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Robo-investing or DIY stocks & shares management?

Category: Investments
Author: Nigel Woollsey
Updated: 01/03/2019

If movies have taught us anything, it's that handing over total control of anything to a computer is normally a really bad idea. So investors could be forgiven for being slightly wary of the continued rise of the robo-adviser apps. Are they the answer to easy, profitable management of your stocks and shares portfolio or simply a short route to your mobile going all Skynet or Hal 9000 on you?

We'll look at the benefits and drawbacks of robo-investing vs DIY fund selection to see which is right for you.

At a glance

  • Robo-advisers are automated apps which provide financial advice and/or online financial management of your stocks and shares portfolio
  • They offer a reasonable, cost-effective way to manage a starter or more modest portfolio
  • Usually cheaper than professional financial adviser fees but more expensive than DIY investing.
  • Sometimes they are a little limited in the advice they offer as well as their range of investment choices

To those with little to no experience Do-It Yourself investing might seem to be an activity best left to the well-heeled, financial types seen in films such as Wall Street. In fact, investing for yourself via shares or investment funds - without the aid of a financial adviser or share broker – is becoming increasingly popular.

Many people now run their own portfolios online using widely available software packages. The great advantage of this is that people can start investing with very small amounts of money - a distinct advantage over using financial advisers who command premium fees from their clients for their expertise and knowledge. This makes them an excellent resource if you are dealing with moderate to large sums but rather too pricey if your investments are small or you just want to 'dip a toe' in the water.

However, for people who are looking for a way to start trading without such a steep learning curve or a huge outlay there is another option: Robo-investing using an automated advisory tool.

Pros and cons of robo-advisers vs. DIY shares management


Pros

Cons

Robo-advisers


  • Low funds needed to start trading
  • Less expensive than a financial adviser
  • Easy for investment novices
  • Time saving compared to self-management
  • Eliminates 'emotional' investment decisions
  • Costlier than DIY fund selection
  • Can be a little inflexible in its investment choices
  • Cannot offer detailed financial advice

DIY fund selection
  • Requires experience and knowledge of investing
  • Less suitable for novices
  • Time intensive


What are robo-advisers?

Simply put, robo-advisers (sometimes also referred to as robo-investing software here in the UK) are a group of online packages and apps which aim to help you manage your investments.

These programs can assist you in building a portfolio based on certain criteria, usually in the form of some initial questions about how you want your portfolio to be run and your personal circumstances, particularly regarding your attitude to investment risk and the timescales over which you intend to invest. Based on your answers robo-adviser apps will automatically select and make changes to your investments in order to maximise the potential to achieve the best results according to their in-built algorithms, and the investments that the service has access to.

Although you may get a free 'trial' period when first purchased, Robo-investing software charges you a fee for their services, together with the expenses of the investments, such as fund management charges. The charges for robo-advisers can be based on a fixed monthly fee or as a percentage of the assets being managed.

Rise of the machines: What are the benefits of robo-advisers?

One of the great plus points of robo-investing apps is the fact that they are a great gateway for inexperienced people to explore the world of investment cheaply and easily.. Once it has assessed your needs through a series of questions, the online software or app will proceed to take over control of your portfolio, basing its decisions on pure logic and algorithms rather than the kind of flawed 'emotional decision-making' trap that novices often fall into (often with loss making consequences).

This has the benefit of spreading your investments across a range of disparate stocks and shares to maximise potential profits while adhering to your pre-selected choice of risk strategy.

An additional benefit of such a 'hands off' solution is that robo-advisers significantly reduce the amount time people spend managing their portfolios and agonising over investment decisions – a positive boon for the time poor or inexperienced investor.

Robo-investing software is also seen as cheaper alternative for those who people who are starting out, or whose portfolio is not large enough to justify the costs of using a financial adviser. This enables people who would not normally have access to professional share-dealing advice to start and grow from a very small investment.

"I'm sorry, Dave, I can't do that": Robo-investing drawbacks

Unlike Do-It-Yourself investment, robo- advisers can be a little limited in their flexibility. For some this greatly simplifies things and so be positive trait. However, for those with more knowledge and experience in portfolio management this inflexibility is a frustrating element.

Relatively speaking, robo-investment also has an overall higher cost than DIY fund selection. While not as high as the costs of utilising the services of a financial adviser the fees of a typical robo-adviser are still greater than the DIY option. While this might bother some there are those who might consider this a fair trade-off considering the ease of use and time-saving options that robo-advisers deliver.

Who can make the best use of a robo-investor app?

Overall, making use of robo-adviser software is a good idea for those who are just starting out in stocks and shares investment or who lack the time which DIY self-management can take up. Both groups will find that a robo-adviser is a useful tool which can save you both time and money in managing your investment portfolio. However, as with any investment it is crucial that the investor is aware that there is no guarantee that positive returns will be achieved. Whether you use a full advisory service, robo advice (or any similar software platform) or self-managing, investments can rise or fall in value.

To compare different stocks and shares ISAs, including direct purchase and those through a platform or similar robo-adviser then why not check out our Stocks and shares ISA page.



Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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