A machine that takes care of your finances? Sounds futuristic. However, this is possible with a robo-advisor. For whom this form of investing makes sense and why, read here.
Robots have long fascinated people: in many Hollywood films, mankind either fights against them – or together with them against monsters and hideous creatures. We encounter them again and again in reality, far from science fiction:
In industry, for example, robots help to screw cars together, at home they help with house cleaning as self-propelled vacuum cleaners – and they are now also used for elderly care. What many do not know: robots also have a knack for money, they can help investors to invest.
Admittedly, film-like robots that are 20 meters high or even consist of cars are not these so-called robo-advisors. Rather, they are digital, personal investment advisors. In this overview you can find out for whom robo-advisors are suitable, what they cost and what pitfalls they have.
What is a robo-advisor?
A robo-advisor is a type of digital investment advisor that works for you individually. The name is a suitcase word and is composed of “robot” and “advisor”, English for consultants. That means: A robo-advisor invests money for you – in stocks, funds, ETFs or commodities.
But how exactly does a robo-advisor work?
In order for a robo-advisor to know which investment products to invest your money in, you first have to answer several questions.
Possible questions are:
- Do you value personal advice?
- How long do you want to invest?
- What is the maximum amount you could lose?
- Would you consider yourself willing to take risks?
- Are returns more important to you than high risk?
- Do you want to regularly invest a small sum or once a larger sum?
If the robot knows your answers, it calculates a portfolio for you, i.e. an overview of the investment products in which it invests your money. Raw materials like gold, shares or Real estate be.
What are passive or active robo-advisors?
Robo-advisors can basically be divided into two categories: those with active and passive management of your money:
- active: This robo-advisor regularly adjusts the portfolio on its own in order to take advantage of possible price gains. However, this usually makes active robots more expensive, less transparent and more risk-prone. Because it often deviates from your originally calculated portfolio. It is also questionable whether this rearrangement of the portfolio will actually bring you more income, called returns.
- passive: A passive robo also rearranges the investment objects in your portfolio, but only if the focus has changed significantly. This can be, for example, if a certain investment object, for example, shares fall or rise sharply in price. In this case, the passive robo-advisor, by buying or selling shares, ensures that the mix of your portfolio that you originally defined is retained. Balancing these fluctuations is also called “rebalancing”.
Which providers are there?
The selection of Robo-Advisorn is large and it is growing steadily. Scalable Personal-Financial.com is the market leader in Germany, which alone manages more than two billion euros. Other well-known robo-advisors are Quirion, Fintego, Growney or Whitebox. Other providers include Fidelity, Liqid and Solidvest.
How much do robo-advisors cost?
Anyone who receives advice from a robo-advisor when it comes to investing is cheaper than advice from a bank or a traditional wealth manager. But the machine is also free Investment advice Not. With a robo-advisor, you should therefore pay attention to different costs. The main ones are the following:
Advisor fees: These fees are the biggest cost item – and one that you could save (see below). Because for the Robo to take care of your investment, it charges an extra charge. If you still choose a robo-advisor, you have to pay for its services. As a rule, the advisory fee is based on the amount of your investment. Sometimes these fees can amount to more than one percent of the total investment – and can significantly reduce your long-term returns.
Deposit costs: As with a conventional investment, you will have to pay for a securities account that you can think of as a kind of bank account. The robo-advisor often does this for you. The depots often cost little or nothing.
Administration fees: These are the costs that a fund company charges for offering a fund. These costs are often summarized in the total expense ratio (“TER” for short). In contrast to active funds, ETFs cost a lot less money. No manager has to be paid to choose which products to buy or sell.
Who are robo-advisors for?
Robo-advisors are particularly suitable for people who have already dealt with the topic of investment but are not yet firm on all issues – or don’t have the leisureto deal regularly with securities.
Basically, a robo-advisor is cheaper than a branch bank’s investment advisor. This often requires a high one commission, or provides you with an actively managed investment fund, which is often far more expensive than an investment in passive index funds (ETFs), on which many robo-advisors rely.
Nevertheless, a robo-advisor also costs money. In some cases, Robos demand more than one percent of your investment sum. Therefore, it is recommended that you take care of your investment yourself – or with the help of family or friends. Because this way you can save yourself these costs – and prefer to spend the saved money on something else.
In a nutshell: Robo-advisors are suitable for you if you are still unsure about investing – but still do not have to start from scratch, i.e. need comprehensive, but very expensive, banking advice. Because only in this case can you also evaluate the portfolio proposed by Robo. You can also find all the information you need to know about investing at t-online.de.
How do I compare Robo-Advisor with each other?
If you have decided to invest your money using a robo-advisor, you should definitely compare several providers. Different criteria are important. An overview:
- Costs: The most important point. Pay close attention to fees – and possible hidden costs. If you have the impression that the website of a robo-advisor does not transparently list all fees for you, you should stay away from it. Some providers also lure with promotions, but these are often only valid for a short period of time. After that, the fees are significantly higher than before.
- Selection: Pay attention to how many possible investment strategies the robo-advisor will suggest based on your answers. The rule is: the larger the selection, the better. This way you get more options to choose the investment model that really suits your risk appetite.
- Minimum investment / savings rate: It’s also important to know how much money you can spend at least once – or how much you need to invest each month using a savings plan. The amount of the one-time investment required varies greatly: While providers such as Quirion only charge a starting amount of at least 1,000 euros, you have to invest 10,000 euros in one go at Scalable in order to be able to use the Robo’s services (see below).
- Administration: The question here is whether an advisor manages your money actively or passively. Active advisors rearrange the amount invested more often, but are therefore less transparent and usually more expensive than passive robos. (see above).
What are the risks for a robo-advisor?
Niels Nauhauser, financial expert at the Baden-Württemberg consumer advice center, is critical of digital wealth management: “A technology that does not require personal communication is easily portrayed as neutral, objective and free of interest.” But they are far from that: because robo-advisors always aim to sell you certain investment products.
In addition, robots are not omniscient – and can only make predictions about the future market situation. So you shouldn’t blindly rely on them.
The question of liability is also a crucial one: Although the money that you invest through a robo-advisor, up to an amount of € 100,000 for singles and € 200,000 for life partners is not endangered as part of the state deposit insurance scheme. If the bank with which the Robo works goes bankrupt, you have nothing to fear.
But whether you Right to compensation If a robo-advisor does not invest your money in the agreed manner or if you experience unexpected price losses, it is still legally controversial. Some advisors explicitly exclude such liability. You should therefore read the fine print carefully and answer the initial questions for your portfolio truthfully.