. 

Wealthfront, Betterment, Vanguard Personal Advisor Services, Charles Schwab Intelligent Portfolios and SoFi Invest are some of the popular wealth management robo-advisory platforms available in the market. A consumer can choose the one the need by comparing the outcomes provided by these and picking the one that is best suited the requirements.

Regular Review and Rebalance of Portfolio

Constant collaboration with robo-advisors is required to maintain the correct portfolio according to the changing market conditions. It is true that robo-advisors are programmed to automatically rebalance portfolios but it is also important for an individual to monitor it daily. One’s financial goals may evolve with the changing market conditions and it is of utmost importance that a portfolio is perfectly aligned with financial objectives. There should always be a room for improvement which can only be implemented on regular monitoring.

Advantage of Tax-Loss Harvesting

Implementation of tax-loss harvesting strategies is one of the things that robo-advisors have an acute ability of. The idea here is to reduce to overall tax liability by selling investments that have gone through losses and adding that to the offset gains that have come from other investments. This process can be easily automated by means of robo-advisors which could ultimately result in tax saving. It is worth mentioning here that tax law dynamics are subject to change and it is always advisable that a professional is consulted for personalized advisory.   

An example of a robo-advisor that provides the advantage of tax-loss harvesting is Betterment. The platform offers tax-loss harvesting as part of its automated investment management service, aimed at minimizing taxes for its users.

Robo-advisors to the Rescue 

Considering the volatility of the market, it is important for individuals to stay calm in case of downturns in the market. This is exactly why robo-advisors are programmed to maintain correct asset allocations and implement automation is rebalancing of portfolios. This can prevent people from taking impulsive investment decisions due to panic because of short-term fluctuations in the market. Robo-advisor plans must be trusted in this case for an individual to stay committed to an investment plan.

One example of a robo-advisor that can assess market volatility and automatically rebalance portfolios is M1 Finance. The platform is a robo-advisor and investment platform that offers automated portfolio rebalancing features along with dynamic asset allocation based on market conditions.

Investment Diversification

Diversification is one of the key principles for investments. It is equally important when an individual is using a robo-advisor. Robo-advisors have the capability to offer a complete range of options for investment that include stocks, bonds, and ETFs. It is imperative to diversify investments across various asset classes, sectors, and geographies in order to spread risk and maximize returns. Individuals must avoid putting all eggs in a single basket and ensure that the portfolio is diversified for risk mitigation.

In this regard, a robo-advisor that provides investment diversification is Wealthsimple. It is a robo-advisor platform that offers diversified investment portfolios tailored to individual investors' risk tolerance and financial goals.

Robo-advisory is being increasingly used by individuals and corporations that are further resulting in the emergence of advanced innovations in wealthtech and creation of personalized investment plans. As we move ahead, it can be expected that more sophisticated robo-advisory solutions will emerge in the market.