Since the dawn of time, investing has been a way to both grow and preserve the capital that you have worked hard for. Without many self-service options available, investors would typically invest through some old school fund that would then choose what investments are appropriate. Usually, there are some common areas where people tend to invest. These include:
- Property investments
- Bank deposits (Remember when you used to get some yield for saving?!)
- Actively managed funds which are typically more prevalent for superfunds and sophisticated investors
- Term deposits
With the era of digitalisation, the old ways of investment are not as enticing due to a variety of reasons. When you decide to invest, it is necessary to decide whether you are going to adopt the conventional ways of investment or consider the modern ones. Deciding beforehand could save you a lot of disappointment because some investments are notorious for underperforming or accruing high amounts of fees which will erode your ability to produce sufficient returns for retirement.
We have discussed some of the traditional issues below with the financial sector and how Unhedged, an Aussie robo-investing platform, is looking to change it.
Trading is all the rage?
In recent times as the world recovers from the Coronavirus pandemic, many people have picked up a part time career in trading the markets. Whilst it is admirable that people have a new-found talent, the market has largely been buoyant due to a buffet of stimulus that has been injected by both governments and reserve banks alike. This unprecedented rise in company valuations may have given a false sense of security to traders who have yet to experience the volatility that markets often present.
Commissions and the rogue financier
Although changes have been recently implemented by the Australian Securities & Investment Commission (ASIC), there are still many professions such as financial advisors and fund managers that benefit from recommending products and services that you invest with. The reality of this means that the investor’s interests are only partially aligned with the person providing advice.
When you dive deep into the old ways of investment, there is a stark difference in the way that different genders will invest. With a higher proportion of men in the financial space, there is a bias of investing patterns and perception to invest. Investment options chosen by each gender differs dramatically and accessibility to different investment options have previously been quite limited.
Unless you are well versed in all types of investments, you may not be fully aware of the risks when investing in a certain product. As a result, you may be overexposed or underexposed dependent on your tolerance to risk and the number of years you have till retirement.
With the complexity of investment types, styles, and the need to constantly watch most types of investments, there must be a better way!
Welcome to the world of robo and algorithmic investing which is an alternative way to drive performance ensuring that you can avoid human biases and visualize performance.
Before diving into its benefits, let us discuss what robo investing is.
Whether you have been investing for a while or are totally new to it, you might have heard of robo investing. It is typically an automated way in which you can take advantage of index funds (funds that track an index such as the Australian Stock Exchange (ASX) or themes. Many types of robo investing take advantage of Modern Portfolio Theory which in essence is a portfolio strategy that aims to reduce risk and maximise return.
Below, we discuss some of the major benefits of robo investing compared to traditional investing.
Don’t care for human biases
It is no secret that humans have emotional attachment towards companies and ideas. This attachment may lead you to buying or selling an investment at the wrong time or cause broader issues in your portfolio. Automated investing such as what Unhedged leverages, uses algorithms that simply invest in companies that meet certain criteria and will only hold them until there is a well-defined reason to sell it.
As compared to conventional old ways of investing your money, robo investing predicts the “risk-factor” involved in the stock market. Even if you are experienced in the stock market, chances are you may suffer greater losses due to lack of awareness to a specific risk. Algorithms can better predict the risks earlier and take the appropriate actions before major losses are incurred.
Algorithmic investing for retail investors is a rather new development in Australia. Unhedged will be launching a new investment app from July/August 2021 which will allow you to both demo and invest small amounts of capital to better understand what it’s all about. Join our wait list!
Information in this article was prepared by Unhedged and does not constitute as financial advice. This article aims to merely be a way to commence your research and demonstrates some of the options in the financial space.