Wednesday, December 13, 2017

Calculated Thought: Robots make investing simpler

March 15, 2017 by Sean Annable, contributing writer

In case you read some of my info in past columns on how to get started in investing and want an even simpler approach, you may be happy to know that technology has come to the rescue with robo-advisors.

First off, you’re not alone if you cringe when you think of banks. The Millennial Disruption Index, a site dedicated to measuring industries that will be most affected by our generation, says that banking is at the “highest risk of disruption.”

Calculated Thought is a column dealing with student finances that is featured in every issue of Nexus.

It’s an American study, but their data show that millennials aren’t stoked on banking: about half of millennials think that tech companies will change the way banking works; over 70 percent would be more excited about Amazon or Google offering new financial services than their bank; a third think we soon won’t need banks at all. A lot of anti-bank sentiment arose from the great financial crisis, leaving millennials thinking banks are heartless life-destroyers.

The Bank of Montreal has noticed millennial disinterest in banking. The bank is advertising heavily in partnership with Vice Media, with numerous sponsored-content articles about finance. One of their goals is to get millennials into investing with their robo-advisory service, Smart Portfolio.

They’re not the only ones. WealthSimple is a Canadian tech company offering robo-advisory that started up just two years ago and is already moving into US markets.
For the unfamiliar, a robo-advisor is simply an automated investment management system. Rather than help pay the lease for some Porsche-driving financial advisor, you can let these apps do the work. Using algorithms, they can allocate your investments based on a risk profile and your goals.

For example, for a risk-averse investor who would retch at the news that they’re down 10 percent, the system would likely recommend a portfolio with heavy exposure in low-risk bonds. A lot of the complicated work of choosing how to diversify your investments is done automatically.

BMO’s cyborgian investment account will cost $60 a year for the minimum $5,000 balance. At 1.2 percent, it’s about the same as what a fee-based human advisor would charge annually on your account balance, but they tend to favour high-net-worth clients and probably aren’t interested in accounts that small.

It looks like banks are trying to win millennials over with their new robot friends by appealing to our love of tech solutions. The bankers sure have brains; now, if banks only had a heart…

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