Automated Investing 101
You want a glimpse of what the future of investing looks like? You got it. Digital platforms that offer automated financial planning driven by algorithms are called automated investing platforms. That means that little or no direct human effort is needed.
What is Automated Investing?
Automated investing is when computer algorithms generate investment advice or tailored financial planning to individuals.
Automated investing, also known as robo investing (or robo advisors) have some cool features:
- lower minimum investment amount than portfolio management companies
- relatively lower fees to pay
- digital interfaces to access investment portfolio and reports
- a more hands-off approach to investing, removing screen-time and manual effort
How Does Automated Investing Work?
1. An automated investing platform collects information from clients via a form or questionnaire.
2. Client’s data includes information about their current financial situation, risk appetite and immediate / long-term goals.
3. The automated investing platform then uses this data to recommend a set of investments via smart portfolios or systematic investments.
4. Additionally, the Automated investing platform may handle portfolio rebalancing in order to help the client not having to manually do this.
Globally, automated investing has fundamentally changed the financial planning game for retail investors. Like how the digital revolution has enabled monumental change in banking and financial services, automated investing has eliminated the need for middle man and is delivering a service directly to the client.
With zero screen time or manual efforts and their emotions at play. Call it revolutionary.
The automated investing industry is currently seeing enormous adoption in much mature markets like the US. Thanks to the ease of use, consumers are very receptive to the idea of automated-investing. BI Intelligence predicts that robo-advisors will be managing $4.6 trillion by 2022 in the US / Canada market alone. They also found that 49% of high-net-worth individuals (HNWIs) worldwide would consider letting an automated advisor manage at least some of their wealth. In India automated investing is still in early stages and is yet to take off in ways it can benefit a retail investor.
Automated investing has eliminated the need for middle man and is delivering a service directly to the client. Automatically.
Some of the technical aspects around automated investing. Modern Portfolio Theory (MPT) is what most automated advisors use to create and manage the asset allocation of a portfolio. The idea of MPT is to diversify in-order to decrease your risks. Like the good old saying goes - “do not put all your eggs in one basket.”
Of course, the automated investing phenomenon is relatively new globally and is yet to fully take off in India. Over the last decade, it has seen some adoption and growth and hence there is very little track record to report on how this industry is taking off. There is however no denying about the amazing benefits an automated advisor has over traditional active investing or trading.
The Benefits of Automated Investing
Let us look at some of the clear benefits of an automated investing offering.
Zero manual effort on doing research, zero screen-time in front of trading terminals, and zero human emotions at play
Low Cost Process
If you start pricing traditional financial advisors, you’ll quickly find out what we mean. The reason the cost of automated advising is lower: less human labor. Human advisors require salaries and benefits. With automated investing, a proprietary computer algorithm takes time and money to be developed but can be replicated. Automated investing fees can be a small flat fee per year or a percentage of the assets under management. Typical fees range between about ₹4,000 and ₹20,000 annually. So if an investor puts in ₹1,00,000 into an automated investing service, they generally pay between ₹4,000 and ₹6,000 per year based on performance. Some automated investing services even have no management fee. The minimum balance by the client could dictate the fee rate. In comparison, a reasonable rate for a human financial advisor would be a fee of >10% of investment amount. This would include any fees on the investments a client makes. Some automated investing services may have a set-up fee as well however. Those using automated investing should also study the tax implications.
Efficient & Convenient Access
With traditional financial advisors, clients had limited access and had to work around the human advisor’s schedule. So one would need to find out the free date and time slot available for the advisor who is serving multiple investors. Automated-advisors use digital platforms for support which doe not require scheduling time slots. This allows for clients to ask questions and access help 24 hours, seven days a week if needed. If the client needs to make a trade or a change, withdraw some funds or make a deposit? No need to call to schedule an appointment, fill out physical paper, or meet with an advisor in person, or wait for office hours. Click a a few buttons would be enough. Lower fees and minimum balances have attracted millennials to the automated investing industry globally. But the digital and mobile platforms offered by many of these services have also made younger users turn to such robo-advising services more.
More Affordable Initial Investment
TRDR, for example, allows investors to start an account with as little as ₹5000. In India, Portfolio Management Services (PMS) through human financial advisors can’t take on a client unless they have more than ₹50,00,000. As per SEBI, this is the minimum amount that may be further invested (top-up) by such clients on or after January 21, 2020.
Clients of Portfolio Managers on-boarded before January 21, 2020 shall, in case of any top-up, comply with the requirement of new minimum investment amount and top up their accounts to minimum INR 50 Lacs. - SEBI
At the high end, private wealth managers handling Ultra High Net-worth Individuals (UHNIs) could require minimums of ₹6,00,00,000. On the contrary, automated-advisor services like TRDR Invest (Smart Portfolio) can easily work with investors with less than ₹50,000. Because of the lower initial investment required, younger consumers have turned to automated investing as a way to plan for their financial future. Previously, high minimum balances had been gates to individuals in the millennial generation getting financial advice. Now as millennials start hitting life milestones like getting married and saving towards a house, automated investing may be a good option for them to start saving.
TRDR Invest Automated Advisors
Here’s how it works:
You can signup for the free TRDR account here: https://signup.trdr.in/
However, before you get started, if you want to discuss about how TRDR works, you can connect with a TRDR Invest advisor (who is an actual human being). email: email@example.com or WhatsApp: +91 93410 60007
They will help you to map out a plan, and show you how to stick with it. We know that risk is stressful on you and your hard-earned money. Based on your risk appetite and initial investment amount, we will try so we try to figure out way to get started.
We reduce some of the risk of your portfolio by investing in a diverse set of stocks either through one of the 2 approaches:
the TRDR Smart Portfolio approach (Min investment = ₹50,000) or,
the TRDR SEIP approach (Min investment = ₹5,000 per month)
Read more about what the TRDR Platform is and how it will help you invest.
TRDR Smart Portfolio
With the TRDR Smart Portfolio, your total investment amount is split to be allocated for both: a) Short-term trades and b) Intraday trades
Here 70% of your investment amount is allocated for short-term trades and the remaining 30% for intraday trades.
Only the BSE top 100 stocks are part of your portfolio.
TRDR Systematic Equity Investment Plan (SEIP)
With the TRDR SEIP, your invest regularly a small amount per month for a few years and grow your wealth. Compounding is awesome!
Start with as low as ₹5000 per month and let our automated robo-investing platform build your wealth. TRDR software will automatically pick the right stocks (Top 10-20 stocks) and builds up your classic portfolio few stocks at a time, every month.
Read more about what TRDR is.
Ready to get started? Opening an account with TRDR is fast and easy. And it’s a great way to help put your money to work.