What Is Robo Investing?

If you’re looking for the best robot stocks to invest in, then you might want to look at our blog article on just that here . Between new ph

Aug. 5, 2021

If you’re looking for the best robot stocks to invest in, then you might want to look at our blog article on just that here

Between new phrases such as ‘diamond hands‘ or ‘meme stocks‘ and technical jargon like ‘short-squeeze‘, it is becoming increasingly difficult for investors to keep up with the industry lingo. 

And now, there’s another peculiar phrase doing the rounds on Reddit and fintwit: 

Robo investing. 

But what exactly is robo investing? 

A definition of robo investing

Here’s the short definition of ‘robo investing’ a la Investopedia: 

“Robo-advisors (roboadvisors, robo-advisers, robo investors) are digital platforms that provide automated, algorithm-driven investment services with little to no human supervision.”

And now for the slightly longer version:

Like some dystopian sci-fi novel from the ’80s, the robots are looking to take over. But this time, they’re not after Sarah and John Connor, but rather your portfolio. Robo investing involves using these robot advisors to pick and plan your financial decisions based on data-driven algorithms and past performances or events. 

Usually, they focus on passive index investing as this is the most consistent form of investing over the past century, with the S&P 500 (NYSEARCA: VOO) averaging gains of roughly 10% annually over the past half-century. 

Essentially, it is an inexpensive way of just putting your money in the hands of a robot and letting them passively invest for you. 

When should I use robo investing?

Robo investing is really only suited for very straightforward, passive investing strategies such as index and ETF positions with regular installments. They are not suitable for widely diversified portfolios in emerging markets and industries, where there is not such an extensive history of data to draw from.

In 2020, the largest robo-advisor in terms of assets was Vanguard Personal Advisor Service, with $161 billion in assets under management

The downside of robo investing

As mentioned above, there is not enough historical data to draw from to enact a diverse strategy that might involve multiple asset classes such as stocks, property, and crypto. It is also not a prophetic solution, as many would believe. Robo advisors use past data to form algorithms, but past performance is no indicator of future growth in any asset class. 

As well a that, robo investing lacks the ability to bring empathy or sophistication into an investment thesis, meaning that it will not follow basically any of MyWallSt’s 6 Golden Rules

You don’t need a robot to become an investor anyway; all you need is yourself and just a little help. Luckily, MyWallSt’s got you covered for the latter. With our shortlist of market-beating stocks, you too can accumulate long-term wealth. Simply click here for free access today.

MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here