(Money Matters) Robo-Advisors-The new age of investing - Kasfia Rashid

Kasfia Rashid - “Money Matters with Kash the Bookkeeper”

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Introduction: 
Hello! Welcome to Money Matters, the accounting show with no numbers. 
This season we are discussing the future of money and with it how the accounting world is changing to meet the demands of future business owner.

A main component of generating wealth is creating passive income through investing. As an entrepreneur, you know you must take certain risks when investing in your business. It is key that you learn how to invest (in materials, renovations or salaries, just to name a few) to be more productive and competitive, to maximize your return and to grow your business in a sustainable way.

As your small business grows, you may soon find yourself in the beneficial position of making a profit! With employees paid, short-term debts repaid, taxes out the door, and inventory restocked, it may be time to start looking into business investment strategies that will help to grow your business’ net worth. While diving into financial investments can be daunting enough when it’s your personal funds, investing your business’ funds can be even more intimidating. Which is where Robo-Advisors can help! 

Robo-advisors are quickly becoming mainstream, which is good news for consumers who are looking for low-cost financial advice. The number of online advisors continues to swell, as does the range of services. Many now offer socially responsible investment portfolios, access to human financial advisors and comprehensive digital financial planning tools.

Bottom line: There’s now a low-cost advisor option for every type of investor. Check out this article to find one that works for you! : https://www.nerdwallet.com/best/investing/robo-advisors


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Show Objectives - The Why
The main advantage of robo-advisors is that they are low-cost alternatives to traditional advisors. By eliminating human labor, online platforms can offer the same services at a fraction of the cost. Most robo-advisors charge an annual flat fee of 0.2% to 0.5% of a client's total account balance. That compares with the typical rate of 1% to 2% charged by a human financial planner (and potentially more for commission-based accounts).

Robo-advisors are also more accessible. They are available 24/7 as long as the user has an Internet connection. Furthermore, it takes significantly less capital to get started, as the minimum assets required to register for an account are typically in the hundreds to thousands ($5,000 is a standard baseline). One of the most popular robo-advisors, Betterment, has no account minimum at all for its standard offering.5

In contrast, human advisors do not normally take on clients with less than $100,000 in investable assets, especially those who are established in the field. They prefer high-net-worth individuals who need a variety of wealth management services and can afford to pay for them.

Efficiency is another significant advantage these online platforms have. For instance, before robo-advisors, if a client wanted to execute a trade, they would have to call or physically meet a financial advisor, explain their needs, fill out the paperwork, and wait. Now, all of that can be done with the click of a few buttons in the comfort of one's home.

On the other hand, using a robo-advisor will limit the options that you can make as an individual investor. You cannot choose which mutual funds or ETFs you are invested in, and you cannot purchase individual stocks or bonds in your account. Still, picking stocks or trying to beat the market has been shown time and again to produce poor results, on average, and ordinary investors are often better off with an indexing strategy.


What You Need to Know - The What
What Is a Robo-Advisor?
Robo-advisors (also spelled robo-adviser or roboadvisor) are digital platforms that provide automated, algorithm-driven financial planning services with little to no human supervision. A typical robo-advisor collects information from clients about their financial situation and future goals through an online survey and then uses the data to offer advice and automatically invest client assets.


The best robo-advisors offer easy account setup, robust goal planning, account services, portfolio management, security features, attentive customer service, comprehensive education, and low fees. https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp

• Robo-advisors (roboadvisors, robo-advisers) are digital platforms that provide automated, algorithm-driven investment services with little to no human supervision.
• Robo-advisors most often automate and optimize passive indexing strategies that follow mean-variance optimization.
• Robo-advisors are often very inexpensive and require very low opening balances so that nearly everybody can benefit from a robo-advisor if they choose.
• Robo-advisors are best suited for straightforward investing and are not the best options for more complex issues, such as estate planning.
• Given the relative nascency of their technological capabilities and minimal human presence, robo-advisors have been criticized for lacking in empathy and sophistication.

 
Today, most robo-advisors put to use passive indexing strategies that are optimized using some variant of modern portfolio theory (MPT). Some robo-advisors offer optimized portfolios for socially responsible investing (SRI), Hallal investing, or tactical strategies that mimic hedge funds.
 
The advent of modern robo-advisors has completely changed that narrative by delivering the service straight to consumers. After a decade of development, robo-advisors are now capable of handling much more sophisticated tasks, such as tax-loss harvesting, investment selection, and retirement planning.

What You Need to Do​​ - The How

Hiring a Robo-Advisor
Opening a robo-advisor will often entail taking a short risk-profiling questionnaire and an evaluation of your financial situation, time horizon, and subjective investment goals. You will have the opportunity in many cases to link your bank account directly for quick and easy funding of your robo-advisory account.

The hallmark of automated advisory services is their ease of online access. But many digital platforms tend to attract and target certain demographics more than others. Namely, the younger cohort of millennial and Generation X investors who are technology-dependent and still accumulating their investable assets.

This population is much more comfortable sharing personal information online and entrusting technology with important tasks, such as wealth management. Indeed, much of the marketing efforts of robo-advisory firms employ social media channels to reach millennials.

Robo-advisors hold the same legal status as human advisors. They must register with the U.S. Securities and Exchange Commission (SEC) to conduct business, and are therefore subject to the same securities laws and regulations as traditional broker-dealers.

The official designation is "Registered Investment Advisor," or RIA for short. Most robo-advisors are members of the independent regulator Financial Industry Regulatory Authority (FINRA​) as well. Investors can use BrokerCheck to research robo-advisors the same way they would a human advisor.

Assets managed by robo-advisors are not insured by the Federal Deposit Insurance Corporation (FDIC), as they are securities held for investment purposes, not bank deposits. This does not necessarily mean clients are unprotected, however, as there are many other avenues by which broker-dealers can insure assets. For example, Wealthfront, one of the largest robo-advisors in the U.S., is insured by the Securities Investor Protection Corporation (SIPC​).6


Source Articles:
1.https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp 
2.https://www.caminofinancial.com/what-types-of-investments-can-you-make-as-a-small-business-owner/#:~:text=What%20Are%20the%20Most%20Common%20Types%20of%20Investments,Accounts.%20...%207%20Annuities.%20...%208%20Cryptocurrency.%20  
3.https://diamondcu.org/blog/small-business/investment-strategies-small-business/ 


Additional Resources 

1. Check out Kash’s Youtube Playlist: Bookkeeping basics for small business owners. 
2. Get this affordable guide to reconciling any account quickly and accurately! Click here: https://kashthebookkeeper.com/paid-resources/ and scroll down to Reconcile any business or personal account in 4 easy steps!! On Sale now! 
3. Want more KASH? Sign up for the free newsletter! 

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​Written by Kash the bookkeeper  
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